Intel's inside

In spite of the software giant's hard-cash investment in Kiryat Gat, residents of this Negev town have yet to see the dividends.

By BRENDA GAZZAR
intel logo upfront 88 (photo credit: )
intel logo upfront 88
(photo credit: )
Izhak "Aki" Ganot is standing near Kiryat Gat's central bus station by his cab, chatting easily with two other drivers who are also waiting for clients this brisk Thursday morning. "How much to go to Intel?" a visitor asks. "Seventeen shekels," he replies. As the cab leaves the city's center and makes its way toward the city's new industrial park, Aki laments that he hasn't felt the impacts of the world's largest computer chip maker in his community. Since Intel opened its "Fab 18" factory in Kiryat Gat in 1999, he said, not much has changed in this northern Negev town. "Whether it's in employment or in development of the city, I personally don't see a lot of change in the city," said the father of four, who has lived most of his life in Kiryat Gat. "If more Intel workers came to live in the city, then there would be more momentum." But Ami Halfon, owner of the popular Ami's Restaurant at the central bus station, says he thinks the city and his business have benefited from the movement Intel has brought to the area. Sometimes workers even find their way to his restaurant, he said. "Everything that comes to Kiryat Gat helps," Ami said, following a rush of late lunch customers. "If it's not in a direct way, it is in an indirect way." There is a debate in this working-class town of 51,700 people about whether Intel's contributions to the city have been sufficient or commensurate to the help the US company has received from the government. While Intel's arrival in Kiryat Gat and its decision to open a second factory here are "a blessing," residents expected to see more changes, says Kiryat Gat Mayor Aviram Dahari. "They thought that everybody would have a job. There would be a lot of playgrounds, a lot of culture buildings, buildings supporting the schools. In each corner in the city, you would see Intel, Intel, Intel - but nothing," Dahari said. "They are very, very disappointed because they thought that Intel would come to Kiryat Gat and you would see it everywhere. And there is nothing. You cannot touch educational programs." IT IS NO wonder that expectations are high here. As of March, Kiryat Gat suffered from a slightly higher unemployment rate than the impoverished town of Sderot and Arab villages like Taibe and Abu-Gosh. In 2005, there were 2,190 women and 1,514 men unemployed here. Forty six percent of wage earners make minimum wage or less, compared to the national average of nearly 41%. About one-third of the town's population are immigrants who have arrived within the last 15 years. Researchers who have studied Intel's effects, however, say the chip giant has already had some kind of positive impact on the region that will grow as time goes on. "Everyone expected this plant to land from out of Mars in a desert area and it's supposed to turn the city around in no time, but that's just unrealistic," said Daniel Felsenstein, director of the Institute of Urban and Regional Studies at the Hebrew University of Jerusalem. "The more unrealistic the expectations, the greater the disappointment." At Intel's northern entrance, a steady stream of workers, supply trucks and tractors can be seen each morning flashing their badges and being waved through the heavily guarded security gate. Inside these gates, in stark contrast to its desert region backdrop, towers a multi-billion-dollar high-tech campus that is about to more than double its worth. Intel is building its new "Fab 28" chip-making plant in Kiryat Gat at the cost of $4.4 billion - the largest amount invested for an Intel plant anywhere - and the Israeli government has agreed to grant the company $525 million under the Encouragement of Capital Investment Law and additional tax incentives. The new factory is significant for Israel because at least 3,400 workers will be absorbed for the Negev and an estimated $450 million net will be injected into the economy, government officials say. "It's very important that a high-tech company with a large and respected reputation establishes a factory in Israel," said a spokesman for the Investment Center of the Industry, Trade and Labor Ministry. "The state is not losing. We hope that other international companies will follow." BUT SOME observers say Intel's impact on Kiryat Gat and the region itself has been minimal in comparison to both the expectations and the amount of public sector support the company has received. "If you compare it with sums of money that the government in fact put into it, I'm not sure this is the best investment," said Professor Arie Arnon, professor of economics at Ben-Gurion University and director of the Economic and Society Program of the Van Leer Jerusalem Institute. "It doesn't mean it was a wrong decision, just [that] subsidizing a huge high-tech factory in a city like Kiryat Gat will not have the necessary impacts to change the city's socioeconomic rating." While one large factory can help a town like Kiryat Gat, it certainly will not help it more than investing in a few smaller enterprises, public services and education which would attract people to the region, Arnon said. However, Israel's decision to entice Intel was probably not made with regional development in mind, but rather with the goal of sending the right signals to the international community about investing in Israel. The Fab 28 plant will produce the most advanced central processing units - often called the brains of a computer - on 45 nanometer process technology and will employ 2,200 direct employees and up to as many indirect employees. The new plant will be double the size of the first