Afternoon Tea in Jerusalem Blog

In addition to my work as a business coach, one of my interests is blogging about life in Israel. This is a country full of contrasts – over eight million citizens living in an area the size of Wales. You can see snow and the lowest place on the globe in the same day. Although surrounded by geopolitical extremes, Israel has achieved a decade of high economic growth. My work brings me in contact with an array of new companies, exciting technologies and dynamic characters. Sitting back with a relaxing cup of strong tea (with milk), you realise just how much there is to appreciate in the Holyland. Large or small operations, private sector or non profit, my clients provide experiences from which others can learn and benefit.

Over the past year or so, I have written several pieces on the two-dimensional aspect to Israel’s economy. If you are among the top guys, the landowners or techies, then you are probably not complaining. Otherwise, you are probably so busy trying to make ends meet that you do not have the time to complain.

This subject come up recently in an interview with “From The Media”.

The journalist, Maya Margit, noted that “The average monthly salary in Israel across all sectors for the month of February 2021 was NIS 12,146, or $3,735, according to data from the Central Bureau of Statistics released last week. By contrast, the average monthly salary over the same period for those working in tech was NIS 28,837, or $8,869.”

Margit went on to quote me.

Israel has one of the biggest extremes between the haves and have-nots on a global basis. The ways these moneys are going around at the moment, it’s only exaggerating that extreme and that to me is a worry for the future makeup of society.

The full interview, including a comment from Prof. Benjamin Bental of the Jerusalem-based Taub Center, can be found here.

As Israelis gathered around their Sabbat meal tables this weekend, as the newspapers were read and as people met up in Synagogues or on the beach, one theme seemed to dominate. We all noticed how quiet everything was.

Let me explain.

For nearly three years, Israel has been dogged by political fission. Debates have been acrimonious. Add in corona, a war with Gaza and the Iranian threat, and life has been loud and stressful. Last Sunday, 13th June, an new government was sworn in, on the back of a one seat majority.

That debate was noted for the anger of the outgoing government. The vote was never a forgone conclusion. And since, the Prime Minister and his family have refused to leave their official residence of 12 years In Balfour Street until 10th July.

But what happened next has caught everyone by surprise. The new Prime Minister, Naphtali Bennett has hardly made a single public comment. The new ministers have been seen at their desks, rather than talking to journalists and berating their opponents. Some have even announced initial policy programmes, and clearly that have not required the prior approval of the PM. Israel’s “most diverse and complex” government is just trying to get on with it.

Phrases abound like ‘unity’ or ‘cooperation’ or ‘ we will work something out’.

The people who have “suffered” the most from this fall out are the political journalists. By definition, they thrive on division. Without claiming that the 28 ministers from 7 different parties are all close buddies, the language of hate and divisiveness has suddenly vanished, at least for now.

Netanyahu’s opponents have long accepted that their political enemy is a brilliant person. There were times when he excelled in his economic policies. His grasp of diplomacy – without necessarily being diplomatic himself – has been outstanding. For example, just look at how he has convinced sceptics about Iran. Above all, domestically, he became the undisputed champ of retaining power by repeatedly frightening enough of the electorate.

And there in lies the rub. Enough of his friends and allies gradually abandoned that approach. There was a fundamental breakdown of trust, while in parallel Netanyahu’s rhetoric grew noticeably in volume. Let me explain through an anecdote.

Arguably Israel’s largest newspaper, Yediot Ahronot, published a series of short reflections this weekend from tens of people who have known Netanyahu over the years. One was from Shimon Shiffer, a doyen of the local press community. Shortly after Netanyahu became Prime Minister first time round, he went to visit President Clinton, taking along his wife , Sara, and their two kids. Shiffer wrote an item, which referred to the children and for which he was praised by many colleagues. Sara Netanyahu interpreted the report totally differently, was furious, and let Shiffer know what she thought, no holes barred.

Shiffer observed that since that day he has never mentioned her again in his writings. And it is known that over the years, she has become more than just a voice behind the royal throne in Balfour Street. Her word would secure appointments.

Sara Netanyahu has not been seen in public for days. The silence, the clarity, and the calm continues into a second week for most Israelis.

Today, Sunday 13th June 2021, after 12 years in power and nearly 4,500 days in office, Mr. Binyamin Netanyahu (Bibi) will no longer be the Prime Minister of Israel.

The political crisis in Israel has been drifting along for nearly 3 years. Four elections later, one war with Gaza, a corona crisis that was mishandled and then stupendously rescued, a political discourse that has become putrid beyond Trumpism, and the end is finally in sight. Well, almost.

Naphtali Bennett was due to be sworn in at 4.00pm local time after a short policy speech. This dragged on for over 45 minutes, as he was heckled by Bibi’s friends. I counted five MKs (Parliamentarians – sic!) that were ejected.

What happens to Bibi? He is rumoured to be asking his Likud party to set up new elections to reelect him immediately as its leader. Without getting into details, this move will be challenged by people like Nir Barkat (and others). Barkat is the former popular mayor of Jerusalem, who literally chased after a terrorist while mayor, and ….. is a billionaire.

