“The government needs to recognize that weakening the shekel is an important strategic imperative that impacts the entire Israeli economy,” Gitter said.
Israel’s currency trades at NIS 3.23 to the dollar, a level that was previously unseen since 1997. Earlier last week, it had reached as strong as NIS 3.11, but the Bank of Israel’s announcement on Thursday that it would buy $30 billion of dollars in 2021 caused it to weaken by 3.7% in one day. The shekel has strengthened by some 10% over the past 12 months, and nearly 20% between the weakest points reached during March and last week.
A report published Sunday by Bank Hapoalim said that the decision to buy dollars exceeded the market’s expectations, and would likely lead to a further devaluation of the shekel in the coming weeks.
Gitter agreed that the decision to buy more dollars was a good one, but said “it doesn’t sound to me like it is going to be aggressive enough.”
“The situation today is that hiring an Israeli programmer is now about 10% more expensive than it was a year ago,” Gitter said. “That hurts startups, encourages established companies to hire abroad instead of locally, and damages all of the sectors that support the hi-tech ecosystem.”
“If we are talking about early-stage startups, most of their money comes from funding, which is nearly always in dollars, even if the money isn’t raised in the US. A company that suddenly finds that it needs 10% more capital to cover its expenses is very vulnerable, and unable to recruit the talent it needs to grow.
“Meanwhile, executives are going to be forced to look for talented developers abroad, where it’s cheaper. And if, for example, a company can only hire 30 people in Israel instead of 50 because it had to hire overseas, that affects the entire ecosystem downstream as well,” Gitter said.
“When you look at the total impact on the tech sector, and tech’s influence on the entire Israeli economy, you understand that a strong shekel isn’t a minor issue,” Gitter said. “Coronavirus hit different industries differently. Many tech companies lost money from March through June, but then they saw business come back and even improve in many cases. But the impact of a strong shekel is an important strategic issue that can affect the economy for years to come.
What can be done? “The set of tools the central bank has to affect monetary policy is known. They can buy more dollars, or reduce interest rates to negative rates. What we’re talking about is the government making this a top priority and approaching it more aggressively.”
Moshe Lipsker, SVP Global Product Development Israel Site Manager at Imperva, agreed. “This is a big issue that everyone in hi-tech is talking about.”
Imperva, a cybersecurity company that was acquired in 2019 by a US private equity firm, has 1400 employees worldwide, 500 in Israel. “When I was building our 2021 recruiting budget back in September, the shekel was at about NIS 3.5 to the dollar. When it reached NIS 3.11 last week, we found that we had to invest more dollars in order to keep the same budget.”
“I’m concerned that decision-makers are not aware of the implications of this situation going forward,” Lipsker said. “If we don’t mitigate this as soon as possible, it will be a disaster.”