Value in doing business with Israel

Overcoming global economic tremors may take time, but the Israeli economy is up to the challenge.

In just two days at the end of July, the Dow Jones Industrial Average dropped nearly 520 points. The reason: fear of “a breakdown in the low-grade mortgage and corporate lending markets stock market,” according to the Wall Street Journal.

For those of us still unsure exactly what a ‘breakdown’ of this nature entails, it is hard to rationalize the international panic. Having survived a potential economic crises following the 9/11 terrorist attacks, how can we explain US vulnerability to fluctuations in the mortgage and corporate lending markets?

As the Israeli economy continues to feel the tremors from these recent losses, we are reminded of our susceptibility to global economic fluctuations. However, Israelis can take comfort in the strength and buoyancy of our economy. We have endured far greater trials.

Reports at Israel’s foremost economic policy meeting last month, the 15th Annual Economic Policy Forum convened by the Israel Democracy Institute, told a story of unusual economic resilience and growth in 2006-2007.

Despite last summer’s war in Lebanon and an ongoing struggle against terrorism, participants at the meeting, also known as the Caesarea Forum, spoke of a thriving Israeli economy. In 2007 Israel has seen the rapid increase of both the GDP and international trade. Analysts at Morgan Stanley estimate that Israel’s real GDP growth for the coming year could reach 6% and remain at that rate through 2008. (Globes Online, 18/7/07) Somehow the country’s economy rallied through the war and continues to grow.

In spite of the Hamas rise to political leadership and recent violent takeover of the Gaza Strip, Prime Minister Ehud Olmert’s report to the conference highlighted a significant drop in the national debt. Fighting and instability did not stop the country from paying off its loans.

And despite Hizbullah rockets being aimed at Israeli cities, unemployment in Israel has been dropping consistently. Estimates by the Bank of Israel see unemployment rates falling to 7.5% by the end of 2007. Although over one million Israelis live in rocket range of a terrorist militia, Israelis work more and are providing for their families.

In blatant disregard for international boycotts, investors continue to look to Israel as fertile and stable ground for factories, offices, and research facilities. Last year, mega-investor Warren Buffett sought out and agreed to a $4 billion investment in the Israeli economy with the purchase of Israel-based Iscar Ltd. Divestment campaigns stand no chance against the economic opportunities perceived by the international community.

While Iran issues frequent calls for Israel’s destruction, the leading countries of the world make strides towards raising Israel’s economic stature. In his address to the Caesarea Forum, Governor of the Bank of Israel Professor Stanley Fischer noted that as of 2007 the “State of Israel has been accepted as a candidate to join the OECD.”

Inclusion into the prestigious Organization for Economic Cooperation and Development would place Israel in the company of the 30 most advanced countries promoting democracy and market economy. Ahmadinijad, by contrast, leads a country with decreasing economic freedom (Index of Economic Freedom 2007).

Even with the continuing security challenges and a significant share of imperfections, the world continues to recognize the value of doing business with Israel. Despite the trials, the Israeli people persist in hard work, invest eagerly in their future and are succeeding in strengthening and stabilizing the economy.

Overcoming the damage of recent global economic tremors may take time, but there is every indication that the Israeli economy is up to the challenge.

Don’t be scared off by Heftsiba

Purchasing a home in Israel is still a sound investment despite the Heftsiba scandal.With the recent collapse of Israeli construction giant Heftsiba, increased attention is being paid on the overall health of the local real estate markets. This is manifesting itself in the expression of a great deal of worrying – both among homeowners in Israel and many thousands of investors and potential investors abroad. While these concerns are valid and in many ways prudent, with the appropriate protections and insurances in place, Israel should continue to be a place that is heavily invested in and those thinking about purchasing a home here need not be scared off.

Heftsiba, despite having grown to become one of Israel’s most ambitious property development companies, with thousands of units under construction at the time of its collapse, has always operated under some degree of wariness when it came to their business practices. While Monday morning quarterbacking is always easy, there was a considerable amount of writing on the wall that the company was expanding its operations far too quickly for what it would be able to handle.