Bennett was born in the USA. His parents are said to have been hippies at one stage, when flower power was the rage. They found religion. He has a fine military record and has a major hightech exit to his name. He has served as a minister – education, industry and defense. Above all, just 18 months ago, he was out of the Knesset. Today, he is the PM (under a rotation agreement) with only 6 seats for his party out of the 120 available.

Bennett speech promised a plethora of social reforms. He has to leave alone issues like territorial compromise, because his coalition would collapse quickly and because there is still nobody to talk to on the other side. What pleased me was that he intends to quickly appoint a public independent commission of inquiry into the tragedy where 45 people were trampled to death a month ago.

Why is that important? Because the outgoing government had tried to filibuster the concept. In doing so, they revealed the web of vested interests that have aligned to prevent progress in way too many areas.

As for the economy, my pet theme? The fiscal deficit is being reduced and tourists are about to be allowed back. Under the new government, there may be some significant investment in the Arab sector. And the rate of investment in the start up sector continues to set new records, as if nobody had heard of corona blues.

However, underneath the headline stats, there is much work to be done. Israel has not passed a budget for over three years, 25% of Bibi’s reign. That farce cannot hide the desperate need for direction – investment in education, welfare, new hospitals, and much much more.

Bennett stressed the need for a new form of dialogue. Hopefully, as the reigns of power slip away from some very greasy palms, we will be governed by a style of mutual respect and humility that the Israel has been starved of for years.

If you look at the home page of one of Israel’s financial daily’s “Globes“, life appears pretty upbeat in the Holy Land. Millions and billions are being raised in mergers and acquisitions. Official unemployment stats are back down at the 5% level , and dropping. The economy has survived another two-week fight with Gaza.

So where is the proverbial “but”?

There is still no room for a national inquiry into the incident on Mount Meron, where 45 people were trampled to death. No thought of investigating the police as to why they let criminal elements stir up racial fights in mixed communities during the Gaza war. Everyone seems to have forgotten the initial mismanagement of the corona crisis last year. And the fact that Israel has not had a formal national budget for three years, the core to defining the future of society, just seems to be of secondary concern for those at the top.

The reason for all of this is that the senior politicians of the country are all tied up, trying to find a way to form a government, and this after 4 general elections in 24 months.

Israel is not currently divided politically along leftist and rightist lines, nor is it split on the issues of West Bank annexation or future Palestinian statehood. The rift is not even over the independence of the judiciary or inequality in the Israeli social structure.

Ben-Dror Yemini|

This opinion, published by a top local commentator on YNET, a leading news website, summarises the problem. Israel is divided by a battle that does not resolve around the future direction of the country, but the future political freedom of one man; Prime Minister Benjamin (Bibi) Netanyahu.

The level of political debate over the past decade has grown increasingly toxic. The Prime Minister is in court, facing three serious charges. The leaders of the two parties of his coalition have been indicted. As described above, the country has ceased to operate beyond the immediate. To put it another way, the economic successes, that comeback from a corona economy, has resulted despite the government rather than because of its lead.

Can the proposed anti-Bibi ad-hoc ‘change’ group of political parties, that is coming together for a greater good, succeed? It is co-led by Naphtali Bennett, often described by the international press as far-right wing. That title reveals more about some of the media’s detest of Israel rather than an attempt at decent journalism. For the record, Bibi’s allies call him left-wing, along with anything else that needs to be minimalised.

To give you one indication of the complexities of the problem, I remind you that this group will barely have a majority in the Kenesset, if it is to be sworn by Wednesday next week. It will depend on the Arab party, Ra’am. A key demand of the socially conservative Ra’am is no new legislation that benefits the gay community. This is in direct contradiction to the Yesh Atid party of Ya’ir Lapid, the largest party in the group. In fact – are you waiting for this – on this issue, Ra’am has the backing of those two coalition partners of Bibi, whose leaders are facing criminal charges.

There are plenty more sub-context stories like that – not including the election tomorrow in the Kenesset for the next President. Recent history and current rumours indicate that yet again this will not be decided along party lines. In that case, Bibi’s supposed preferred candidate, if he has one, is not likely to win.

Stupid, Awful. Rediculous. Disheartening. Wasteful. Overall – outrageous and pathetic.

And that is why something must change! The top has led us there. They have had 4 attempts to win over voters at the polls, and failed each time. Enough is enough. Hopefully, by next week, this farce will be over, with an alternative set of faces in power.

Israel and Hamas are fighting another 10 day or so duel.

It is evident that militarily, Hamas has been crushed. The money pleaded out of the international community to counter the poverty in Gaza was directed to fund miles of underground military tunnels and also 14,000 rockets directed at civilians. Their potency has been heavily damaged.

Politically, Hamas has strengthened itself amongst the Israeli Arab community and in the West Bank, at the direct expense of the antiquated oligarchy of the Palestinian Authority (PA). And these could be the more dominant factors emerging from this latest agony.

As a sidebar, it is worth mentioning that both the PA and Hamas leaders are now vastly wealthy individuals. However, while the former strive for an independent state, the latter in Gaza look to set up a Caliphate, stretching into Syria and beyond.

