By Pascal Brunel

More than eight months of war in the Gaza Strip have caused a brutal drop in investments in Israel, as well as the start of a flight of local capital.

The Israeli economy is paying a heavy price after eight months of war in the Gaza Strip and on the border with Lebanon. Images of the fighting caused a sharp 55.8% drop in foreign direct investment (FDI) in Israel during the first quarter of this year. They barely passed the $1 billion mark while reaching a quarterly average of $4.8 billion over the previous four years.

This retention is no longer a simple accident. It comes as during the last three months of 2023, when war broke out following massacres committed by Hamas on October 7 in southern Israel, foreign direct investment had already suffered a decline of 50%, according to official data from the Israeli statistics office released Tuesday.

High-tech very affected

“This regression is all the more worrying as it concerns long-term establishment operations of foreign companies in the form, for example, of the creation of subsidiaries and takeovers of companies in Israel,” underlines an official from the Ministry of Finance. According to him, these investments “make it possible to mobilize capital, but also to offer access to new technologies which promotes innovation and productivity, as well as management methods”.

The growing reluctance of investors is all the more painful as 80% of it is concentrated in high-tech, the jewel in the crown of the Israeli economy. This sector alone provides half of the exports of the Jewish state, which readily presents itself as the “start-up nation” par excellence. The American Intel has thus suspended work on the expansion of a microprocessor production factory in Israel, which was to constitute the largest foreign investment ever made in the country.

Another worrying sign: the Israelis themselves are starting to look for new, calmer horizons, especially in the United States. The amount of their direct investments abroad jumped by a quarter in the first quarter of this year to $3.6 billion, more than three times the number of such operations carried out by foreigners in Israel.

Disenchantment

For the Israeli economic daily “Calcalist”, it is also an act of defiance towards the economic policy of the government of Benjamin Netanyahu and his Minister of Finance, Bezalel Smotrich, leader of an ultranationalist party facing an explosion budget deficit to finance a war whose total cost could reach some $67 billion by 2025, according to projections by the Bank of Israel.

This disenchantment was also felt among the “millionaires”. For the first time in decades, Israel no longer appears in the list of ten most attractive countries for wealthy foreigners, according to the British firm Henley & Partners specializing in “the most sought-after migration and investment programs in the world ". “The current war has not only tarnished the image of Israel as a safe haven for this type of foreign investors, but also constitutes a threat to the economic results of this country”, according to the diagnosis established by this firm.