The business in Israel is writhing under the brutal consequences of the war with Hamas, and large challenges may likely continue until 2024 as business information firm CofaceBDI estimates that by next year, as many as 60,000 businesses may be forced to close due to the on-going war.
This projection comes after 46,000 businesses closed their doors since the October start of the fighting. The closures were resulted in by high interest rates, surging financing costs, a labor shortage, and operational disruptions. Other challenges like supply chain issues and not enough government support have also strained businesses to the breaking point, according to the Times of Israel.
To put that in context, the Coronavirus fallout in 2020 led to a historic 76,000 businesses closing. The current situation, while being prompted by different reasons, is no less despicable. “No sector in the economy is immune to the repercussions of the ongoing war,” said CofaceBDI CEO Yoel Amir in an interview with the Times of Israel.
The small businesses have borne the major impact, with an estimated 77% of the closures involving the companies having five or fewer workers. Smaller entities have pressing needs for financing and fare more poorly than larger companies in obtaining the required capital, said Amir.
Pre-War Economic Strain
The economic strain got hold even before Hamas attacked on October 7, when Israeli companies were already hit by a global economic slowdown and political uncertainty at home over proposed judicial changes. Now, adding to their woes was the instant call-up of hundreds of thousands of reserve soldiers and two hundred fifty thousand people displaced from their homes.
A CofaceBDI poll of 550 companies found that 56% percent of Israeli firms registered a decline in their turnover as a result of the war, down from 64% percent in a survey at January 2024. Economic sectors especially hard hit include construction, agriculture, tourism, hotel, shows.
In the construction sector, for example, there has been a crippling labor shortage that has rendered approximately 85,000 Palestinian workers unable to work. Most foreign workers have left the country already. This means that many construction projects have stopped and some have slowed down.
The situation has further been aggravated by Turkey’s boycott of trade with Israel, especially on construction material. This implies that for Israeli importers, the cost has gone up even higher while searching for suppliers somewhere else.
On this, Amir pointed out that government intervention, both in the short and long run, is still very much necessary to allay misgivings and give the needed support to struggling businesses. There must be steps taken to alleviate the labor crisis in key sectors and measures of responsible governance that could bridge the gap in addressing the fiscal deficit.
“It is important to appreciate that the government can has to signal to the market and investor[s] that it could take hard decisions to restore stability,” Amir said.
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