Meanwhile, from southern Gaza to northern Israel, people are trying to earn some money.

We know that the Israeli economy is at a crossroads. Despite the hopes of Netanyahu’s led Ministry of Finance, the impact of the lockdown in the first quarter of 2021 was very more disasterous than anticipated. GDP dropped 6.5% at an annualised rate. Yet in the same period, Israeli start-ups raised a staggering US$5.4 billion.

What will happen as a result of the fighting? I suspect that the answer is nothing too serious. Why?

The Palestinian economy is smaller by definition. There are sections that were doing very well until the corona epidemic.

  • The number of nights spent by tourists doubled to two million during the decade to the end of 2019.
  • Unemployment in the Ramallah area is about 10%, (compared to about 40% in Gaza).
  • There are growing numbers of people that have studied at university and are entering hightech. Some have found a way into Israeli companies. Others are creating a local eco-system.

What could put an end to this cautious yet steady growth, particularly in the West Bank?

Critics of Israel be warned, because the answer does not hide in the policies of whatever government is to be formed in Jerusalem. Israelis have a direct interest in this progress. Not just because it cements peace, but he process opens up new markets – services, goods, and trained workers.

So, go back to what I wrote earlier. Up to now, Hamas has not been allowed to set a foot into the West Bank. In May 2021, as Mohammed Abbas slides into his mid 80s and as the Israeli Prime Minister invests all his spare time in saving his political legacy, Hamas has found a new legitimacy for itself in the West Bank.

Those are the background factors which allowed this tragic fighting to flare up again. And that is why the hope for additional Palestinian prosperity is under threat.

So, Israel and Gaza are at it again. To an outsider, it seems simply tragic. But it is more than just an aerial bombardment. So let me try to dummy-down the complexities, as an Israeli who did not vote for the PM in any of the recent elections.

In terms of the conduct of the war – yes, it is a war – I approve of everything I have seen so far from the government. Why? Putting aside the ‘who started it game’, no country has the right to hurl thousands of rockets indiscriminately, at anyone else. Israel must defend itself.

Disagree? Consider you have a child at school. Rightly or otherwise, that child always takes the spot of another kid in the playground, which causes distress. Would you agree to allow that child beat up yours? Unlikely.

That said, there is no doubt in my mind that the events leading up to the latest fighting were totally misunderstood by the PM, Benjamin Netanyahu, and his cronies in the Likud party. (Likud is the dominant faction in a very fractious temporary government).

To start with, it turns out that the Hamas social media network has been calling for riots for months to take place on Jerusalem Day. The policing of the hot points of the Holy City was shown to be naïve at crucial moments. Rushing into mosques to arrest trouble makers showed old lessons had been forgotten. And the management of the Sheik Jarrah eviction was a shambles.

All of the above are the responsibility of the PM or a close ally. They gave Hamas the excuses they needed. Israel was caught off-guard.

However, let us keep some perspective, the rockets from Gaza are laced with anti-Semitism and terror. They frighten, destroy, maim and even kill. But, they will not destroy the country. Just today, an Israeli e-commerce company has completed a NASDAQ valuation of over US$3.0 billion.

What disgusts me is what happened over the past two nights. In cities known for where Jew and non-Jew literally live side-by-side, vigilantes of both religions took control of the streets. There are stories of of repulsive violence and vandalism from both corners of the ring.

Social media was full of warnings. Police presence was inadequate. Political leadership was noticeable through its deafening silence. I was shocked dismayed and embarrassed.

Yes, of the few exceptions to this was a spontaneous interview with the highly respected Reuven Rivlin, the outgoing President of Israel. About 90 minutes later, the PM also issued a brief statement.

Maybe I missed his wise words, but I have yet to hear from the Minister of Police, Mr Amir Ohana. Known for his close ties to the Prime Minister, he has to accept that under his watch, and I repeat, his police force lost control of the streets in at least four cities!

And that comes immediately after the tragedy 2 weeks ago, when 45 people were crushed to death in a religious ceremony in the north of the country. It would seem that only at the highest of levels did the police approve the security arrangements for the event. To date, no public inquiry has been set up. A disgrace!

The difference between the issue of the rockets and the riots is that the former is a threat to life and property, but it is scenario with boundaries (for now). The latter is vast in depth and represents a direct threat to the core values of a country, based on democracy and mutual respect.

Who gave the PM the right to put this at risk?

For a decade, Netanyahu has kept power by mocking minority groups and dividing society. For the past two years, he has fought his legal battles, maintaining that he run the country at the same time. He has asked for a mandate from the public four times in 24 months, and thankfully has not received it.

For the sake of the future of this country and its values, the man must go, now!

Over the years, people have questioned when and how the Israeli start-up or scale-up sector would run out of steam. The fact is that not only are there no imminent signs of danger. If anything, the very opposite is true.

And we know that whilst the economy dived around 3.5% last year overall, it was a boom time for hightech exports and recruitment.

Earlier today, I saw an amazing infographic illustrating the breadth of the Israeli insurtech sector. Two years ago, few had even heard of this concept.

