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Israel’s economy is now much stronger than ours

  • 2017-10-14_142313
In November, while preparing a slide comparing the size of various global economies for a presentation I was giving, I noticed that Israel was ranked higher than South Africa.
by DAVID SHAPIRO | Jan 25, 2018

Impossible, I thought. How could an arid country, the size of the Kruger National Park, without any natural resources, be larger than our South Africa? After all, we have gold mines, diamond mines, platinum mines, iron ore mines and coal mines, apple orchards, avocado farms, sugarcane fields and game parks. We also have magnificent mountain retreats, beach resorts, golf estates, Sandton City, The Waterfront and factories that produce very expensive cars.

But it is true.

According to estimates, in 2017 Israel’s GDP was $340 billion (R4.059 trillion) compared with South Africa’s $318 billion (R3.796 trillion). Still, I can understand the reason for my bewilderment.

We somehow fail to process in our consciousness how, over the past few years, technological advancements have changed the nature of business and the way we conduct our lives.

At the turn of the century the well-known international stock market benchmark, the Dow Jones Industrial Average, was dominated by such noble corporates as General Electric and Exxon Mobil. Today only Exxon Mobil makes the top 10 most valuable companies in the US, coming in at eighth position, its dominance surpassed by upstart technology giants Apple, Alphabet, Microsoft, Amazon and Facebook – businesses that barely existed 20 years ago.

Israel’s steady growth owes its success to this economic shift. Its economy is powered by science and innovation, an appetite for business risk, its investment in research and development and the invaluable price it places on skills development.

In all areas of endeavour – whether in agriculture, pharmaceuticals, defence or energy – Israel has promoted technology, drawing worldwide admiration and abundant foreign interest.

It’s a small nation, with a population of only 8.5 million people. Yet with a GDP per capita (size of the economy divided by population) of $40 000 (R478 000), the diminutive desert nation is classified as a first world country.

In Bloomberg’s latest Innovation Index – an index that scores countries, inter alia, on research and development and high-tech public companies – Israel is ranked 10th, one spot above the US. South Africa, on the other hand, was placed at 48th, behind Cyprus but ahead of Iran and Morocco.

When South Africa’s economy peaked in 2011 at $416 billion (R5 trillion), the upshot of the Chinese-initiated commodity super-cycle, Israel’s economy was 40% smaller at $261 billion (R3.115 trillion). Since then, though, the tables have turned. Judging by the latest growth forecasts issued by the International Monetary Fund this week, the gap between the Israeli and South African economies is likely to widen. Israel is projected to grow at least three times faster than South Africa.

South Africa’s economy has been in steady decline, relative to the rest of the world, since the financial crisis of 2008. Our economic performance is among the weakest of the emerging market sovereigns. We are not creating jobs or investing in infrastructure and, on a per capita basis, consumption is declining.

The government has gone to great lengths to shift the blame for our lassitude on the stresses that arose from the global meltdown, but that’s a half truth.

A number of other economies, caught in the grip of the economic recession, have begun turning their fortunes around. Spain will grow 2.4% in 2018, Russia 1.7% and Brazil 1.9%, compared with our paltry 0.9% – understand that the decimal places make an enormous difference.

The source of our problems is well documented. When downgrading our credit rating to below investment grade (a big deal in financial markets) late in November 2017, respected ratings agent S&P Global highlighted that South Africa’s unemployment rate had increased to 28% from 25% three years ago.

Unemployment, the agent conveyed, was a function of the country’s inflexible labour market with its rigid wage-setting mechanisms and high barriers to entry and exit. This, alongside an inadequate education system, contributed to the economy’s stark inequalities and had dragged further on South Africa’s external competitiveness and average incomes.

Competitiveness is the hallmark of a successful nation, yet regrettably, we continue to slip down this ladder. The usual suspects – crime, corruption, education, restrictive labour regulations and high tax rates – have contributed tellingly to our feeble standing. However, in a report released by the World Economic Forum last year, South Africa’s inefficient government bureaucracy and the poor work ethic of our national labour force were added to the list.

Of course, the question is how we turn our grim situation around. Or, to put it another way, now that we have such profound confidence in a revitalised ANC administration, what should ANC president Cyril Ramaphosa do?

My list is too extensive to cover in this short article. At the top is a suggestion that, rather than shun Israel, Cyril should establish how this small, isolated nation – which started life 70 years ago without water and without a bounty of resources, and surrounded by hostile neighbours – managed on a per capita basis to transform itself into one of the richest economies in the world. What a chutzpah!                

2 Comments

  1. 2 nat cheiman 25 Jan
    Israels brain capital has no equal globally, let alone in SA where the ANC and SA are ranked lowest in the world for education and various other things.
    Israel vs ANC = No Contest
  2. 1 Barry Shaw 04 Feb
    Hovering in the background is the ancient prophecy, "I will bless those that bless you, and I will curse those that curse you."

    Speaking as a  non-Orthodox Israeli Jew, it is an amazing revelation to see how many countries who support Israel prosper, and how many of them that come down hard on Israel suffer economically and socially. 

    South Africa is one example of a country who inflicts it's hate on Israel and is down the tubes economically.

    Notice how the USA  suffered economically and socially under an Israel-cursing Obama, and how well it has turned around under an Israeli-protecting President Trump. 

    There are many more such examples if you search for them.

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