2016: From nadir to opportunity

As in previous years, 2015 provided a broad range of local and global business challenges.

By REUVEN SHIFF
January 16, 2016 22:26
4 minute read.
IDF West Bank

IDF soldier at West Bank checkpoint at Gush Etzion Junction.. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

 
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The beginning of 2016 presents an excellent opportunity to review the past and evaluate the future.

As in previous years, 2015 provided a broad range of local and global business challenges. A number of things took place that substantially affected global markets: oil prices decreased to their lowest point since 2004; commodity prices dropped by several dozen percent; a significant decrease in growth rates in China led to a sharp decline in demand by the country. In Israel, deflation has prevailed for the past two years.

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All of the above are overshadowed by regional instability and the security situation.

In late 2015, Israel’s retail industry was not making significant progress; the fashion and food chains encountered difficulties. In addition, according to the latest forecast of the Bank of Israel, the growth rate is expected to drop to 2.8% in 2016, which will make business realities even more complex.

The aforementioned factors affect business enterprises in Israel and worldwide. A number of countries are making financial comebacks; their progress is reflected by an increase in growth rates. For example, economic indicators in the United States have continued to improve in recent months. It seems that the American economy is experiencing a process of steady recovery and gradual departure from the necessity of monetary support provided by the central bank.

How can our country achieve growth of about five percent in the next year? There are two major challenges we face in 2016. The first is to reduce the cost of living – especially regarding housing prices; the second is to restore the process of sustainable growth of our economy, which should become a center of attention and attraction for both Israeli and foreign investors.

During the brief period Moshe Kahlon has been minister of finance so far, he has taken important steps toward the goal of reducing the cost of living – including the reduction of public transportation fares and water prices, along with the increase in disposable income, by raising child allowances and the salary of soldiers during their mandatory military service.

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However, in the field of housing, the actions have not proven to be effective yet. Real estate prices in the Center not only remain unchanged, but also continue to rise constantly.

It is impossible to handle the housing demand without increasing the supply. Therefore, the remedy that will make the reduction of housing prices possible is an accelerated increase in Israel’s supply of land suitable for construction, which will lead to improved accessibility of peripheral areas to employment centers located in the Tel Aviv metropolitan area. However, this is not enough.

Our country’s economy should be immediately redirected to the path of growth at an annual rate of 5% of the GDP. In the last year, not enough was done to increase growth rates and in certain aspects, we have even retreated. In other words, no significant steps were implemented for the benefit of the business sector, including all industries, to increase productivity.

For years, we have flattered ourselves that we are a “hi-tech superpower” and Israelis constantly develop advanced technologies, but in 2015, we experienced a slowdown and weakening in high-tech export as well. This slowdown is primarily connected to the global slowdown, although it is also undeniably related to the fact that market leaders have overlooked the significance of conducting a clear policy and strategy for the benefit of the business sector and the various sectors of industries.

Increasing state revenues by taxes levied on the business sector is not a magic solution that should be applied on a constant basis and without any profound thought to back it up, since the long-term implications are harmful.

It should be noted that reduction of corporate tax as of 2016, from 26.5% to 25%, was the right move and the first step towards delineation of a new policy.

In 2016, Israel should encourage foreign investments due to the fact that since 2008, foreign investments have been in slump when it comes to Israel. It is clear that the State of Israel has experienced geopolitical instability throughout the course of its existence, along with a geographical distance from target markets and expensive manufacturing processes. In such situation, we have to provide the investors with a reasonable level of certainty, along with good reasons to establish development centers and enterprises in Israel, such as providing tax breaks, grants and other incentives.

This is the only way we can become a significant “player” in the global market.

Another major component is the low interest rate, both in Israel and worldwide, which presents a golden opportunity and should serve as a tool to attract entrepreneurs and encourage them to invest in Israel.

The coming year is fraught with opportunities to do things differently and turn the lemons of various global economies into Israeli “lemonade”, in other words – to redirect the crisis toward accelerated growth.

Extensive technological knowledge that we acquired in hi-tech can be efficiently leveraged, while the retail market should be reevaluated in accordance with the latest global trends. This can enable us to enjoy success in expanding fields, such as e-commerce, which is gaining momentum worldwide.

The challenges we face in 2016 present us with opportunities to switch to a more focused management of the Israeli economy – along the lines of successful business corporation management. In that way, the fruits of accelerated growth can begin to ripen.

The author is a founder and managing partner at RSM Shiff Hazenfratz & Co. Accounting Firm and the former President of the Institute of Certified Public Accountants in Israel.

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