But why Invest in Israel during a war?

Part 6 of the Investing in Israel Series

When world-renowned economy analysts downgrade the only effective democracy in the Middle East, investors and multinational businesses start to rethink their Israel partnership plans.

US-based credit agency Moody’s lowered Israel’s credit rating, with a downgraded outlook from ‘stable’ to ‘negative’ warning, stating ‘public finances are deteriorating,’ predicting ‘materially higher’ debt burden amid war in Gaza, with ‘risk of escalation’ with Hezbollah in the north as the airstrikes continue.

Following the attack and abduction of hostages S&P Global Ratings lowered Israel’s credit outlook from stable to negative on risks that the Israel-Hamas conflict could broaden.

Fitch — which is the last of the big three US rating agencies — placed Israel on negative watch over risks from the conflict back on October 17.

Tel Aviv at Night – Credit Shai Pal. Published on UnSplash

Taking all this into account, why is Israel still a relatively great place to invest?

Israel’s economy has surged ahead of many comparable advanced economies, driven by a robust and globally oriented high-tech sector. Sharing borders with Lebanon, Syria, Jordan, and Egypt, Israel’s small land area belies its remarkable economic resilience and technological prowess, noted by the likes of respected business leaders such as Bill Gates and Elon Musk.

Despite regional geopolitical complexities, Israel has forged a formidable, stable, and free market economy from the ground up, showcasing its ability to weather crises. Classified as a ‘high income’ nation by the World Bank, Israel has demonstrated remarkable resilience, particularly during the global financial crisis of 2008-09.

During that period, Israel’s output growth remained robust, largely thanks to a robust banking sector, high household saving rates, prudent fiscal and monetary policies, and structural reforms over the past decade. This resilience was noted by the International Monetary Fund (IMF), which highlighted Israel’s swift recovery compared to its peers.

In 2022, Israel’s economy continued its upward trajectory, achieving a growth rate of 6.5%, reaching a GDP of $521.69 billion, with a per capita income of $53,195.88. The backbone of Israel’s economy lies in its high-technology sector, which has experienced unparalleled growth, constituting 18.1% of the GDP and 48.3% of total exports in 2022.

Israel’s commitment to research and development (R&D) is evident in its national expenditure, with a percentage of GDP among the highest in OECD countries, standing at 5.6% in 2021. Entering 2023 with a current account surplus, a low debt-to-GDP ratio, and ample foreign exchange reserves, Israel’s economic prospects appeared promising.

However, challenges emerged in 2023, including a global economic slowdown and internal agitations against judicial reforms, impacting investments and economic growth. A report by the Start-Up Nation Policy Institute (SNPI) highlighted a significant decline in investments in the first half of 2023, amounting to 3.7 billion, a 68% drop compared to the previous year.

Credit Absolut Vision. Published on Unsplash

World-leading tech manufacturer committed its investment of $25 billion into Israel. “The global company Intel’s choice to approve the unprecedented investment of $25 billion right here, in Israel, is important and significant,” Finance Minister Betzalel Smotrich says.

“Such an investment, at a time when Israel is facing a war against absolute evil, a war in which good is obliged to defeat evil… is an expression of confidence in the State of Israel and the Israeli economy” Finance Minister Betzalel Smotrich

Intel’s recent announcement of a substantial investment in Israel is truly remarkable and uplifting, especially amidst the ongoing conflict. This decision demonstrates a remarkable vote of confidence by the company

Since the onset of the year, the local foreign exchange market in Israel has exhibited commendable stability. Notably, the shekel has demonstrated resilience, strengthening against the dollar to trade at a rate of 3.63, despite recent growth data publications. However, the forthcoming interest rate decision by the Bank of Israel looms as a potential catalyst for change in this stability.

Credit Shai Pal. Published on UnSplash

“Israel is no longer a young orphan state propped up by German reparations and American assistance. It is a high-tech economy that lost only 1.9 per cent of output in the pandemic, against 4.9 per cent across the OECD. It grew by 8.6 per cent in 2021 and 6.5 per cent last year” Alex Brummer

In March 2024, the Israeli Shekel surged against the US Dollar and major world currencies following the US Federal Reserve’s decision to maintain interest rates at 5.5%

Over the last month, U.S. states have collectively committed $300 million to purchasing Israeli bonds, demonstrating robust financial support for Israel amidst its intensifying conflict with Hamas.

This financial backing primarily stems from states led by financial officials who are part of a conservative group that has been vocal against what it sees as the politicization of investments made with taxpayer funds, according to an investigation by the Guardian.

Since the onset of hostilities following a Hamas-initiated attack in southern Israel on October 7, fourteen states have publicly declared their investment in Israeli bonds. These declarations, along with statements from Israel Bonds, a U.S.-based entity responsible for the sale of Israeli debt securities, highlight the ongoing financial commitments during the conflict.

Credit Tech Daily. Published on UnSplash

While the decline in investment mirrors a global trend, the onset of the war in October 2023 has intensified concerns, particularly regarding the high-tech sector. The magnitude of this decline underscores the importance of supporting Israel’s economy during challenging times, ensuring its continued growth and resilience in the face of adversity.

As reported in the Invest in Israel series, Israel’s debt-to-GDP ratio of 60 per cent (prior to the Hamas and Hezbollah attacks) is something most Western economies can only dream of.

Let’s not forget Israel’s energy self-sufficiency as a result of gas discoveries in the Mediterranean close to Lebanon, which are partly refined in Egypt and connected to Cyprus by pipeline.

Israel’s proven track record of successfully navigating its economy through war should not be overlooked. Many economists are predicting a continuation of the framework of post-war strong recovery.​

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Want to be kept up to date on future articles on how to support Israeli Businesses? Subscribe to the Open Invest Newsletter for free today

Also connect with other like-minded Israel enthusiasts in the Open Middle East LinkedIn Community

Other investment options include Israeli Real Estate,  and the Israeli Real Estate Lawyers

NOTE;

The content of this article does not constitute investment advice or financial guidance. Naturally, not all Israeli companies are created equal and investors should do in-depth research before investing. Investors should review all risks in their investments and make their own decisions based on their absolute discretion.

Want to be kept up to date on future articles on how to support Israeli Businesses? Subscribe to the Open Invest Newsletter for free today.

Sources:

Investing in Israel Series – Jon Simmons

How to Buy Stocks In Israeli Companies – The Easy Way – Jon Simmons – Publishing April 2024.

How to Invest in Israel for Less than $50,000 – Jon Simmons

How to Invest in Israel for less than $10,000 – Jon Simmons

How to Invest in Israel for less than $1000 – Jon Simmons

How to Invest in Israel for less than $100,000 – Publishing March ’24 Jon Simmons

Invest in Israel for less than $500,000 – Publishing early April ’24

Invest in Israel for less than $1 Million. – Publishing early April ’24

How to Buy Israeli Stocks – Jonathan Simmons

Thank God For Israel’s Economic Resilience – The Jewish Chronicle – Alex Brummer

Isranomics.com 

Israeli States Invest $300 in Israeli Bonds – The Guardian

Why Israeli Companies Need Our Support – Jonathan Simmons

Seizing the Moment, Why Experts Believe Now is the Golden Opportunity for Investing in Israel – Eze Vidra

Top Israeli Companies Listed on the London Stock Exchange – Jon Simmons – Coming March ’24

Top Israeli Companies Listed on the Nasdaq – Jon Simmons – Publishing March ’24

Top Israeli Companies Listed on the New York Exchange  – Jon Simmons – Publishing April ’24

How to Invest in Israeli Real Estate as a Non-Israeli – Jon Simmons – Publishing in May