Investment, not charity, topic of star-studded panel at GA

Foreign investment in Israel as a share of DGP is higher in relative terms to foreign investment in China.

By AMIR MIZROCH
November 16, 2006 09:09
Investment, not charity, topic of star-studded panel at GA

GA 88. (photo credit: )

Israeli business leaders at the UJC General Assembly in Los Angeles this week invited the American Jewish community to join the wave of foreign investment taking place in the country. While most other panels and sessions at this year's Israel-focused GA dealt with American Jewish aid and donations to Israel, President and CEO of the Leumi Group Galia Maor moderated a star-studded panel on "Investing in Israel," aimed at promoting US Jewish investment in the Jewish state. Maor, ranked number 32 on the Fortune Magazine international list of the 50 Most Powerful Women in business, was joined by Bank of Israel Governor Professor Stanley Fischer, Israeli-American billionaire Haim Saban, Chief Executive Officer of Broidy Capital Management Elliot Broidy and Idan Ofer, chairman of the board of the Israel Corporation. Fischer, appreciating the uniqueness of the session, said it was unusual, at the GA, to discuss investing in Israel as opposed to charity to Israel. In a poignant moment, Saban turned to Fischer and thanked him for taking the governorship position. "Your contribution will be marked in the history of the Jewish people,"said Saban, who was born in Egypt and immigrated to Israel as a teen. According to Fischer, foreign investment in Israel as a share of gross domestic product (GDP) is higher in relative terms to foreign investment in China, which has a booming economy and a population of over 1 billion. Maor noted that Israel was displaying an annualized economic growth rate of 4.5%, and that 2006 has been a record year for foreign direct investments into the country. Foreign investments are expected to top $12 billion this year led by the $4b. acquisition of precision tool maker Iscar by Warren Buffett. According to Maor, the range of industries enjoying these investments is extremely varied and covers the entire spectrum from hi-tech companies through financial services to low-tech industries. At a ratio of more than 10% of GDP, foreign direct investment is among the highest existing when compared to OECD (Organization for Economic Cooperation and Development) countries. Attesting to the strong Israeli economy, Fischer forecast a 4.5% GDP growth rate for this year, which would have been 5.1% had it not been for the war in Lebanon. Last week at the Prime Minister's Conference organized by the Israel Export & International Cooperation Institute, Fischer said the country was experiencing rapid growth and that "If I had to guess which side of 4.6% it will be, it will probably be above and not below." He explained a predicted slower 4.1% growth rate in 2007 by saying that a substantial increase in the defense budget and increased support for the affected areas in the North would affect the economy. He predicted that, despite the war, the government would continue to reduce its debt-to-GDP ratio and maintain budget discipline, "which is part of the reason we see foreign investment confidence in the Israeli economy." Fischer also pointed out that Israel was exporting much more than it was importing, a full 40% of GDP. "The success of Israeli exports is phenomenal. Two-fifths of all production in the country is for exports. This owes much to the quality of the private sector," he said. The information technology sector in Israel was leading the way, Fischer said, adding that the share of total business output by the IT sector was the highest in the world. Nearly half of all Israeli exports are IT-based, he noted. Keeping things in proportion, however, Fischer pointed out that the Israeli economy's output, which stands at roughly $140 million, is a mere 1 percent of the US economic output. National expenditure by the government and the private sector on research and development as a percentage of GDP leads most other nations in this sector. "The overall picture is extremely good and we have a resilient economy, which has grown despite the war and all the events of the last 18 months. Foreign investment is also growing," he said. Yet, despite his upbeat assessment of the Israeli economy, Fischer did say that there was a serious problem of poverty in the country. "Poverty has been rising steadily since 1997, and so have the social gaps," Fischer said, adding that the sectors most exhibiting poverty were the Arabs and ultra-Orthodox, who made up about 30% of the total Israeli population. Of that 30%, over half are living in poverty. The poverty rate among the rest of the population was at 12%, the central bank governor said. Fischer also painted a gloomy picture of education in Israel, saying schools have very large class sizes, that the expenditure per student in primary and secondary schools had barely risen in the last decade, and that spending on university students had decreased to 85% of where it was a decade ago. "The fear among many is that we may be falling behind because of what's happening in the education sector. It is a point of vulnerability and needs reform," he said. In moderating the discussion, Maor frequently made the point of asking her panelists whether what motivated them to invest in Israel was Zionism, purely economic reasons or a mixture of both. Saban, who has bought shares in Keshet (Channel 2 TV) and Bezeq, called the telecommunications regulatory authorities in Israel "fair and professional" and said he did not invest in Israel out of a sense of Zionism, but for "purely business reasons" - although he did say he was a Zionist. Broidy, meanwhile, said that what was most important for foreign investors was the "positive experience" and the superior returns they received for their investments. Regulators have to understand what investors need, Broidy said, arguing that clarity and predictability of the investment environment was crucial. As long as the Israeli government and regulatory authorities "didn't change the rules," continued sound monetary and fiscal policy and maintained budgetary discipline, foreign investors would continue to do business in Israel, he said. "I'm optimistic about Israel's future and about investments in Israel. Israeli ingenuity in IT, manufacturing and other sectors is tremendous and we see new things all the time," Broidy said. Echoing comments made earlier by Ofer, Broidy said one area in which Israeli companies wishing to expand globally could improve was the development of management. Both Broidy and Ofer said it was a good idea to develop local management as well as import overseas managers to help change the culture of local companies wishing to compete globally.


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