Loading summary
Transcript53 lines
- [00:00]
Michal Avram
When you launch a podcast about Israel, you have to be ready for anything. We recorded this first episode of what's yous Number before The tumultuous last 24 hours unfolded in the country, including what could quite possibly end up being one of the worst fires in its history. Reports are that some 2,900 acres have already burned on the outskirts of Jerusalem, where most of my family is. Communities in the fire's way have been evacuated and Independence Day ceremonies have been canceled. But that's Israel. It seems like there's always something, and usually it's something difficult. Despite this, Israelis carry on, and we know that they will this time as well. And so will we. Next week we're going to be discussing the fires and their economic impact. And for now, we're hoping for the best and thinking about everybody impacted by this current tragedy. And now onto the first episode of what's yous Number? You are listening to an art media podcast. So, Yonatan, what's your number?
- [01:13]
Yonatan Adiri
57,000. As in 57,000 state sponsored IVF treatments per year. That's the highest rate per capita in the world, fully paid for by Israel's universal healthcare system.
- [01:24]
Michal Avram
Okay, very impressive. Mine is a smaller number. It's 33. And that is the price of flights in and out of Tel Aviv on Ryanair. This is the low cost airline that's going to resume flights to the country in June. Who wins here?
- [01:38]
Yonatan Adiri
Well, I am happy Ryanair is flying back. EasyJet is coming back in about a month. But I think that given its Independence Day, babies matter. This number wins.
- [01:47]
Michal Avram
I'm gonna give it to you. Babies do matter. Just one caveat here. Let's not mix our numbers. We like flights, we like babies, just not together.
- [01:55]
Yonatan Adiri
Deal? No bab on flights.
- [02:04]
Michal Avram
Welcome to the first episode of what's your Number? The newest podcast from ARC Media, home of Call Me Back with Dan Senor. Our focus is on Israel's economy through a global lens. And before we dive in, let's just very quickly introduce ourselves. I'm Michal Avram, Israeli born Silicon Valley based journalist and contributing editor at Fortune.
- [02:25]
Yonatan Adiri
I'm Yonatal Diri, an Israeli entrepreneur, formerly the CTO and diplomatic advisor to President Shimon Peres.
- [02:31]
Michal Avram
It is 11am here in Palo Alto.
- [02:34]
Yonatan Adiri
It is 9pm here in Israel in Tel Aviv. By the time you listen to this episode, Israel will have turned 77 years old. And here's a cool stat that we can all feel good about. Since its birth, the population grew 11x and the economy, well, it grew 403.
- [02:52]
Michal Avram
30X well, maybe we'd be so lucky to have that kind of growth for our podcast. Speaking of which, over at Call Me Back, Dan is going to continue to focus on the political news and the newsmakers driving conversation in Israel and the Jewish world beyond. And we are going to devote our weekly podcast to discussing the most important economic developments in Israel. So for those of you who are invested in or just simply interested in the Israeli economy, what's your number is going to be your one stop. Shop for the headlines, the deep dives and of course, the numbers. We gotta live up to our name. If you're an early fan, please help us out by subscribing, reviewing and sharing our show with others who might find it valuable as well. Okay. As we're going to do in every episode, we'll start by taking the temperature of the Israeli economy with our market signals. Then we'll get to our big shorts. This will be a brief analysis of the most interesting news items of the week. And today we're going to talk about checkpoint earnings. This is the first quarter under the company's new CEO, Nadav Tifra. Is Israel getting a second international airport finally?
- [03:59]
Yonatan Adiri
That's, by the way, one thing we didn't grow since the country was born. We have one big international airport. Just one. No growth there.
