Shelly Lotan’s young techno-food startup was a year old when the first Hezbollah missiles fell in northern Israel last October. The government advised residents in the area to evacuate.
Two of its five employees were mobilized by the army. The company moved to the parents of one of the remaining employees, in the basement. Investments have dried up.
Almost a year after the Hamas attack, no ceasefire is in sight in Gaza and Israel appears ready to invade Lebanon. M’s companyme Lotan barely survives. And his frustration with the government – for its handling of the war and its impact on the economy – continues to grow.
Human and economic cost
October 7 was humanly painful for Israel. Almost everyone knows someone who was killed, injured or kidnapped that day, or who has since been sent to the front. In the turmoil and tragedy of the past year, the economic cost of conflict is often forgotten.
Israel’s credit rating was lowered and its gross domestic product fell. Tens of thousands of businesses have closed and more and more jobs are being relocated. Israeli reservists have put their careers on hold or are struggling to reconcile it with their military service.
The powerful Israeli techno sector is holding on, but there is a debacle in construction and agriculture, deprived of their numerous Palestinian employees (their work permits were canceled after the attack). Tourism fell by 76%, according to official figures for June: in Jerusalem, in the usually lively streets of the old city, many shops closed.
PHOTO AHMAD GHARABLI, AGENCE FRANCE-PRESSE
A rare open shop in an alley in Jerusalem’s Old City, September 11, 2024. Rating agency Fitch has lowered Israel’s credit rating and warns that the war is weighing on its economy.
Military spending has at least doubled; according to the central bank, the war could cost $67 billion by 2025 – a forecast made before the recent escalation in Lebanon and the mobilization of two reserve brigades to the northern front on Wednesday.
“The economy is in danger if the government does not wake up,” warns Dan Ben-David, who directs the Shoresh Institute for socio-economic research. “Right now, they are completely obsessed with the war; and we don’t see the end. »
A very expensive war
For five months, Mme Lotan reconciled the management of her business and the education of her three children: her husband was in the army. She says she has difficulty finding funding from venture capital firms, who find investing in Israel risky. Moving the business was expensive and the cost of living is increasing.
Recently, she had coffee in Tel Aviv with an entrepreneur friend. They agreed that “the most responsible thing to do is to plan for closure.”
Unless there is a big change, I believe the economy will collapse.
Shelly Lotan, entrepreneur
Already, before October 7, international clients had expressed concerns about Israel and the strength of its democracy, entrepreneurs say. Large demonstrations shook the country, in reaction to Prime Minister Benjamin Netanyahu’s attempt to weaken the Supreme Court.
PHOTO ILAN ROSENBERG, REUTERS ARCHIVES
Large demonstrations took place in early 2023 in Tel Aviv to denounce the judicial reform of the government of Benjamin Netanyahu.
On October 7, customers expressed sympathy, but “the next day they were asking about procedures and contingency plans,” says Sagi Eliyahu, CEO of software company KMS Lighthouse, which employs 200 people. “These were legitimate questions. »
His company has therefore accelerated the hiring of staff outside the country, i.e. 30 employees in Portugal and Serbia, says Mr. Eliyahu. One of its 80 employees based in Israel was so disturbed by the government’s decisions in the conflict that he emigrated to Canada. Two others are thinking of leaving.
In general, the Israeli economy is robust in the face of conflict, observes economist Dany Bahar, a researcher at the Center for Global Development. According to him, Israel’s enormous share in technological innovation has woven a strong entrepreneurial culture, attracting international research and investment.
But this war seems to be the mother of all wars. It’s expensive…and the money has to come from somewhere.
Dany Bahar, economist at the Center for Global Development
Part of the challenge, he said, is that the government has been unwilling to cut “coalition funds,” which finance various social programs, including religious studies for Israel’s ultra-Orthodox. Most secular Israelis disapprove of the subsidies, but ultra-Orthodox parties are a pillar of Mr. Netanyahu’s ruling coalition.
According to Ben-David, experts at the Finance Ministry – currently led by far-right activist Bezalel Smotrich – are exasperated by a government which, they say, seeks more to satisfy its supporters than to stimulate the economy. He claims to have implored them to stay in office: “They are the last defense of the public; politicians are in a bubble outside of reality.”
Entrepreneurs under the flag
Around 287,000 Israelis were mobilized after October 7. In a country of 9.4 million people, that’s huge. Many of them had important positions and struggled to reconcile their professional and military responsibilities.
PHOTO HEIDI LEVINE, THE WASHINGTON POST ARCHIVES
Israeli reservists on their tanks at an armor assembly point in southern Israel, near the border with the Gaza Strip, last May
Idan Ben-David, a 28-year-old reservist who joined his unit at 8 a.m. on October 7, still spends four nights a week serving in the Israeli air force; By day, he runs Tauga AI, a start-up which uses artificial intelligence to personalize learning.
Tauga AI, which has 10 employees, is staying afloat, according to Mr. Ben-David, who has become accustomed to skipping nights of sleep. But it did not develop as expected.
The economy “should be one of the factors pushing Israel to want the war to end as soon as possible,” he said.
American-Israeli Fay Goldstein, who served as spokesperson for the Israeli army after October 7, remembers driving to areas attacked by Hamas while texting with her employees, within a start-up that uses AI for the sale of manufactured products.
She was trying to get back to Tel Aviv before 10 p.m., to make work calls before the end of the workday in the United States. In November, she held a virtual meeting – in uniform, in a military vehicle – with who turned out to be her first investor, while awaiting news of a possible deal to release hostages in the gang. Gaza.
All around her, other reservists were doing the same, participating in Zoom meetings with colleagues or doing college homework. Upon her demobilization, after four months, she redoubled her efforts to build her business: “We cannot go back, the future of Israel rests on its economic strength.”
This article was published in the Washington Post.
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