Local Industries Seek Deeper Interest Rate Cuts Amidst Rising Costs
Dr. Mohammed Zahalka, head of the Arab Industries Committee at the Union of Industrialists, welcomed a 0.25% interest rate cut but deemed it insufficient given the pressures on local industries, particularly exporters. He cited the strong shekel against the dollar, increased shipping, insurance, and raw material costs, along with operational expenses, as factors squeezing factory profits and competitiveness. Zahalka called for a larger rate reduction and additional governmental and banking measures to support domestic investment and production.
Zahalka explained that the 0.25% cut, while positive, was delayed and smaller than the 0.50% reduction the industries had requested. He noted that current interest rates remain high compared to previous years, significantly impacting manufacturers' decisions regarding investment and expansion. The local market is limited, with approximately 68% of industrial products destined for export, making factories highly sensitive to the shekel-dollar exchange rate. A stronger shekel results in losses for companies earning in dollars while incurring many costs in shekels.
He also highlighted that government investment in local industries remains limited, despite challenging economic and security conditions. Zahalka believes this is an opportunity for the state to increase industrial investment and prevent further relocation of manufacturing activities abroad, a trend driven by rising production costs in recent years. Furthermore, increased sea freight and cargo insurance costs, exemplified by longer shipping times from China (now around 65 days compared to 35), add further pressure and necessitate government support in insurance and shipping.
These rising costs for raw materials, energy, water, and electricity ultimately affect consumers. Zahalka warned that continued cost increases will weaken the competitiveness of local industries globally, especially against countries with lower production and operational expenses. He stated that local industries have absorbed much of the cost increases over the past few years, avoiding passing the full burden to consumers, but this is becoming increasingly difficult.
Zahalka urged the Bank of Israel to implement a more substantial interest rate cut, suggesting 0.50% could significantly boost investment and economic recovery. He emphasized the need for a long-term industrial support plan, not just temporary crisis measures, to enhance factories' ability to sustain and compete globally, benefiting the economy, consumers, and the labor market.
The Arab industries encompass sectors like food, clothing, medical supplies, construction, electricity, and advanced technology. The Union of Industrialists represents about 100 Arab factories, with an additional 119 exporting to international markets, some reaching dozens of countries in the Middle East.
