In the wake of the cease-fires with both Hamas in Gaza and Hezbollah up north, Israel has embarked on an ambitious postwar reconstruction mission. Although optimism prevails, numerous challenges pose significant hurdles to swift rebuilding efforts, with thousands of civilian structures in war-affected areas desperately needing restoration.
Contents
Reconstruction Campaign Kicks Off
Several initiatives are already underway, such as the Tekuma (Revival) Administration, boasting a five-year mandate and an initial budget of 19 billion shekels ($5.3 billion). However, as we approach January 2025, the national budget, a staggering 607.4 billion shekels ($170.9 billion), has yet to be approved. The crux of the matter lies in whether military expenditures might take precedence once more, hinging on the stability of the tentative cease-fire.
Meanwhile, the north of Israel remains in stark distress, being the region most afflicted by Hezbollah’s missile barrage. Out of 150,000 businesses in the area, about 80,000 reside in the Upper Galilee, the most ravaged section. Approximately 50% of establishments in the restaurant and service sectors have shuttered, and a quarter of them will possibly never see the light of day again.
Economic Challenges and Constraints
Reconstruction, as Dr. Roby Nathanson from the Macro Center for Political Economy asserts, extends beyond merely rebuilding physical infrastructure. It’s pivotal to rejuvenate the business milieu. "People will not return to locales devoid of employment or prospects of income. In my view, that is the paramount challenge," he remarks. Nathanson stresses the necessity for the government to approve the 2025 budget by March’s end. Otherwise, the government risks a collapse.
However, economic hurdles persist. Inflation worries and fiscal deficits linger, preventing the Bank of Israel from reducing interest rates. According to Chen Herzog from BDO, a reduction could potentially invigorate economic recovery by stimulating investment and business activity.
Surging Market Momentum
Interestingly, despite the prevailing uncertainties, Israeli infrastructure companies are experiencing a value surge. For instance, Danya Cebus’ market capitalization soared to 3.71 billion shekels – a notable 13.02% upswing over the past year. Likewise, Shikun & Binui now holds a market capitalization of 6.78 billion shekels, marking an impressive 34.52% boost.
In addition, Chen Herzog, chief economist at BDO, emphasized the panorama of tougher economic conditions, stating, “2024 saw a decline in per capita growth by 1.5%. As a result, Israelis have become poorer in real terms.” Measures like heightened value-added taxes, increased income taxes, and reduced welfare payouts have burdened the public manifold.
Labour Conundrum
The labor shortage troubles Israel deeply, particularly as reconstruction trudges forward. The nation faced a pre-existing labor shortage, worsened dramatically since October 7. The absence of approximately 80,000 Palestinian workers has stalled reconstruction nationwide.
Efforts to substitute this deficit with foreign labor from Sri Lanka and India have been underway. Still, Nathanson forewarns that reinstating some degree of Palestinian employment might be necessary.
Housing Dilemma
Housing challenges exacerbate this problem. According to Herzog, housing starts have plummeted, with only 20,000 to 30,000 units springing up annually, despite 60,000 new families venturing into the housing sector each year. This gap only adds pressure on soaring housing costs.
Eliran, a community leader from Ma’alot, illustrates this dilemma, implying "there’s a labor shortage. Facilities like shelters yearn for comprehensive repairs but remain unattended due to insufficient manpower and resources."
New Measures and Prospects
Hope flickers through new building regulations in place to expedite processes and remedy the workforce crunch. Eliran from Ma’alot revealed that community members constructed reinvigorated safety rooms with minimal red tape. With the Home Front Command’s nod, planning approval was swift.
Nathanson suggests that Israel boasts sectors like high-tech, military industries, energy, and communications, firm even despite the adversities. The shekel, though initially weakened, is poised for recovery. In turn, if the ceasefire holds, this could favorably impact the shekel, making imported goods cheaper and assisting in reducing inflation.
Conclusion
As Israel delves deeper into the reconstruction process, uncertainty prevails. From fragile ceasefires to unmet budget needs and workforce shortages, the nation stands at a pivotal juncture. As Natanel Haiman noted, "The current conditions nurture optimism and growth. Yet, the Israeli business community stands poised to tackle uncertainty, whatever the circumstances."
[This article is penned by Nathan Klabin, reproduced with kind permission from The Media Line.]
