How the war with Hamas has hurt Israel’s tech companies and economy

How the war with Hamas has hurt Israel's tech companies and economy

At 6:45 am on October 7, Jack “Tato” Biggio, founder of technology company UBQ Materials, spoke to his chief operating officer, who said terrorists were at his kibbutz. Other employees sent messages that they were hiding in secure rooms, and one said her husband had been shot in the stomach.

“It was like doomsday,” Mr. Biggio said.

Hamas attacks on Israel forced UBQ Materials to close its plant 20 miles from the Gaza border and dealt a blow to its workforce. Two employees were murdered. Many people lost their homes and relocated up to 100 miles away.

Founded in 2012, UBQ Materials uses technology that transforms household waste into plastic alternatives that are used to make tables and chairs, McDonald’s trays and car parts for Mercedes-Benz. The company was able to get up and running within three weeks, but many others continue to face problems with operations and financing.

Nearly 23,000 Palestinians have been killed by Israel since October 7, according to the Gazan health ministry, which does not distinguish between deaths of civilians and fighters. About one million people from the north of the region have fled to the south. The strip has suffered massive destruction, with many hospitals damaged due to hunger, disruptions in water, electricity and communications networks, and limited medical care.

In Israel, Hamas attacks on October 7 killed 1,200 people and took hundreds hostage, including more than 100 still held in Gaza, according to Israeli officials. The war has disrupted life, as hundreds of thousands of reserve troops were called up, and 200,000 people have been displaced from border areas in the north and south.

The war has also damaged Israel’s economy in ways that are often less visible outside the country. Tourism has almost come to a standstill and government spending has increased. The hit to tech companies has shaken confidence in a sector that has become a key driver of Israel’s economy.

The call-up of 350,000 military reservists disrupted the operations of many companies. Many customers’ orders were put on hold or canceled outright, and investors were disappointed, According to the survey by the Israel Innovation Authority, a government-funded agency, and the Start-up Nation Policy Institute.

Israel’s technology sector has grown rapidly over the past decade and accounts for nearly half of all exports and a fifth of economic output. Israeli Innovation Authority Said.

As a result, Organization for Economic Co-operation and Development said, the war would cause a “temporary but pronounced recession” in Israel’s economy. It grew by about 3 percent before the October 7 attacks and is now expected to slow to 1.5 percent this year. The impact on the economy is labor shortage, low consumer and business confidence and high inflation.

Another concern is foreign investment, which was already weak before Oct. 7 because of uncertainty over the dispute between Prime Minister Benjamin Netanyahu’s right-wing government and Israel’s Supreme Court, said Jonathan Katz, a former economic forecaster at the Israeli Finance Ministry.

“The question now is whether foreigners will still want to invest in Israeli high-tech, or whether they will want to invest their money somewhere safe and quiet like Ireland,” Mr. Katz said.

To stimulate the struggling economy, the Bank of Israel last week cut interest rates by a quarter point to 4.5 percent. It was its first rate cut since the start of the Covid pandemic, and central bank Governor Amir Yaoron said additional cuts were expected.

Mr Yaron said the economy was already adjusting to war conditions and showing signs of recovery, but the effects of prolonged hostilities would be significant.

In particular, he stressed the importance of stability and the need to rein in rising government spending, which the central bank expects to contribute to higher public debt and higher deficits.

“It is clear to all of us that the current economic uncertainty is very closely linked to the security situation and how the war will develop,” Mr Yaron said.

Israel has taken several steps to reduce uncertainty, including freezing the Israeli shekel. The government is planning to increase the number of foreign workers in the country from 50,000 to 70,000 to overcome the sudden labor shortage. Workers from abroad have fled and more than 100,000 West Bank Palestinians are barred from working in Israel.

In recent weeks, the army has also begun to withdraw several thousand troops from the Gaza Strip, at least temporarily, due to the economic losses of such a large deployment of reservists.

Still, Mr. Yaron issued a stern warning to Mr. Netanyahu on January 1 over fiscal priorities, when more should be spent on defense and security and domestic needs, such as making communities near the Gaza and Lebanese borders livable. They were attacked by Hamas and Hezbollah terrorists. Criticism of the Netanyahu government’s funding of West Bank settlements and the ultra-Orthodox has intensified since the war.

Mr. Yaron said, “Not taking action now to adjust the budget through spending cuts, eliminating unnecessary ministries, and increasing revenues given the needs of the war is likely to cause more damage to the economy in the future. “

The war in Gaza, one of the longest ever waged by Israel, is already reverberating throughout the economy.

Construction, which represents 14 percent of Israel’s economy, has slowed due to a shortage of workers. Although volunteers are stepping up, the departure of foreign workers and the loss of Palestinian workers means that fruits and vegetables are rotting on the trees and in the fields.

Additionally, some imports are in short supply as attacks by Houthi rebels in Yemen have disrupted transportation through the Bab el-Mandeb strait.

Government officials said there was an immediate decline in tourism on October 8, when it was recovering from the Covid pandemic.

“There is nothing there – no Israeli tourists, no non-Israeli tourists, no weddings, no mehendi ceremony before the wedding, no griha pravesh. No one is celebrating,” said Tomer Bent, who runs King David Treasures, a Judaica store on Jerusalem’s popular Ben Yehuda Street arcade, which is usually packed with people eating pizza and falafel or drinking coffee at the sidewalk restaurant.

“But it will get better,” said Mr. Bent, and pointing to the sky, “we believe in that.”

Moshe Saudi, a souvenir shop employee, said the shops on Ben Yehuda used to stay open until midnight in late December, when American tourists flocked during the winter break and Christmas holidays. Now they are closing early.

The Israel Innovation Authority has $100 million in government funds to support technology companies, especially startups that have lost financing. The sector was boosted by last month’s announcement that semiconductor giant Intel would move forward with a planned $25 billion investment to expand a chip factory in southern Israel, after receiving a $3.2 billion grant from the government.

Dror Bin, general manager of the Innovation Authority, said, “All our entrepreneurs understand that no matter how much our customers abroad support us and sympathize with us, if we cannot meet our commitments they will have to move on.”

Shortly after the war broke out, the organization launched a new publicity campaign to increase confidence in Israeli tech companies, despite the war. Slogan: “Israeli technology delivers. no matter what.”

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