A few hours later, I was reading how Israeli start ups have now encroached on the space industry. I suppose that there is a sense of cute romanticism that the Holy Land should be part of the reach for the stars.

While military corps may have led the way, there are at least 62 Israeli companies in the field. We are talking about software, space drones, oxygen production and much more.

Hightech, cleantech, cyber, Fintech, agritech: So, what’s next after outer space?

Yesterday, the NGO, Start Up Nation Central, issued a report, which detailed how the Israeli hightech sector came through the 2020 corona scare – not just in survival mode, but stronger than ever.

Despite, and perhaps because of the coronavirus pandemic, 2020 was, in retrospect, one of Israeli high-tech’s most successful years – a trend that has continued into the first quarter of 2021. More than $10 billion in venture capital investment indicates that the demand for Israeli technology is at its peak and that Israeli companies and entrepreneurs have once again succeeded in turning a crisis into an opportunity. This is also the place to commend the Innovation Authority’s quick and determined response to the crisis, which led to a reduction in the extent of the damage to the high-tech ecosystem.

The success story has carried on into 2021. For example, the average there were around 150 deals every quarter last year, valued in total at about US$2.5 billion. In the first three months of 2021, there were 172 recorded deals worth US$5.4 billion.

In news highlighted over the past week:

  • Google Cloud region is coming to Israel to make it easier for customers to serve their own users faster, more reliably and securely.
  • Intel is to build a new campus in Israel, which will employ 1,000 additional techies. In total, over 4,000 new jobs have been announced in the past few days.
  • US investment giant Blackstone is opening an Israel office.
  • Etc, etc, etc.

Jon Medved, the CEO of Our Crowd, Israel’s leading investment house summed up matters yesterday in an interview. “Last year, we thought things couldn’t get any better….. Now, we are counting a total of 63 Israeli unicorns [private companies valued at more than $1b.] founded here in Israel or founded abroad by Israelis, and already 12 new unicorns this year.”

So where next?

Let me add a personal note. I was recently appointed the country manager in Israel for Vintro, a virtual market place, enabling investors and entrepreneurs to come together, eliminating the hassles and fees of middlemen. Their site is worth a visit, as it is populated by leaders of the international investment community.

For example, have a look at Martin Roll , who is an experienced global business strategist, senior advisor and facilitator to Fortune 500 companies, Asian firms, family-owned businesses and family offices. He advises clients on strategy, transformation, leadership & family business topics. He has just joined the platform.

In one of Vintro’s first moves, they have set up a “deal flow for Israel”, where Israelis start-ups / scale-ups can look for funding. 10 minutes to register your pitch and you are done. You can test for yourselves via this link.

To show the significance of Israel to the Vintro community, there are close to 100 investors, specifically looking for the “next thing” from the Israeli start up nation.

Care to investigate further?

Yesterday’s farce in the Kenesset, Israel’s Parliament, brought little joy to anyone.

To keep it simple: The PM, Netanyahu, has called 4 general elections in 24 months. After each one, he declared victory and then was left without a functioning cabinet. Yesterday, at least temporarily, as he attempts to form yet another coalition, he lost control of the Kenesset.

Not out, but certainly down. And the procedural bickering brought disrespect on us all.

As Netanyahu was being humbled, instigators of both sides were provoking riots between Arab and Jew in East Jerusalem and in Jaffa. And deafened by all the social and political battles noise was a squeak from the Governor of the Bank of Israel, Prof. Amir Yaron.

Now Yaron was appointed by a Likud Minister of Finance, assumedly at the behest of Netanyahu’s wishes.

His monthly summary noted how the economy had proved resilient in 2020, only dropping 2.6%, and that is good compared to fellows in the OECD. Over the next two years, GDP will lurch upwards at 5-6% annually. Unemployment is down from over 20% to about 12%, and still dropping. Direct overseas foreign investment is nothing less than buoyant. And there are a whole host of other positive stats.

So where is the proverbial ‘but’?

Yaron states outright:

The highest priority economic task for any government that is established will be to pass the 2021 budget, and to promote the approval of the 2022 budget on time, in order to establish economic priorities, and to initiate the reforms and long-term investments that are essential to accelerating the economy.

However, Netanyahu, praised for his economic policies of 20 years ago, has not passed a budget since the 2018! Worse; there are no signs that one is in the making for 2021.

This is a disgrace. It is a failing of one of the basic tasks of any caring and capable government. Unacceptable.

Meanwhile, Netanyahu is forced to invest his time in creating a coalition that will serve one core purpose; allowing him to retain power and thus regain control of the Ministry of Justice, as he fights the 4 charges of corruption against him in the courts.

Listen to the PM or listen to an academic as to what is best for the country?

This week, Israel will be celebrating its 73rd Independence Day. 9,3 million citizens and growing.

Many will argue that the country survived its opening decades through a series of miracles. There is a strong case for stating that the concept of the ‘start-up nation‘ was born through military necessity, the core need to survive against the odds. And exactly how Israel is countering the Iranian threat today surely goes far beyond the scope of a James Bond film.