- [04:05]
Michal Avram
That's right. Very small numbers. That's a big percentage growth, though, going from one to two. If and when it happens, we're going to double. We're going to double. That's amazing. We'll also talk about Trump's upcoming visit to the Gulf and what it means for a potential future Saudi Israeli deal. This is something we'll get into a lot more in depth in future episodes, but we'll briefly touch on it today and then we'll wrap with the long play. This is our deep dive into one vital issue impacting the Israeli economy. And today's focus is, well, the economy. It's the new emerging economic reality in Israel. So stay with us. Okay, let's kick things off with our market signals. The dollar to Shekel Exchange rate is 3.62 compared to 3.69 last week. The euro to Shekel exchange rate is at 4.12 compared to 4.29 also last week. And the NASDAQ week on week up 6.65%. Lots of earnings results coming our way this week, including from some key tech players. So we're gonna see what happens to those numbers going forward. And now for our very own index, the what's your Number index. This is something we are very excited about. It's got seriously the best acronym or ticker, whatever you want to call it. It's not really a ticker, of course. Windex, that's with a Y. Get it? Okay. This is our own index of the stock performance of 50 publicly traded companies on U.S. exchanges that are headquartered in Israel and or founded by Israeli founders. So this is going to be our week by week measure of where these companies are trending and their cumulative market cap. So, Yonatan, tell us more about the Windex. Currently.
- [05:50]
Yonatan Adiri
The first thing is I was working on the code and building it for some reason I had the Simpsons theme song on and it's every time I say Windex, it's like the Windex. I don't know why it comes back to mind like that. But the Windex rose 5.39percent this past week, that is 21st through 25th of April, slightly underperforming the S and P and the NASDAQ with 715 and 6.65 rise respectively for those two giant, you know, benchmarks globally. But as the Windex is primarily composed of tech stocks, that's what Israel's good at. We should expect a high degree of correlation between Nasdaq. Nice. And our Windex week on week. Notable movers though, this week are actually exciting. Autonomous car technology provider Mobileye, until recently the biggest Israeli exit and IPO with 27% increase this week. And Nova, the semiconductor manufacturing equipment titan, rising 12% in one week. Nova is a very interesting company. It is a marker of Israel's, I would say, silicone technology capacity and how Israel plays into the whole, you know, semiconductor chip, microprocessor competition of the world as it comes to AI and so on and so forth. Nova is one of those companies that are interesting to watch week on week as it's indicative of where, you know, the AI landscape is going.
- [07:08]
Michal Avram
And we should say we're seeing a lot of volatility with tech stocks overall, including some of the Israeli companies. Not an Israeli company, but an acquirer of a big Israeli company. Google just reported earnings last week, surprising everybody by actually, you know, showing very good numbers for now. So anyways, we will continue to focus on the Windex, but also on some of the other metrics that give us a more macro picture of Israel and elsewhere.
- [07:35]
Yonatan Adiri
Overall, though, for the Israeli economy, seems like we're still heavily in the fog of war. Recently there has been another stumbling block in the negotiations between Israel and Hamas through the mediators to try and reach Some kind of a modus vivendi that would release at least some hostages and would provide line of sight for the end of the hostilities. And as that reality evades and eludes us, it continues to be an issue for the Israeli economy, burdening it and, you know, creating that fog of war that's not conducive for anything. This dynamic continues. President Trump gears up for a Middle east trip. Not going to be visiting Israel, most likely Qatar, Saudi Arabia and the uae. We have also seen Turkey host, you know, big Hamas delegations. Turkey and Qatar subsequently. And so this kind of is in the mix. May is going to be a very interesting month to watch. Dan, and call me back. We're going to probably cover most of that, you know, geopolitical dynamic. But that does actually make a big difference on the Israeli economy. From a macro perspective, this prolonged limbo is bad for the country, it's bad for business, and further injures the national mood as we go into the national holidays this special week in Israel.