and is expected to have significant economic impacts on the community, company officials say. "It's a huge factory, in global terms, not just in local terms," said Intel spokesman Koby Bahar. When the plant's production begins in 2008, two of Intel's seven Israel design and production facilities will be located in Kiryat Gat. Intel continues to develop here because the campus has one of the most dedicated work forces, the lowest employee turnover and the best wafer costs in comparison to other Intel plants worldwide, said Maxine Fassberg, outgoing manager of the Fab 18 plant and incoming manager for the new Fab 28. "I think it's a combination of the pride that we have managed to instill in our employees of being part of this very incredible spirit of Intel in Israel," Fassberg said. "Part [of it] is our emphasis on employee satisfaction. People like to feel a part of something." TODAY, INTEL's $1.8 billion Fab 18 plant and campus in Kiryat Gat employs a total of 2,200 direct Intel employees and an additional 1,500 subcontractors. The government contributed an unprecedented $600 million of that total, which Intel says it has already paid back in taxes to the country. The Fab 18 plant, which began production in 1999, just completed an upgrade of another $600 million and manufactures microprocessors, chip sets and now flash memory technology used to store programs in mobile devices. Intel is Kiryat Gat's largest employer and one of the largest employers for residents in nearby Beersheba. Kiryat Gat residents on the Intel campus make up 1,300 workers or 35% of all direct employees and subcontractors, Intel officials say. As much as 75% or more of the total number of campus workers living in Kiryat Gat, however, are subcontractors and do not work directly for Intel, according to company estimates. A recent study on Kiryat Gat's industrial park found that only 11% of direct Intel employees and 67% of subcontractors on the campus were living in Kiryat Gat in 2002-03. This bothers some residents, who feel that Intel is responsible for hiring more local workers. "The people of Kiryat Gat built Intel, and they threw us out with the dogs," said one man, who declined to give his name while playing cards at the central bus station. Today, the percentage of Intel employees living in the city is said to be closer to 15 percent, said Yehuda Gradus, director of the Negev Center for Regional Development at Ben-Gurion University of the Negev and one of the study's researchers. But such numbers are to be expected, he said. "The park doesn't have an immediate impact on Kiryat Gat," explained Gradus, one of five researchers whose findings about the industrial park were published in the new book Global Development of a Local Town. "In another 20 or 30 years, you will see that... half of the employees in Kiryat Gat are working in Intel because it takes time. Kiryat Gat is a development town. The town couldn't provide the workers for the high-tech industry." Intel officials stress that more than 70% of direct employees come from Kiryat Malachi or farther south (including Kiryat Gat). Close to 90% of subcontractors live in this same area, Bahar said. Kiryat Malachi is considered the starting point of the Negev. Separate statistics cited in the industrial park study support these numbers. The researchers found that nearly 30% of park employees came from the center of the country, while the rest came from Kiryat Malachi or farther south. "You are bringing employment to an area which suffers from a high rate of unemployment," Gradus said. "You may say that these are the managers, and big engineers (that live in the center), but the fact is the majority of the people in the park - in Intel and the surrounding areas - are living in the south and in the Negev." SOME SUGGEST that locating the Intel plant in Beersheba - further from the center of the country than Kiryat Gat - would have garnered higher social and economic benefits for the southern region. "If it's in Beersheba, you can assume that most of the jobs that are created would benefit the population of the region," said Raphael Bar-El, a professor at the Department of Public Policy and Administration at Ben-Gurion University. "You would have less people coming from Tel Aviv to Beersheba to work... The regional impact on the Negev would have been much higher." Many of the unemployed in Kiryat Gat are women who worked in traditional industries, like textiles - an industry that has taken a world-wide hit resulting in the closure of factories and the layoffs of thousands of people here. A significant number of those laid off in the late 1990s are still without work, said Dagan Yahel, managing director of the Y.S. Gat Management Company, which manages Kiryat Gat's industrial park. "For this situation, who is supposed to resolve it?" Yahel asked. "We believe that the government should help resolve it because the municipality doesn't have the power or the money or the infrastructure to do it. It's the investment of millions of shekels to create the situation so that those unemployed can even start to think to be hired" by high-tech or electronic companies like Intel and Visionic. Gradus agreed, explaining that Intel jobs can only be provided to those who are trained, have the necessary education and speak English. The government could have trained them for a year or sought out industries that are not so high-tech, he said. "There are many things to do to encourage low-tech industries to come to Kiryat Gat," Gradus explained. Intel officials say they are doing what they can to hire locals and encourage commuting employees to move closer to the Intel campus. In a survey done for the study, 37% of those surveyed had changed their place of residence since they began working for the company. Intel