But after 73 years, Israeli innovation is driven by more than just military applications. Bottom line: In the first quarter of 2021 – with much of the country, USA and Europe in lockdown – Israeli tech startups raised a staggering record $5.37 billion in 172 deals. As my wife pointed observed, that sum is less than the value of America’s annual military support for Jerusalem.

May be an image of text that says "5,374 2,002 2,107 2,213 2,651 2,181 2,567 2,839 1,394 1,206 1,042 1,541 1,540 1,758 1,488 6/6 878 8/9 6b6 εοτ'τ τ8ν'τ 690' 1o0 99 88 120 113 133 113 651 953 980 108 105 121 113 127 111 2015Q Q1 Q2 2015Q 2015Q Q3 2015Q Q4 Q1 2016 2016Q2 2016Q3 2016Q4 2017Q1 20170 2017 Q3 2017Q Q4 Q1 2018 Q2 2018Q 2018Q3 2018Q4 2019Q1 2019Q3 2019Q4 Q1 Q2 Q3 Q4 Q1 2020 2020 2020 2020 2021 Total $m # of Deals 140 132 154 149 Source:/VC-Meitar The Israell Tech Review Q1/2021"

The details make for stunning reading. However, this is not a freak trend.

The same day as this news was released, we also learned that:

2021 will hopefully be a year of significant growth for the Israeli economy, partially on the back of a rebound from covid and partially due to the start-up sector. Here’s looking to an even bigger and better 74th birthday party!

With over half the population now fully vaccinated, Israel is close to creating a ‘herd-immunity’ effect. It seems that the economy will have contracted by only around 3%, brilliant compared to other members of the OECD. Combine the two factors and the suggestion is that the Israeli economy could see a massive leap ahead in the immediate period ahead.

There is mild optimism in the retail sector. “H&M Group’s & Other Stories will open its first two Israel stores in the fall of 2021″. In the hard hit tourism sector, the international chain “Four Seasons” is planning its first move into the Israeli market.

And as for the start-up sector, covid hardly seemed to impact. There is a deepening shortage of skilled workers. And just yesterday, news was released of yet another two companies, Cellebrite and Autotalks, that are on the brink of reaching Unicorn status.

However, drill down to the old-fashioned small businesses, and it is there that you will find the pain and the unemployment. Summarising a report from the Bank of Israel, the newspaper “Globes” reported that:

The Israeli economy entered the Covid-19 crisis is a pretty good state, but the cumulative damage of the crisis, up to the time of the writing of the report, is estimated at 5% of GDP. The Bank of Israel writes that this is four times the damage from the entire sub-prime crisis of 2008, and is similar to the cumulative damage during the two years following the dot.com crash (2001-2003).

BoI: Covid-19 damage to economy 4 times sub-prime – Globes

I was speaking to two small business owners yesterday, looking to move ahead in 2021 after a roller-coaster previous 12 months. On reflection, they realise that what had happened is that they had been fortunate enough to be show resilience early on in the fight.

What that meant on the ground was that they somehow jettisoned the panic button early on, looked around and rapidly developed new business models. This year, they are looking to employ additional members of staff. In effect, they had on boarded the old lesson of business that life is dynamic and thus you can never rest on your laurels.

I believe that this approach was typical of most of the teams I worked with last year. What is equally significant is that 2021 looks to be characterised by an viewpoint of: ‘Got through covid. Now let’s develop an aggressive sales policy”.

Where is the government support in all of this? The Bank of Israel believes that:

The government, however, needs to conduct itself within orderly frameworks and in accordance with long-term fiscal rules in order to preserve the credibility of fiscal policy – something that is difficult, if not impossible, in the current political situation.

However, the country has had no effective central policy making for over two years. And despite the general election on March 23rd, no new government will be formed before the end of April, at the very earliest.

I salute the skill sets of the independent Israeli business trader!

Early April 2021: Israel’s successful inoculation programme against corona has resulted in a massive downturn in the spread of the virus. Another dead-end election campaign is over. Summer is approaching. And Netanyahu has finally made it to court.

It is time to get back to basics and look at Israel’s economy. How come it has shown a surprising resilience over the past two years?

The answer lies – as ever – in the concept of the ‘start-up nation’. As local investment banker, Edouard Cukierman, declared: “Israel has more unicorns than all of Europe”!

It is as if every day is destined to reveal yet another astounding commercial headline:

  • Facebook is reported to be considering a new R&D centre in the Holy Land.
  • Israeli automatic software update platform developer JFrog has announced that it is expanding its Tel Aviv office and hiring 300 people worldwide.
  • “At least half of my job is about science, technology, innovation and cyber…..”, quoted the current UK ambassador in Tel Aviv, Neil Wigan.

An item in the Times of Israel summed up the situation in one paragraph:

Google in March appointed Uri Frank, a former Intel Corp. executive, as its new VP of engineering for server chip design to lead a team in Israel for “doubling down” on designing and building custom chips to boost the performance of its computing systems. Nvidia, a US chipmaker, said it plans to recruit 600 engineers locally to boost its activities in Israel in the field of artificial intelligence. And Microsoft is reportedly seeking to invest over $1 billion in Israel, including expanding its research and development activities in chips.

