Is Israel pulling down the shutters for business?


High-tech entrepreneur Eyal Waldman decided he had had enough of Israeli investors when they told him to choose between his titles of chairman and chief executive at the company he co-founded, Mellanox Technologies.

So in August, Waldman delisted the chip designer – Tel Aviv Stock Exchange's sixth-largest company, with a market value at the time of 6 billion shekels ($1.7 billion) – dealing a heavy blow to an ailing bourse that had already seen its chief executive and chairman resign a month earlier.

Waldman said the attitude of Israeli institutional investors, who had been empowered by changes to the Securities Law, was suffocating.

“Mellanox is not an impulsive company. (Delisting) is something we were thinking of, that we saw build up. This was not our place any more,” he told Reuters.

Since Mellanox delisted, a handful of Tel Aviv's largest companies have threatened to follow suit unless Israel becomes more business friendly.

The problem is the result of both more regulation and less.

Over the past decade, Israel has relaxed rules on overseas investments. Previously, Israeli pensions had to invest nearly 100 percent at home; now they can invest without limitation abroad. At the same time, over the past year the government has introduced securities regulations that Israeli companies complain make doing business far harder, including more stringent reporting requirements, pushing even more money out of the country.

The new regulations and other measures were an effort to help consumers and protect investors. Competition was subdued by the domination of a handful of conglomerates in the mobile phone, retail, construction and petrol distribution sectors, and consumers were struggling to keep up with bills.

In 2011, hundreds of young Israelis, angry they could not afford housing and bitter about the high price of groceries, set up a tent city in the heart of Tel Aviv's financial district and for weeks refused to move. This culminated in the largest demonstration in Israel's history, with 400,000 people demanding a more affordable cost of living.

Prime Minister Benjamin Netanyahu reacted with a plan to break up the conglomerates that controlled vast swathes of the economy, opened up markets to competition and forced service providers to cut consumer fees.

The new regulations have brought consumers some relief – lower cell-phone bills and banking fees – but many investors and businesses say it is at a cost of dwindling profits and depressed share prices.

What upset Waldman most were amendments to the Securities Law that he could not have foreseen when he listed his company on TASE in 2007, several months after its offering on Nasdaq.

He was troubled by the empowerment of minority institutional investors, who previously had little influence at the companies in which they invested. New rules require majority approval by minority shareholders for issues such as executive salaries.

WILL OTHERS FOLLOW?

Officials at some of Israel's biggest firms have said that, like Mellanox, they are nearing a tipping point.

Potash producer Israel Chemicals (ICL), the most traded company on TASE, is seeking to list overseas. Though it has no intention at present to delist from Tel Aviv, CEO Stefan Borgas said in a conference call: “ICL must act seriously and take into account a situation of an additional worsening in the business climate of the Tel Aviv bourse.”

The same goes for Nice Systems, whose products analyze video and big data.

“It makes much more sense for us to trade only on Nasdaq,” CEO Zeevi Bregman told the Globes financial newspaper, but made clear a delisting was not on the agenda at this time.

Such talk has scared off investors. Daily trading volume on TASE averages around 1 billion shekels, 47 percent of the level in 2010. Other markets have had more moderate drops; since 2010 trade in London has fallen to 80 percent, on Nasdaq to 77 percent and Tokyo to 79 percent.

Only three small IPOs have taken place in Tel Aviv since late 2011, while about 100 firms, roughly 15 percent, have delisted since the end of 2009.

Investors are not pleased; one public relations firm, on behalf of clients, has launched a Facebook page called SaveTASE, blaming Israel's securities regulator, Shmuel Hauser, for the bourse's woes.

Part of the drop in volume followed a 2011 upgrade in Israel's status on the MSCI index from emerging market to developed. The move led to an exodus of passive money from foreign investors tied to the emerging market index.

Foreigners now account for only about 15 percent of trade on TASE in 2013, compared with up to 25 percent in 2010.

But the real drain has been the money that Israeli institutions have withdrawn as restrictions on overseas investments were lifted over the past decade.

“We are in the process of increasing our investment out of Israel, and this process … still has, in my opinion, a long way to go,” said Amir Hessel, chief investment officer of Harel Insurance and Finance, Israel's third-largest insurer.

Harel's pension, provident and life insurance funds have invested 34 percent of their 102 billion shekels in assets under management and 60 percent of their equities portfolio abroad, up from zero a decade ago.

