Gaza Conflict Seen Costing Israeli Economy NIS 1.1 Billion a Week

A land incursion in the Gaza Strip would not only add to the costs of material damage and lost production as families are confined to shelters, but also to labor lost to reserve duty.

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Five days of rocket attacks have taken a heavy economic toll so far, costing Israel hundreds of millions of shekels.

The damage has been felt mainly in the south, but other parts of the country are feeling the indirect impact, whether it is from reservists being called up, canceled plans for holidays or lower morale at work.

The final cost of the fighting will depend on how Israel and Hamas act in the coming days. A land incursion in the Gaza Strip will not only add to the costs of material damage and lost production as families are confined to shelters, but also to labor lost to reserve duty.

The business information company BDI estimates that Pillar of Defense is costing the economy about NIS 1.1 billion a week. It bases its figure on the actual cost of the 2008-2009 Cast Lead operation, which lasted about three weeks, but lowering it somewhat because the Iron Dome rocket-defense network is limiting the amount of material damage caused by Palestinians rockets.

Most of the costs come from the use of ammunition and fuel to conduct the actual war. While it gets the most attention, the damage to homes, businesses and infrastructure is likely to be a more modest NIS 25 million, BDI says.

Meanwhile, the south of the country can expect to lose NIS 200 million of output during a week of fighting, while the rest of country will lose about NIS 120 million a week.

Television advertising has fallen 20% since the outbreak of Pillar of Defense, according to Yifat, a company that tracks the media. It said some $17.5 million was spent on TV advertising (using the posted rates of the networks ) from Wednesday till Saturday of last week, down from $22 million a week earlier.

Advertisers have either suspended campaigns or delayed them out of concerns that viewers are preoccupied with war news and a call-up of reservists. Ironically, the drop in advertising comes as viewership is rising as more people turn to their televisions for coverage.

Dan Ron, marketing director of the Channel 10 network, confirmed the drop in adverting but said he believed it was temporary.

"There are customers that wanted to launch a campaign and decided to delay it for a few days. Others have turned down the volume or completed halted campaigns," he said. "I assume in another day or two things will be calmer and they will resume their activities."

The tourism industry has experienced some cancelations (see article below ) but Internet and mobile providers are enjoying a surge of traffic (see box ).

Lowered morale has price

While most of the country is feeling little or no direct effect from the rockets, BDI says output is falling because people's morale is lower and they are distracted by the news.

They are less likely to spend money on leisure and entertainment and many have already been called up for army reserve duty. If the government goes ahead with plans to mobilize 30,000 reservists, it will add to the weekly war tab some NIS 70 million, BDI estimated.

The Tax Authority reported that as of yesterday morning it had received some 700 reports of war-related damage to property, mainly due to rockets.

Dudi Goldberg, president of the Institute of Certified Public Accountants, urged Tax Authority chief Doron Arbeli to do more by delaying to the end of December the deadline for filing 2011 tax reports for companies based in the south.

A separate estimate of war damage to factories in the south comes from the Manufacturers Association trade group. It put the direct damage from yesterday's fighting at NIS 34 million, bringing the five-day total to NIS 77 million. That figure only takes into account lost production.

Surprisingly, in spite of the rain of rockets in the south, the association estimated that 80% of all industrial workers were showing up at their jobs yesterday, up from 70% in the first days of Pillar of Defense.

About 70 factories located close to the Gaza border have been shut down completely, except those designated as producing critical products like food. Another 430 plants in a 40-kilometer radius of Gaza are suffering from lost production due to the struggle to remain in operation under fire.

"The fighting in the south disrupts ordinary production. Only some employees arrive at the factory for work at all, and because of the sirens, production is constantly interrupted," said Amir Hayek, director-general of the Manufacturers Association. "That means production falls, exports are hurt and the damage spreads from factory to factory."

Meanwhile, the Federation of Chambers of Commerce said that the loss of retail and service trade in the south was reaching between NIS 90 million and NIS 100 million a day. The south counts some 25,600 stores and small service providers, 80% of which have been shuttered by the fighting, the chamber estimates.

Chamber president Uriel Lynn said nearly all the businesses are tiny, employing five people or fewer.

He proposed tax breaks similar to those offered after Cast Lead. They entailed assistance in salaries, sales revenue and expenses. Yossi Delouya, president of the Be'er Sheva Chamber of Commerce and Industry, warned that if the conflict does not wind up in the next several days, many of these small businesses will never reopen.

Israeli soldiers watch as an Iron Dome launcher fires an interceptor rocket near the southern city of Ashdod November 18, 2012. Credit: Reuters

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