The recent report by PricewaterhouseCoopers Israel on business transactions paints a gloomy, challenge-filled picture for the Israeli economy in 2023. The report highlights a drastic decrease in the value of business deals, dropping by over 46%, and a 23% reduction in the total number of transactions compared to the previous year. As reported by The Jerusalem Post, the total value of business transactions this year reached approximately $9.8 billion, marking the lowest level in a decade and a significant plunge from $18 billion in 2022.
Average deal values also fell by 35%, coming in at $131 million this year, down from $202 million last year, while the number of high-value transactions exceeding one billion dollars declined, reflecting a shift towards less risky dealings. According to the report, the Israeli tech sector, the driving force of the economy, has not recovered, with foreign investments in this area sharply falling to $6.7 billion, a rough drop of 41% compared to 2022. This downturn preceded “Operation Al Aqsa Flood”, executed by the Al-Qassam Brigades, Hamas’s military wing, on October 7th. Israel’s subsequent war on Gaza indicated a cautious approach by investors even before these events.
PricewaterhouseCoopers Israel noted an actual decline in transactions with foreign entities in Israel, pointing to growing investor apprehension. The report notes a trend of decreased merger and acquisition activities, highlighting the economic challenges predating the recent security tensions. Although the high-tech sector has seen a sharp decline this year, the report went on to emphasize the importance of the high-tech sector within the Israeli business ecosystem. Despite the downturn, it continued to lead the local market for mergers and acquisitions in 2023, accounting for 81% of all deals.
Liat Enzel-Aviel, the head of transaction services at the company, said, “In the short-term and with escalating security tensions and ongoing warfare, we expect greater pressure on the local market compared to global trends.” She added that predicting market reactions in the long-term is difficult and depends, among other factors, on the evolving security and political situation in Israel.
The political disturbances emerging from the controversial judicial reform plan have directly impacted the Israeli economy. These proposed reforms, leading to significant protests since January, have raised concerns about corruption and the undermining of economic stability. The war on Gaza has further increased market uncertainty in Israel, amidst a security situation not seen in the country for a long time.
Three hundred top Israeli experts have warned that the Israeli economy is undergoing a difficult time necessitating immediate measures to avert further damage. In a letter addressed to Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich, economists wrote: “You fail to grasp the magnitude of the crisis facing the economy. It is imperative that you act differently immediately.” The signed economists, including former banking supervisor Ronnie Hizkiyahu, former Bank of Israel Governor Jacob Frenkel, and former supervisor of banks Yair Avidan, stressed the urgency for swift action to prevent significant economic fallout.
