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On the 15th of May in the year 1948, precisely at midnight, Britain declared the end of its occupation of Palestine and gave up its mandate. Yet, just hours later, the Jewish Council, led by David Ben-Gurion, proclaimed the establishment of a "Jewish state" in Palestine, which is known to us as the "Occupying Entity. " Prior to that, for decades, Jewish settlements in the land of Palestine were fastly growing thanks to the active by leaps and bounds Zionist institutions worldwide, encouraged by Britain, which enabled Jews to gain control over significant portions of Palestinian territory.
After the establishment of the Zionist state in Palestine and its defeat of the Arab countries in the 1948 war, the nascent state faced an economic collapse in the early fifties. Yes guys, right from the beginning. At that time, Prime Minister Ben Gurion and Finance Minister Levi Eshkol were forced to take painful economic and financial measures to prevent the economic collapse and the demise of the envisioned entity they had dreamt of.
To the extent that they even halted Jewish immigration to Israel. Joseph Zeira, an economics professor at the Hebrew University in Jerusalem, says that Ben Gurion realized at that time that this was the end of the Zionist project because its goal in establishing the occupied entity was to be a homeland for the Jewish people, but what actually happened was the sudden ban on immigration due to the economic distress. During the early fifties, the occupying state managed to escape an economic catastrophe that nearly spelled its demise for three main reasons. Firstly, there was the reparations agreement with the Federal Republic of Germany in 1952, which provided substantial compensation for Holocaust survivors, infusing the state with a significant amount of money. Secondly, it received assistance from major world powers, such as the United States, and financial aid from wealthy Jews around the world. Thirdly, and perhaps most importantly,
it seized the assets of hundreds of thousands of forcibly displaced Palestinians after the 1948 defeat. These Palestinians left behind vast amounts of land and properties, which allowed the occupying state to get its hands on very rich assets. This played a pivotal role in saving it from economic collapse, enabling it to stand hold once again and rebuild its economy thereafter.
After 70 years, the occupying entity, which was established through the violation, plunder, and theft of land, has managed to build the largest economy in the Middle East after Saudi Arabia. Its economy has exceeded a size of 521 billion dollars, despite its small population, which has not surpassed 10 million people. This economy is impervious to almost everything except one thing: Palestinian resistance. With every act of resistance against Israeli occupation, their economy takes a punch in the face. On October 7, 2023, Palestinian resistance launched a sudden and powerful attack on the occupying entity, as many of you have been following over the past few days. This naturally raises a crucial question on all of our minds: How does this impact the economy of the occupying state? There is another essential question: Why is the impact of this particular attack different from previous incidents? Today, we will attempt to answer these questions, God's willing.
I want to alert you beforehand about two important matters, First of all, all of the profits from this episode will go to our siblings in Gaza, God willing. This is the least we can do for our siblings there, and we will later inform you of the entity that received the donations and show you the receipt in few days. which is that social media platforms and websites impose significant restrictions on the spread of anti-occupation content. So, it's essential that you like and share the video so that it appears to people. I am Ashraf Ibrahim and this is the Economic Informant.. Before we delve into this, the Economic Informant team and I do assume that each one of you would like to give a big thank you to TalaViet, the sponsor of our episode for today, it kindly took the initiative and paid double the amount that is usually paid to sponsor any of our episodes in order to support our people in Gaza through the Mersal Foundation. The trusted Egyptian charity organization.
TalaViet Company was established in 2017. It is a Vietnamese company founded by a hard working Egyptian young man named Diaa El-Din Amin. It exports various products to the markets of Egypt, Saudi Arabia, Jordan, Turkey, and others, such as coffee, pepper, coconut, cinnamon, and cashews. As said, the entire sponsorship amount of money went to the Mersal Foundation, which is currently soughting to provide relief aids, including medicines and food, to our people in Gaza. Their convoys are in front of the Rafah crossing, and, God willing, they will be crossing the borders soon, I hope, and it is possible that they might be entering while you are watching this episode. I would also like to thank all the supportive companies that requested to sponsor this episode, we rather accepted the largest amount of money offered in order to multiply the aid for Gaza.
