Wave of Business Failures in Israel Is Expected to Continue Into 2021

The number of businesses is expected to shrink next year not only because the rate of closures is to remain high, but because fewer new businesses are expected to open, Dun & Bradstreet projects

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A vacant store for rent in Tiberias, Sept. 23, 2020.
A vacant store for rent in Tiberias, Sept. 23, 2020.Credit: Gil Eliahu

Despite government promises that vaccinations will have been widespread enough by the end of March to ease coronavirus restrictions and that the third lockdown will be the last, it looks like the year 2021 will see the number of businesses in Israel drop, according to an analysis by Dun & Bradstreet Israel for TheMarker.

D&B, the U.S.-based business research company, estimated that next year between 55,000 and 60,000 businesses in Israel will close. That is fewer than the 75,000 in 2020, but much higher than the annual average of 45,000 over the last decade. The probability of businesses closing in 2021 is 10%, down from 12% this year but up from 7.5% in 2019, it said.

“Many of the challenges that characterized 2020 are expected to accompany us in the first half of 2021,” said Efrat Segev, vice president for data and analysis at D&B. “The main impact will be on commerce – closing of shopping malls and markets, just after they’ve been allowed to reopen, together with large numbers of street-level stores that aren’t deemed critical.”

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But, she noted, next year’s business environment would be affected by factors other than coronavirus, too.

“To that, you have to add the political uncertainty, including the lack of an approved government budget, increased public debt to 77% or 80% of gross domestic product, our going into an election, the fourth in two years, and the situation in the labor market,” Segev said.

Most of the businesses expected to close are small and medium-sized, in particular those that were started in 2019 and 2020 and never had a chance to develop before the pandemic struck. Even businesses that were able to delay loan repayments under Bank of Israel directives have few prospects because economic activity has not yet recovered.

The number of businesses in Israel is expected to shrink next year because not only is the number of closures to remain high, but the number of new businesses starting up is forecast to decline to between 40,000 and 45,000, according to D&B.

In the three years prior to 2020, Israel created 12,000 to 13,000 new businesses, net, every year. In 2020, however, for the first time in more than a decade, the economy lost 35,000 businesses as 70,000 closed and only 40,000 started up, resulting in a net loss of 35,000 businesses, D&B data show. In 2021, the net loss of businesses will be between 10,000 and 21,000.

Two back-to-back years of a declining number of businesses will weigh on economic recovery as it makes it harder for jobs to come back and for the restoration of household incomes.

Ofir Shmuel, vice president for marketing at D&B, said businesses needed to operate with extra caution, by checking credit ratings and payment records, to avoid being swept up in the wave of failures.

“Small and medium-sized businesses need to act like a small bank and protect themselves as much as possible,” he said.

“The crisis has hurt a lot of businesses and there’s a lot of uncertainty around business relationships. A business owner can’t know what a supplier or customer has experienced over the past year and there’s a good chance it’s gotten worse,” said Shmuel, advising: “You have to adjust credit and other terms.”

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