The Economist, a secular magazine, ranked Israel as the fourth largest performing economy among OECD countries by 2022.
This raised the source of Israel’s economic resilience over the past 20 years and beyond.
With the exception of 2020 (Covid), Israel has experienced positive economic expansion every year since 2003, adding to the Great Recession, which shook the US. USA and Europe.
Can we harness it and invest in it for years to come?
To answer those questions, I begin with the Arab boycott of Israel, which is still in place in some of our neighbors.
Economic expansion is fueled by exports. The result of the boycott has been to force Israel to work with remote partners, particularly Europe and the Americas.
Trade with these partners involved huge shipping costs, which had to be covered by the sum of our exports.
Trade with these remote markets has forced us to adopt what is called the Japanese economic model: loading raw fabrics and transforming them into high value-added products and then exporting to remote markets.
This led us to knowledge-intensive industries where human capital contributed to the maximum aggregate price, rather than low-margin industries that generate what the poor in Egypt and Jordan can afford.
The moment is the “Great Aliyah,” which brought about 1 million Russian immigrants to Israel in the 1990s.
A well-informed population, only increased the population of Israel, but also its average point of education. They also focused on science/math education, which they passed on to their children.
This wave of immigration has boosted Israel’s high-tech industry. (My son’s first assignment as a technician, and then as an engineer, in a company founded by two Russian physicists with doctorates. )
The population surge has also given domestic manufacturers the opportunity to take advantage of economies of scale or increased mass production, thereby reducing the unit prices of what they produce.
This has helped inflation in Israel, as well as our unit prices of export items.
We will also have to recognize an exclusive situation, in which Israel has the equivalent of an expatriate population moving budget to Israel.
The Philippines, Jordan and Mexico have expats running that move remittances to the circle of family members in the “old” country. Israel has the Diaspora Jewish community, which moves the budget to Israel either in the form of philanthropy or in the form of investments (whether in vacation homes or in industry).
These budgets give a contribution to Israel’s foreign exchange reserves, which exchange rate keeps imports affordable and facilitates Israel’s foreign industry and balance of payments.
Israel’s regulatory framework is no less important. The Bank of Israel remains strict with Israeli banks and money markets.
Buying a home in Israel requires a down payment of at least 25% for the first purchase, or 30% for a momentary purchase. There are no down payment mortgages in Israel.
We also don’t have a secondary lending market like in the U. S. In the US, where one company creates the loan and then sells it to another company/investor. In this situation, the original company does not care whether the borrower can repay the loan, because the customer of the loans is the one who will have to face a default (moral hazard).
It is exactly this ethical danger that led to the Great Recession in the United States, when loan originators made loans to others who might obviously not take on payments. term “submarine loan”.
Consumer loans in Israel are granted through the same bank where consumers deposit their wages.
Also, “credit” cards in Israel are payment cards. Most Israeli credit card issuers require full payment of the notable balance each month.
This reinforces the rule that most Israeli consumers get their credit cards through the same bank where they deposit their wages, creating a scenario in which a bank is aware of a consumer’s general monetary obligations.
This reduces customers’ risk of debt crises. During the Great Recession, Israel’s economy grew by 6% in 2007 and 3. 19% in 2008.
Israel’s security situation, like the Arab boycott, has had a positive influence on the economy as we are on alert for sudden attacks.
Service in the military trained would-be senior managers and salespeople to anticipate immediate replacement and take hits.
The constant outbursts have also given our military industry the opportunity to include new concepts and technologies in shorter timeframes than our American and European competitors, giving us a competitive advantage in this area.
In short, the greatest source of resilience in the Israeli economy is the combination of the Jewish people’s ancient ability to adapt to a hostile environment and find a way to live decently, and a sense of the network’s duty to each other. The rest is just a comment.
To our initial question: Yes, you can invest in the Israeli economy assuming it adapts to a conversion environment.
Professor Micheal Humphries is a professor of marketing and business control at the Lev Academic Center of the Jerusalem Faculty of Technology and vice chair of the Department of Business Administration at Israel’s Touro University.