I’d like to assure that the next episode sponsorship will go entirely to support our people in Palestine as well. There is another chance for you to take part in again, and we will publish all considered that on our platform as soon as we start shooting the upcoming episode! Below the video you will find all information regarding TalaViet company. If any company / merchant wants to communicate or deal with them, please do so. You will also find data from the Mersal Foundation for those who would like to follow the activities they are currently undertaking to support our Palestinian siblings and their charitable activity in general. If we consider the occupation state, we'll find that one of the most sensitive sectors that generates income for it is the tourism sector. Any confrontations or wars that occur there immediately have a severe impact on this sector.
According to the latest figures released by the Israeli Central Bureau of Statistics in July of the past month, in the first six months of 2023, more than 2 million tourists (2.11 million tourists) visited Israel, spending approximately 3.1 billion dollars. Despite the fact that the tourism sector there is still recovering due to the COVID-19 restrictions and the Russian-Ukrainian war, it was expected that this year the occupant entity would generate more than 6 billion dollars from the tourism sector alone. However, in light of the Palestinian resistance's attack and the prolonged duration of the war, these figures will significantly decrease. This became evident from the early hours of the attack when international airlines began canceling hundreds of flights heading to the occupied territories. Most American, European, Asian, and African airlines have canceled their flights to Tel Aviv at least until mid-December. Some airlines have suspended flights until the end of December, pending updates in the security situation.
Furthermore, there are some airlines that have gone even further, with flight cancellations extending four months ahead, like the Finnish aviation giant, Finnair, which has halted its flights to Tel Aviv until March 30, 2024. The cancellation of flights in large numbers not only deprives the occupying entity of the influx of tens of thousands of tourists and thus affects its tourism revenue, but it also impacts the airline companies themselves. So, on October 9th of the past year, just two days after the Palestinian resistance's attack, Bloomberg's index for global airline companies declined by 2.6%, marking the largest single-day drop since last March when some American banks went bankrupt. Despite most international airlines canceling their flights to Tel Aviv, there was one airline with a somewhat different mission, and it was crucial to them to the extent that they operated additional flights to transport specific individuals from different countries to Israel. This airline is the main Israeli airline, El Al, and its mission was simply to transport thousands of reserve soldiers as part of the largest mobilization in the history of the occupied entity.
This leads us to the most painful and significant issue for the economy of the occupying state, which is the call-up of reserve soldiers. We will understand shortly why this is extremely painful for the economy. On the morning of October 9th, the occupying entity called up 300,000 Israeli reserve soldiers for service, which later increased to 360,000 soldiers. This is the largest military mobilization in modern history for the Israeli occupation. the entity has not summoned reserve forces of this magnitude since the October 1973 war, 50 years ago when they called up 400,000 reserve soldiers at that time. To give you a complete picture, these 360,000 soldiers exceed the total number of reserve soldiers in the entire U.S. military. If we look at the regular, permanent forces of the occupying army, whether ground, air, or naval forces, all of them combined make up only half of this mobilized number, meaning just 150,000 personnel. Why does the mobilization of this large number of reserve forces significantly impact the economy of the occupying entity? Because the reserve force is a broad spectrum of the workforce that impacts the economy.
It consists of technical engineers, startup entrepreneurs, teachers, farmers, lawyers, doctors, nurses, factory technicians, and workers in the tourism sector. This massive workforce suddenly leaves their positions to engage in a war that could last for weeks. Eyal Winter, an economics professor at the Hebrew University of Jerusalem who studied the economic impact of Israeli wars, says that the sudden withdrawal of this large workforce has a significant effect on the Israeli economy. Why withdrawing this large number from the labor market to join the military operation is considered catastrophic for their economy? Simply put, this will lead to a reduction in the workforce in the already tight Israeli labor market, which, in turn, will result in economic stagnation. Naturally, this will lead to a constraint on the supply of goods and services, causing inflation, meaning an increase in the inflation rate along with a decrease in economic growth. Of course, the extent of the economic damage will depend on how long the reservists stay away from their jobs.
