Hard Coronavirus Times in Israel Spur a Rise in Bartering – and the Black Market

More Israelis are swapping goods and services through Facebook groups or under the counter and their resentment of the government is part of their motivation

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A street shop in northern Israel, November 8, 2020.
A street shop in northern Israel, November 8, 2020.Credit: Amir Levy

Mor Maayan, 34, had been making about 30,000 shekels ($8,890) a month as an electrical and computer engineer at the American high-tech firm Qualcomm before the coronavirus crisis. But since losing the job she has been eking out a living doing odd jobs, none of which pay enough to maintain the lifestyle to which she had grown accustomed. She had been spending thousands of shekels a month on sport and music lessons and alternative therapy treatments.

So she recently turned to bartering on Facebook, offering to swap products and services. In exchange for touch therapy and piano lessons, she is offering to clean homes, cook and lend out her car. Maayan also offers tutoring in math and physics.

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“In the past I’d pay 1,000 shekels a month for massages and 800 shekels for psychotherapy and 400 for piano lessons. Now, I can’t afford that. When a friend told me about a group on Facebook I thought that could be a way to solve my money problem and meet new people at the same time,” she says.

Avi Tzdaka, 29-year-old from Bat Yam, who builds and maintains LinkedIn profiles professionally, has also turned to barter to ease his financial woes. Finding a Facebook group for the self-employed called “Easy to be self-employed,” he began to corresponded with a business coach and adviser belonging to the group. The two were interested in the services he offered, and Tzdaka was interested in their services. But none of them could afford to pay each other during this economically challenging period, thus some barter deals were born.

“I build LinkedIn profiles for businesses and a focused network of contacts for them and help promote posts. I normally charge 1,500 shekels for a basic package and another 1,500 to 2,000 shekels a month for maintenance. If someone had asked me a year ago about bartering my expertise, I’d have refused, but the coronavirus changed it all. The coach and business adviser also couldn’t afford to pay me so it was a deal that worked for all involved. My business is doing much better now and nowadays I wouldn’t take on this kind of commitment, but I’m already committed to it,” Tzdaka says.

Yoav Haimovitch, 30, a dog trainer and walker, has managed to arrange for the athletic training he wanted. “I offered to barter dog training in exchange for a yoga or Pilates lesson just to move our bodies around a bit. A Pilates instructor, who has a good friend who just adopted a puppy, got in touch with me and we did a three-way barter,” he says. “I‘m giving him lessons in how to train the dog and in exchange she’s giving me Pilates sessions. I wrote the group that I knew it would be hard to spend money on sports but when it’s part of a barter, it’s easier and also leads to more of a commitment from me than to pay for a gym and wind up not using it.”

These three instances are part of a growing phenomenon amid the economic distress created by the coronavirus pandemic and lockdown – doing business without any money changing hands. But it doesn’t come at no cost: Bartering is in effect a black market activity if the buyers and sellers don’t pay taxes, and most admit they do not.

Starting out green

“It’s a consumer trend that began before the pandemic out of environmental concerns, a desire not to waste and consume more than necessary. The economic situation imposed by the pandemic has intensified the phenomenon. People are trying now to economize and save more and bartering facilitates this,” says Adi Yoffe, an expert on business trends.

Some of the bartering goes via Facebook groups that have been set up in recent months, but others occur under the radar via contacts among small businesses, most of whom tend to be neighbors.

“Almost all store owners in our neighborhood barter these days,” says one Tel Aviv store owner who asked not be named. “When I go to a pizzeria or the hairdresser they tell me not to pay. They’ll come to take something from the shop instead for a commensurate sum.”

Disappointment with the government and its handling of the coronavirus crisis is a key factor behind the growth of the phenomenon, he says. “Many small business owners feel the country hasn’t held up its end of the bargain. We’re in the midst of the worst economic disaster ever and we expected the government to put its hand in its pocket and help us after all these years of paying taxes. When I barter I don’t issue a receipt or report it to the authorities, and of course it’s clear to both sides that they are violating the law. But it’s not because I am trying to save money, but due to a feeling that the system is against us. If so, we have no reason to contribute any money to it. Because it’s about failing to pay taxes, business owners prefer to do this with other businesses they know. They know they won’t report them. Bartering with customers is more dangerous.”

Tali Bender, a psychologist and career adviser, sheds light on the psychological reasons why people are attracted in this period to bartering. “When you feel uncertain, any kind of business gives you the feeling of being in control and accumulating value. At a time like this when people are feeling the loss of this value, it’s important for a person to receive recognition for the value of their goods and services. This contributes to their sense of self-worth.”

Most of the people behind the bartering Facebook groups are in their 20s and 30s, who started them after spotting a need for the service in their communities. “Bartering from the heart,” which was launched in June by Madhuri Karim, a producer and project director from the moshav Nitzanei Oz, has 5,200 members.

