There have been an unlimited number of commentaries on where to go from here after Oct. 7, most, nearly all, suggesting Israel must retaliate and reassess our relationship with Hamas. However, less has been written about the economic fallout from another war with the terrorist organization.

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Economic growth in 2023 as of July was trending to 3.11% on an annual basis. We can now assume that we won't reach that goal, depending on how long this war lasts.

Our previous war with Hamas, in 2014, lasted 50 days and caused a 0.3% drop in the economy. This war, however, is of a different magnitude, and will be far more costly because that war in 2014 was fought almost entirely in Gaza, whereas this war is being fought both at home and on the strip.

The government deficit

The target deficit when the budget was approved in May of this year was 1.1% of Gross Domestic Product, which is a measure of the size of the economy. Going into the war the deficit was already 1.3% of GDP and will now exceed that. Among the expenses that will expand the deficit is the mobilization of 300,000 reservists. Assuming an average monthly salary of 10,000 shekels and employer expenses of 25%, we're looking at a cost of NIS 3.75 billion a month. Add to that overtime pay for the police, military expenditures to fight the war, and repairs of physical damages by Hamas missiles. If the war continues and the economy slows down, we can add unemployment payments to the government's list of unexpected expenses.

Add to the above the reduction in state revenues that would come with an economic slowdown and the deficit simply widens even more. As it is, the deficit widened even before the war in part due to reduced government revenues as well as more expenditures than originally budgeted. As this war progresses, this trend will continue.

Tourism

Tourism is obviously going to take a hit. Most foreign airlines have reduced or halted flights to and from Israel. The drop in foreign tourists will impact the larger hotel chains that are preferred by foreign tourists, but we can also expect a drop in Israeli tourists to the smaller, boutique hotels they favor. The drop in tourists will also impact the nearby businesses that rely on tourists. This industry will see a drop in revenues and likely furloughs and layoffs. If the war lasts too long, some of the smaller businesses will simply close. All of this will combine to reduce state revenues, and may impact local authority revenues as well since they include hotel room taxes and property taxes, among others

Business failures

The longer the war lasts, the greater the impact on local businesses, as people remain home and avoid going out. As a result, local businesses will come under pressure to meet their expenses much like they did during the Covid-19 pandemic.

Stock market

The stock market initially showed sharp declines on Sunday, with 165 firms showing gains in their share prices but 551 showing declines and 233 holding steady. Last week, there were 356 gainers and 397 decliners, with 271 holding steady. Into the second week of the war, most TASE indices are down, most by 3% or more. While foreign investors may flee the local market, we can expect local investors to take advantage of any drops in share prices and market prices after the war should stabilize.

Exchange rate

We can expect a further decline of the shekel opposite the dollar and euro, which will raise import prices in the shekel market. We should therefore expect a degree of inflation as the war progresses. We can also expect more Bank of Israel intervention to support the shekel by selling dollars. We would also expect to see the BOI provide dollars to importers as the dollar supply drops due to the war.

Credit rating

A greater threat if the war lasts longer than a month is its impact on Israel's sovereign credit rating. As the economy slows and the deficit grows, Israel's credit rating could be downgraded, increasing the government's cost of servicing its debt.

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The government should prepare for the slowdown that will come with an extended war. This will mean offering unemployment to those furloughed from work but not laid off, and provide funds to small businesses to keep them afloat. But this time, Israel will hopefully avoid making the same mistakes made during the Covid-19 pandemic, where the government handed out money too quickly, and then demanded some of it back.

We will get past this war as we will have others, but having learned from the previous conflicts we should prepare in advance for the obvious consequences.

Michael Humphries teaches marketing and management at the Jerusalem College of Technology and is deputy chairman of the Business Administration Department at Touro College Israel, where he teaches finance.

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On Sept. 15, 2020, Israel signed the first and second of four normalization agreements with Arab countries that came to be known as the Abraham Accords. At the time, I believed that while the accords might generate a peace dividend, I didn't see any immediate economic benefit to Israel.

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The two strongest economies among the countries involved, the UAE and Israel, were quite different and didn't trade in appropriate directions (export for one and import for the other).

