Operation Protective Edge Cuts Away at Bottom Line

From Farmers to Retailers, Gaza War Hits Economy Hard

Low on Dough: Pini Levi said business has plummeted at his German Colony restaurant.
Daniella Cheslow
Low on Dough: Pini Levi said business has plummeted at his German Colony restaurant.

By Daniella Cheslow

Published August 15, 2014, issue of August 22, 2014.

When he opened his Jerusalem restaurant last year, former butcher Pini Levi drew national acclaim for his dish of coiled, battered and fried spinal cord served with a fiery hot sauce. But over this summer of war in Gaza, Levi said his German Colony restaurant, Pini’s Kitchen, has taken such a drubbing he may have to close.

“We lost 70 % of our business. We can’t get on like this,” Levi said. “It’s been two months, and we don’t see the end.”

Levi is not alone. Operation Protective Edge, as Israel has dubbed its latest Gaza invasion, has chipped about half a percentage off the country’s gross domestic product of $300 billion, according to the Finance Ministry.

The biggest impact has been on the tourism and service industries. Businesses in cities near and far from Gaza have contracted over the summer, and business leaders are anxiously watching the cease-fire negotiations to see if they will get relief.

At the recently reopened Waldorf Astoria in Jerusalem, general manager Guy Klaiman said he had looked forward to the hotel’s first summer. The hotel welcomed guests again in April after seven years of painstaking reconstruction that preserved the original Ottoman façade of the building. During its first three months, well-heeled clients crowded the pristine, airy lobby, enjoyed house-made French pastries at breakfast and sank into beds made up with crisp, white 500-thread-count sheets. But on August 12, Klaiman walked through a hotel that was less than half full. Many potential Israeli clients were deeply affected by the war and did not see the summer as a time for luxury spending, he said. “We are lucky our restaurant was filled every night,” the hotelier added.

Pini Shani, director of incoming tourism at the Ministry of Tourism, said business was down about 20% in July, the latest month for which he has figures. But even with the war now winding down, the months ahead don’t look much better. Many groups have canceled trips for September, October and November, and other tourists have avoided making future bookings. Shani compared the damage of Operation Protective Edge with that of the Second Lebanon War, a 34-day conflict that took place in northern Israel, the Golan Heights and southern Lebanon in July 2006. The tourism industry took about nine months to recover then, he said.

According to Shani, this year’s damage to tourism has been worse than the hit the country took during Gaza military operations in 2008 or 2012, he said. Operation Protective Edge lasted longer than either of the two previous campaigns. During this conflict, rockets from Gaza have reached deeper into the Israeli heartland than ever before, sending Israelis into shelters in Tel Aviv and Jerusalem. To counter the dip in this year’s figures, Shani said his office is plowing 100 million shekels — about $29 million — in marketing Israel in the United States, Russia and Europe.

“We don’t mention security directly,” he said. “We market how pleasant Israel is, and we assume the tourist knows how to evaluate security. Also, if there is a cease-fire, the security situation will calm down and those messages will not be as relevant.”

Tourism is only a small part of the Israeli economy, accounting for about 2% of the GDP in 2011. Other sectors battered by the summer operation include the service industries, industry and retail, and agricultural production in southern Israel.

Chen Peretz, a spokesman for the Finance Ministry, said the government has a compensation fund for businesses up to about 25 miles from Gaza. This radius includes Sderot and Ashdod but excludes Tel Aviv, Jerusalem and further afield — cities that depend on tourism.

Shai Berman, head of the Israeli Restaurants and Bars Association, said he is lobbying to extend the geographical area of compensation. He estimated damage to all restaurants nationwide to be between $114.8 million and $143.5 million.

“For us in Israel, when there’s a war we are prepared and we take precautions, but we are not used to the homefront being so vulnerable,” Berman said.

Economist Ayal Kimhi, deputy director of Israel’s Taub Center for Social Policy Studies, said one major factor in any economic recovery will be a looming military spending bill. The Israeli military has requested $5.2 billion in increased spending for the next two years, which will result in either increased taxes or reduced government spending. Kimhi doubted compensation money from the government would be able to help Israeli businesses: “The strong businesses will survive, others will not, and there is very little expectation that assistance will help.”

Damage to the Israeli economy pales in scope and impact to the damage in Gaza, which Palestinian Deputy Prime Minister Mohammad Mustafa estimated to be about $6 billion — twice the size of the Gazan economy.

For now, struggling businesses are cutting costs and investing in renovation. At the New Imperial Hotel, a modest guesthouse inside Jerusalem’s Jaffa Gate, workmen chipped sheetrock off the walls to expose original Jerusalem stone. Owner Abu Walid Dajani said he would rather invest in renovating rooms than close his doors. He said he hoped Jerusalem would slash property taxes for hotels limping through the summer.

“August is the season,” he said. “If we have 10% occupancy, what are we opening for?”

Contact Daniella Cheslow at feedback@forward.com



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