The digital boom in Israel shoots its currency and makes Tel Aviv the most expensive city in the world | Economy

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View of the Israeli city of Tel Aviv, ranked as the most expensive city in the world by the Economist Intelligence Unit.
View of the Israeli city of Tel Aviv, ranked as the most expensive city in the world by the Economist Intelligence Unit.MENAHEM KAHANA (AFP)

Israel has ceased to have an isolated economy, burdened by defense spending and dependent on exports, to become an economic power, as well as a military one. The shequel, the national currency, has recently reached the highest price against the dollar in the last 25 years after having appreciated 20% in 2021, and Tel Aviv, the commercial capital of the country, has just been proclaimed as the Most expensive city in the world in the annual index of The Economist Intelligence Unit (EIU).

“The massive inflow of investments in the high-tech sector and the funds of the Jewish diaspora that nourish the local entrepreneurship system, together with an interest rate of 0.1%, have generated a perfect economic storm,” says Enrique. Bal, economic and commercial advisor at the Spanish Embassy in Tel Aviv. “Since he hit the key of the start-up, Israel has had sustained growth above 3% for many years, except in global crises such as the pandemic ”, he points out, in line with the massive influx of capital (about 33,000 million euros in the first half of this year, more than in all 2019) that has fueled the rampant appreciation of the shekel. “And the surprising thing is that the current account balance has not been affected,” says Bal.

“The strong shekel is a consequence of the new Israel forged in the last quarter of a century, which no longer depends exclusively on the sale of goods abroad and now also exports services, focused on high technology and energy,” he condensed in the diary pages Haaretz analyst David Rosenberg on the turn in the economy of the Jewish state. In addition to attracting foreign investors to finance emerging technology companies, Israel already produces most of its electricity with natural gas from its own deposits in the Mediterranean and has begun to export it to neighboring Egypt and Jordan.

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The exchange rate tends to appreciate due to the huge amount of funds that come in from abroad. “More and more shekels are demanded in the market, and therefore the dollar and the euro depreciate,” sums up the Spanish economic adviser in Tel Aviv. Bal does not see, for now, the risk of a technology bubble in growth that essentially gravitates on a single sector. “The ecosystem of the ‘start-up’ has a very diversified range. There is a trend towards cybersecurity, but water management, drones or food traceability are also addressed ”, he clarifies.

The Organization for Economic Cooperation and Development (OECD) has just raised Israel’s GDP growth forecast for 2021 to 6.3%, 1.3 points more than in its previous prediction, although below the 7% they anticipate. the Government and the Bank of Israel. The inflation curve has been at its highest peak in a decade, but remains contained at 2.3% per year. “The progress of the vaccination reinforcement campaign (about 45% of the population has already received the third dose), the improvement in the labor market (the unemployment rate has dropped to 7%, approaching 3.5 % prior to the pandemic) and the recovery of domestic demand ”. These are the causes pointed out to justify its diagnosis by the organism that represents the most advanced economies on the planet.

But the perfect storm that powers the sails of the economy does not blow the same for everyone in Israel. The winners, the start-up workers, barely represent 10% of the workforce. However, they contribute 25% of the collection with their high salaries, in a sector that concentrates 43% of the country’s exports. “This situation creates a problem of inequality that Israel is not spared either,” Enrique Bal underlines. The lowest income levels are found in the two minorities most disconnected from economic activity: Israeli Arabs (21% of the population) and ultra-Orthodox Jews (12%).

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The Spanish economic adviser is not in favor of “artificial” classifications such as the one produced by The Economist Intelligence Unit, although he acknowledges that the high cost of living in Israel (with a price level 19% above the OECD average) it is particularly high in Tel Aviv. “The technology sector pulls up while workers in traditional sectors are expelled from the central areas of cities,” he warns. The typical cost of acquiring a home in Tel Aviv exceeds 3.5 million shekels (975,000 euros), double the Israeli national average, according to the Central Bureau of Statistics.

“Path of an explosion”

The index produced by the EIU, a subsidiary of the British weekly The Economist, it does not include housing costs, but still ranks Tel Aviv at the top, by cost of living, among 170 cities worldwide. The economic and cultural capital of Israel this year has surpassed such onerous cities for expatriates who receive their salary in dollars or euros such as Paris, Zurich, Hong Kong or New York. In a recent interview published by Haaretz, the mayor of Tel Aviv, ex-laborer Ron Huldai, warns that his city “is on the way to an explosion (due to housing and transportation problems), and is going to be increasingly expensive.” About 220 kilometers northeast of Tel Aviv’s skyscrapers is Damascus, the cheapest city on the EIU list.

In the Jewish state, prices make the difference. Food (a tub of yogurt can cost more than 1.5 euros, the piece), transportation (the same Seat León that in Spain does not exceed 25,000 euros in sale price, in Israel it is close to 40,000 euros, at current change) or fuel (a liter of 95 octane gasoline stands at 1.9 euros), along with other products such as alcohol or personal care items, are behind the shortage.

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The high cost of living is a general complaint in Israel, where an outbreak of social protests broke out a decade ago, with thousands of young people camped out in central Tel Aviv. The current government, which ended the 12 years of consecutive terms of conservative Benjamin Netanyahu six months ago, has launched a reform of the import system that has already been approved in committee in the Knesset (Parliament). “The objective is to suppress the oligopolies that arose in an isolated country and obsessed from its birth (in 1948) with food security,” explains Bal. It is not an easy endeavor, he warns: “70% of the country’s eggs, chicken and milk are now in the hands of the same company.”

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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