Video: Netanyahu says MBS contributed to the signing of the Abraham Accords / Credit: Facebook

Yet on the accords' third anniversary, I stand corrected and am pleased to admit it. Since the signing of the agreements, a series of economic activities have yielded mixed but mostly encouraging results, especially from Israel's perspective.

For example, over the last three years there have been 470,000 visits to the UAE by Israelis, but few from the other direction. The same pattern has played out between Morocco and Israel. It had been expected that the accords would generate "religious" tourism from the Arab states to Israel, particularly to Jerusalem. To date, that hasn't materialized.

Similarly, in regard to the direct flights established between Israel and the UAE, Bahrain, and Morocco, most of this development has benefited Israeli tourists and not those traveling to Israel.

However, the stronger measure of the success or failure of the accords lies in evaluating the economic trade they have generated in comparison with Israel's two prior peace agreements with Arab states – Egypt (1978) and Jordan (1994). Both agreements generated high expectations that trade between Israel and its two former adversaries would strengthen ties. What has emerged, rather, has come to be known as a "cold peace" – especially from an economic perspective.

Despite the 45-year-old peace agreement, trade between Israel and Egypt in 2022 came to $306.9 million ($179.5 million in imports and $127.4 million in exports), and trade with Jordan came to $535 million ($469 million in imports and $66.5 million in exports). Compare this with $2.56 billion in Israeli trade with the UAE in 2022 ($1.89 billion imports and $670m in exports), which was 47.6% higher than the nations' bilateral trade in 2021.

Total trade between Israel and the four accords countries in 2022 was $3.43 billion, four times the trade with the Jewish state's veteran Arab peace partners.

More importantly, institutions have been established and funded to strengthen these trade ties. Israel, the UAE, and the US have established the Abraham Fund, capitalizing it with $3 billion. And in May of 2022, Israel and the UAE signed a Free Trade Agreement, with the declared goal to eliminate duties on 98% of imports.

While Saudi Arabia has yet to formally join the UAE, Bahrain, Morocco and Sudan in the accords, Riyadh now allows Israeli civilian aircraft to fly over its airspace on the way to Asia. This reduces the fuel and cost that Israeli airlines need to fly to Asia; and cuts down on travel time for passengers.

Given the robust relations between Israel and its relatively new Arab peace partners, the Abraham Accords have indeed produced a warm peace – in stark contrast to Egypt and Jordan, who seem reluctant to trade with Israel despite decades of peace. From that vantage point, the Abraham Accords should be considered a significant economic success.

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Let's start with a few figures: In 1989, there were a little more than 4.5 million people in Israel. After the Soviet bloc crumbled, Israel too in nearly a million immigrants from the former Soviet Union in the space of two years. In other words, by 1990, immigrants from the FSU comprised about one-fifth of the population.

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Despite the absorption difficulties, this wave of aliyah made a major contribution to Israel's development More than half of the adult olim arrived with university degrees and post-secondary job skills and became an important part of founding the high-tech sector. The wave of immigration brought us 110,000 engineers, 80,000 technicians, 35,000 teachers, 17,000 scientists, 40,000 doctors, dentists, and nurses, and about 60,000 certified industrial workers.

The contribution to Israel's growth both in terms of real numbers and relative numbers was enormous. The GDP measures a country's economy, but a more important figure is the per capita GDP. China's GDP currently stands at $14.7 trillion, compared to Israel's "mere" $402 billion, but the per capita GDP in China is $8,840, compared to $43,600 in Israel – nearly five times more. Immigration by an education population is a major factor in Israel's economic growth.

The country is once again about to see a large wave of immigration, and it is already having an effect. There are complaints about Israel not being able to take them in for a variety of reasons, mostly economic ones. Actually, we can't allow ourselves not to take them in.

About half of the Ukrainian arrivals will come with academic degrees at a time when the country is suffering a shortage of workers, especially engineers. According to the Innovation Authority, as of 2021, there were 13,000 unfilled jobs in the high-tech sector, and 60% of companies were unable to hire people for them. As a result, the government is making preparations to open its doors to foreign high-tech workers. But a massive influx of an education population of Ukrainians will make that unnecessary.

