Is Israeli Red Tape Strangling Start-Up Nation?

High Tech Firms Flee as Taxes and Regulation Increase

Get Out Nation: Israeli tech entrepreneurs are shunning Tel Aviv amid what they call suffocating regulation in the Jewish state.
haaretz
Get Out Nation: Israeli tech entrepreneurs are shunning Tel Aviv amid what they call suffocating regulation in the Jewish state.

By Reuters

Published October 30, 2013.
  • Print
  • Share Share
  • Single Page

(page 3 of 3)

Investors are not pleased; one public relations firm, on behalf of clients, has launched a Facebook page called SaveTASE, blaming Israel’s securities regulator, Shmuel Hauser, for the bourse’s woes.

Part of the drop in volume followed a 2011 upgrade in Israel’s status on the MSCI index from emerging market to developed. The move led to an exodus of passive money from foreign investors tied to the emerging market index.

Foreigners now account for only about 15 percent of trade on TASE in 2013, compared with up to 25 percent in 2010.

But the real drain has been the money that Israeli institutions have withdrawn as restrictions on overseas investments were lifted over the past decade.

“We are in the process of increasing our investment out of Israel, and this process … still has, in my opinion, a long way to go,” said Amir Hessel, chief investment officer of Harel Insurance and Finance, Israel’s third-largest insurer.

Harel’s pension, provident and life insurance funds have invested 34 percent of their 102 billion shekels in assets under management and 60 percent of their equities portfolio abroad, up from zero a decade ago.

Nir Moroz, CEO of Clal Amitim pension fund, said as much as 30 percent of his fund’s assets were abroad, and that could hit 40-50 percent in the next few years due to a dearth of new local issuance.

Bank of Israel data shows pension funds hold 22 percent of their assets abroad, nearly double the level of 2009, while insurance funds hold 27 percent overseas.

FLOOD OF REGULATION

The protests of 2011 ushered in a flood of regulation that hurt profits in almost every sector - from cellular operators and food makers to institutional investors and gas producers.

Israel’s three top mobile phone operators posted an average drop of 71 percent in net profit in the second quarter of 2013 compared with three years earlier, before new regulation and competition kicked in.

“There is a big risk of making business and investing in Israeli companies because of regulation,” said one investment manager who asked not to be named.

Hauser disputes that regulations alone have harmed the markets. Much of the regulation, he told Reuters, was aimed at curbing abuse of power by large stakeholders in companies at the expense of minority holders.

However, he said “the wave of regulation since the 2008 crisis may have gone too far”. He has proposed lowering the capital gains tax to 15 percent from 25, reducing fees for trading and clearing, and trading foreign currency.

With the public’s cause taken up by the media, Hauser said it has become “illegitimate” to be rich these days, adding: “We have to stop with this populist atmosphere.”

Among the hardest hit by the new environment has been Israel Chemicals, which has made controlling shareholder Idan Ofer one of Israel’s richest people.

ICL, which has an exclusive permit to extract minerals from the Dead Sea, paid 1.2 billion shekels in 2012 in taxes and royalties. A year after ICL reached a deal to double royalty payments to 10 percent, Finance Minister Yair Lapid, a former TV personality who rode the social protest to political power, set up a panel to review once more the level of royalties paid.

CEO Borgas said ICL was worried about the “extraordinary level of uncertainty” in the business environment that the committee’s appointment has created.

“Our international shareholders acknowledge this at every encounter,” Borgas told Reuters in an email, adding that this was reflected in ICL’s share price, which fell over 15 percent in reaction to the committee’s establishment.

Its shares were also hit when Canada’s Potash Corp in April abandoned efforts to take over ICL because of strong political opposition in Israel.

Borgas, a former CEO of Swiss chemicals group Lonza, said he was concerned by the scope of regulation and the way it was conducted in what seems to be a response to populism.

“In the current situation we have a negative incentive to invest in Israel,” he said.

Israel’s economy relies heavily on foreign investment and, like many countries, it provides grants and tax breaks to attract companies.

Teva Pharmaceutical Industries, Israel’s largest company and the world’s biggest generic drugmaker, reaped close to 12 billion shekels in tax breaks between 2006 and 2011, according to the Tax Authority. It has come under huge pressure in recent weeks to review plans to shed 10 percent of its global workforce as part of a cost-cutting plan.

ICL was next at 2.2 billion shekels, followed By Check Point Software at 1.65 billion.

When these figures were published by the media in July, the public response was scathing.

Lapid has said he would reexamine the policy, but companies say the benefits are dwarfed by the jobs they provide and the money they contribute to the economy.

“Without this policy a lot of companies would have less business here and would pay less taxes,” Check Point CEO Gil Shwed told reporters in July.


The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.





Find us on Facebook!
  • The Jewish bachelorette has spoken.
  • "When it comes to Brenda Turtle, I ask you: What do you expect of a woman repressed all her life who suddenly finds herself free to explore? We can sit and pass judgment, especially when many of us just simply “got over” own sexual repression. But we are obliged to at least acknowledge that this problem is very, very real, and that complete gender segregation breeds sexual repression and unhealthy attitudes toward female sexuality."
  • "Everybody is proud of the resistance. No matter how many people, including myself, disapprove of or even hate Hamas and its ideology, every single person in Gaza is proud of the resistance." Part 2 of Walid Abuzaid's on-the-ground account of life in #Gaza:
  • After years in storage, Toronto’s iconic red-and-white "Sam the Record Man" sign, complete with spinning discs, will return to public view near its original downtown perch. The sign came to symbolize one of Canada’s most storied and successful Jewish family businesses.
  • Is $4,000 too much to ask for a non-member to be buried in a synagogue cemetery?
  • "Let’s not fall into the simplistic us/them dichotomy of 'we were just minding our business when they started firing rockets at us.' We were not just minding our business. We were building settlements, manning checkpoints, and filling jails." What do you think?
  • PHOTOS: 10,000 Israel supporters gathered for a solidarity rally near the United Nations in New York yesterday.
  • Step into the Iron Dome with Tuvia Tenenbom.
  • What do you think of Wonder Woman's new look?
  • "She said that Ruven Barkan, a Conservative rabbi, came into her classroom, closed the door and turned out the lights. He asked the class of fourth graders to lie on the floor and relax their bodies. Then, he asked them to pray for abused children." Read Paul Berger's compelling story about a #Savannah community in turmoil:
  • “Everything around me turns orange, then a second of silence, then a bomb goes off!" First installment of Walid Abuzaid’s account of the war in #Gaza:
  • Is boredom un-Jewish?
  • Let's face it: there's really only one Katz's Delicatessen.
  • "Dear Diaspora Jews, I’m sorry to break it to you, but you can’t have it both ways. You can’t insist that every Jew is intrinsically part of the Israeli state and that Jews are also intrinsically separate from, and therefore not responsible for, the actions of the Israeli state." Do you agree?
  • from-cache

Would you like to receive updates about new stories?




















We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.