The Rot Under the Israeli Economy's Surface

The gap is growing between Israel's standard of living and that of Europe and America — contrary to what Prime Minister Benjamin Netanyahu is promising.

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It seems as if no one really cares, but for the past two years we have been in the depths of a severe economic and security-related crisis. The data show that the economy has downshifted, that economic growth has declined to a particularly slow annual rate of 2.5 percent, which on a per capita basis is just 0.5 percent because of the 2 percent yearly population increase.

What this means is that the disparities between us and the world have widened. The United States and Europe are growing at a faster clip per capita, and as a result the gap in our standards of living is growing — contrary to what Prime Minister Benjamin Netanyahu has promised us.

Not only is growth tepid; its also not healthy. It is being generated for the wrong reasons, through growth in private consumption and increased government spending, which is bad for a small economy that cannot develop on its own. Healthy growth has to come through expanded exports and investment, but they are on the downswing and sputtering, which shows that we are (slowly) moving forward on the gasoline fumes of the past.

The prime minister is in fact continuing to tell us the story that there is no connection between our economic situation and our security situation, but the world thinks otherwise. The current third intifada, which is manifesting itself through a wave of terrorist attacks, knifings and deaths (including those of foreign tourists) is not allowing a recovery in tourism, which has been in a crisis for nearly two years since the fighting with Hamas in Gaza. Foreign investors are also staying away due to the security risks, and on top of that is the harassment of the business sector through additional regulations and limitations as well as what is simply hatred of the wealthy, which in turn is chasing away the few investors who are still daring enough.

If we were a normal country, international investors would have already been standing in line to buy the Israeli supermarket chain Mega, which is in receivership. After all, it represents an outstanding opportunity to buy a chain with stores in the city centers and where a comprehensive streamlining plan can be carried out with handsome profits to be had — but no international firms have expressed real interest.

Israels biggest conglomerate, the IDB group, was purchased by two unknown investors while not a single serious international player even attempted to touch it. The Tnuva dairy and food company was bought by a Chinese government-owned company with unclear corporate governance and unknown interests.

In addition, not a single international insurance company wants to buy Phoenix or Clal Insurance, which have been for sale for years. And no buyers have been found for Israel Military Industries either. One American company that showed an interest, Flextronics, got cold feet, leaving only Israels Elbit Systems in the race. Imagine the new international markets that Flextronics could have opened to Israel Military Industries.

The boycott has also adversely affected the economy. Fewer and fewer companies in Europe want to do business with us and Israeli firms are forced to give in to the pressure. Ahava, the Dead Sea cosmetics company, was forced to move from a West Bank settlement to Kibbutz Ein Gedi. SodaStream moved from the settlement of Maaleh Adumim to the Negev. Pretzel and snack manufacturer Beigel & Beigel moved from the Barkan industrial zone in the West Bank to a location within Israels pre-1967 borders, as did Mul-T-Locks plant.

The hatred of the business sector also harms investment and growth. Business people are vilified in the media and on social media until they prefer to invest abroad. Even the kibbutz industries are setting up plants in Europe. The Delek Groups Yitzhak Tshuva and Houston-based Noble Energy are hated because they dared to find natural gas off Israels Mediterranean coast. The governments gas policy framework has been held up for weeks in the High Court of Justice, meaning that the Leviathan offshore exploration site cannot be developed. There is no gas exploration going on in the Mediterranean and the damage caused to economic growth is sizable.

Supermarket mogul Rami Levy, who was once considered a success story, has become a punching bag. Even film industry executive Moshe Edery has been derogatorily labeled a tycoon only because he invested in the Israeli movie industry and saved it.

So its nice to hear Hanan Ben-Aris song Our Lives are Strawberries, but the truth is the strawberries are a bit rotten.

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