- [08:46]
Michal Avram
Yeah. And of course, the broader mood of uncertainty on the economic side is felt everywhere. And one thing that was really interesting here in the US Is speaking of earnings. Last week, we also saw a few companies either drop guidance or adopt this new sort of bifurcated approach where they're kind of giving the bull and the bear case. Right. Like this could go like this and could go like that. And it feels like that is very much the zeitgeist of the moment, whether we're looking at things through an economic or a geopolitical lens. So that being said, let's move on to the big shorts. This is our brief analysis of the biggest headlines of the week, stories that are driving convers and, let's face it, some arguments in Israel. So first up, we're going to talk about Checkpoint earnings. Israeli cyber company Checkpoint posted first quarter earnings on April 23, modestly beating analyst estimates. Total revenue came in at 638 million, which is a 7% increase year over year. What's really, I think, important or noteworthy here is that this is the company's first quarter under its new CEO, Nadav Tzifria, which we mentioned. Checkpoint is really like, I think of this as the OG in Israeli cyber, and obviously the OG and firewall technology they've been around since 1993. So, Yonatan, what does this mean overall for both, obviously, for Checkpoint, still an important, you know, indicator for Israeli tech, and what does it mean for Israeli cyber more broadly?
- [10:24]
Yonatan Adiri
So check point is a big employer, first and foremost, Gil Schwed the legendary founder stepped down. This is the first quarter for Nadav Zafree. It's the first quarter for a non founder CEO at Check Point. And there are so many companies, so much value created in the Israeli tech space in general based on graduates, if you will, of Check Point. That's how seminal, important, pivotal Check Point is for the Israeli tech industry per se. Three of the world's top cyber giants, due to kind of broader scope are Israeli. One is Checkpoint. The second is a daughter or a spin off of Checkpoint. That's Palo Alto Network led by Nirk, who you know, a good number of years ago was actually pretty annoyed with the stagnant nature of the OG and left.
- [11:07]
Michal Avram
And, and there's a great story there because I actually heard Shlomo Kramer, another founder of Checkpoint, speak in Silicon Valley recently and he was reminiscing fondly sort of about how Neil used to drive around with a license plate that said Checkpoint Killer. So it had mostly the consonants, not all the vowels were there, not enough space. But you know, he didn't kill Checkpoint but certainly made a dent, right?
- [11:29]
Yonatan Adiri
Yeah. And look, I mean there are very clear, you know, struggles and open discussions between Neil, Zuk and Gir from time to time. The market speaks for itself. Palo Alto Networks is $120 billion market cap company Checkpoint. After the positive report last week, the quarterly earnings is traded about 2022 billion. It is interesting to see that dynamic. Obviously the third, if you will, the grandchild cyber company that was Cloud first within five years generated $32 billion of market value and acquired. You were referring to that earlier by Google. That is obviously wiz. And so this fountain of cyber innovation doesn't stop. I think it's very indicative of the nature of the culture of Israeli entrepreneurship in the cyberspace. Folks don't just create one company. You mentioned Shlomo Kramer, Mickey Budai, A lot of folks who've been at it time and time again, they don't sort of go on an island and retire as the industry creates value and they seize the next generation of value. I think Checkpoints earnings is important for all the reasons we've just mentioned. So keep a close eye on that. But I think the broader story, and we're probably going to cover that in a defense tech context or in the broader cyber context in the next few episodes. This is a major pillar of the Israeli ecosystem and the Israeli economy per se.
- [12:44]
Michal Avram
Absolutely. Okay, from cyber to airports, let's talk about airspace which Israel appears to be running out of and has been for a While so is a second airport imminent. Finally, Israel's long needed a new work to its jfk. Let's not get into like the quality of airports here, but you know, I think there are some parallels here. And talks have been underway for years. Nevatim, which is in the south, south, close to Beersheba, has been a proposed location for a new airport. But there are lots of concerns, including some security issues. And the process, surprise, surprise, has become highly politicized. It does seem like there are now some new developments finally and that Nevatim is officially the location of choice, or at least so it seems. What's happening here?
- [13:26]
Yonatan Adiri
Yeah, I think, you know, you nailed it, right? The issue is we have no airspace. Right. About 60% of the airspace is used by the air force down south. Negev to train Israel is at its narrowest. Beach to Natania is about 15 km and it's why this is 100 ish kilometers from the dead Sea.
- [13:43]
Michal Avram
Talking about the waist and the hips, is that what we're talking about?