After failing to secure a 90 percent buyout from an independent investor, the rumors began to fly that the company was in crisis. Within hours, Heftsiba construction sites were being flocked by hundreds of desperate individuals who had purchased homes from the company. Breaking into the yet unfinished residences, these people were acting under the assumption that squatting would be their best protection from losing hundreds of thousands of life savings that they had already paid into their purchases. Israel’s business and real estate worlds have been thrown into flux over the collapse and the company’s owner is as of this writing nowhere to be found.

While great uncertainty remains over the fate of the company and what will happen to these individuals, the consensus in the legal and real estate communities is that with the appropriate measures in place, future such nightmare scenarios can be avoided.

From the purchaser’s perspective, it is important to recognize that the law is largely on the side of the consumer. Contractors are required by Israeli law to provide the purchaser with a way to address a situation where the builder falls into financial difficulties and is unable to complete construction. But in order to ensure that the purchaser has financial coverage for every cent that they pay, they must insist on obtaining a contingent bank guarantee before any payment is made. This contingent bank guarantee should go into effect as soon as money is placed in the project’s bank account and serves to protect the purchaser even before any transfer of funds.

A second important point to look out for, and one which has become a point of considerable consternation for Heftsiba clients, is to ensure that the building company has created a specific bank account for the building project in question. Many customers simply made out checks for hundreds of thousands of shekels to Heftsiba general office accounts and now have no real recourse.

A final issue is that when negotiating with a contractor in regard to purchasing a home, the contractor or their representative will usually inform the potential purchaser of a fee for legal representation that they must pay. Many purchasers assume that the lawyer’s fee includes legal representation that ensures their interests, while, in practice, the lawyer?s fee that they are asked to pay goes to the contractor?s lawyer for services rendered to the contractor. The purchaser should not rely on contractor?s lawyer who will have the contractor?s interests at heart and must make sure to always get a lawyer of their own, whose expertise lies in representation of purchasers in real estate transaction of this sort.

There’s no denying that the Heftsiba affair has inflicted a deep and painful wound on the Israeli market- particularly for the thousands of families whose life savings may have been lost because of the improper practices of a company who mislead its customers.

Yet, it need not be a source of major concern for those looking to invest in Israel who are prepared to do their homework and ally themselves with responsible and informed advocates. In Israel as in any other place else in the world, let the buyer beware is an excellent and critical piece of advice. If heeded, there’s no reason that purchasing a home in Israel won’t be the very fulfillment of a dream the way you always wished it would be.

The jury is still out in Israel

Our children will ask ‘What did you do for the Sudanese refugees?’ What will we tell them?
I missed Ismail at synagogue last night.

This intelligent, thoughtful man, a refugee from Darfur – then in Israel for less than 20 days – had joined me the previous Friday night for services. At the end of the service he had spoken to the community. After a slightly nervous start, he told his story to the 300 assembled people: many bullets, three countries, two jail arrests, fear and death. They were dumbstruck to hear what I knew was only a small part of his and his family’s harrowing and dangerous journey, one that had led him to be there that night. At that point, Ismail, his wife and four children (aged 1, 3, 5 and 15) had been living with my family in our Jerusalem home for a week.

That morning, our photo and a detailed story had appeared on the front page of national paper Ha’aretz; what had felt to my family like simply a Jewish, moral, and Zionist thing to do – to help a refugee family – had been portrayed as an act of great exception. It was one of many interviews and a TV appearance.

Then, in the middle of the next week, the family moved to Tel Aviv where Ismail began work at a restaurant. As a computer technician and network administrator – better trained than most of his peers and with excellent English – I doubt it will be long before he moves into his chosen profession. When I visited them the following night to see their rented apartment, he pointed out an empty shop front he had set his eye on, from which he hopes to start repairing computers, as he had done in Cairo. While I miss the intense experience of their company, I am glad they have moved on.

But the stories of Ismail and the 1,400 or so other Sudanese refugees in Israel have only just begun and Israeli society must contend with this new situation. For now, the refugees are being hosted in private homes, living temporarily on kibbutzim, staffing hotels bursting with summer holiday makers and, perhaps surprisingly, in Ketziot – Israel’s high security jail for Palestinian security prisoners. But then what? Nobody knows quite what to do.

Only if we get our arms around this challenge in real-time will we be able to handle this burgeoning crisis in the humane and moral tradition on which our deepest values rest. Before serious mistakes are made and long-lasting regrets created, several leading Israeli nonprofit organizations have created the Coalition for Refugees from Darfur and Sudan to coordinate their direct activities and to prompt the government into action.