But high-tech isn't the only sector in need of high-quality personnel. The construction sector needs some 5,000 supervisors, which directly affects the number of housing units contractors can build per year. The hotel industry is complaining that it is short 16,000 workers, and it, too, wants to bring foreign laborers to Israel to meet its needs. There are other examples of fields in need of workers, but in my humble opinion, these are sufficient.

Instead of complaining, Israel should focus on taking in the refugees from the Ukraine war. Israel accommodated the wave of aliyah from the FSU when it was smaller and economically weaker. This time, it should be much simpler. Preparations will need to be made at the bureaucratic level to absorb them in Hebrew classes and sign the children up for school. Professional training frameworks in Ukrainian must be established for those who do not have the necessary skills or education to flourish in the Israeli economy.

Israel should set a goal: Within a year of their arrival, Ukrainian olim should be able to work and support themselves. If it works takes appropriate action, we will avoid the incidents of the 1990s, when scientists were working as cleaners. The time is right, and this wave of immigration will succeed, but only if we let it.

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Since the recent war with Hamas, there has been an upsurge in anti-Israel and anti-Semitic activities in the US, particularly on college campuses. Meanwhile, on Capitol Hill, Reps. Alexandria Ocasio-Cortez, Ilhan Omar, Ayanna Pressley, Rashida Tlaib, Jamaal Bowman and Cori Bush have accused Israel of apartheid and war crimes, while calling for sanctions against the Jewish state.

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But the sudden groundswell of concern for Palestinians rings hollow when considering that Palestinians have been suffering from apartheid almost since the establishment of the State of Israel – not in Israel itself, but in Lebanon, Syria, Jordan, Egypt and other Arab countries.

Israel's detractors loosely toss around the term "apartheid," with a seemingly infinite number of definitions depending on who is talking and who they are talking about. As far as the UN is concerned, the International Convention on the Suppression and Punishment of the Crime of Apartheid (herein, Convention) describes apartheid as "any legislative measures and other measures calculated to prevent a racial group or groups from participation in the political, social, economic and cultural life of the country and the deliberate creation of conditions preventing the full development of such a group or groups, in particular by denying to members of a racial group or groups basic human rights and freedoms, including the right to work, the right to form recognized trade unions, the right to education, the right to leave and to return to their country, the right to a nationality, the right to freedom of movement and residence, the right to freedom of opinion and expression, and the right to freedom of peaceful assembly and association."

The Convention adds that apartheid includes legislation "designed to divide the population along racial lines by the creation of separate reserves and ghettos for the members of a racial group or groups, the prohibition of mixed marriages among members of various racial groups, the expropriation of landed property belonging to a racial group or groups or to members thereof."

Today, there are an estimated 500,000 Palestinians in UNRWA camps in Lebanon, descendants of the 100,000 Palestinians that arrived in Lebanon following Israel's War of Independence. Including the generation that came as refugees, Palestinians are now in their fourth generation in Lebanon.

Yet per Lebanese law, Palestinians are not allowed to become citizens of Lebanon, including those that are third-generation Lebanese. This is a clear violation of the Convention's prohibition against laws limiting a particular racial group or groups from participation in the country's political life.

Lebanese Palestinians cannot own a business or work in a number of well-paying professions. This is the law despite the fact that Lebanon grants work permits to non-Lebanese individuals from a variety of countries.
Palestinians cannot own real estate in Lebanon. They cannot participate in the country's social security pension system even if they pay into the pension fund. They cannot participate in the country's national health insurance system. They must live in the UNRWA refugee camps unless they receive a travel permit. Finally, Lebanon's Palestinian children are limited in their rights to an education.

These limitations, all violations of the UN Convention on Apartheid, have been in force for over 70 years – and not just in Lebanon, but also in Syria, Jordan, Egypt and other Arab countries. Yet progressive lawmakers or anti-apartheid campus groups are silent on these policies. Had the parents of Rep. Tlaib, a Palestinian-American, immigrated to Lebanon instead of the US, her family would be stateless – meaning that a non-Arab state grants her family citizenship while an Arab country refuses to do so.