- [13:46]
Yonatan Adiri
Exactly, exactly. And so when you come to think of it like if you're, when you're flying at 30,000ft, you know, 600 miles per hour, you're kind of whoop, you know, you kind of go through Israeli airspace. So it's already narrow, it's already complicated. And the fact that as we said, we might have grown 11 times in population, 430 times in GDP, we still have one major international airport. Now this is a big issue. The fact that creating a new airport, it's a completely sort of professional decision that has again succumbed to the political diatribe, the political process in Israel. This was already a difficult decision to make in the Bennett government with Amirav Michaeli as Minister of Transportation failing to make the decision. There were two decision points. One in the Jezreel Valley up north, which actually makes more sense, it serves more Israelis. There's a broader, I would say airspace maneuverability there. That has not been the case. This is a classic nimby, right? Not in my backyard dynamic. A lot of political pressure. And it seems like the government has finally decided on Nevatim being the area of choice. There is again a lot of political wrappers into that member of Knesset Al Mulkohen being promoted. You know, he comes from the Negev, comes from that area.
- [15:00]
Michal Avram
For those who aren't watching this on YouTube, Yonatan just made air quotes. So for. For promoted.
- [15:07]
Yonatan Adiri
Yeah, exactly. Not sure how much of a promotion that is. And you know, the thing is that if this does, you know, if the bulldozers aren't already digging, you know, for construction today, your $30 Ryanair price is actually going to be thrown out the window in the next five, six years because we're going to go back to, you know, war prices. Without a war, it's simply going to run out. You know, we don' it in the air. We don't see traffic in the air like we see traffic, you know, in, in and outside the big cities. But that's exactly what's happening right now. This is a critical decision. Seems like the government made a step in the right direction. But since there is this massive political wrapper around it, it's too soon to call. But this is a major issue again, Israel landlocked. 95% of the exports are either via ports in the sea or air. So if we don't have airspace to export, if the ports in Eilat, which are now closed due to the Houthi situation, are loc. And this is a serious and grave situation for the Israeli economy. So keep a watch on that.
- [16:06]
Michal Avram
Yeah, lots at stake for sure. And I do have to say because I'm sitting here in the California Bay area that if you're frustrated with infrastructure projects that are going nowhere in Israel, I have a high speed rail $13 billion project to sell you.
- [16:19]
Yonatan Adiri
And that's actually a great point, Michal. I was listening last week to Ezra Klein, who in his new book Abundance is actually referring to the railway as one of the big failures of design and of processes of construction in the west coast in America and sort of w America failing. Why is the promise of the middle class has been taken over by populists, similar processes in Israel. It's actually a very good parallel. Like the political process gets it to sort of get stuck for years, get gets into litigation, the NIMBY process and then, you know, budgets, you know, quadruple and then you and I, you know, pay the price at the end of the day.
- [16:54]
Michal Avram
Absolutely. Okay, let's move on to another big story. Trump's upcoming visit to the Gulf. As you mentioned, it looks like he's going to hit Riyadh, Saudi Arabia, Qatar and uae. We've known about this trip for a while now. It looks official. It was supposed to be, by the way, his first foreign trip, but because he attended the Pope's funeral, this will be the second. But this is the first kind of planned one. There is a lot on the agenda. We're going to focus on Riyadh in particular. Trump recently said he predicts that normalization 2.0 is back on the table and that it will happen. This is so critical for so many reasons. Just to kind of put a number out there. Saudi Arabia is sitting on one of the largest sovereign wealth funds in the world, 930 billion, it's estimated at huge player in tech as we've seen it emerge. And obviously there's a lot more than investment and innovation kind of partnerships on the table. But what are you thinking as this approaches, Yonatan, what should we be reading into it?
