The strengthening shekel is beginning to take its toll on Israeli exports, the Manufacturers Association trade group warned Monday after two companies said they were shutting down operations in Israel.
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“The closure of the factories in the south is just the beginning, Others will be closing soon and there will be a big wave of layoffs,” said Shraga Brosh, the association’s president. “Factories in Israel are shutting down and laying off workers because many of them can’t continue to export competitively. We can still fly overseas cheaply, but who will have the money to fly if the Israeli economy begins to collapse?”
Brosh spoke a day after Visonic – a maker of location- and access-control systems, and owned by the U.S. company Johnson Controls, said it was closing its Kiryat Gat plant in southern Israel and moving operations to China in the second quarter of 2018. Sugat, a sugar producer, said it was shuttering its plant in the same city in the next six months and importing white sugar from Europe and Brazil instead.
The two companies’ moves come as the shekel trades at its strongest in close to three years against the U.S. dollar.
On Monday, the shekel’s Bank of Israel rate was set at 3.493 to the dollar, marking an appreciation of about 9% alone since the start of the year.
The Bank of Israel has intervened in the market periodically to stem the shekel’s advance, but its efforts have been overwhelmed by basic factors: Israeli economic growth has been strong; natural gas production has slashed energy imports; and dollars from foreign investment has poured into the country.
For Israeli exporters, the strong shekel has made their products less price-competitive, since their costs for wages, rent and many other things are in shekels while they price their products in dollars.
The Manufacturers Association said that since the start of 2016, the strong shekel has cost Israeli industry some $2 billion and has prevented the economy from realizing its full growth potential. In the years 2004 to 2007, exports accounted for 45% of total economic growth, but since 2008 its weight has shrunk to just 15%.
“Without the critical contribution of exports, the economy can’t grow at a rate of more than 2.9% a year, which is well under its potential,” said Brosh.
He said that, for now, companies were contending with lower profit margins due to the strong shekel, but that as time goes on they would simply lose orders and contracts.
Closing the Visonic plant will cost about 400 jobs, with a further 60 or so at Sugat’s. Itzik Saig, CEO of Osem, one of Israel’s biggest food makers, said Monday that his company was prepared to hire some 80 of them. It operates two plants in Kiryat Gat making prepared salads and baked goods, and in the first quarter of 2018 will open another to manufacture its popular children’s snack, Bamba.
Johnson Controls said its Tel Aviv research and development center, which employs 125 people, would not be affected by the closure of its southern plant.
Visonic was formed in 1973 and sold to Swiss company Tyco in 2011 for $100 million. The closure is part of a worldwide reorganization as Tyco merges with Johnson Controls.