Nir Moroz, CEO of Clal Amitim pension fund, said as much as 30 percent of his fund's assets were abroad, and that could hit 40-50 percent in the next few years due to a dearth of new local issuance.

Bank of Israel data shows pension funds hold 22 percent of their assets abroad, nearly double the level of 2009, while insurance funds hold 27 percent overseas.

FLOOD OF REGULATION

The protests of 2011 ushered in a flood of regulation that hurt profits in almost every sector – from cellular operators and food makers to institutional investors and gas producers.

Israel's three top mobile phone operators posted an average drop of 71 percent in net profit in the second quarter of 2013 compared with three years earlier, before new regulation and competition kicked in.

“There is a big risk of making business and investing in Israeli companies because of regulation,” said one investment manager who asked not to be named.

Hauser disputes that regulations alone have harmed the markets. Much of the regulation, he told Reuters, was aimed at curbing abuse of power by large stakeholders in companies at the expense of minority holders.

However, he said “the wave of regulation since the 2008 crisis may have gone too far”. He has proposed lowering the capital gains tax to 15 percent from 25, reducing fees for trading and clearing, and trading foreign currency.

With the public's cause taken up by the media, Hauser said it has become “illegitimate” to be rich these days, adding: “We have to stop with this populist atmosphere.”

Among the hardest hit by the new environment has been Israel Chemicals, which has made controlling shareholder Idan Ofer one of Israel's richest people.

ICL, which has an exclusive permit to extract minerals from the Dead Sea, paid 1.2 billion shekels in 2012 in taxes and royalties. A year after ICL reached a deal to double royalty payments to 10 percent, Finance Minister Yair Lapid, a former TV personality who rode the social protest to political power, set up a panel to review once more the level of royalties paid.

CEO Borgas said ICL was worried about the “extraordinary level of uncertainty” in the business environment that the committee's appointment has created.

“Our international shareholders acknowledge this at every encounter,” Borgas told Reuters in an email, adding that this was reflected in ICL's share price, which fell over 15 percent in reaction to the committee's establishment.

Its shares were also hit when Canada's Potash Corp in April abandoned efforts to take over ICL because of strong political opposition in Israel.

Borgas, a former CEO of Swiss chemicals group Lonza, said he was concerned by the scope of regulation and the way it was conducted in what seems to be a response to populism.

“In the current situation we have a negative incentive to invest in Israel,” he said.

Israel's economy relies heavily on foreign investment and, like many countries, it provides grants and tax breaks to attract companies.

Teva Pharmaceutical Industries, Israel's largest company and the world's biggest generic drugmaker, reaped close to 12 billion shekels in tax breaks between 2006 and 2011, according to the Tax Authority. It has come under huge pressure in recent weeks to review plans to shed 10 percent of its global workforce as part of a cost-cutting plan.

ICL was next at 2.2 billion shekels, followed By Check Point Software at 1.65 billion.

When these figures were published by the media in July, the public response was scathing.

Lapid has said he would reexamine the policy, but companies say the benefits are dwarfed by the jobs they provide and the money they contribute to the economy.

“Without this policy a lot of companies would have less business here and would pay less taxes,” Check Point CEO Gil Shwed told reporters in July.

Editing by Will Waterman

South Africa approves West Bank labeling regulation


South Africa has adopted a regulation to prevent the labeling of goods from the West Bank as being produced in Israel.

Government spokesperson Jimmy Manyi announced Wednesday that goods produced in the West Bank should now be labeled as originating from the ‘‘Israeli Occupied Territories.” Manyi said that the proposal was adopted to prevent consumers from being misled into thinking that such goods come from Israel.

South African Jewish leaders, including the South African Jewish Board of Deputies, the Zionist Federation and South Africa’s chief rabbi, on Wednesday issued a strong statement deploring the Cabinet’s decision.

The statement said that the South African Jewish community is “outraged” over the decision, which it said not only has “bypassed the consultation process set in motion by the notice but shown itself to be completely dismissive of Jewish concerns.”

“It is the firm belief of the Jewish communal leadership that the proposed measures are discriminatory, divisive, inconsistent with South African trade policy and seriously flawed from both an administrative and procedural point of view. At bottom, they are believed to be motivated not by technical trade concerns but by political bias against the State of Israel. All attempts to discuss these concerns, however, have come to nothing,’’ said the statement.

In spite of repeated requests, Trade Minister Rob Davies refused to meet with representatives of the Jewish community for several months. A short meeting took place in June in Cape Town, but with no resolution. Board of Deputies representatives attending that the meeting said that the minister categorically refused to enter into a dialogue.

