The shekel’s rise to levels not seen in decades was interpreted by the markets as a vote of confidence in the Israeli economy. Yet in the economy’s strongest sector, that same sign of strength sounds more like an alarm bell.
What appears from the outside to be a badge of economic excellence looks from within like a sharp cut in revenue: the dollars keep coming in, but once converted into shekels, they are worth far less.
Over the course of a year, the dollar lost more than 20 percent of its value against the shekel, falling in June to around NIS 2.8, the lowest exchange rate since 1993. For the general public, a strong shekel makes flights, cars and imported goods cheaper.
For a technology company, however, the calculation works in reverse. Israeli high-tech companies sell primarily outside Israel, and their revenues are denominated in dollars.
Investments in Israeli start-ups are also made in the US currency, while most of their expenses are paid in shekels.
A company that raised $100 million could, a year ago, use that money to cover salaries and expenses of up to NIS 360 million. Today, it is left with only NIS 300 million.
Not a single customer has been lost, and no investor has withdrawn, yet almost one-fifth of the company’s shekel-denominated income has disappeared.
Wix illustrates the growing pressure
Consider Wix, a symbol of Israeli success. For years, the company sold businesses and entrepreneurs the ability to build a website without any programming knowledge.
It was part of a revolution that made website development simpler, more accessible and less expensive, and also reduced, to some extent, the need for professional website developers.
Now a new, faster and more powerful technology has arrived, one that has seemingly made Wix itself redundant. Artificial intelligence tools can build, write, design and improve digital products within minutes.
Wix must reinvent itself in the age of artificial intelligence. But when such a structural transformation is accompanied by a roughly 20 percent cut in shekel-denominated revenue caused solely by the exchange rate, the consequences are swift.
The company announced that it would dismiss 1,000 employees, about 20 percent of its workforce. The main reason?
“A very significant share of expenses is denominated in shekels, while the vast majority of revenues are denominated in dollars.”
This is not a marginal problem. High tech, as the familiar saying goes, is the engine of the Israeli economy. It accounts for nearly 20 percent of Israel’s GDP and more than 50 percent of its exports.
Because Israeli technology companies operate in a global market, they cannot simply raise their prices. They must cut costs, dismiss employees or relocate jobs abroad.
A series of companies have already announced cutbacks and layoffs.
AI is changing both the products the industry creates and the way its workforce is structured, while the strong shekel is making Israeli employees even more expensive.
At an exchange rate of NIS 2.8 to the dollar, an Israeli engineer earns more than an engineer in Silicon Valley.
Government moves to support start-ups
Once the government understood the scale of the problem, the Finance Ministry convened emergency meetings and rapidly approved an assistance package for the technology sector, focused on start-ups.
The package is worth approximately NIS 1.6 billion, of which around NIS 1 billion is intended to provide rapid support to start-ups. The grants are aimed at companies whose runway has shortened to one year or less and are intended to help extend it by approximately six months.
This is not an attempt to save every technology company or compensate large corporations for currency risks they are capable of hedging.
The objective is to prevent a temporary shock from wiping out young companies with promising technology just before they reach the market.
In the long term, Israel will have to adjust to a stronger shekel. Since June, amid heightened security tensions, the dollar has returned to above NIS 3, although it remains roughly 15 percent below its level a year ago.
But a significant easing of security tensions, progress in relations with Iran or normalization with Saudi Arabia could restore confidence and trigger another wave of investment in Israel.
As recent years have shown, conditions in the Middle East can change in an instant.
The government should not fight a trend that reflects a strong economy. But it is trying to make the transition smoother and prevent companies from making decisions in a state of panic.
Even a powerful locomotive can be derailed when the tracks change too quickly.
The writer is an economic commentator and public policy researcher.