The IsraTransfer Report: October 2021
Updated: Nov 7, 2021
From the IsraTransfer Trading Desk
The holiday season is a strange time in Israel as far as the markets are concerned. Reduced trading days and times during the High Holidays and Sukkot result in exaggerated movements in the market.
We're entering Q4 with a shekel that got stronger during September. The negative impression of developments in the UK and USA alongside a perceived 'decent' economic performance in Israel pushed the rates down.
In the USA, recovery seems to be slowing down, thereby pushing Dollar shekel down to 3.22 at present. A few days ago, we saw this break the 3.2000 level.
The UK also seems to be suffering from a slowdown in economic recovery. In addition to the petrol supply issues, there are mounting concerns as the country nears the termination for unemployment payments to the 1.6 million people who are don't have work due to Covid. It's no surprise that the sterling/shekel rate went as low as 4.36!
With a holiday-free month ahead of us, we expect the rates to creep back up. That is unless we get a surprise concerning interest rate decisions abroad.
Economy: September Roundup
Mid-September data showed that Israel’s economy is recovering quicker than anticipated in the previous quarter. The Central Bureau of Statistics found Gross Domestic Product to be 16.6%, higher than earlier estimates. The budget deficit decreased by 1.2 percentage points in August, its highest monthly drop since the start of the coronavirus pandemic.
Exports of goods and services rose to $67.6 billion in the first half of 2021. This reflects a 24% increase when compared to the same period in 2020. They are expected to reach a total of $135 billion by the end of the year.
This is especially impressive when considering that tourism export services are not yet back to normal. Export of services, including hi-tech services, rose by 30%. Goods exports rose by 18%, software by 29%, scientific R&D by 48% and diamonds by 111%.
Not all economic data was good news. The job market is still struggling to recover from the covid crisis and a recent report from the Central Bureau of Statistics found that the broad unemployment rate was worse in the second half of August than the second half of July. While plenty of jobs are available in Israel, it’s possible that many currently unemployed individuals may have gotten used to collecting unemployment and are reluctant to enter back into the workforce.
The Heated Housing Market
In the last decade, housing prices in Israel rose faster than any other country in the world, according to a recent study. The research found that prices rose by a whopping 345.7%. In Switzerland, prices rose by 165.5%, ranking it at a distant second. Israel's average annual salary also increased by 17.5%, higher than most developed countries. But the salary increases and relatively low inflation still can’t account for the jump.
Housing prices were a concern of the previous and current governments and even the IDF joined the battle. Earlier this month, the Defense Ministry announced that it would accelerate the plan to relocate IDF bases to make space for residential housing. The demand for housing in Israel far outweighs the supply. The plan is to build nearly 20,000 homes along with hotels and commercial space in the areas of Tel Hashomer, Haifa, Pardes Hanna-Karkur, Ramla and Eilat.
Another strategy for tackling the housing crisis is converting office space into residential housing. In the Ministry of Finance’s proposed economic plan for 2021-2022, they mentioned the surplus of office space and proposed to “allow up to 50% of office space in areas near residential neighborhoods to be converted into ‘micro units.’”
Critics question the ability of the current plans to effectively lower housing prices. Some mention how the previous government lowered real estate tax for investors and the bank of Israel is letting them take out larger mortgages based on the prime interest rate. This is adding fuel to fire and prices are getting out of control. Others point out that not all the army bases are in high-demand areas, and even if they are, there is no “magic formula” for bringing down prices since many factors are involved.
While it may not have been an actual leap year, it was in the world of start-ups. The Israeli ecosystem took a great leap forward, with many companies reaching unicorn status.
Viola Ventures released a report this month titled “State of the Unicorn Report: Israel’s Unique Example” which researched Israeli start-up companies valuing over $1 billion. It found that Israel produces unicorns at an unprecedented rate, second only to the USA. This year was the birth of the first Israeli decacorn, a company valued at over $10 billion. It was the fintech company Rapyd, and a few more unicorns are about to follow in its footsteps.
The speed at which unicorns are produced increased not just in Israel, but all over the world. Until 2015 it would take an average of 6-10 years to reach the status that now takes less than 5. Verbit, a company founded in 2017, became a unicorn in 4 years. Now, less capital needs to be invested in a company for it to reach unicorn status. Online distribution contributed to the change. Companies no longer need to spend time and resources hiring large overseas sales teams.
Israel thrived for multiple reasons. Its focus on cybersecurity and other technology exports certainly helped. But there is something else in the Israeli start-up scene which makes it unique. Israel has a lot of small companies that can operate on a global scale.
This feature became crucial during the pandemic. All of a sudden, physical locations were less important. The world moved online. Global-oriented companies gained momentum, giving Israel an edge because its start-ups need to focus globally from their onset. In other countries, only larger companies operate on a global scale. Local companies were able to use this new reality to their advantage.
The size of the companies was also an asset. Small companies are more adaptable. Consumer needs changed quickly with the pandemic. They needed to install software without a support team, receive items quickly and install new users in record time. People had to shift from working in an office to working remotely. Israeli companies were able to adapt to the changing environment easier than larger, heavier American companies.
A fantastic development for the local Israeli economy is that unicorns can now stay local. In the past, a company that reached unicorn status would move its sales and support team abroad while keeping its R&D staff in Israel. This has been great for the Israeli economy as it now aims to increase its high-tech workforce from 10% to 15%.
In Case You Missed It…
Imagine that you walk into your local supermarket. You fill up your shopping cart with all your regular items. But instead of heading towards the checkout line, you make a beeline for the exit and walk out of the store! In this fantasy, there is no waiting in line or dealing with a likely-to-malfunction self-checkout machine.
Israeli computer vision startup Trigo Vision developed a technology to do just this. No longer futuristic, the idea of “grab-and-go, checkout-free shopping technology” is currently being tested in a Netherland’s grocery store. Trigo uses algorithms to control cameras that track shoppers’ movements and products and charges them digitally. The technology is unique in that it can transform any store into a digital one, without requiring new infrastructure or remodeling.
Read more here about this unique Israeli innovation.