- [17:59]
Yonatan Adiri
We spoke about that with Dan earlier on, on Call Me Back. This is a bigger story, right? This is about Israel's, you know, kind of geopolitical posture. Are we still a villain in the jungle? Are we still the ones who have to kind of build walls and defend? Or as we've discussed, is this a time for a regional context? And that context starts with India, ends with Ethiopia. I think three important topics here vis a vis Saudi Arabia. There is an America, China context to what's going on there. This is not just about Israel. This is about, you know, if you think about the three trade routes that are being formed, one is, I remember In Davos in 2009, we had Mr. President Perez had a meeting with President Putin and he made a comment that not everybody loses from global warming. Making a comment that Russia actually wins because the northern trade route from Vladivostok all the way to Hamburg is sort of defrosted. Back then, I think it was about eight weeks a year. Now we're looking at 12, 13 weeks a year. Think about how short the route is for goods from China to Western Europe if you go up north. Right? So that's one route. The second is China's belt and road ending up with Turkey and all the way into Europe, both of which leave India out and leave America out. Right. American interests outside the Saudi initiative with the US has to do with that and has a lot to do. If it opens the route with something called the imec, the India Middle east connection, that would be the trade route that is favored by America as it leaves China. On the outside, it leaves Russia, you know, sort of without its deck of cards, and opens the route for Indonesia, for South Korea, for Japan, through India, through Saudi Arabia, and then a land route through Israel all the way to Europe. So I think that's a very important piece if that comes together. This is an order of magnitude acceleration for the Israeli economy, for regional economy, and I think also for American interest as the competition, you know, sort of US China evolves, I think the second number here is, last time I checked, it was roughly $130 billion net earnings for Aramco per year. I think, you know, the Mohammed bin Salman vision for Saudi Arabia to engage in this type of formative or transformative leadership when you're still earning $130 billion a year from fossil fuels is truly an act of a visionary leader. And I think it's good, positive for the region that the president is traveling to Saudi Arabia and is kind of putting this as part of the anchor of his policy in and around the Middle East. And this diversification away from petroleum is also very good for Israel. Potentially the investment collaboration that can happen between uae, the Abraham Accords, Jordan, so on, is critical. I think the last point is, and Dan mentioned it again to call me back, Mohammed bin Salman said, and this has been kind of echoed, Saudi Arabia, for it to achieve its goals for 2050, needs a quiet, peaceful Middle East. And so this normalization we're going to talk about in the last section, Israel is now running a defense budget of $30 billion. This is really big. It's almost 15% of the budget. It's almost 7% of the GDP that is not sustainable. So normalization, if it brings the imec, you know, like India, Saudi, the trade route, if it actually creates the dynamic of cross investments, and even more, if it does contribute to Middle Eastern stability and peace, then, you know, the burden of defense may go down over the long arc of the next decade. All three are big wins. And, you know, I hope that President Trump is successful on the trip and normalization is indeed, you know, coming. The ramifications are huge.
- [21:31]
Michal Avram
Yeah. And obviously, you know, the elephant in the room is that politically this has become so much more complicated because of the war, I will say, with the UAE and the Abraham Accords. And obviously that has been kind of challenged as well in recent years because of the ongoing war. But one of the arguments that I've heard sort of in defense of the UAE coming into the Abraham Accords is that it actually made it easier for them to provide aid to Gaza and that in the future, you know, reconstruction efforts, and this goes for the Saudis as well. And that might be part of the appeal, too, as fraught as it is currently. Of course.
- [22:08]
Yonatan Adiri
Look, I think the peace dividend economically is very clear. I just think that the grievances locally and what happened on October 7, you know, genuinely make it really hard to reach some kind of reconciliation. And there is a camp in Israel that says for all the benefits of a Saudi deal, for all the benefits of regional integration, we cannot live with Hamas on our borders. And I think it's a legitimate concern. I think people don't understand the dynamic of what happened on October 7 is not a different scale of a terror attack. It is an invasion that really had left, you know, scars and traumas on the soul of every Israeli. So I think there's the macro perspective here, which I think we just kind of laid out, but I think the grievances, the trauma, and the fact that many Israelis are just not willing to consider the specter of Hamas surviving on the other side of that fence, which is a legitimate concern. And let's see how it all plays out.
