The COVID-19 economy has become central to Israel's election - opinion

Whoever finally wins the elections must behave as a smart tightrope walker.

By RAPHAEL NAGEL
The closed Carmel Market in Tel Aviv during a nationwide lockdown in October. (photo credit: MIRIAM ALSTER/FLASH90)
The closed Carmel Market in Tel Aviv during a nationwide lockdown in October.
(photo credit: MIRIAM ALSTER/FLASH90)
Excluding the damages of any kind caused by the COVID-19 pandemic, the ongoing economic crisis has already left its scars. The deepest global recession since World War II, with global GDP contracting by 5.2 percent, is expected to trigger profound changes.
Israel’s economy has contracted the most since the 1970s and macroeconomic data paint a weak picture. For emerging market and developing economies, the pandemic constitutes a perfect storm as their vulnerabilities are magnified by multiple shocks. While large-scale accommodative measures by central banks of major economies have been successful in establishing global financial markets, the question is, how sustainable is this for smaller economies like Israel?
Whoever finally wins the elections must behave as a smart tightrope walker. All the indicators show that the pandemic will also lead to a sharp increase in poverty, erasing persistent reductions made over an extended period. Many young Israelis have had to move back in with parents to buffer the devastating effects of the pandemic, and unemployment is through the roof.
Depending on the depth of the global recession, COVID-19 is expected to increase the worldwide number of extreme poor (who live on less than $1.90 a day) by about 70 million to 100 million this year.
The Abraham Accords will indeed help this situation when it comes to the Israeli economy and incoming foreign direct investment and – let’s not forget – Bibi will utilize this as one of his key legacies of the pandemic. The UAE and Israel are well aligned and can learn from each other. Together, they will exchange expertise to seek COVID-19 treatments and cures, reliable food and water sources as well as increase standards of living across the region and grow entrepreneurship and investment. These issues will take Israel way beyond this election and those to follow.
After a decade of robust growth that lifted employment and well-being, the COVID-19 pandemic has thrust Israel, like most countries, into a severe economic shock, adding to long-standing challenges, according to a new OECD report.
In a recent Economic Survey of Israel, the OECD says government support to cushion people and businesses from income losses should continue and adapt as the health and economic situation develops. Training and job-search assistance would help those who lost their jobs to find new ones while improving education and infrastructure and boosting competition would strengthen the recovery.
That is why it is essential to accelerate efforts so as to tackle the challenges that lay ahead for Israel in the next five years. These challenges include Israel’s severe disparity in adult skills, with low-skilled workers outnumbering those with outstanding skills. This contributes to a marked labor market duality, with high-wage jobs in the high-tech sector and low-quality, poorly-paid jobs elsewhere. Low-paid jobs are concentrated among the haredi and Arab-Israeli populations, exacerbating the country’s socio-economic divide and income inequalities between different municipalities.
Improvements to the education system by reducing differences between education tracks and attracting the best teachers to disadvantaged schools and poorer regions will be key to boosting the workforce. Additional support is needed for poorer municipalities mainly through higher compensation from wealthier ones to help them finance adequate public services for their residents. Enhancing public transportation will help connect people to jobs.  
Tax reforms will also need to be on the agenda, making growth more inclusive. Further expanding in-work benefits can help reduce poverty among those in work and, indeed, gain the loyalty of the electorate.
Never before have health and the economy been so intrinsically linked in our lifetimes. There is no doubt that the pandemic and politics now go firmly hand in hand, forcing the government, whichever this may become in March, to put the economy at the top of the agenda.
The writer is a lawyer and foreign direct investment expert based in Dubai, and founder of the Abrahamic Business Circle, a group promoting economic diplomacy in the Middle East and beyond.


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