Capital Crisis

The IMA's Yitzhak Reif warns that a decision to revoke Jerusalem's special status could deal a death blow to industry in the the city.

Industry in Jerusalem is experiencing its worst crisis in 40 years, and a Finance Ministry decision to revoke the capital's special status could throw it into even deeper trouble, warned Yitzhak Reif, head of the Jerusalem chapter of the Israel Manufacturers Association, at the organization's annual convention this week. Industrial output has grown every year since the 1970s, said Reif, but "this is the first year that output is shrinking. Orders have declined. Sales have dropped by 8 percent and exports, particularly hi-tech, are down by 10%." The Finance Ministry's decision to revoke Jerusalem's "A" area status in two years' time as part of the new Economics Arrangement Bill means that Jerusalem will no longer be considered a peripheral business community with all the incentives and tax breaks that such a status brings, the CEO of Jerusalem-based Ophir Electronics said. "This is going to cause a crisis among Jerusalem manufacturers," Reif warned. "In our opinion, when it comes to industry Jerusalem is as 'periphery' as it gets. Hundreds of hi-tech firms opened in Jerusalem because of the special status and the incentives they received." He urged the government to rethink its decision. According to The Manufacturers Association, 500 people will have lost their jobs in industry in Jerusalem and another 450 will be facing layoffs by the end of the year. Reif said that in his 30 years in industry, he doesn't remember such a deteriorating economic situation. "Jerusalem is the largest, poorest city in the country. Jobs in industry and manufacturing pay among the highest salaries. Hundreds of hi-tech firms opened in Jerusalem because of its 'A' status as a peripheral area, which entitled them to government assistance such as tax breaks and loans at preferred rates," he said. The Manufacturers Association believes that 170 hi-tech companies will abandon the capital unless the "A" ranking is restored. "The city will lose its young educated population, and the poverty will grow," Reif said. "Jerusalem is the capital of Israel and needs government help to flourish. Potential manufacturers or companies find it easier to do business in the center of the country. Up to now, Jerusalem has enjoyed the benefits afforded by inclusion as a peripheral business area. Investors received tax breaks and government assistance in establishing companies in the capital." Canceling Jerusalem's "A" status is like throwing sand in the eyes of manufacturers in Jerusalem, said Reif. "Businesspeople can no longer rely on the incentives guaranteed in the law. The span of a business plan is many years. Two years is too short a time for new industry in the capital to derive any benefits before the status is canceled. Businesses looking to expand are going to rethink their options because of the difficulties of operating in Jerusalem," he said. Canceling the incentives sounds a death knell to industry in Jerusalem, Reif said. "Anybody looking to set up a business will think eight times before deciding where the company's needs are best served. This includes caliber and availability of employees, transport, as well as the difficult security situation that always impacts business in Jerusalem." Reif admitted that the change in the law is very new. "No one has really examined it in detail," he said, something he hopes to do in the very near future. Reif also criticized the lack of land suitable for the construction industry. "Jerusalem is expanding westward, and the lack of space for industry has already caused a number of factories to relocate. Unless someone wakes up, it's just going to get worse." Reif wasn't totally pessimistic. "Nir Barkat is the first mayor this city has who understands the needs of industry. He has a lot of goodwill, and I hope he will succeed in bringing new business to Jerusalem." A spokesman for the Finance Ministry said that the Treasury had always invested enormous resources to develop Jerusalem and would continue to do so.