“During the first wave of the coronavirus we were home, we surfed the web a lot and when someone would offer to barter, it elicited a lot of responses. A friend told me we should open a group specifically for barter, so we opened one together. The goal was to allow people to feel human warmth during all the mess and, of course, to save money. We allow people to exchange gifts and talents without money playing a role,” she says, adding that the group gained momentum very quickly and remains very active.

“Our group began as service for service and expanded to services for products and [last] week expanded into products for products, in line with the growing demand,” says Shira Korman, 35, a business consultant who set up the Facebook group “Barter – Service for Service” with 2,800 members three years ago. Korman says that since the onset of the coronavirus crisis in March the number of members has grown by nearly 50% and that the pace of activity has jumped fivefold, to 15 to 20 posts about barters each day.

“People don’t have the money now so improvisation has taken over. They come up with something they can give in exchange for something they cannot buy. Say, for example, your child doesn’t like school on Zoom and is behind on classes. You don’t have money for a tutor, but your partner is a home renovator. That’s the basis for a deal,” she said.

While bartering is a social solution that is economically beneficial for this challenging period, it is also a problem for the government, which is losing out on tax revenues. Although the law requires barter trades to be reported to the tax authorities, most of those doing it do it off the books. Most of the barterers who spoke to TheMarker weren’t even aware they were required to pay taxes. “Nobody accepts any money. If a neighbor gives me a pot of soup and I give her eggs, why should I have to report it? People doing a good turn for one another is good community relations,” says a barterer who asked not to be identified.

Community leaders and shop owners who spoke to TheMarker were aware of laws that required reporting barters, but don’t always do it.

Since the outbreak of the coronavirus pandemic, the black market – which doesn’t appear in official GDP data – has been expanding. The Organization for Economic Cooperation and Development (OECD) estimates that the black market is equal to about 20% of Israel’s $400 billion gross domestic product, or about $80 billion. That includes wholly illegal business, such as drug dealing and prostitution, as well as unreported income from legitimate businesses such as renovators, childcare givers, housekeepers, babysitters, personal trainers and tutors.

Big, bad black market

Black market activity is more significant in Israel than in most Western European countries, such as Switzerland, where the black market is estimated at 6% of GDP. The OECD estimates it’s about 9.4% of GDP in Britain, 10.4% in Germany, 12.8% in France and 17.2% in Spain. Israel’s situation is better, though, than in countries such as Bulgaria where the black market accounts for 29.6% of the GDP, and Romania where it is 26.3% and Hungary where it is 22.4%. The International Monetary Fund estimates that the black market average in Europe including Turkey comes to 16.6%.

CofaceBDi, a business-information firm, estimates loss of tax revenue due to the black market in Israel at about $30 billion a year. The figure takes into account income and value-added tax losses and losses in National Insurance and health tax payments. Despite a significant rise, bartering, is still just a small piece of the black market. CofaceBDi estimates that in 2020 it will account for just 5% of all untaxed business transactions in Israel, or about $4 billion.

Tehila Yanai, CofaceBDi’s CEO, says the Israeli black market is not expected to grow this year in shekel terms, but its size relative to the rest of the economy is expected to grow because the coronavirus is causing the rest of the economy to shrink.

“On one hand, the lockdowns have caused a drop in economic activity and in consumer spending. On the other hand, the economic situation has incentivized service providers not to report transactions. For instance, cosmeticians, hairdressers and repairmen continued to work during the lockdowns but didn’t report their income, which would show that they had been violating the rules. At the same time, more than a few have lost their regular sources of income and in a battle for survival they’ve developed small food businesses, delivery services and home repairs, aided by social media such as WhatsApp, Facebook and Instagram to market their services.”

Not surprisingly, the use of cash has gone up in recent months. “Since the coronavirus pandemic there are more transactions done in cash, especially by small businesses where the sums aren’t great. These are workers on unpaid leave and receiving government money while working in the black market – and workers doing business in violation of [health] regulations,” Yanai says.

Meanwhile, store owners who are selling essential goods and have been permitted to stay open even during lockdown, report a rise in cash-based business in recent months.

“It’s been particularly noticeable since August. People are on unpaid leave but are doing business on the side and are earning cash, and want to use it to shop. The amounts aren’t large, maybe in the hundreds of shekels,” says one store owner, who asked not to be identified. “Before, cash payments accounted for about 10% of my income, and now its 25% to 30%. More than a few customers ask to pay in cash and say, ‘Don’t give me a receipt. I don’t want the money to go to the government.’ That’s a sentence I hadn’t heard in my life before the coronavirus hit. There is a lot of anger at the government.”

On the other hand data provided by the website Green Invoice, which provides digital accounting tools for businesses and online documents, show that the rate of cash transactions is not higher now than before the pandemic. Use of cash hit a low point in April during the lockdown, but rose subsequently and peaked in August. Since then it’s been trending downwards, the data show.

But Lior Wilchynski, Green Invoice’s CEO, warns that the figures may be misleading. “These are transactions that have been declared by businesses,” he says, saying he suspects that many are doing more business off the books.

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