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Israel in Turmoil: Political Protests Impact Business Climate
Israel has seen weeks of intense protests over a plan to weaken the country’s Supreme Court, with criticism from both domestic and international stakeholders. Prime Minister Benjamin Netanyahu has now announced a delay to the proposed legislation to change the way judges are approved, allowing Knesset to overturn Supreme Court decisions with a simple majority and prevent the court from judging many laws enacted by the legislature. The uncertainty in Israel’s political situation has caused serious concerns within the business sector.
Large Israeli businesses have most of their revenue from the US, Europe and Asia, as Israel is a small market globally; most of Israel’s neighbours have minimal or no trade with the country. Ratings service Fitch has warned that the court controversy “could weaken Israel’s credit profile,” while Moody’s issued a similar statement, speculating that the proposed changes “could materially weaken the strength of the judiciary and as such be credit negative.” However, neither has changed Israel’s credit rating at present.
Tomer Weingarten, CEO of cyber defence company SentinelOne, has been in constant talks with investors who want to know the risks associated with the political situation. He stated that the conflict is affecting his company’s ventures, adding that he may slow down investment in Israel due to fear of what happens next.
There are worries from some Israeli businesses that decisions around major issues such as taxation, worker rights, and investor rights could be under the supervision of a right-wing government-appointed Supreme Court. CEOs also fear the potential separation in Israel due to the extreme degree of unity being questioned.
However, Isaac Litman, CEO of Neteera Technologies, a digital health firm, disagrees. His company recently closed a round of funding but felt no impact from external investments, which are crucial to his company and Israel’s economy. Litman believes such concerns will be alleviated in six months, stating that the current turmoil is “a stress test of sorts to startups and investors.” He added that “We are resilient, our economy and workforce are strong, and we can withstand this.”
The political dispute has been damaging to the economy. The shekel has recovered from recent lows, but it was down by 10% against the dollar in recent weeks. The Tel Aviv Stock Exchange is down 20% so far this year. David Makovsky of Middle East-focused think tank The Washington Institute stated that the solution comes down to the prime minister’s political survival.
Makovsky says “For things to get better, Netanyahu’s poll numbers need to be in freefall.” Many stakeholders believe that such a drop would make the prime minister alter his right-wing coalition deal, more in line with the country’s citizens at large. A poll released on Monday indicated that, if an election were to take place today, Netanyahu’s Likud party would lose seats and be unable to forge a right-wing coalition like the existing one.
“If Netanyahu really wants to save the day, he may have to tell his partners to the right, ‘You’re leading us to hell,'” Makovsky said. “‘If you want to stay in power, you have to be where the country is.'” However, the future direction of Israel’s politically right-wing members of the coalition is unclear. They may not agree to changes that differ from their plan for the judiciary. If they do not agree, it could lead to the government’s collapse, and new elections may be held, leading to the country’s sixth election in four years.
