I am reminded of the popular longstanding advertisement of Leumi Card Ltd., "Why do I deserve all these good things?" whenever I think about Israel's economic circumstances. It seems to me that I was wrong these past few months when I gave too much attention to the half of the glass that was empty.
In theory, Israel's condition should be quite poor, if not really bad, given our dependence on a global economy undergoing a severe recession, the absence of a stable government that focuses on the economy, the level of unemployment, and the fact that a substantial number of large and established high-tech companies exploited the crisis to fire expensive Israelis and hire cheap Indians.
When to these factors one adds the lack of effective government aid to small and mid-sized companies, a lack of enthusiasm for Israeli products in many European countries, a strong shekel, heavy taxes, and speculation (which I think is unsubstantiated) about a real estate bubble, then how do we get all this? How can it be that most domestic macroeconomic figures are good and optimistic?
Regrettably, I have no good answers to this enigma, but one explanation that I've heard is connected our feeling of economic wealth and the fact that the economic engine of private consumption is working overtime, which partly covers the negative drivers.
The employment situation has improved in recent months, the value of the public's asset portfolio has risen, indeed quite dramatically, and the economic headlines have been upbeat of late. They have set the tone. Property values not only did not fall during the crisis; they rose to a level that has raised worries about a bubble. In short, we definitely have a lot of reasons to buy more.
Compared with OECD countries, Israel has some important demographic advantages. 53% of Israeli households have no children up to the age of 18, compared with the OECD average of 64%. 17% of Israeli families have three or more children compared with the OECD average of 6%.
9% of Israeli households are single-parent families, compared with the OECD average of 20%.
Israel's unemployment rate among university graduates is similar to the OECD average, but among lower-educated workers, Israel's unemployment rate is 12.8%, compared with the OECD average of 9.6%.
Israeli women account for 55% of all post graduate degrees (MAs and Ph.D.s), compared with the OECD average of 49%.
The fact that Israel has more children, fewer single-parent families, more women with university degrees, and more woman apparently in joining the workforce (assuming that it is possible infer this from these data), it presumably contributes to Israel economic soundness and the domestic growth engine.
Looking at investment, the data leads to the conclusion that it is worthwhile taking into account that interest rate will rise (IBI Investment House chief economist Ayelet Nir predicts that we will see a pick-up in the trend of rising interest rates by the Bank of Israel beginning in the second quarter of 2010). Data also show that it is worthwhile to invest in companies that benefit from increased private consumption in Israel (has anyone mentioned telecommunications lately? Or banks? Or retailers?)
In this context, it is necessary to consider the effects of one-time events, such as the pending debt settlement by Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY) on shares of Bank Hapoalim (TASE: POLI). In general, it seems that small and mid-sized companies are setting the upbeat tone, possibly they can respond more quickly to changes in demand trends in Israel and the world, despite the difficulties caused to them by the recession over the past two years.
Elah Alkalay is VP business development at IBI Investment House Ltd.
Published by Globes [online], Israel business news - www.globes-online.com - on October 29, 2009
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