- [23:01]
Michal Avram
Yeah, a lot more to say there for sure in a future episode. Okay, for now it's time to go on to the meatiest part of our show, the long play. This is like the dinner. These have been appetizers until now. So we're going to dive into the stake here. This is our deep dive into one significant issue affecting the Israeli economy. And like I said earlier today, we're really focused, focusing on the economy overall and kind of taking the pulse at this very moment on the emerging economic reality in Israel because it is evolving for sure. Unfortunately, the war is ongoing. We cannot talk about a post war economy quite yet. But we're going to do our best to kind of both analyze and contextualize the current situation. So just a few macro stats to start us off. Israel's economy was really a world darling coming out of COVID fiscal surplus 6.3% post pandemic growth in 2020. Realize that's an outlier, but still it's a pretty good outlier. The war and overall economic uncertainty has obviously put a dent in this picture. The economy slowed to 1% growth in 2024 post October 7, but we've been seeing some bright spots for sure and expectations that growth is resuming. However, the International Monetary Fund recently said it projects Israel economy will grow 3.2% this year, 3.6% next next year. This is lower than the bank of Israel's most recent forecasts of 3.5% and 4% respectively. So, Jonathan, let's start with the bright spots. What numbers? What are you watching? That's indicating growth is happening and that there's reason for, you know, pretty decent hope here.
- [24:43]
Yonatan Adiri
First and foremost, I think a broader comment as we're focused on the global lens of the Israeli economy. I think what we've seen with Fitch and Moody's and S and P visiting here about a month and a half ago, leaving their projections as negative to Israel. Following up on previous decisions in 2024, I think there's a sense of global overestimation of how bad things can go from a war perspective from here on in. I actually think the hard part is behind us. Obviously, there could be massive dynamics vis a vis Iran. If the deal doesn't go through, there still could be significant adverse effect. But overall, I think the geopolitical risk as a consequence of the war is now overestimated from the global lens and the IMF and sort of that argument. I tend to side with the optimists on the Israeli economy. Again, barring any major event. I think the geopolitical posture, given where Hezbollah is, which was the main concern for the Israeli economy, the threat there was what we saw recently in Spain where they had more than 10 hours of no electricity. That was the scenario for war up north. None of that happened. There were scenarios of building collapsing in Tel Aviv, so on and so forth. I think overall, if you kind of look at it from bird's eye view, I tend to be optimistic in terms of which risks have manifested themselves and where we're headed next. That said, the war costs $70 billion so far. That's out of a GDP of about $550 billion. Pretty strong economy divided by 10 million per capita. That's $55,000 per capita. Very strong economy today after, you know, months and months of war. There are about 4.4 million, I'd say four and a half million people in Israel that participate in the workforce. That is not a good number. That's roughly 63% participation rate. We do know what are the main drivers there. It's Arab women and ultra orthodox men that are not participating their fair share in the economy. You can look at it both ways. Some see it as the engine of growth. Right. How do you get from 55,000 to call it 65 to 70,000 per capita? That's part of the answer is there. We spoke about it with Dan. The demographic growth, it's very healthy compared to the Western Hemisphere, which is seeing demographic decline. I'm very optimistic in that perspective as well. I'd much rather Israel's perspective over the next 15 years to have good growth demographically and maybe challenging populations that you can address with the capital we have at hand and the right kind of infrastructure in healthcare and so on that we do have at hand. Then the problem that we're seeing in Europe with basically zero or negative demographic growth.
- [27:19]
Michal Avram
I know you talk about this birth Rate issue quite a bit, and the fact that Israel is very well positioned here. But on the workforce participation, on the productivity of the workforce, I mean, this is obviously so politicized and so fraught. Are there methods that have worked even in a small way in Israel, or are there examples abroad that we can look to? Because this has been an issue for so long.
- [27:42]
Yonatan Adiri
So I think overall, we've seen both communities respond really well to less elastic welfare state dynamics. Let's put it this way, right? So Israel's a very generous welfare state dynamics. And in different times, in the last, I would say 15 years, 20 years, we've seen that when the states, depending on who's in the coalition and how a more stringent welfare state actually delivered results relatively quickly, this is a major issue. So I think the answer to your point is the vehicles through which you encourage an effective workforce participation are pretty understood. It's a question of political will.
