Rocket Attacks Finally Slam Into Israeli Business

Business was slow to react, but now the impact is being felt in all sectors, from tourism to farming.

AFP

One week of rocket attacks on Israel was enough to significantly affect several important sectors. Manufacturing, retail, advertising and tourism have all been hit hard. TheMarker correspondents summarize the state of affairs.

Hotels: Empty rooms

This year was supposed to break records for both incoming and outgoing tourism. But with every additional day of fighting, the situation seems increasingly irretrievable.

Travel agents and wholesalers, who do 40% of their annual business in July and August, reserved a large inventory of airplane seats and hotel rooms; tour guides were booked solid with groups and hotels were packed for the summer months. Today, it all looks very different. Travel agents are reporting drops of 30-60% in reservations. Hotels are coping with cancellations by Israelis who are putting off vacations out of solidarity or because they have been called up for reserve duty. Others have simply had their vacations canceled because they can’t take off from work during Operation Protective Edge. In the south, bed and breakfasts and tourist attractions and sites have been empty for three weeks.

Travel agents are now stuck with a large inventory of rooms and flights they may never be able to sell. (Rina Rozenberg)

Retail sales: 
Declines of up to 70%

Summer vacation is usually the big season for malls and other shopping centers, but since the start of Operation Protective Edge, mall operators are reporting double-digit percentage falls in sales, with southern Israel bearing the brunt of the damage. Sales are off by up to 70% in the area around Sderot and Netivot, 60% in Ashkelon and Ashdod and 40% in Be’er Sheva, while in the center of the country sales are off by up to 30%.

The worst-hit are stores that sell luxury or nonessential goods, such as clothing, as well as restaurants and coffee shops, because people aren’t in the mood for going out. Essentials have been hit less hard, with supermarkets and pharmacies reporting smaller drops in sales.

The figures are actually worse than they seem, since 2014 was already a poor year for retail sales amid a slower economy. The fighting may deal a fatal blow for many businesses, particularly small ones.
 (Adi Dovrat-Meseritz)

Manufacturing: Productivity falls

Factory production began falling last week, as workers in the south stayed home due to the rockets or because their children’s day care or summer camps were canceled. Others were called up for reserve duty. Most plants continue to operate, albeit at a reduced level.

One factory in Sderot burned down after taking a direct hit from a rocket. Some plant managers say they may have to close due to employee absenteeism. Other companies say the real threat to their business isn’t the rockets, but rather the dollar-shekel exchange rate. Even factories that are relatively far from the Gaza Strip experience significant downtime, as workers down tools and head for shelter every time the rocket sirens sound. (Ora Coren)

2015 budget: On hold

One of the main casualties of the military operation is the deliberations over the 2015 national budget. It’s now mid-July and the cabinet, which was already well behind schedule before the first rocket fell, has yet to devote a single session to the matter. The first meetings on the subject were slated for this week, but they were canceled because of the situation.

It’s not yet known how much the defense budget will have to rise as a result of Operation Protective Edge, but it’s clear that the increases will be at the expense of other areas — including line items that seemed locked in for the 2015 budget. Even before the operation began, the defense budget was expected to rise by as much as 3 billion shekels ($880 million). Current estimates for the increase are as high as 5 billion shekels.

Small businesses: Bankruptcy?

As the range of Hamas’ rockets increased, more and more small businesses became vulnerable, and many are now in danger of bankruptcy. Hairdressers, printers and boutique hotels, to name a few types of small businesses, all have narrow profit margins and live from check to check, so any disruption to their cash flow can be fatal. Borrowing in order to survive until business picks up is an option. But loans must be repaid, and government compensation is likely to be partial at best and may take months to arrive.

On Monday Finance Minister Yair Lapid instructed the Tax Authority to extend the deadline for this month’s tax payments from small businesses by five days throughout Israel and 10 days in the south. Tax offices were also told to show flexibility and sensitivity, such as by canceling fines and interest payments for people who are called up for reserve duty. (Moti Bassok)

Ashdod Port: 
Even slower

The movement of goods through the Ashdod Port dropped about 30% last week due to the frequent rocket barrages on the southern coastal city. In addition, the dockworkers’ union shut down the port for a few hours one day last week, claiming that workers did not have adequate protection from the rockets.

A number of rockets have landed near the port, but international shipping lines have continued to pick up and off-load goods. Nevertheless, Some importers have apparently cancelled orders. And certain ships, such as those carrying hazardous materials, have been denied entry to the port because of the danger.

The slowdown in Ashdod has not led to an increase in activity at the Haifa port, and only one ship was diverted from Ashdod to Haifa. Even car imports are continuing as usual through Ashdod. (Avi Bar-Eli)

Multinationals: Staying put

The military activity has not sent large multinationals operating in Israel packing, as has happened in the past. Research and development centers of foreign companies account for 42.7% of R&D spending in Israel’s private sector, according to figures released on Monday by the Central Bureau of Statistics.

In fact, multinationals show no signs of hedging their bets on Israel. Just as Operation Protective Edge got under way last Tuesday, ServiceNow agreed to pay $100 million for the Israeli startup Neebula, and Microsoft is reportedly considering acquiring Aorato for $400 million. (See story on page 7). (Inbal Orpaz)

Agriculture: 
Crop damage

Crop farmers have been hit hard, as workers avoid going into unprotected fields, orchards and greenhouses. Responding to growers’ complaints about the absence of shelters for them and their workers, the Agriculture Ministry has provided some structures, often nothing more than large concrete drainage pipes, at a cost of at about 40,000 shekels each.

Rockets have ignited fires in a number of fields under cultivation or used as pasture, causing damage. Nevertheless, most crops had already been harvested and were not yet reseeded when the military operation began, limiting the damage.

Livestock farmers have been hit even harder. A number of chicken and turkey coops, as well as one large dairy barn, have taken direct hits. (Ora Coren)

Aviation: 
Limiting airspace

Operation Protective Edge has also hurt Israeli and foreign airlines. International carriers have seen a drop in passenger numbers as both Israelis and foreign tourists cancel their vacations, though so far the cancellation rate is only about 10%. In addition, a number of countries have issued a travel advisory warning for the area, another factor discouraging people willing to visit Israel. Among the Israeli airlines, executives expect that the cancellations will only grow as time passes and no cease-fire is reached. The losses are estimated in the tens of millions of shekels to date.

Domestic flights have suffered a 15% drop in passengers. Operations were briefly moved from Sde Dov Airport in Tel Aviv to Ben-Gurion International Airport.

Ben-Gurion is operating under special conditions. Israeli airspace has been narrowed for commercial flights, which has caused delays in takeoffs and landings. Hamas has warned foreign airlines not to fly to Israel, but there have been only a few cases of cancellations. Airlines are continuing their scheduled routes, even if they have made changes to their routines, such as not allowing their crews to stay in Israel overnight. 
(Zohar Blumenkrantz)