Up to 60,000 Israeli businesses may close in 2024 as war takes toll on economy

CofaceBDI says 46,000 businesses have shut down since Hamas invasion and slaughter on Oct. 7 amid ongoing war; construction, agriculture and services sectors are hit hardest

Sharon Wrobel is a tech reporter for The Times of Israel.

A street in the Christian quarter of the Old City of Jerusalem, usually lined with restaurants and shops, sits empty amid Israel's war against Hamas in Gaza and the halt to international tourism to the city, December 14, 2023. (Gianluca Pacchiani/Times of Israel)
A street in the Christian quarter of the Old City of Jerusalem, usually lined with restaurants and shops, sits empty amid Israel's war against Hamas in Gaza and the halt to international tourism to the city, December 14, 2023. (Gianluca Pacchiani/Times of Israel)

Israeli business will be contending with the fallout of the months-long war with the Hamas terror group through at least the end of the year, which is expected to see as many as 60,000 businesses shut down in 2024, according to business information company CofaceBDI.

The bleak prediction comes as in the nine months since the outbreak of the war with Hamas following the brutal October 7 onslaught by the terror group, a total of 46,000 businesses had to already close as they struggled to stay afloat, with many hurt by a high interest rate environment, more expensive financing costs, a shortage of manpower, a sharp decline in turnover and operations, logistic and supply disruptions, and insufficient government assistance.

In comparison, a record 76,000 enterprises were forced to close during the coronavirus pandemic in 2020, while in a regular, routine year, about 40,000 businesses a year are shutting down.

“There is effectively no sector in the economy that is immune to the repercussions of the ongoing war,” CofaceBDI CEO Yoel Amir told The Times of Israel. “Businesses are coping with a very complex reality: fear about an escalation of the war coupled with uncertainty about when the fighting will end alongside continued challenges such as staff shortage, low demand, growing financing needs, an increase in procurement costs and logistical issues, and most recently the export ban by Turkey are all making it increasingly difficult for Israeli businesses to survive this period.”

About 77 percent of the businesses that were forced to close since the beginning of the war, which make up about 35,000 enterprises, are small businesses with up to five employees and they are the most vulnerable in the economy as they have more immediate financing needs when their operations are hard hit, and they are also the ones finding it harder to raise critical funds, according to Amir.

Fundraising by Israeli businesses slumped already at the beginning of 2023 as the economy grappled with a global downturn and local political uncertainty around the proposed judicial overhaul. Then came the October 7 Hamas onslaught, in which terrorists invading from Gaza murdered 1,200 people in southern Israel and took more than 252 as hostages to the Strip.

Yoel Amir, CEO of business information group CofaceBDI. (Courtesy)

The economy seized up as families grieved their loved ones, and thousands of corporate owners were reeling to cope with the sudden and continued call-up of hundreds of thousands of employees to reserve duty who joined the fighting, and 250,000 people were displaced from their homes.

In a recent survey among a sample of 550 companies and businesses across a variety of sectors in the Israeli economy, CofaceBDI asked managers about the impact of the war on their day-to-day operations.

When asked about the scope of the damage that the war is having on their operations, 56% of the respondents reported that they experienced a decline in their turnover. For comparison, in the previous survey from January 2024, approximately 64% stated that they suffered a decline due to the war.

The economic fallout from the ongoing war was most immediately felt by businesses active in the construction, agriculture, tourism, hospitality, and entertainment sectors, according to Amir.

That’s as 85,000 Palestinian workers have virtually disappeared from Israel’s construction industry since the war’s start, as they have not been allowed into Israel to work due to security concerns, while many foreign workers working at building sites left the country. This has caused many building sites to shut down completely due to a lack of workers.

“Agriculture but especially the construction industry suffers from a severe shortage of manpower causing significant delays of projects and in the handover of apartments,” said Amir. “We are seeing some influx of foreign workers who have returned to Israel, but the low supply has also led to an increase in salaries and higher costs of hiring.”

“We can bring foreign workers to Israel, but they need to be professional and in a larger scale to provide a real relief to the sector,” he added.

In addition, Turkey’s dramatic move earlier this year to boycott all trade with Israel has left importers of construction material – aluminum, plastics, and cement products – for the local industry seeking alternative supply sources and substitutes, that are more expensive due to higher production and transportation costs.

Before the move, Israeli businesses were looking to grow imports from Turkey, as the attacks by Yemen’s Iran-backed Houthi militants are disrupting maritime trade, fueling shipping costs and making goods from China and the Far East far more expensive.

The work on a road under construction is halted in Kiryat Shmona, northern Israel, on the border with Lebanon, February 29, 2024. (AP Photo/Ariel Schalit)

“Following the Turkey boycott, there is also concern that other countries will follow with similar moves as importers are looking for alternative suppliers from other countries,” said Amir. “Insurance tariffs are going up, costs are rising, and the government will need to raise taxes, such as VAT to fund war spending which in turn places a heavy burden on businesses.”

A decline in consumer spending, the lack of tourism, and the mass evacuations from war-affected areas in the north and south of Israel have hit businesses in the trade and services sector, including leisure businesses, as well as cafes and restaurants, according to Amir.

Asked about the efforts by the government to provide emergency assistance for war-affected businesses, Amir cited a CofaceBDI survey conducted in January among a sample of 600 businesses from a variety of sectors in which 52% of managers responded that they didn’t get assistance at all, or assistance that wasn’t satisfactory to their needs although they fulfilled the criteria for compensation. Only 3% said they received satisfactory assistance, according to the findings of the survey.

The government, which is already under strain from a war that is slated to cost more than NIS 250 billion ($67 billion), has responded by offering a compensation aid package that includes grants to businesses across the country that have suffered indirect damages due to the war, a salary reimbursement program, and relief measures for employees put on unpaid leave.

“In the short-term, the government could provide much-needed assistance for importers to help them find alternative suppliers to Turkey, from other geographies, as well as ease the manpower crisis in construction and agriculture sectors by bringing in a large amount of foreign professional workers to contain further disruption,” said Amir. “In the long-term, the government needs to act responsibly, take steps to relieve fiscal deficit, by for example slashing coalition funds to free up resources but it is not happening.”

“The government needs to signal to the market and investors that it can take tough decisions in an effort to restore stability,” he added.

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