As of now, estimates indicate that the war will last for weeks, which implies an exacerbation of the economic damage to the occupying entity. The bad news for Israelis here is that this comes at a time when their economy is already suffering, and it was already heading towards a downward growth trend. So, what's causing this suffering? The reason is that, since the beginning of the year, the Israeli government under the leadership of Benjamin Netanyahu started pushing for judicial reforms. This was followed by a series of protests opposing these reforms, creating a state of uncertainty in the economy and the market.
This, in turn, led to a slowdown in investments, especially in the most critical sector considered the main engine of growth for the occupying entity, which is the high-tech sector. That's why the Israeli Central Bureau of Statistics had forecasted in February of last year a significant economic growth slowdown in Israel, by 3% in the year 2023, after it had reached 6.5% the previous year in 2022. Here, we need to pause for a moment and focus on one of the most important economic sectors for the occupying entity, which many of you might be surprised to know about, it is the advanced technology. By the way, it is expected to receive a significant blow due to the call-up of reserve soldiers. This advanced technology sector is what drives the economic growth of the occupying state, my friends. You can imagine that it contributes to nearly half of Israel's exports. According to the Israeli Ministry of Economy,
the occupying entity exported goods and services worth approximately $165 billion last year in 2022. 51% of those exports were advanced technology products such as programming, research and development, and semiconductors. Here, there's a definite surprise and a question arises: What brought the development of such advanced technology with a global competition like semiconductor manufacturing to Israel? Unfortunately, despite the fact that the occupying state is a small entity, its influence is significant in the global semiconductor industry. It is considered a crucial link in the global semiconductor supply chain.
Moreover, it serves as a major source of engineering talents and acts as a hub for international semiconductor manufacturers. In this region, there are numerous local startups involved in the semiconductor industry, a substantial portion of which are acquired by major global corporations. I'm not sure if you're aware or not, but Intel, the semiconductor manufacturing giant, has been present in Israel for almost 50 years. They have facilities for designing and producing electronic chips all across Israel. Nvidia, which is considered the largest semiconductor manufacturer used in artificial intelligence systems, is also prominent in Israel.
Apple is also present and designs a part of its silicon in Israel. Amazon and Microsoft are there too, with significant centers for electronic chip design, along with other companies. The Palestinian resistance attacks pose a significant threat to vital industries in Israel, causing a state of concern in this sensitive sector.
For example, among the Israelis captured by Hamas during the music concert, we find an engineer working at NVIDIA named Avinatan Or [NVIDIA already confirmed the news]. Apart from that, most of these companies have reported that a large portion of their employees have been called up as part of the general reserve mobilization, leading to significant disruptions in the workplace. The impact of mobilizing this large number of reserve soldiers isn't just limited to the immediate situation.
It also contributes to the overall military expenses, which include weapon imports and other costs, further increasing military spending. Millions of dollars are being spent daily on military operations, which exacerbates Israel's budget deficit. Why do I say "exacerbates"? Because the Israeli budget was already suffering from a financial deficit, meaning that the government was spending more than it was earning. The budget deficit, especially at this time, is putting the Netanyahu government in a significant predicament, and I'll explain how in a moment. But before that, I want to clarify the extent of the budget deficit in the occupied territory.
What you have in front of you is a statement for the Israeli national budget that was issued in the past August. It shows an increase in the financial deficit of 1.3% of the Gross Domestic Product, which is equivalent to 6 billion dollars in the past 12 months. The financial deficit is due to the continuous decrease in the state's tax revenues and the increase in government spending beyond the estimated amount in the budget. Of course, government spending will increase after military operations due to increased defense expenditure, as well as reconstruction expenses, compensation for the loss of income to employees, and new security measures, especially after the failure of the iron wall separating Gaza from the rest of the occupied territories, which they spent three and a half years building and cost 1.1 billion dollars. Why is this financial shortfall considered a dilemma for the Israeli government? Because it is forced to finance this deficit, there are only two difficult options: either it has to borrow additional funds, and here it suffers from high interest rates.