TOI – 4/4/2021

Yes, the obvious problems still remain, starting with an inept political leadership at the economic helm. There are labour shortages in key sectors, particularly hightech. The budget debt is understandably high, but there appears no plan to reduce it.

So let us end on a positive note. In March 2021: –

  • At least 11 companies in Israel raised over US$100 million.
  • 3 companies have made it to NASDAQ via a SPAC agreement.
  • The number of unicorns is approaching 80.

For now, neither covid nor the trial of the Prime Minister has been able to brake the continued growth of the Israeli economy. It’s summer time!

Yesterday, Israel went to the polls for the 4th time in 24 months. It seems that the PM, Netanyahu, may be able to form an almost-stable coalition. Putting the politics aside for a moment, where does this new situation leave the ‘start-up side’ of the economy?

Let’s start with 2 bizarrely contrasting perspectives. This time last year, Israel was boasting that it had nine Unicorns in its hightech economy. Today? See my latest post on LinkedIn, which shows how the number has soared to over 70.

Just yesterday, Israeli cloud security company Orca Security announced that it had completed a $210 million Series C financing round on a US$1.2 billion valuation. The company was only founded in 2019, ironically at about the same time as the start of the country’s political crisis.

This leads me conveniently to the second viewpoint. For all this time, the government has never been able to provide the country with a national budget. To spell it out: As success as led to more success for Israel’s start-up nation economy, there has been no central direction from the numerous Ministers of Finance.

It has become quite obvious for several months that it has been the hightech sector that saved the Israeli economy from imploding during the height of the corona crisis. Orca Security is not alone. For example, Israeli adtech platform ironSource will list via SPAC at $11.1b valuation.

There is a dearth of suitable talent to fill the continuing numbers of positions opening up.  According to Startupblink’s 2020 Startup Ecosystem Ranking, Israel is placed third place in terms of its startup ecosystem (following behind the UK and the USA).

So, who needs a budget and governmental direction?

There are core parts of the Israeli economy and society that need support, ignored for years or devastated by the fall out from corona. For all those names listed here and who have made it big-time, there are thousands of start-ups, both starved of resources and with little hope of reaching influencers or required investment levels. The government appears to have lost its ability in this arena.

Over the past 12 months, talent has oozed out of the top civil service posts in the Treasury in Jerusalem. And the immediate task of an (assumedly) new Netanyahu government will be to save him from the courts, and also to provide his coalition allies with as much money as needed to keep them silent.

The Orcas of Israel will not be bothered by such a course. The problem lies for those who struggle but deserve to have a chance as well. These start-ups are the future of the country’s economy.

I have two amazing conversations this week with overseas contacts. They are not connected commercially nor by country. Yet both carried the same message.

We need to link our set up to the world of Israeli entrepreneurship. This is what our clientele are asking from us.

And it is easy to see why. “After raising a record US$10 billion in 2020, Israeli tech startups have already raised US$2.5 billion in the first two months of 2021…….The figure may be more as some companies prefer to remain in stealth ……”

And if you believe this a one-off freak, just consider some of the news from the first 10 days of March:

  • PayPal Holdings Inc. has agreed to acquire Israeli digital assets security company Curv for around US$200 million.
  • Israeli payroll solutions company Papaya Global has announced a $100 Series C financing round at a company valuation of over $1 billion- ie, Unicorn status.
  • Wiz, Orca Security, and Axonius are planning to announce in the coming weeks that they have completed large funding rounds at valuations topping $1 billion each.

Regular reader will know that when it comes to economic planning, I believe that the government’s record over the past 24 months is nothing short of derisory. It is as if the domestic entrepreneurial community has created a virtual wall between itself and those who think they know better. Thanks goodness for that!

Why? How has this phenomenon arisen?

There is a well-known idiom in the Israeli start up culture which encourages you to start from the premise: Whatever you assume to be correct, test, challenge and assess from a new perspective.

Some argue that this concept emerges from the lessons of the 1973 Yom Kippur war, when the intelligence community’s assessments allowed the army to prepare inadequately. Others trace this psyche back to old-fashioned Jewish DNA called ‘chutzpah’ – just keep pushing the boundaries.

Take it as you wish. What is evident is that despite an economy looking to shake off the shackles of corona and despite the political instability expected to continue into the early summer, the thought of the “Israeli Start-Up Nation” is alive and thriving in 2021.

We are approaching the 15th of March, the day when the Emperor Julius Caesar was stabbed to death by his friends. “Beware the Ides of March” wrote Shakespeare.

Yesterday, we learned that the debt of the Israeli government jumped to 12.4% of GDP, the total of the value of what the country produces.

Obviously, like many countries, the central authority has had to save the economy from the wretchedness of corona. The problem is that the numbers continue to get worse, despite the apparent improvement in the country health stats. (I can only assume that there is a change for the better, as most lockdown restrcitions have been removed.

What is worse, as I have mentioned several before at the risk of being boring, there is no budget. A budget offers you a framework, targets, direction. The Israeli populace has not benefitted from any of these essential elements.

To show how farcical the situation, I repeat what one commentator described on the radio this morning. Apparently, because there is no rule book in place for 2021, any expenditure above 50,000 nis (about US$15,000) requires special approval – even if this is to purchase stationary for a government ministry!

