Israeli manufacturers this week, not for the first time, sounded the alarm bells over the strong shekel, which has been trading at three-year highs against the dollar. Exports are suffering, they say, and plants are closing down, the jobs being moved overseas. And there are concerns too that the strong currency is affecting investment decisions.
The manufacturers' complaint comes against the background of a Bank of Israel (BoI) interest rate decision on Monday. A poll by Reuters shows unanimous sentiment against any prospect of change among the analysts that were consulted. There seems to be very little expectation, at this point, that the BoI will raise its benchmark rate above the current 0.1 percent, which would only compound the manufacturers' woes.
The long-lasting appreciation of the shekel over the past decade, some 30 percent vis-à-vis the basket of currencies against which it weighed, is contributing to fundamental changes in the country's economy, says Gil Bufman, chief economist at Bank Leumi.
"We've seen a major shift in the economy since 2011, including in high-tech, moving away from manufacturing and going into the direction of services, high-tech services," says Bufman. And the underlying trend is not changing anytime soon.
"Looking ahead I think that the fundamentals are going to remain supportive of a strong shekel. If anything, the ongoing discoveries of natural gas, which gradually will more and more come online, for example Leviathan, which is likely to be online by 2020, and the ongoing interest in Israeli tech and non-tech purchases of Israeli companies will continue to bring money into Israel, money that's not interest rate sensitive," he says.
That would confirm the manufacturers' worst fears. In a letter to the government, as reported in the Israeli business daily Globes, the head of the Kibbutz Manufacturers Association, Udi Orenstein, earlier this week warned that: "Israeli companies are moving production business overseas, because exporting from Israel is a money-loser."
In recent weeks, two companies announced that they'd close factories in Israel, resulting in the loss of some 500 jobs; security equipment maker Visonics and sugar company Sugat. The first will move production to China, keeping research in Israel, while the second will import its sugar from abroad.
These manufacturing woes also extend to the high-tech sector, says Bufman: "Even within high-tech we're seeing divergent trends. For example, in high-tech goods, let's say telecom equipment or other manufactured high-tech goods, we're seeing a slowdown in growth, a drop in activity, while the growth is primarily in high-tech services."
Koby Simana of IVC Research Center confirms the trend: "All the manufacturing technologies that are built in Israel, if it's not high-end manufacturing, it's not attractive because of the high shekel. It's less attractive because you can build these factories in other countries where the salaries and the workforce are cheaper."