Israel found itself with 220,000 additional residents following the War of Independence: Palestinians who chose not to flee. Among Israel's first acts as a new sovereign nation were laws making these Palestinians citizens of Israel, Arabic an official language and Sharia courts recognized for civil purposes (parallel to rabbinical courts for Jews). Land titles were recognized, as well as Palestinians' right to acquire real estate in general.

Arabs and Muslims vote in Israeli elections, sit in the Knesset, sit on courts (including the Supreme Court) and serve in the executive branch. They attend Israeli universities, work in white-collar professions, hold executive positions in Israeli companies, hold positions and appear in Israeli television and the press in general, and work as actors in Israeli entertainment productions. In the current political situation, the Israeli-Arab political party Ra'am held the balance of power between the right- and left-wing camps that formed a new governing coalition. Nevertheless, Israel's critics accuse the country of apartheid while remaining silent about the real apartheid occurring in Arab countries.

Why have the Palestinians suddenly taken center stage? When all else fails, Christian and Muslim leaders blame the Jews. Today the Christian left has found common ground with the Christian right in attacking Jews, each from a different angle. Neither camp within the Christian community seems to have a unifying message for their followers, so Jews become the focus of their attention. The good fortune of the Palestinians is that their fight is with the Jews. We should have pity for the Kurds and Yazidis, whose fight is with other Arabs and Muslims.

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The Israeli government has come under significant criticism for its handling of the coronavirus crisis, particularly from an economic point of view. While criticism from those adversely affected by the pandemic is understandable, so is the government's side of the story. Now, what matters most is learning from the experience.

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Israel came into the pandemic without any institutional knowledge about handling this type of crisis. Mistakes were made along the way, but that was to be anticipated. Now, with a year of experience under its belt, Israel has essentially built a manual for handling the next crisis.

Of the 14,000 restaurants in Israel that existed before the pandemic, an estimated 4,000 have shut down permanently. As is the case with most of the (economically) developed world, Israel has a service economy. Most Israelis work in a service industry rather than in manufacturing. These businesses have been hit the hardest because they entail direct contact with clients – a contact that drives the spread of a virus. The government's policy has been to shut down most of these services in an effort to protect the general public. But doing so has been a death sentence for many businesses and employers, and has forced many of the surviving businesses to take on debt that may eventually push them to bankruptcy.

What could have been done differently? First, Israel needs business interruption insurance, a form of insurance that will compensate a business if its operations are interrupted due to the inability of a supplier to perform and/or physical barriers or events that prevent customers from reaching the business. The government needs to encourage insurance companies to offer such policies to Israeli businesses.

Second, the government doled out a large amount of money to both businesses and individuals in an effort to keep the economy going. The rationale behind payments to individuals was to encourage spending. But since Israel was in lockdown, many forms of spending were not an option. These funds are better spent supporting the business sector. Israel should pass legislation stipulating a property tax suspension in the event of a national disaster such as a pandemic. Businesses were shut down by government order but were simultaneously expected to pay property taxes on properties not generating income. The funds paid out to consumers should be redirected to cover the loss of property taxes to the local authorities.

Third, Israel needs to again redefine the legal term "unemployment." During the crisis, the Bank of Israel initially redefined the term to include those on unpaid leave, which was referred to as "broader unemployment." If an employer fires or lays off an employee, a chain of events is generated that makes it difficult to bring the same employee back to work with the same employer – events such as severance pay, informing pension funds of a stop in payments for that employee, loss of seniority at the place of employment, and so on. Unpaid leave is a way of avoiding these events. The Bank of Israel's expanded definition of unemployed should be invoked in the same legislation referenced above. This would allow those on unpaid leave to qualifying for unemployment during the pandemic and would be a better way of providing the public with financial support.