Do not be fooled by any seemingly positive stats.

Sure; average wages by 7% in 2020, primarily because those jobs lost from corona were lower paid positions.

Israel’s international trading account hit a massive surplus last year, more to do with the strength of the Israeli current rather than the discovery of additional markets.

Yisrael Katz, the Ministry of Finance, remains optimistic. He has to be. That is his job, especially just before an election. A better indication of the immediate future comes from his appointee, Prof. Amir Yaron, the Governor of the Bank of Israel. Despite inflationary concerns, he is intent on keeping down rates of interest.

Let me spell it out: The Bank of Israel believes that the government’s policies are unlikely to ease the country out of the fiscal mess. He is worried. After all, as I wrote above, somebody has thrown away the rudder.

Punctuality is not a characteristic associated with Israelis. If you ‘shift’ the 15th by 8 days, you come out at 23rd March, the day of the general election. Israel’s Minister of Finance will turn up at the market of polling booths and will find out if and by how much his electorate believe that he can save their bank accounts.

Beware sir! The social implications of that debt are too hard to hide for ever and a day, ………… although maybe another 2 weeks will suffice.

Wow. Israel’s economy shrank by only 2.4% in 2020. This is far less than had been initially feared. Compared to others in the OECD family, this puts Israel’s ranking in the top third.

Approaching the general election on 23rd March, the Prime Minister will probably be waving this stat at any journalist, who will listen. He will be hoping that Israelis will be feeling the turn-around. After all, today, Sunday, is the day, when shops are reopening after yet another lockdown.

So, what won’t the PM be pointing out? Yes, unemployment is stuck for now at 15%. Much worse is the analysis of the experts of that 2.4% number.

Exports, particularly high-tech sales, have maintained themselves. Companies like Intel had a bumper year. However, the real growth in sales overseas came from the goods sector (5.2%) rather than services. The latter surprisingly dropped nearly 3%.

So, if that was the good news, where is the black hole?

Private consumption, the amount spent by the average household, plummeted 9.4%. People have not been able to splurge on themselves. Interestingly, this area of activity is known to be responsive to government policies and statements. And yet, the Prime Minister has been unable / unwilling to pass a new state budget for three years.

That 9.4% stat one of the worst in the OECD. And when you allow for the increase in population, you realise the personal spending power of the individual voter has dropped 11.1% in 12 months. It is additional government spending – debt to be paid off in the future – that has taken up the slack.

But the typical voter does not see or know that.

Voters generally do not decide on the base of a few numbers. What counts is what they feel they do (or don’t) have in their pocket, and also how they perceive that could change after election day.

Politicians know what they need to report. Watch out for real numbers, mixed with fake interpretations.

Over the past two weeks, the international media has focused heavily on Israel’s successful inoculation campaign. More good news – the economy contracted in 2020 by ‘only’ 3.3% last year, and should recover much of that this year.

Within the country, opinion is far more divided. After all, if the government’s handling of corona over 12 months was considered so successful, it would be sweeping towards a triumph in the general election, scheduled for 23rd March. At this stage, polls indicate that around 50% of the electorate are withholding their trust and confidence.

Domestically, everyday prices remain high. Up until around the end of the 1980s or so, Israel had a reputation for low food prices, particularly when it came to fruit and veg. That situation has long passed by.

Yesterday, a joint ministerial committee released a report on the trade and services sector. Guess what? “Businesses in the trade and services sectors are affected by burdensome government regulation. Getting these sectors onto a track of growth and higher labor productivity necessitates a long-term view in planning and execution, and introducing significant changes in existing government mechanisms,” 

To put it bluntly: There are multiple layers of bureaucracy, which stifle innovation and causes high prices! You would never have guessed that we were living in 2021, in the start-up nation.

For example: Israel’s National Insurance (NI) system employs thousands in several large locations around the country. Yet, a couple of years ago, Israeli TV covered one of the Baltic states with a similar population size. It visited their NI offices – all was computerised. No large queues, waiting for poorly trained clerks.

How about my client? She wants to set up a food manufacturing business. She needs three sets of licenses, from offices that do not coordinate with each other. The rule of thumb is that you start producing and eventually the time-consuming paper work is paid for and completed. It is a farce.

By the way, if you know how to play the system, you can make a fortune. The imports of fresh produce are heavily regulated. This protects local growers, keeps prices higher than necessary, and means that Israelis cannot buy out-of-season fruit.

And of course, there is Diplomat, the sixth largest player in the food market in Israel. They are the sole importers for a series of leading products found in nearly every home. How well are they doing? They are going for an IPO, valued at 1 billion shekels.

The good news is that nearly every year, the Prime Minister, Netanyahu, makes a statement, declaring a war on bureaucracy. If he wins again next month, he will obviously be in a position to make a similar speech in 2022.

Reading through the weekend newspaper in Israel made for depressing reading initially. It looks like the new Kenesset (Parliament) will have as many factions as ever, with few showing signs of the leadership desired by their voters. The death toll from corona has passed the 5,000 mark. Businesses are folding all over the place, including 1,000 coffee / restaurant outlets.