also offers financial incentives to encourage employees and their families to relocate within 15 or 30 kilometers from the Kiryat Gat campus. It is in the company's interest to recruit locally, rather than paying to transport employees from other areas or give them company vehicles, Yahel said. The Intel program Ofek, which is supported by the Ministry of Labor, the Kiryat Gat municipality and the regional councils of Yoav, Shafir and Lachish, provides 10 months' training with the assistance of a college for qualified young adults who live in Kiryat Gat or the three regional councils. Over the last seven years, about 175 students have received the necessary skills to work at Intel through this program. All but a handful began working at Intel, where they were trained to become technicians in Fab 18's state-of-the-art clean room. "Now you are providing real opportunities for young people to stay here," Fassberg said. "It has produced a caliber of employees who are incredibly highly motivated, very loyal and stay, so the turnover of that population is negligible." Intel's extended education programs allow employees to complete their college or university degrees in certain technical fields at no cost to them, enabling them to advance in the company and earn higher salaries, she said. Intel has a reputation of paying its employees better than average but workers who are hired indirectly are often paid minimum wage, said Henriette Dahan-Kalev, professor of political science and gender studies at Ben-Gurion University. DISPARITIES IN the workplace along cultural and even ethnic lines exist throughout the country but are more prominent in Negev industries, she said. Workers can be divided between higher professional workers - usually Ashkenazi Jews and Russians with high education - and blue collar workers - usually less educated immigrants, Mizrachi Jews and women. The first group tends to live outside the town where the industrial plant is based and commute to work. This is why peripheral towns will always have difficulties overcoming their marginality, she said. "I think Kiryat Gat is not an exception, even though the reputation is that in a high-tech plant things stand to be better," she said. "I think the gap of income is still huge between the higher professional workers and the blue collar workers." One of the most significant local contributions Intel has made is in the field of community education, local officials say. Intel has created and participated in dozens of various educational programs and projects, including offering student scholarships and creating or expanding high school tracks in electronics, biotechnology, robotics and physics. Through the company's efforts, students of all ages have been exposed to educational programs and courses that would not have existed without Intel, said Zahava Gur, the municipality's education manager. She estimated that Intel's contributions to such programs amount to roughly two million shekels a year. "When Intel came in with all of their programs, with the additional funds, we really succeeded in rising," she said. Because of Intel's need for workers, "there was thought as to which tracks to open with Intel's help, to open and develop, so that students in the future could also work there." One Intel program offers scholarships for students pursuing their bachelor's degree in science. In return, the scholarship recipients have to teach science and electronics in local schools to students between 5th and 8th grades. But Mayor Dahari said he would like to see additional contributions on the part of Intel, including building community facilities such as a university, a cultural center, an amphitheater, parks or a rehabilitation pool, he said. Over the years, Polgat Textiles built three cultural halls that form part of the city's community center. Every child and citizen in the city is familiar with these halls and knows who built them. And, he said, Polgat "didn't receive the same help (from the government) that Intel received." Some foundations have invested as much as $1.5 million a year in educational programs in Kiryat Gat, while Intel has probably invested one million dollars since it was founded, he said. "We hope that there is a correlation or direct relationship between the amount of investment that Intel received from the country and between the amount of investment that Intel directly invests to projects - both physical and social," Dahari said. Kiryat Gat resident and activist Isik Blau met with Intel officials in late December, he said, to encourage them to donate more money to the community. Blau approached the company with a list of five requests, which included establishing additional math and English classes after school for 11th and 12th grade students and building a large Intel garden so "people on the street would know there is a connection between the city and Intel," he said. "I told them that I think that if the government gave them $1.1 billion (for the current and future Intel plant), then they need to give more than what they have given so far," he said. "No factory has received so much money in Israel." IT IS Kiryat Gat's industrial zone where Intel's influence is most visible. Since 1995, when Intel's decision to open its first Kiryat Gat plant was announced, the industrial park has tripled from 2,000 dunams to 6,000 dunams. Most of the infrastructure for the land, such as roads, sewers and lighting has now been built, Yahel said. Also in the last decade, the number of employees has increased from 10,000 to 16,000. The zone now generates roughly 20 million shekels in local and regional taxes each year, he said. The industrial park is home to roughly 30 companies, including Hewlett Packard and the home-alarm company Visionic. Intel's presence