Wednesday’s statement emphasized the Jewish leaders’ willingness to work toward a mutual solution on the issue:  “While the Jewish leadership has shown a willingness to discuss compromises and explore solutions that might allay the concerns of all parties, the government has refused to meaningfully engage on the issue. Regrettably, this in turn is indicative of government’s increasingly hostile attitude not against Israel but towards acknowledging and engaging with how the Jewish community feels about issues relating to it.”

An Israeli Foreign Ministry spokesperson told JTA that the ministry is still deliberating how to respond to the issue. Israeli officials have stressed in recent weeks that the South African government has been adding a new and worrisome dimension to the already strained bilateral relations, making the diplomatic crisis more visible and more public than ever.

One diplomat said that South Africa continues to reduce the volume of diplomatic relations on different levels, referring to numerous events in the past few months, including several cancellations: a May lecture by an Israeli deputy ambassador at the University of Kwazulu Natal, the South African agriculture minister’s visit to Israel and a visit of South African mayors.

The diplomat also referred to South African Deputy Foreign Minister Ebrahim Ebrahim’s recent speech “recommending’’ South African citizens not visit Israel.

Alan shrugged


What went wrong?

Greed is only part of it. Yes, the people who sold subprime loans to unqualified buyers were concerned about their cut, not about ARMs spiking and home prices falling. Yes, the Wall Street wizards who sliced and diced collateralized debt obligations were greedy for big paydays and living large.

But invoking greed actually explains little, no more than invoking lust or envy or any other human urge. The mystery isn’t why people are greedy; it’s how greed gets the better of them.

At a private fundraiser in Houston, when he thought there was no risk of being recorded, George W. Bush offered this explanation for our troubles: “There’s no question about it, Wall Street got drunk—that’s one of the reasons I asked you to turn off the TV cameras—it got drunk and now it’s got a hangover. The question is how long will it [take to] sober up and not try to do all these fancy financial instruments.”

There is no reason to question President Bush’s credentials for knowing a drunk when he sees one. But Bush, though he says he can’t remember a day from prep school to his 40th birthday when he didn’t have a drink, also insists that he has never been an alcoholic. He just drank “too much.” When he stopped, he didn’t acknowledge that he had a disease; what was wrong, it seems, was just typical youthful irresponsibility and a too-protracted youth.

So Wall Street’s problem, in the president’s mind, is not a systemic pathology, not an illness that comes on the same chromosome as the profit motive. Instead, it’s the behavior of a frat boy on a bender, the reckless phase of a good-time Charlie rather than the symptom of profound disease.

Bros will be bros; greed, like stuff, just happens.

A quite different explanation comes from a man to whom Bush gave the Presidential Medal of Freedom, and who is the intellectual parent of this collapse: “>speech at Georgetown University earlier this month, he attributed it to “lack of trust in the validity of accounting records of banks and other financial institutions” in the past year. Trust! Who knew?

So it’s not competitive markets and “Atlas Shrugged”-style enlightened self-interest that makes economies work. It’s “reputation and the trust it fosters.” Wealth creation, Greenspan says, requires trusting the people with whom we trade. The better your reputation, the more I trust you, the more able I am to take risks and accumulate more capital. When people “let concerns for reputation slip” the way they have in recent years, when counterparties are “not always truthful,” lenders are hesitant to lend, and credit freezes up.

But even an apostle of free markets like Ronald Reagan said, though in a different context, “Trust, but verify.” For years, credit-rating agencies like“>words of Nobel economics laureate Joseph Stiglitz, “performed the alchemy that converted securities from F-rated to A-rated” with no apparent damage to their reputations.

For years, the sterling reputations of Bear Sterns, Lehman Brothers and Merrill Lynch served as a substitute for transparency. For years, federal efforts to monitor the trustworthiness of big banks were fought tooth and nail by the same Alan Greenspan who nevertheless says that trust is everything.

James Madison warned us in Federalist No. 51 that men are not angels. Lincoln, while appealing to “the better angels of our nature,” nevertheless acknowledged our darker inclinations.

Anyone who’s been anywhere near a big investment bank knows that the gentlemen who run them have more in common with Hollywood buccaneers and Washington barracudas than they do with the Marquess of Queensbury. Maybe on Planet Fountainhead the economy runs on trust, but on this one, reputations aren’t warrants of integrity, they’re commodities marketed by the branding industry and burnished by the business journalism business.

Bill Moyers,

Sweatshop Days


Rose Freedman has died.

