Northern Israel: Economy and Business
UJC 2009 Campaign Chairs and Directors Mission

Inherent Economic Challenges
Northern Israel has faced several inherent obstacles to economic growth. It is a heavily fragmented region that, aside from Haifa, is made up of scores of small municipalities with no real commercial center. Travel within the region is difficult, given the lack of decent roads and a rail system. But the area's greatest weakness, according to experts, is lack of capital.

Conditions in Northern Israel were already poor before the 2006 war. The region has high unemployment (11.5 percent, compared to 8.3 percent nationally), high poverty rates (36 percent below the poverty line, compared to 24 percent nationally) and low average income (77 percent of the national average).

The War’s Effect on the Economy
During the Second Lebanon War in 2006, 4,228 rockets fired from Lebanon struck Israel. No geographical area in the world has sustained so many rocket strikes since the Iran-Iraq war in the early 1980s. Israel's losses included 53 fatalities, 250 severely wounded, and 2,000 lightly wounded. There was extensive damage to thousands of homes, several public utilities, and dozens of industrial plants.

The North’s challenges grew in light of the war, with small and mid-sized businesses taking a dramatic hit. According to the Federation of Israeli Chambers of Commerce, Northern Israel lost about $1.4 billion during the war.

• Hotels, guest houses and tourist attractions lost most of their annual income. Grocery stores, taxi drivers and retail shops lost the summer’s revenue.
• As many as 90,000 small businesses were crippled. Many businesses leveraged what they had to secure loans just to pay for their inventory, leaving them with no collateral for rebuilding efforts.
• During the 2005-6 academic year, approximately 14,300 students were studying toward their BA and MA degrees in the North. Surveys have shown that the number of registered students for the academic year dropped by 30 percent.

Thanks to the strong infrastructure ¬of Israel’s economy and significant funds allocated by UJC/Jewish Federations of North America from the Israel Emergency Campaign (IEC), the North’s economy was able to rebound. Gal Alon, a senior economist from the Prime Minister’s recently established National Economic Council, says the pre-recession Northern economy was even stronger than before the war.

IEC Activities in the Aftermath of the War
The North American Jewish community pledged more than $360 million to support Israel through the IEC, and most of the funds collected were allocated to the North. In the economic arena, the IEC's goal was to rebuild the North’s economic base and strengthen the region so it could weather future crises.

The IEC grants targeted three main strategies:

• Initiatives that train and link unemployed people to jobs, with an emphasis on marginalized and chronically unemployed groups. 
• Mentoring and consultations for small and medium-size businesses. 
• Loans for small and medium-size businesses.

Immediate emergency grants of up to $1,000 helped more than 2,700 small business owners to pay some of their bills and begin rebuilding of their businesses. UJC works with the Koret Israel Economic Development Funds—run by the San Francisco based Koret Foundation—to help small business owners secure bank loans. Economic projects by UJC include loans of up to $100,000 loans for small businesses and $100,000 and over for mid-sized businesses.

Small and Mid-sized Businesses in the North
Small and mid-sized enterprises are at the heart of Northern Israel's economic activity. Yet the small business sector is neglected in Israel, both in terms of insufficient consultation and lack of access to capital. At least 47,000 small and mid-sized businesses (10 percent of the country’s businesses) could be forced to close their doors by the end of 2009 according to Industry, Trade and Labor Minister Binyamin Ben-Eliezer.

• Israeli banks give a disproportionate number of their loans to large companies – a particularly pressing problem in the North, where the estimated 90,000 small businesses, with roughly 25.4 billion NIS($6 billion) in combined sales per year, make up the core of the area's economic structure.
• The banks require collateral – as much as 100 percent – that would be considered extreme in the U.S. The eligibility requirements are strict – banks will not accept small items, including office furniture and machinery, because the after market value for such items in Israel is small.
• The war in the North inflicted greater damage on small businesses than on the larger companies with deeper financial reserves.
• The uncertainty caused by the war has made it difficult for small businesses to get additional funding from Israeli banks.

SNAPSHOT: Survival and Recovery
In May, Warren Buffet paid $4 billion for 80 percent of the company Iscar, headquartered on a hilltop in Northern Israel overlooking the nearby border with Lebanon. The war began barely two months later. One rocket slammed into the industrial park where Iscar is situated, causing minor damage to another company’s building. Many more rockets crashed nearby during the war.

Many Iscar workers moved their families away from the border region, but the company maintained production with only occasional slowdowns. “It took us a brief time to adjust, but we didn’t miss a single shipment,” said Eitan Wertheimer, Iscar’s chairman. “For our customers around the world, there was no war.”