is responsible for the arrival of about 15 companies that directly provide services or products to Intel or were otherwise swayed by Intel's presence, Yahel said. One reason sometimes cited by businesses for locating here, he said, is that "if Intel is here, it seems not to be such a bad place." Indeed, the influx of Intel and other high-tech or international companies has converted the region into "something like a Silicon Valley," Mayor Dahari said. "Slowly, slowly, over the years, it allows Kiryat Gat to do upgrading in all fields." The industrial park - of which Intel is by far the largest tenant - comprises 55% of total output of all economic activity in Kiryat Gat, according to the industrial park study. However, since not all consumption needs are met locally in Kiryat Gat, income is often spent in other cities, resulting in a major lost opportunity for the city, Felsenstein said. While Intel managed to attract many workers through financial incentives to move closer to Kiryat Gat, many chose to live in the rural areas around the city - in part because the type of housing they required isn't available in Kiryat Gat, he said. "If they had moved into Kiryat Gat itself, there might have been an impact on local schools, on population and demand," Felsenstein said. "There would have been an impact on local consumption." In order to maximize the industrial park's influence in the city, there must be a quick and significant increase in commercial services, in the level of education, in culture, housing and leisure hours in the city, the study found. AN INTEL employee who identified himself only as Natan said he lives in Ness Ziona and commutes 50 minutes one way because most of his friends are there and life is more exciting in the center of the country. "It is more interesting, there is more shopping, more entertainment," he said. But even Intel employees who commute do at least some of their shopping here. Engineering group leader Shai Nigri, who lives in Tzur Hadassah, between Jerusalem and Kiryat Gat, said it is often more convenient for him to shop in the city where he works. He estimated that he spends 1,500 shekels a month in family groceries, home improvement and other items in the town. Once, when Nigri discovered the plant had a shortage of semi-opaque glass for its clean room, he went downtown and bought tinted film strips from a car accessories store as a substitute. "It's not like I spent hundreds of thousands of dollars in this place. It was probably 100 shekels," Nigri said. "But we had such a great interaction... that when I needed a stereo for my car, I went there because I know the guy... It's even cheaper than doing it in Jerusalem, so why wouldn't I do it here?" Municipality officials say they have big plans to add quality housing and expand services to better suit the needs of Intel and other high-tech or large companies. Kiryat Gat has acquired 3,000 dunams of agricultural land to the north and plans to build close to 3,000 villas and 7,500 apartments geared mostly toward families. "The new city" is expected to accommodate between 20,000 to 30,000 new residents within the next five years, Dahari said. "Today, many people live in agricultural settlements around Kiryat Gat. Many engineers prefer to live in moshavim and in kibbutzim rather than in Kiryat Gat," Gradus said. "Even the general manager of Intel... Alex Kornhauser lives in a community settlement - Neora. He set the example." Just last spring, Kiryat Gat opened a new mall with the city's first movie theaters and its first McDonalds. There are also plans to build a country club, the town's first hotel and convention center and ultimately a university or full college that could train prospective Intel employees. In addition, the Trans-Israel highway Route 6 will soon extend to Kiryat Gat's industrial zone, which will make it more accessible to Ben-Gurion Airport. Officials are trying to coordinate the opening of Intel's new factory by 2008 with some of these new commercial developments. "It will be the biggest factory of Intel all over the world," Mayor Dahari said. "We must synchronize the time schedule. We don't want to lose this opportunity." Residents, too, seem to recognize the possibilities. Haim Shalelashvily, who owns a convenience store at the bus station, was hopeful that a large number of its employees would come from Kiryat Gat. "Wherever there is money, everybody buys," said Haim, an immigrant from Georgia who has lived in Israel for 35 years. "We want people to have work. They don't have work. They don't have food," added his wife Rivka. Israel Anaki, a carpenter who lives in nearby Moshav Zavdiel and works in Kiryat Gat's industrial park, said after he read in the paper that Intel was opening a second factory here, he encouraged his son, who was recently released from the army, to study computers at a local college in the hope that one day he will be hired by the company. "I told him, 'Look, go and study computers... It is very close to our moshav and you will have work, and everything will be excellent,'" Anaki said, adding that his 24-year-old son Eran followed his advice. "I only hope that they won't bring people from outside (the country)." But as Aki's cab entered the New Industrial Park, which rises out of a brown landscape like a Phoenix from the ashes, he complained that the park's entrance is surrounded by weeds. It doesn't need to look like this, he said. He hoped that Intel's second Kiryat Gat factory will finally bring the much needed momentum to the city. "I grew up here. I did my schooling here and I love this city," he said. "But it hurts me to see it not develop as they expected. They built such a big factory and really, it didn't give to the city... We won't say at all. It gave, but not what we expected."