Her death at 107 years of age has been widely noted, for Freedman was the last living survivor of the 1911 Triangle Shirtwaist Co. fire, a calamity that claimed 146 lives. Just months ago, she was featured in a PBS documentary, "The Living Century," which told not only of her experience 90 years ago, but also of the remarkable life she led thereafter. That life — as The New York Times put it — was both "colorful and courageous," right up until her last days in her home in Beverly Hills.

But it is her early days that I want to recall: the days we remember sentimentally as the time of the Lower East Side, which was also the time of the sweatshops and of their rapacious owners unconstrained by laws and regulations that would offer some protection for working-class people.

In 1902, the women of the Lower East Side organized a boycott of the kosher butchers of the area. After meat prices per pound had soared from 12 cents to 18 cents, women organized themselves as the Ladies Anti-Beef Trust Association. Their three-week-long boycott was a roaring success, imitated soon after in Cleveland and Detroit, and followed by frequent rent strikes and a 1909 strike that would have major implications for trade unionism in general: 20,000 shirtwaist makers, mostly women between the ages of 16 to 25, participated in what became the largest American strike by women for that time. The 1909 strike turned the International Ladies’ Garment Workers’ Union (ILGWU) into a force within the labor movement. Energized by the shirtwaist makers strike, 65,000 men, chiefly from the cloak and suit workers, left their jobs a year later and went on strike, demanding, among other things, a union shop.

The uptown Jews sought to intervene; they were horrified at the spectacle of Jewish workers striking against Jewish employers. Their efforts at mediation were finally successful when Boston lawyer Louis Brandeis negotiated what was called the "Protocol of Peace." Three weeks after the New York strike was settled, workers at Chicago’s Hart, Schaffner & Marx went out on strike. They were soon joined by another 35,000 Chicago workers in the garment trades striking against 50 different manufacturers. Out of that strike was born the Amalgamated Clothing Workers of America, which later became Amalgamated Clothing and Textile Workers Union (ACTWU).

Then came Triangle. Essie Bernstein, age 19; Anna Altman, age 16; Molly Gernstein, age 17; Vincenza Belatta, age 16; and 142 others were killed, almost all immigrants to these shores, with its huddled masses yearning to breathe free. Fewer than 20 were men, and more than half were 21 years old or younger. The doors on the eighth and ninth floors were locked, and once the fire began to spread there was no escape. Many women — girls, really — jumped from the windows to their deaths on the sidewalk below, "their flaming skirts billowing in the air as they fell."

Francis Perkins, who would become the first woman cabinet officer as secretary of labor, was an eyewitness to the fire, and Al Smith, then a member of the New York State legislature, whose district included a number of the dead, spent time with the grieving families at the morgue and in their homes. And while Isaac Harris and Max Blanck, the owners of Triangle, were found "not guilty" by the jury that tried them for manslaughter, the event did trigger modest reforms in regulating worker safety. (Harris and Blanck reopened for business three days after the fire, and offered the families of the deceased a week’s wages. Later, in a civil suit, they were ordered to pay $75 to each of the families of the victims.)

We remember Triangle these days as part of our nostalgic baggage. It is doubtful that many of us made the connection to Triangle when 25 workers died — again, mostly women — in a fire at the Imperial Food Products Poultry Plant in North Carolina due to a locked door. Surely, we have likely supposed, the deadly conditions that prevailed in 1911 have long since been corrected. Alas, the Imperial experience shows they have not. Nor is it correct to suppose that it is only in the South that such elementary violations of decency persist. These days, the center of America’s garment industry (that small fraction of it which has remained domestic) is in Los Angeles, and the sweatshop conditions that prevail there are not so different from those that prevailed in New York City in 1911. The countries of origin of these immigrant women, who work too many hours for too little in wages in unsafe and unsanitary conditions, have changed. The laws have also changed, but government’s laziness in enforcing the laws has remained, as has the indifference of too many employers.

All this was noticed forcefully four years back when UNITE (the trade union that was created out of a merger of the ILGWU and ACTWU), the Union of American Hebrew Congregations, and the American Jewish Congress co-sponsored a third seder in L.A.’s garment district. The featured speaker on that occasion was Freedman, who was a living link between then and now. Her death, in the fullness of time, transforms the link: once living, hence natural, it now becomes optional; dependent not on the raw memory of a remarkable survivor, but on the will and the empathy of those who are free to choose between remembering and forgetting, between compassion and indifference. It is not nostalgia that is at stake, but justice.