Ismail was born in a small village in Darfur, the region where the ‘Fur’ kingdom existed till a hundred years ago (‘Dar’ means Kingdom and ‘Fur’ is the name of the group of African tribes that made up the Kingdom). Over the years, Western intervention was followed by Arab and Islamic efforts to ethnically ‘cleanse’ the area of the Darfurians, who are neither Arab nor Moslem.

Forty years ago, Ismail’s family lived on the family plot growing agricultural produce; in his late teens he went to Khartoum, the capital city, to learn English. It was then that the attacks by the Janjaweed, Sudanese government backed militias, began. This escalated in 2002 with murderous attacks amounting to outright genocide.

Following many atrocities and family tragedies, Ismail and his family fled to Cairo, where they were given refugee status. Initially things were bearable, but the situation of Sudanese Refugees in Cairo became shockingly bad; they have no access to health or education services and were randomly beaten and arrested on the street.

According to Amnesty International, a protest against this situation in 2005 led to some 30 refugees being shot dead by the authorities. Ismail was arrested and jailed. On his release, he realized he had to do something. That led him to recently pay Bedouin smugglers to smuggle the family to the border with Israel and, after short stops in Beersheva and then Jerusalem’s Rose Garden opposite the Knesset, they were the family we decided to host to save their being ‘relocated’ to the Ketziot prison in the Negev desert.

As our family sat around our lounge discussing this decision, we wondered whether the yet-unknown family would be with us forever. We decided that two weeks was our limit. But what if the government hadn’t made any progress? Would we take them back to the Rose Garden and say ‘It was nice, but that’s all we can do?’ It was clear we would not.

The emotional, moral and practical territory we decided to chart was to do every single thing we felt we could do and to trust that our friends, the organizations involved and the government would rise to the challenge so that we would not face that unthinkable situation. By reaching out to our networks and working closely with the organizations, we proved to be right. We feel this is a microcosm of what Israel must do: to do everything it can and rely on the world community to do its part too. If we think ‘all or nothing’, we paralyze ourselves into inaction.

So far, the government has been slow to react. Perhaps fearful of Israel being overrun at the barely-fenced border between Israel and Egypt, the government’s response to date has been to let citizens look after the refugees.

Recently, new arrivals coming over the border have been sent to jail. I visited these refugees in jail last week as part of the Coalition delegation. While the 52 women and children were being looked after relatively well, the 200 men are in the regular prison facility and having a very hard time. But they should not be in jail at all. The government has not decided whether any of the refugees will be given some sort of permanent status in Israel. Some ministers have said the current status quo is just ’till they are all returned’. That makes us very, very concerned.

So while Ismail is managing, he and the other refugees are still in a complete twilight zone. Our coalition is working hard to achieve three goals:

1. Advance Israeli NGO efforts to directly help the 1,400+ Darfur and Sudanese refugees who have entered Israel (and those still coming over the border) receive proper treatment, have their rights protected and find short and long-term solutions for health, housing, work and childcare/education needs.

2. Advocate for the Israeli government to develop policy and take action in a range of short and long-term issues, including but not limited to: establishing facilities and services to help refugees; developing and implementing a border protection policy and a refugee absorption policy; taking part in international efforts to end the violence in Africa and advocate for protection of refugees there. We will develop and advocate for specific policies as needed.

3. Develop an Israeli and international Jewish humanitarian response to the plight of African refugees, including the creation of an Israeli-international Jewish managed facility for 1,000 refugees in a friendly African country partnering with Israeli and Jewish volunteers.

In Israel we are actively seeking volunteers, donations and more organizations to join the coalition. In North America, we seek the involvement of those who wish to help us carry out goal #1, lend their weight to help convince the government to fulfill goal #2, and partner with us to fulfill a basic Jewish responsibility – as the Jewish people – in fulfilling goal #3. We have begun discussions with major American organizations working on this issue.

When asked by a reporter how I rate my government, I said the jury was still out. This could turn into a huge violation of Human Rights and of the 1951 international treaty on refugees, one which Israel not only signed on but was instrumental in creating. This would be a source of heartache and guilt for generations. Or we can rise to the occasion with mindfulness, compassion and resolve. When our children and grandchildren come to us in the future, as they will, and ask ‘What did you do for the Sudanese refugees and to stop the genocide in Africa?’ will we be proud of the story we have to tell?