- [28:18]
Michal Avram
Yeah. And by the way, the private sector plays a role here too. I mean, not enough obviously, to date, but, you know, but we have seen some attempts from tech companies, for example, to employ Khalidi women, you know, and some collaboration also in similar outreach to the Arab population.
- [28:34]
Yonatan Adiri
So Haredi women participation is actually pretty high. We don't see them in high productivity areas as we'd like, but I think that's actually working really well. I think you're touching on an important topic. We spent the first half of the session today talking about, you know, checkpoint, in the Israeli tech industry, only 10% of the workforce, that is about 400,000 people, is in the tech space. Right. Which makes it even crazier to think, right? Like how big of a miracle this industry is. It is 10% of the workforce. It is 36% of Israel's income tax. That's three and a half times its relative representation in the workforce. Its contribution to Israel's income tax, it's about 30, 35% of the GDP is exports, 50% of that is the high tech industry. So the dependency on that industry on one end, compared to how small it is as a share of the workforce is, you know, you can say a miracle, but you can also say untenable given the kind of state of education performance against global benchmarks, the fact that both in the Arab sector and the ultra orthodox sector, the basic STEM professions are not taught well enough. And so you see a decline there. So how much of the talent can we generate for that industry, which is kind of stuck at 10% of the workforce? Hit the nail on the head. That's part of the issue. How big is this industry as a share of the workforce? That's a big challenge for Israel's productivity and for its ability to grow. I think again, education, as I said, benchmarked, is not performing as well as we want it to be. That said, free public education, even at the research university level, these really research universities are constantly in the top 100, 120, 150, 85, as in general. And in some professions in math and others, they're in the top 25. So I think that sort of continues to be a very strong piece of the Israeli economy, but again, highly political.
- [30:26]
Michal Avram
I did read recently that Israel is going to be the first country, I don't know if that's true, to roll out a nationwide pilot for AI tutors for basically giving access to every student in the country, eventually to an AI tutor. It sounds kind of silly, but you know, this has huge potential and if you listen to someone like Asal Khan from Khan Academy talk, this could be huge for education and you know, all sorts of parts of the world. I don't know, do you think there's any that's going to do anything?
- [30:53]
Yonatan Adiri
That's actually a great point. I mean, what we saw in the war is that the infrastructure for remote studies, no AI, but the infrastructure for remote studies and digital backbone of the Ministry of Education actually worked really well. That said, the Ministry of Education about three months ago tried to release its own ChatGPT agent, which was a colossal failure and they pulled it back.
- [31:13]
Michal Avram
So, Yonatan, I know you talked about the fog of war and it still early to tell exactly what reconstruction costs are going to be, but what are you seeing right now with Israeli society when it comes to sort of the. Can't call it post war, but efforts in the regions in the north and in the south.
- [31:30]
Yonatan Adiri
Yeah. So I think the north and the south are very distinctly different. We're seeing in the south a higher percentage of folks going back to their homes. There have actually been reports on real estate prices going up in Sderot in that area, which is very indicative of people demand kind of rising. I think the person in the news that we all should keep an eye on is Aviat Friedman. Finally, after a year and a half of bickering, we have ahead of what's called Minhelet Tkuma, the central planning branch or entity that has been budgeted for the reconstruction of the south and the Gaza envelope. Aviat Friedman is an incredible man of virtue. I'm very happy. I think he's been widely, very well received after a lot of fumbles and a lot of kind of bad appointments that didn't win. The political process of YAD has won the approval that's about two months old and has been doing really well since. I think the south has the right czar, if you will, and the right budget. This is in the 1012 billion shekels that's, let's say, three and a half, $4 billion. But it's very, very hard to estimate what this is going to end up costing because it depends on how the war ends. Is Hamas going to be on the other side? Is Israel going to keep a perimeter a kilometer into Gaza? And are there going to be, you know, outposts, you know, encroached into Gazan territory, Philadelphia Road and all of that? So that's the big variable when it comes to the south. I would say, counterintuitively, given that there is no active war anymore, Hezbollah has been hit and supposedly harder and so on, we are seeing smaller numbers of people returning and we are seeing a slower reconstruction. There is a dynamic in Israel that people who have come out of Kiryatmana, northernmost town city in Israel, who's underperforming socioeconomically on an ongoing basis, have resettled in the center of Israel, are gaining higher wages, their houses are not ready kind of there for them to go back. And there's a big question mark on whether or not these folks are going to come back or what are the conditions and benefits they need to receive fiscally over the next decade to go back. So this is a, I think, still very much at play. It's in the tens of billions of shekels, clearly already, and it remains to be seen, sort of, you know, what would be the cost? I would venture, if I had to bet there are some areas that are going to take far longer, mainly in the north, to repopulate, if at all, in the absence of a big political breakthrough regionally, the Saudi deal we discuss and so on? That would be. That would. That's going to be with us for years on end. This is going to take a lot of political will, a lot of trust, and that's a commodity we don't have a lot of these days when it comes to the political dynamic.
