As the Iranian nuclear threat dominates Israeli Prime Minister Benjamin Netanyahu’s second term, nothing motivates him more than making economic history.
The son of 101-year-old Benzion Netanyahu, a former Cornell University history professor, the Israeli premier says his ambition is to overtake France and the U.K., the world’s fifth- and sixth-largest economies, in terms of output per head. It’s the push for growth that drives Netanyahu’s policies, even as he heads to Washington next week for talks on Iran.
Since the Massachusetts Institute of Technology-educated Netanyahu began selling state assets and loosening labor laws as finance minister from 2003 to 2005, Israel’s economy has boomed, growing at an average 4.2 percent each year. The expansion will help ensure Israel’s survival, as an “island of democracy that is surrounded by a sea of troubles” in the Middle East, the 62- year-old premier told U.S. Jewish leaders at a Feb. 19 conference in Jerusalem.
“If we are to address our defense needs that we are being challenged with, we have to continue this growth,” Netanyahu said at the meeting. “It is not a question of living standard. It’s a question of national security.”
As part of his plan to spur growth, Netanyahu has set up a committee to boost competition, introduced reforms to lower the cost of living after social protests, passed a law to free up public land for private development, maintained fiscal discipline, and introduced a two-year budget, a move praised by the International Monetary Fund.
Israel’s economy probably expanded 4.8 percent in 2011, according to the IMF, matching the 2010 figure and exceeding the 1.7 percent growth in the U.S. The Finance Ministry estimates gross domestic product will increase 3.2 percent in 2012.
With Stanley Fischer steering monetary policy at the Bank of Israel, Netanyahu says there’s scope for the nation to match some of the world’s most developed economies. Fischer was Federal Reserve Chairman Ben S. Bernanke’s thesis adviser at MIT.
“There’s no reason why we can’t eventually surpass Britain and France in GDP per capita,” Netanyahu said during a Feb. 20 interview in his Jerusalem office, kept warm by two free- standing electric radiators. “We have to keep growing at 5 percent.”
The IMF calculates Israeli GDP per head was $32,300 last year, compared with $39,600 in the U.K. and $44,400 in France. Unemployment was 5.4 percent in Israel in the fourth quarter, the lowest since at least 1985. The jobless rate was about 9.3 percent in France and 8.4 percent in Britain.
Having never fully resolved the state of war with its neighbors that accompanied Israel’s founding in 1948, the country produced better risk-adjusted returns than all other developed stock markets in the past decade, according to the Bloomberg Riskless Return Ranking.
The Tel Aviv TA-25 Index returned 7.6 percent in the 10 years ended Feb. 17, after adjusting for volatility, the highest among 24 developed-nation benchmark indexes. Hong Kong’s Hang Seng Index was the next-best market with a risk-adjusted gain of 6.7 percent, followed by Norway, which had the highest total return.
“This is a great achievement,” Netanyahu told the Knesset, Israel’s parliament, on Feb. 20.
It’s one that the premier argues can help ward off the challenges such as the threat of a nuclear-armed Iran, set to be the key theme of his talks with President Barack Obama at the White House on March 5.
In the run-up to the meeting, Obama has sent emissaries to Jerusalem, including Defense Secretary Leon Panetta, National Security Adviser Tom Donilon and Middle East envoy David Hale, to assure Netanyahu that the U.S. won’t allow Iran to develop nuclear weapons. Netanyahu sent Defense Minister Ehud Barak to Washington on Feb. 27 to meet with Vice President Joe Biden.
Netanyahu remains skeptical about the effect on Iran of international economic sanctions. Barak has suggested that time is running out to stop Iran by staging a military attack on suspect nuclear facilities as President Mahmoud Ahmadinejad’s government presses ahead with the enrichment of uranium.
An Israeli attack would have precedents. The country staged an air strike in September 2007 to destroy a suspected Syrian nuclear reactor under Netanyahu’s predecessor, Ehud Olmert. Menachem Begin ordered a similar operation against an Iraqi reactor 26 years earlier.
Netanyahu’s family background has equipped him with a sense of history. His father, an expert on the Spanish Inquisition, appeared with him in a 2009 election campaign commercial, showing the two playing chess at home.
“You need the steadfastness to act, to do the unpopular thing that may ultimately save the country,” Netanyahu said in the ad after his father moved a piece across the board.
When it comes to policy discussions, it’s the economy that moves the premier most. The former commando gets positively electric when he talks about strategies for growth, jumping away from his desk and grabbing a marker to sketch plans on a white board built into a wall of his private office for, say, cutting taxes or deregulating the real-estate market, according to his spokesman, Mark Regev.
In the Feb. 20 interview, Netanyahu highlighted the strength of Israel’s technology companies such as Check Point Software Technologies Ltd., the world’s No. 2 software security firm.
“Israel produces more conceptual products than any other country,” he said.
Israel, whose population of 7.8 million is similar to Switzerland’s, has about 60 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China. The nation also is home to more startup companies per capita than the U.S.
During his first term as prime minister in the 1990S, Netanyahu encouraged foreign investment and helped the growth of software, telecommunications and other technology firms. He liked to refer to the burgeoning industry as “Silicon Wadi,” using the Arabic term for a dry river bed. His government lightened restrictions on trading the shekel, narrowed the budget deficit, slowed inflation and limited the scale of wage increases by standing up to organized labor.
In Netanyahu’s 30-month stint as finance minister, the economy rebounded from the recession of 2001 and 2002 as he instituted spending cuts, sold off state-owned companies and introduced deregulation. Netanyahu oversaw the sale of El Al Israel Airlines Ltd., the country’s largest airline, Israel Discount Bank, the No. 3 bank, and Bezeq Israeli Telecommunication Corp., the biggest telecommunications provider. He also started the sale of Bank Leumi Le-Israel Ltd.
“How can we get the great Asian economies interested?” Netanyahu said in the interview. “First of all, with our technology. And we have that. We can also build a train line from the Red Sea to Ashdod to link Asia and Europe. And we can pump gas the other way, from the Mediterranean to the Red Sea.”
That rail line would link Ashdod on the Mediterranean with the southern port of Eilat on the Red Sea, enabling Israel to compete for cargo traffic with Egypt’s Suez Canal. Another line Netanyahu is planning would run from the northern port of Haifa to the eastern border town of Beit Shean, potentially giving the Palestinian Authority and Jordan rail access to the Mediterranean.
Confidence in Israel’s economic future has been bolstered by the discovery of offshore natural-gas deposits by a group led by Houston-based Noble Energy Inc. and Netanya, Israel-based Delek Group Ltd., which could make the country both energy- independent and a gas exporter.
Israel’s Leviathan gas field may hold as much as 20 trillion cubic feet of gas, Noble, a partner with Israeli companies in the site, said in a Dec. 19 statement. The field is Noble’s biggest find. Noble operates Leviathan and has a 39.66 percent interest. The second-largest Israeli gas find is the Tamar, which is estimated at about 9 trillion cubic feet.
Sending gas and other Israeli products to China and India, the world’s most populous nations, are among Netanyahu’s highest priorities in building the economy, he told the Jewish leaders last month.
“We have to be like a nimble mammal that finds its way in a perilous world,” Netanyahu said.
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