2016 – the year of turning nadir into opportunity

In late 2015, Israeli retail industry does not make any progress, while fashion and food chains encounter difficulties.

By REUVEN SHIFF
February 27, 2016 21:45
A Palestinian laborer works on a construction site in the new Palestinian town dubbed Rawabi

A Palestinian laborer works on a construction site in the new Palestinian town dubbed Rawabi or "The Hills", near the West Bank city of Ramallah. (photo credit: REUTERS)

 
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The beginning of 2016 is an excellent time for making summaries and drawing conclusions, as well as an opportunity to review the past and evaluate the future.

As in previous years, 2015 has provided us with both global and local business challenges. A number of scenarios have taken place, continuously and substantially affecting all global markets: oil prices have decreased and reached an unprecedented low as of 2004, commodity prices descended by several dozen percent, 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. All of the above are overshadowed by the security situation, which doesn’t make it easier, to say the least.

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In late 2015, Israeli retail industry does not make any progress, while fashion and food chains encounter difficulties.

In addition, according to the latest forecast of the Bank of Israel, the growth rate is expected to go down to 2.8 percent in 2016, which will make our business reality even more complex.

All the aforementioned factors have become, in recent years, a prerogative of various business enterprises worldwide, while Israeli corporations and entrepreneurs are significantly affected by this process. However, some countries are clearly making a comeback and their progress is displayed by an increase in growth rates. For example, economic indicators in the US continue to improve in recent months and it seems that the American economy is undergoing a process of steady recovery and gradual departure from the necessity of monetary support provided by the central bank.

I have no intention to sow pessimism or engage in prophecy, since we all know to whom it was given in the first place. Instead, I strive to be pragmatic and specify the challenges we shall face in order to achieve growth of about 5%, as of 2016.

I believe that there are two major challenges we will face in 2016. The first is to reduce the cost of living – especially regarding housing prices, while the second challenge is to restore the process of sustainable growth of Israeli economy, which should become the center of attention for both Israeli and foreign investors.



It should be noted that during the brief period Moshe Kahlon has been finance minister, he has taken quite a few 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.

However, in the field of housing, the actions have not proved to be efficient yet, while the prices in the center of the country not only remain unchanged, but also continue to rise on a constant basis.

In my opinion, it is impossible to handle the demand without increasing 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 an improved accessibility of peripheral areas to employment centers located in the Tel Aviv Metropolitan Area.

Although, this is not enough.

The Israeli economy should be immediately redirected to the path of growth at an annual rate of 5% of GDP.

I believe that in the past year, not enough was done to increase growth rates, and regarding 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 many years we have flattered ourselves that we are a “hi-tech superpower” and Israelis constantly develop advanced technologies, but in 2015, we have experienced a slowdown and weakening in high-tech export as well. This slowdown is mainly 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 all the various 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 quite 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 toward delineation of a new policy.

IN 2016, Israel should encourage foreign investments due to the fact that since 2008, foreign investment has 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, is geographically distant 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.

To sum things up, 2016 offers many opportunities to do things differently and turn the nadir of various global economies into an Israeli “lemonade,” in other words – to redirect the crisis toward an accelerated growth. Extensive technological knowledge that we have acquired can be efficiently routed, while the retail market should be reevaluated in accordance with the latest global trends, which will allow us to enjoy success in the field of e-commerce that is gaining momentum worldwide.

2016 presents us with many challenges, along with an opportunity to switch to a more focused management of the Israeli economy, similar to the way successful business corporations are managed, and I have no doubt that the fruits of accelerated growth will ripen.

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

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