- [33:59]
Michal Avram
Okay, so, Jonathan, I know you are not Moody's, but if you had to give Israel a grade today, what would it be?
- [34:05]
Yonatan Adiri
So I definitely would put us in the A's. I think that the dynamic that put us in the BAA is, as I said before, is I Think overestimating the remaining geopolitical risks, I would actually say it's kind of parabolic. Right. We started off, a lot of them manifested themselves. There was a fear that many of them will. But now I think we're on the other side of that plateau again, barring an Iran dynamic, negative dynamic, or a spiral which has its probability. So I think we're definitely in the a. I think the most abysmal dynamic we've seen was the last budget. No major reforms, catering for side groups in Israeli society, leaving, if you will, the median person in Israel exposed with higher taxes, with lower quality and lower budgets for the existing public products that we get. That has me concerned. If the next budget does not bring in the right reforms and if you will, average. Who's average Joe in Israel? Like average Avi? I don't know. At the core of the next budget, then I think we may end up with a spiral exactly like we had after Yom Kippur. This thing doesn't happen immediately. You start off really strong, and then year after year, populism, populism, populism, and you end up with a crisis. I think we're very far off from that. I think there's a great opportunity for this government to change its course in the next budget. But definitely what comes up next, if it remains at the service of the extremes, then I'd be concerned.
- [35:37]
Michal Avram
All right. We began our show with the numbers of the week. We're going to end with the words of the week. And here it is. Throw out all of our forecasts. That's IMF's chief economist, Dr. Pierre Olivier Gurinchas. Hopefully I said that correctly. You can correct me on a ton.
- [35:56]
Yonatan Adiri
Look, I mean, I'm not that expert on the French pronunciation. I will say I love the quote. I think, you know, in that position, to be able to say that outspokenly, explicitly like that actually captures the mood of the week. So I think these are the words of the week.
- [36:09]
Michal Avram
Absolutely. And I should say he was referring very specifically to President Donald Trump. Trump's Liberation Day tariffs, which he said forced the IMF to completely overhaul global projections, including for the state of Israel. But we're seeing this across the board.
- [36:25]
Yonatan Adiri
Makes sense.
- [36:26]
Michal Avram
Okay, that is it for today's show. Thank you for tuning in to ARC Media's first episode, our Independence Day episode of what's yous Number? We hope you found it interesting. And if you did, be sure to, like, subscribe. Rate review. You know the drill. It all helps. But most importantly, please, please, please share it with others who you think will find it interesting. If you want to make suggestions or share your feedback, we'll take it all. Please reach out to us at what's your number@arc media.org we may not like it all, but we will take it.
- [37:03]
Yonatan Adiri
Once you Number is produced by Ilan Benatar. Sound editing by Martin Juergo. Our theme music is by Midnight Generation. I'm Yonatan Adiri.
- [37:12]
Michal Avram
And I'm Michal Avram. See you back here next week.
- [37:14]
Yonatan Adiri
See you back next week.
- [37:21]
Michal Avram
This podcast offers general business and economic information and is not a comprehensive summary for investment decisions. It does not recommend or solicit any investment strategy or security.