Amongst all the gloom – yes, we are thinking of recancelling our subscription – came two separate notes of optimism, both clearly sparked by the corona crisis.

Let’s start with the neighbours. A few weeks ago, we were taking our Sabbath constitutional, when we noticed a small plot of greenery. There was a newish sign, explaining that it was a ‘community garden’, set up over the past few months. It was sponsored by the local council.

According to an item in the paper, similar initiatives are sprouting up (pun intended) all over Israel. It is estimated that there about 400 such projects, many coming to fruition since February 2020.

I was particularly attracted to the story of the garden in Mea Shearim, an over-crowded, ultra-orthodox neighbourhood in Jerusalem. It is mainly cared for by local women. As ever, it thrives on the back of volunteers, donations and a few shekels thrown at it by local authorities.

Wonderful stuff! It reminds of stories when during the Second World War, such things blossomed in the Britian.

And if you are more of the stay at home type, well you can join a growing crowd of people investing in the stock exchange from their laptop. It is estimated that in 2020, 141,000 new accounts were opened by individual Israeli investors, a 44% jump on the previous year.

What are the reasons for this spark? Well, nothing in particular, it would appear. An item in the newspaper refers to:

  • Boredom, fed up just doing the same things on the computer.
  • The availability of spare cash not being spent on holidays
  • Annoyance that the banks / investment houses take healthy profits.
  • New apps to help the intrepid entrepreneur
  • the feeling that life is too short not to take a chance

Maybe these suggestions explain why stock markets around the globe are still moving forward, when ‘experts’ have been expecting a crash for the past year.

What the two items illustrate is that society is reacting to corona. Israelis are not waiting around for a hapless government to show them how. Corona is changing us and our economy in more ways than we realise.

Covid has been with us for about a year. This time last year, I was leading an overseas guest around Israel’s primary investor conference, hosting sessions with Fintech and health care services.

Since then? Well maybe not too bad, at least relatively. According to the US-Israel Legal Review 2020 just released:

While in North America high tech investment is down 10% compared with 2019 and while in Europe we have seen a 20% reduction, in Israel there seems to be a 40% increase compared to the first half of 2019.

Moving into 2021, that pattern seems set to continue. New unicorns are emerging almost weekly. Specifically, look at the progress of Intel. “Revenue in 2020 was $8 billion, up 14% from $6.6 billion in 2019. This figure represents 2% of Israel’s GDP and 10.27% of Intel’s overall annual revenue of $77.9 billion in 2020.”

Unfortunately, the lack of direction for the past three years from the government in Jerusalem is no longer able to conceal worrying trends. As outlined in the newspaper “Ha’aretz“:

  • GDP per capita isn’t picking up
  • Deficit will weigh on the government
  • High unemployment won’t disappear
  • Small and medium-sized businesses have taken a big hit
  • Permanent uncertainty remains

Nothing positive is likely to happen until after the general election on March 23rd. Given the fact that this is followed almost immediately by the week-long Passover festival and then assumedly by the customary coalition squabbling for a couple months, serious financial planning cannot commence until the mid summer at best.

Thus, even if a new policy were to be implemented shortly afterwards, Israel cannot expect any new strategic measures to have an impact on the corona worn economy before the early next winter at best!

We talk about the tragedy of corona. We know that other serious illnesses are not being treated because corona drags on health resources. We note the rise of violence and social distress in communities.

None of these are excuses for the disgraceful performance over years of Israel’s government, when it comes to the economy. What covid has shown is that the triumphs mentioned above have occurred despite rather than because of those who think they are in power.

On Sunday evening this week, Israel’s Prime Minister and the Minister of Finance held a press conference to launch a 15 billion shekel (approx US$4.5 billion) rescue plan, targeting households and small businesses.

The package includes a series of grants, the delaying of statutory payments like VAT, the deferral of loan repayments, and more. Ostensibly, there is much to be commended here. Although you are left wondering why this has taken 10 months to emerge!

And here in lies the rub. According to Israel’s Attorney-General, because the handouts have been delayed so long and appear to coincide with the onset of a general election – scheduled for March 23rd – large parts of the plan will probably be deemed illegal.

If that was the only problem with the ideas, maybe the dynamic duo might have got away with it? Maybe, but there is worse to come.

  1. It appears that core elements of the Ministry of Finance were not involved in the formulation of the project. This was denied, strangely by the cabinet secretary.
  2. As for the Bank of Israel, the Governor is reported to have received a copy of the plan within the hour prior to its release. He was later to reject it, as failing to concentrate on growth stimulation.

We know that the standard of living in Israel fell by over 20% last year, particularly amongst the nebulous middle classes. We know that there has been no budget for three years, as we enter 2021, which endangers the survival of projects, designed to bolster the economy. And we know that the hospitals (for years) are short of beds and lack qualified medical teams.

There again, as one commentator observed with an eye on that date in March, hospitals don’t have a lot of votes.

As for the small business sector, what is required as much as money is clarity of planning, direction and hope. That means a full budget, which a Netanyahu-led government has been unable to deliver for years.

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