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Individuals in North Take a Blow, but Overall Economy in Good Shape

August 22, 2006
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David Ben-Kiki of Nahariya lost a month of work due to no-shows and cancellations during Israel’s war with Hezbollah. A chiropractor in the North who treats both people and animals, Ben-Kiki estimated that he lost about $500 a day during the 34-day conflict. The 51-year-old Connecticut native, breadwinner for a family of eight, was forced to cancel a family vacation to Eilat, so the money could be used to keep them afloat during the crisis.

Four days into the cease-fire, business was slowly starting to return late last week. Before the war, Ben-Kiki was seeing 15-20 patients a day, six days a week, but now he sees just five or six patients, three days a week, he said.

“I’m still at a tremendous loss over here,” said Ben-Kiki, who is applying for government compensation. “I feel whatever I’m making three days a week, it’s to pay some bills, put food on the table and keep surviving.”

The conflict took a significant economic toll on individuals, small businesses and some industries in northern Israel, but its overall impact on the national economy was fairly moderate, and should not cause a national emergency, experts say.

“When the terror attacks started in 2001 and 2002, the Israeli economy almost deteriorated into a financial crisis,” said Rafi Melnick, dean of the Lauder School of Government, Diplomacy and Strategy at Herzliya’s Interdisciplinary Center. “The situation is now completely different because” Israel’s economic position was very strong before the conflict.

While real figures aren’t yet known, government officials estimate the total direct costs of the war at roughly $3.5 billion dollars, or 2.5 percent to 3 percent of the country’s GDP. That sum is expected to be split fairly evenly between military and civilian costs, said Joseph Bachar, director general of Israel’s Finance Ministry.

Economists predict 3.5 percent or 4 percent growth this year, rather than the 5 percent or so forecast before the war. Still, that’s not so bad.

“Three and a half percent is more than most economies in the West,” said Michael Ben-Gad, an economics lecturer at the University of Haifa. “It will still be growing faster than Europe.”

Government officials have approved setting aside nearly $400 million for defense and another $150 million for civilian purposes. The decision, which was slated to be voted on by the Knesset this week, sends a clear signal to the markets that Israel is back in business and able to absorb shocks like it had during the war, Bachar said.

Prime Minister Ehud Olmert and Shimon Peres, Israel’s deputy prime minister, are encouraging Jewish communities around the world to contribute to rebuilding projects in the North.

The government also is considering applying for an assistance package from the United States, Bachar said.

Some of the war costs already have been covered, and officials are taking into account the additional defense and civilian costs as they prepare the 2007 budget.

The northern region experienced an estimated 40 percent drop in economic activity during the war. However, the region constitutes only about 15 percent of all economic activity in Israel, said Adi Brender, head of public sector analysis at the Bank of Israel’s research department.

The service industry, including tourism, was especially hard hit and may continue to see some losses. Israel had 25 percent fewer international tourists in July than it did last year. That came after 1.7 million international tourists visited Israel from January through July, a 30 percent increase over the same period last year, a Tourism Ministry spokeswoman said.

While there was no internal tourism in the North during the conflict, Israelis continued to travel to other areas of the country, such as Eilat, the Dead Sea and Netanya. As of late last week, occupancy had come back in the North to about 30 percent, and hoteliers were hopeful that it soon would return to its 90 percent average for the season, the spokeswoman said.

Some losses in the North were offset by increased activity in other parts of the country. As northern residents fled their homes to avoid rocket barrages, some stayed in hotels in other parts of the country, Brender said.

Even the tourism losses probably will be offset by reconstruction of homes and infrastructure damaged or destroyed during the war, he said.

Not everyone in northern Israel closed their businesses during the conflict. Large companies were able to move some of their production southward, and many should be able to make up their losses over time by creating additional shifts, Ben-Gad said.

If fighting doesn’t resume, there should be a full economic recovery by the end of the year, Brender said.

“By 2007, we will go back to where we were before the war,” he said.

But for individuals like Ben-Kiki who suffered considerable losses, such projections are cold comfort.

“I don’t know how many of my patients will return to the North,” he said. “Some might cut their losses and move to the central part of the country.”

If the conflict flares up again, he may have to reconsider how he earns his living. Ben-Kiki, who also treats racehorses outside Israel, may have to spend more time with clients abroad.

It’s “something you don’t want to do when your family is in the fire,” he said.

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