My own family narrowly escaped from Vienna when, in 1938, the Nazis came over the border into Austria. Months earlier, prior to my grandfather applying for papers to immigrate to Australia, he had sent a letter to long-lost Uncle Borer asking him to make the mandatory declaration of taking responsibility for the family. Little did my grandfather know that when he wrote to Uncle Borer, he actually sent it (not knowing any English) to the Borer and White Ant Extermination Company. The company owner and friends decided to sponsor my grandparents and then 7-year old father out to Australia. They wrote back as if they were Uncle Borer. Till the moment my grandparents and father arrived, they expected to meet Uncle Borer at the wharf.

Today we Jews – in Israel and elsewhere – are challenged to decide. Do we take responsibility for people in desperate need only if they are part of our Jewish family? Or will we break the barriers of psychology, comfort and habit to include others in the human race? We must now embody what we constantly tell ourselves we believe: that all humanity is one family, that to save one life is to save a whole world; that we truly mean it when we say ‘Never again’.

It is here and now. It is not in heaven.

(The author can be reached at

Undiscovered commercial treasures in the Holy Land

A year after the war in Lebanon, Israel’s economy is thriving. Who is taking advantage?During the past 12 months, the Israeli economy has fought off the effects of a war in Lebanon. On the southern border, Hamas has launched hundreds of rockets into nearby Israeli towns and villages. And yet, the Israeli economy has rarely had it so good.

The country’s statisticians have just released a further stream of positive news. Unemployment is at its lowest in years. Foreign direct investment is expected to grow by 8.0% in 2007, passing $15 billion. The stock market has seen new peaks. GDP increased by 6.3% in the 1st quarter of 2007. It is growth time, and the improvements have flowed from prudent policies, overseen by finance ministers of all parties.

CNBC Europe television recently developed this theme in a series of features on the Israeli economy. Covering a range of stories on local commerce and finance, one of the main conclusions was that Israel has departed from the international axiom that only peace brings prosperity. Sure, it is preferable if your neighbors love you. However, Israel has ‘invented a technology’ that enables its industries and services to develop, even as the guns are going off.

This process started back in the mid-1980s, when the government introduced a series of banking and structural measures to free up the economy. Jumping forward to 2007 – after a couple of ‘Intifadas’ and some wars with Hizbullah – and Israel regularly features in the top rankings of countries for commercial competitiveness. As Deutsche Bank observed in its July 2007 review; “We continue to view Israel as one of the most robust economies in Europe, Middle East, and Africa region.”

Multinationals have not waited for banks to issue surveys. Motorola’s Israeli facilities are the company’s largest development center outside of the US. Kodak and Intel have similar relationships with Israel’s expanding skilled workforce. In June 2006, Boston Scientific announced an agreement with Remon Medical Technologies in Caesarea, whose value has been estimated at $380 million.

The question is whether Israel is promoting itself abroad as much as possible. True, Israel’s exports are responsible for the boom, a trend continuing into 2007. And yet, others argue that this growth is often revealed through the lead of the country’s industrial giants like Teva. It is the little guys, the small and medium sized enterprises which make up the bulk of any economy, who are at the heart of Israel’s high tech economy and who are being ignored This sector has yet to realize its full potential.

An Israeli colleague of mine has experienced this contrast at first hand. He has begun working with a new European-based consortium, focused on the possibilities offered by Israeli high tech start ups. Although the consortium represents an experienced and sophisticated team in the many facets of international trade, they have been fascinated and surprised by the range and quality of opportunities available in Israel. They have come to understand how young Israeli companies frequently possess a unique IP, but need help to punch their message through to the beckoning European and American markets.

In a parallel development, Nobska Ventures from America opened up in 2007 a $50 million Israeli focused fund to invest in new projects. By June, it had already announced a $1.2m equity investment in ClassifEye Ltd, whose fingerprint authentication software is expected to expand mobile commerce applications in the US. In Israel, the company’s size can be a poor indication of commercial possibilities.

It is significant to recall the words of Alex Ricchebuono, regional sales director for Southern Europe of Janus Capital Group Inc, which has begun operating in Israel. Recently quoted in the Israeli financial columns of Globes, he said, “The perception that Israel is a small market is mistaken. The Israeli market isn?t large compared with other markets, but it has the potential for driving deals abroad. To define the Israeli market as an emerging and undeveloped market is a mistake.”