There are two advantages to this third initiative. The first is that the newly "unemployed" would have the funds necessary to pay their rent or mortgage, car loan, and more, avoiding a domino effect as broader employment reaches 25 percent of the labor force. The same individuals would not need to go further into debt to make those payments – a debt crisis that may be awaiting Israel once the pandemic subsides. A second advantage is that this approach would avoid a problem that seems to be emerging as Israel starts exiting the crisis: some workers have found that the current welfare payments they are receiving (conceived by decision-makers at the last minute) offer them a paid leave and are reluctant to come back to work. A formal definition of broader unemployment would include terms for eligibility for unemployment compensation and for termination of such compensation.

Israel must assume that there will be another crisis, whether or not it is related to coronavirus. The lessons of the past year should inform how the country tackles that future crisis.

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In the midst of a reality comprised of heated political controversies and the challenges of COVID-19, the Knesset recently ratified the historic peace deals with Bahrain and the United Arab Emirates, which coincided with the announcement that Sudan would also normalize relations with Israel.

While these agreements represent a landmark political achievement, what are their implications from an economic standpoint? Despite a number of commentators touting an impending financial windfall, no dramatic benefits on that front should be expected for Israel nor its Arab peace partners.

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Take the example of the NY Koen Group, an American Jewish-owned corporation that recently announced its intention to acquire Israir airlines. The company stated that it considers the purchase of Israir to be a significant development because NY Koen seeks to expand its activities in the aviation sector and to build on the market segment of the middle-class traveler. This potential acquisition is an expression of an economic commitment reflected by a diplomatic agreement. It will also open new destinations for the Israeli traveler.

However, in the economic sense, it is not earth-shattering news. Israel routinely draws business interest from companies around the world in countries which have friendly ties with the Jewish state. Israel also exports its products to many nations. Therefore, while Israel's new options for commerce with the UAE, Bahrain, and Sudan are certainly encouraging, their benefits should not be exaggerated.

Now, newly initiated maritime talks with Lebanon present a contrast to Israel's other agreements in the Arab world. It is fairly clear that neither Israel nor Lebanon have any aspirations to engage in security or strategic cooperation; their interest is purely economic. At the same time, the economic impact would also be modest.

The negotiations between Israel and Lebanon center on economic rights in the Mediterranean. The disputed area stretches some 860 square kilometers (332 square miles) which contain natural gas deposits. There is a clear economic interest in advancing the talks with Israel from the Lebanese point of view, despite Hezbollah's opposition to any rapprochement with the Jewish state, since Lebanon is traversing an ongoing economic collapse. But why is Israel so enthusiastic?

Presently, Israel is flooded with natural gas and consumes less than 1% of its gas reserves. It also exports natural gas to Egypt and is efficiently working towards exporting that resource to European countries as well. Simultaneously, there is a worldwide trend towards reducing gas prices because the US, Qatar, Russia, and even Australia are flooding the market with natural gas.

Therefore, even if Israel obtains everything it wants from Lebanon, the economic benefit of a deal would be minimal. Even considering the prospect of holding additional gas reserves, assuming Israel's gas consumption will rise and global demand for natural gas will continue to grow, this activity will not yield tremendous profit.

The global market is trending towards renewable energies, mainly due to environmental aspects as well as the aspirations of countries that are not energy-independent to produce energy without dependence on other nations. The Europeans would be happy to diminish the threat posed to their energy supplies from the war between Azerbaijan and Armenia, where there is with Turkish, Iranian, and Russian involvement. Indeed, the European interest in the sounds of battle heard from the Caucasus region results from the fact that Azerbaijan is a significant oil provider to the continent.

Economic considerations for the future must be reflected in investing in alternative energies – both in construction and in technological development designed to improve economic viability. Many countries are poised to increase their reliance on solar and wind energy sources. With the world slowly abandoning fossil fuels and natural gas, it is incumbent upon Israel to take that trend into account when formulating its plans in the energy industry.

Israel has a natural interest in diversifying its future options in the energy market and in all industries, including through examining the doors opened by normalization with the Arab world. Yet overstating the economic upside of both the recently reached peace deals and the ongoing talks with Lebanon also reflects the human tendency to pursue possibilities that are familiar and available, at the expense of exploring new and untapped ideas. Additional destinations for exporting Israeli natural gas are welcome, but from a global perspective, the future is found in the sun and the wind.

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