Currently, governments, in order to borrow, will probably find themselves compelled to do so at high rates due to the insane rise in interest rates worldwide. The second way to fund the deficit is to increase taxes, and this is a difficult choice that will impact the economy itself, especially given the economic downturn and the disruption of economic activity following the outbreak of military operations that affected all aspects of its economy, including the currency of that occupying entity, which is the Shekel. On October 10th last year, just three days after the Palestinian resistance attack, while Israelis were trying to understand what was happening, the Israeli Shekel began to plummet to its lowest level since 2016, reaching 3.9 Shekels per dollar. Here, speculators took advantage of the turmoil and started opening uncovered Shekel selling positions.
If it weren't for the intervention of the Israeli central bank, their currency would have been in serious trouble by now. The central bank has entered forcefully and swiftly and has started implementing unprecedented measures to prevent the collapse of the Shekel. The bank announced its readiness to sell $30 billion from its reserves to support the currency, in addition to extending swap agreements by $15 billion. So, we're talking about $45 billion to support the Shekel and prevent its collapse. Despite this substantial amount, the Israeli central bank has a strong financial cushion capable of defending the Shekel. According to the latest data from the Israeli central bank,
foreign exchange reserves reached $198.5 billion at the end of last September. The Shekel wasn't the only currency caught up in that turmoil, but the situation of Israeli debt in international markets was severely negative and, as a result, the cost of insuring Israeli sovereign debt against default reached its highest level in 14 years. Global stocks tied to Israel were also under fire and suffered significant losses. Not to mention the local stocks on the Israeli stock exchange, which plummeted by 6.5% on October 8th, marking its biggest drop in over three years.
But here, I specifically mention Israeli stocks in foreign stock exchanges. We are talking about assets worth 43 billion dollars of Israeli stocks and bonds present in investment funds, whether passive or active, in American stock exchanges. These are the funds that have more than 70% exposure to Israeli securities. Here are some examples of funds that focus on Israel, for instance, the iShares MSCI Israel ETF lost 9.7% from October 6th to October 13th. The ARK Israel Innovative Technology ETF, on the other hand, experienced a 9.3% loss during the same period, and the Timothy Plan Israel Common Values Fund saw an 8.9% decline in the same timeframe. This is a sample of the traded funds in the American stock exchanges that include Israeli securities. With the ongoing war, it's expected that investors will flee from them and request redemption from the fund manager, which means the payment of those financial securities. This is in addition to the stocks of companies based in Israel
and listed on the American stock exchanges. According to the data gathered by Bloomberg, there are more than 100 Israeli companies listed on American stock exchanges, such as the cybersecurity company Check Point Software Technologies Ltd, Bank Leumi Le-Israel, and the electronic chip supplier Nova. Most of the Israeli company stocks on American stock exchanges have experienced losses in recent days. In general, there are some cautious estimates that have emerged when measuring the costs of this war for Israel. According to the initial projections of Bank Hapoalim, Israel is expected to incur a cost of 27 billion shekels, which is approximately 6.8 billion dollars or at least 1.5% of the Gross Domestic Product in the current war with Hamas. The bank's estimates are based on the costs of previous wars that Israel has engaged in.
For example, the Second Lebanon War in 2006, which lasted about 34 days, was estimated to cost around 2.4 billion dollars according to the Institute for National Security Studies (INSS). The Cast Lead operation that took place in December 2008 and January 2009 is estimated to have cost 835 million dollars. In the end, no one can definitively state the exact Israeli losses in this current war because it is still going, and no one can predict its coming developments. However, it will undoubtedly cost billions of dollars. Eventually, and most importantly, we wish safety to all our people and our siblings in the Gaza Strip and in all the occupied Palestinian territories. We stand with you and support you. I am done talking .. Before I conclude and on behalf of myself, the entire Economic Informant team, and our audience,
I would like to thank TalaViet for sponsoring this episode and its generous initiative to donate the full sponsorship amount to support our people in Gaza, and would like to repeat that if any company / merchant wants to communicate or deal with, as their products are imported to the largest Arab and Turkish markets, all information regarding them is in the description box down below. Please do not forget to engage with this video so it can make a high reach escaping the current restrictions on all social media platforms for any content opposing the occupying entity. Goodbye...