The Israeli economic machine, as expressed in its new and smaller companies, has learnt to brand itself, in spite of the geopolitical environment. The recent entry in to the hallowed club of the OECD is another vote of confidence in what Israel has to offer: a well-educated workforce, an in-built dynamism to create yet more technology, and the strength and the sense of purpose to succeed.

The international community has been used to hearing the news on Israel reported in the context of violence. The commercial and financial reality of the new ‘milk and honey economy’ has been hidden from view. The secret of the Israeli version of a peace dividend has finally been exposed. The opportunity exists to reap the commercial benefits.

Follow Israel’s lead on fixing airport security

It’s not racism or bigotry but common sense to pay special attention to certain travelers. Have you stood in an airport security line waiting for screening and wondered how effective the procedures were? After a recent overseas trip to Israel and several domestic flights, my wife and I do more than wonder: We worry.

The Department of Homeland Security and its component – the Transportation Security Administration – have strengthened security at airports since Sept. 11. But America still needs major changes in philosophy, screening and onboard security before our airports and planes are as safe as Israeli ones.

The Israelis became the first victims of Middle Eastern aviation terrorism when an El Al flight from Rome was hijacked in 1968. Strong security measures have prevented a single El Al plane from being seized since, and no commercial airliner leaving Israeli airports has ever been taken over.

How does Israel do it? The first answer lies in philosophy. Israeli procedures concentrate more on identifying people who are threats than things that are threats. That makes them more proactive than US protocols, which remain largely reactive.

Israeli security staff appear better trained and more alert than American staff. They earn better salaries and have higher educational levels. We noticed that whereas TSA personnel often chat with one another at checkpoints, Israeli personnel focus consistently on evaluating the passengers.

When we passed through security at La Guardia Airport in New York, TSA staff were so engrossed in their own conversation that no one watched the X-ray monitor for onboard luggage. The line ground to a brief halt until an agent noticed and resumed scrutiny of the screen.

In contrast, multiple layers of El Al security began with several rings of armed personnel and progressed to individual interviews by questioners trained to notice body language as well as verbal answers. Such vigilance detected the threat posed by Anne-Marie Murphy, a 32-year-old Irish woman at Heathrow airport in 1986.

Without her knowledge, her fiancee – a Palestinian terrorist – had hidden in her carry-on bag a bomb designed to explode in flight and kill 375 passengers, including Anne-Marie.

TSA staff would have trouble stopping such a plot not only because of the greater number of passengers that they must cope with, but also because federal rules prohibit profiling, a technique that is widely used abroad.

Yet all 19 terrorists on the Sept. 11 flights were Middle Eastern males in their 20s and 30s. It is not racism or bigotry but common sense to pay special attention to such travelers. As an Israeli acquaintance sardonically said, “We Israelis want to stop terrorists, but you Americans want to be politically correct.”

Harsh words, but they make you think.

They do so particularly because Israeli screening for weapons and dangerous devices succeeds better than our own. The TSA’s figures show that in 2002 American screeners missed 70 percent of knives and 60 percent of false explosives sent through X-ray machines by testers.

Improvement is slow. NBC News reported last year that federal agents smuggled materials needed to make homemade bombs through security checks at 21 airports. Six months ago, the Newark Star-Ledger reported that 20 out of 22 weapons got by screeners at Newark’s Liberty International Airport.

Onboard security provides a third area for improvement. All El Al flights have reinforced steel doors at the cockpit, and those doors remain locked while any passengers are on the plane. In contrast, the doors remain wide open during boarding of most US flights. And all Israeli flights carry more sky marshals than American ones.

Finally, the Israeli procedures make obvious sense to the public and are carried out with more politeness than we routinely experience in American airports. Nor did we hear the shouting there that we routinely do in our own country.

Without improvements, our system will produce more absurdities like the hour-long detention in June of former Secret Service officer Monica Emmerson. She annoyed TSA personnel by spilling water from her toddler’s sippy cup at Reagan International Airport in Washington. TSA insisted that she clean it up as well as go through their procedures all over again and so missed her flight.

It’s hard to see how that made our skies any safer.

(Originally appeared in the Detroit News)