from the March 2009 issue

Global Recession Comes to Israel

In sharp contrast to the beautiful sunny balmy weather Israel's economy is in dire straits. 2009 could prove to be the most difficult time in the country's history. Tourism has dropped notieceably and one can not help but notice the lines of empty taxis waiing at the hotels for the tourists that don't come.

Newspapers gloomily report of companies that are firing personnel. The most erecently announced Consumer Price Index showed a 0.5% drop as housing prices declined. The prospects for the future are equally gloomy.

At the peak of the boom, in 2006, Israel's real estate sector was in clover. Billions upon billions of foreign dollars poured into the country, some into high-tech and much into property. The numbers say it all: Foreign investment in the country totaled $26 billion that year, compared with $9 billion in 2005.

Out of that, foreign direct investment (FDI) - meaning not in liquid financial instruments or bank deposits - amounted to $14 billion. Warren Buffett's acquisition of Iscar for $4 billion was responsible for some of that.

But the trend has changed. Foreign investment began to drop in 2007, as the first signs of trouble appeared, sinking to $15 billion, out of which FDI was $9.7 billion. In January-September 2008, total foreign investment shrank to $7.8 billion.

January marked the highest number of layoffs in Israel's history, according to an Employment Service report. A total of 19,719 persons lost their jobs last month, and the number of people registered with the service as searching for work, reached 276,000.

Part of Israel's recession is due to the international conditions. The country is export oriented and these have fallen sharply. Israel's high tech exports are down by 25%.

Howevever, all is not black. Recently a massive gas find has been announced. at the Tamar 1 exploration site, 55 miles off the Haifa shoreline. Initial reports indicate that there are at least 142 billion cubic meters, at leats 60% above initial forecasts. Geologist Yossi Langotzky, said the tests indicate the find is a giant one, and strongly suggests there's more gas to be found beneath the waters. The find should be sufficient to meet all of Israel's annual gas needs.

While companies are downsizing we have noticed that startup companies are continuing to get funding. It seems that the venture capital companies are protecting their earlier investments.

The recent incursion into Gaza has had some positive results as the number of rockets falling daily into Israeli territory have dropped sharply from 40 to two a day.

A paradox of the times is the relatively positive movements of the Tel-Aviv Stock Exchange. My barber, a superb market index, confesses that in 2008 he had a 37% after tax return from his investments. The Tel Aviv 100 Index is up about 11% for the year to date, and the large-cap Tel Aviv 25 Index is up 4.8% for the year to date.

Israelis are a hardy people. They have endured difficult times and we have little doubt that they will overcome the current recession. If predictions are true 2010 will mark a return to better days

Reprinted from the Israel High-Tech & Investment Report March 2009

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