Entrepreneurs and investors warn of ‘irreversible’ damage to economy; outgoing Finance Ministry chief economist calls on government to clear up political uncertainty
A forum of top business leaders on Wednesday called on Prime Minister Benjamin Netanyahu to show “statesmanship” and ensure that the practice of appointing both a coalition and an opposition representative to the Judicial Selection Committee is continued.
The call comes ahead of an expected vote on Wednesday on choosing the two MKs who will serve on the judicial panel. The signatories from the Israel Business Forum include the heads of some of the country’s largest businesses and companies, including Shufersal, the Azrieli Group and Strauss, as well as the top executives of five banks.
“Israel’s economy is in great turmoil for many months,” reads the letter by the business forum. “We, who have a broad overview of the Israeli economy as a whole, are experiencing this in all sectors and are concerned that a change in practice that has existed for years will lead to further and irreversible damage to investors’ confidence in the Israeli economy and Israel’s ability to emerge from the current crisis.”
The prospect of an opposition representative being appointed to the Judicial Selection Committee has brought some confidence back to the market. The shekel last week strengthened more than 3% against the US dollar amid investor sentiment that the proposed judicial overhaul would not be advanced as planned and instead a broad consensus would be found.
The makeup of the judicial selection panel is central to the coalition’s ongoing efforts to increase political control over the judiciary. A key bill in the overhaul plan — now frozen just before finalization — would reshape the committee and hand the government an automatic majority, giving it the power to determine most judicial appointments.
Proponents say this is needed to balance the system’s activist, liberal slant, while critics warn the move will politicize courts and cause grievous harm to Israeli democracy. Negotiators from the coalition and opposition working toward compromise on the judicial overhaul cite the matter as one of their biggest hurdles.
Speaking at a conference on Wednesday, the outgoing chief economist at the Finance Ministry, Shira Greenberg, said that the increased risk perception fueled by the uncertainty around the proposed judicial changes is greatly affecting Israel’s high-tech industry, which is already grappling with uncertainty surrounding the global economy and a downward slope in investments.
“Local uncertainty due to the judicial reform needs to be removed completely,” said Greenberg, speaking at the Aaron Institute for Economic Policy conference at Reichman University. “At a time of such high uncertainty there is no place to add local uncertainty.”
Greenberg cautioned that the current repercussions of local uncertainty on investments and growth are only the “buds” of what is yet to come, and the impact will weigh heavily on the economy.
Israel’s tech industry, touted as the main growth engine of the economy, generates about 18% of GDP and is responsible for over 50% of exports and about 30% of payroll taxes. In addition, the tech sector employs about 12% of the country’s workforce.
Shlomo Dovrat, a co-founder and general partner at Viola Ventures, an Israeli venture capital fund with over $1.3 billion in assets under management, reiterated his warning that the judicial overhaul poses an “existential risk to the high-tech industry and Israeli society.”
“It isn’t a question of what might happen. It’s already happening now that many entities stop investing in Israel,” said Dovrat at the Reichman conference on Tuesday. “They are sensing that the political instability in Israel greatly increases their risks.”
In the first quarter of this year, Israeli tech companies raised $1.7 billion, down 70% from the $5.8 billion in the first three months of 2022, according to a report by IVC Research Center and LeumiTech. The quarter marked the lowest figure in four years. That is after private investments in the local tech sector peaked in 2021 with investments of a staggering $26 billion slumping to around $15 billion in 2022.
Dovrat acknowledged that tech companies are facing a global downturn in investments in recent months but pointed out that the pace of the decline was faster in Israel.
“Globally investment into high-tech has dropped by 40-50%, but in Israel we are seeing a plunge of 80% and we estimate a 90% decline in the next quarter [year-on-year],” Dovrat said. “The only reason for these dramatic differences is the local political crisis.”
“Should this continue, we are likely to see a halt in growth and 90,000 fewer people employed in Israeli high-tech,” he added.
Also speaking at the conference on Tuesday, Bank of Israel governor Amir Yaron presented data that he said showed that the rate of decline in the volume of capital raised by the Israeli tech industry is greater than in the rest of the world, and is back to pre-2019 levels.
Yaron also raised concern about recent figures published by the Israel Innovation Authority, which estimated that about 50%-80% of tech companies founded in March this year chose to incorporate through a foreign company outside of Israel.
“To the extent that this trend persists, it will have a negative impact on the economy in the long term,” Yaron said.
