With an unprecedented recession, falling demand and failing industry: why is Netanyahu’s government refusing to extend the "Buy Israeli" Act?

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In light of the pandemic, Israeli business organizations have repeatedly called on the government to extend the “Buy Israeli” Act, which would see millions of shekels in government expenditure going to local businesses as opposed to foreign ones. The government, however, has so far refused the call, with Netanyahu’s office declining to act on the subject.

With the incoming Biden administration committing to stronger “Buy American” requirements, and governments around the world increasing public procurements, the Netanyahu government is again putting fundamentalist market ideology over the interest of Israeli business, Israeli economy and the Israeli public.

“If the government supported local manufacturing it wouldn't have to spend so much on unemployment,” Arie Richtman, a factory owner and head of the “Buy Israeli” Committee, told Davar. “But they refuse to. Unless they change their attitude, we might soon find ourselves with much less industry that we had before this crisis.”

What is the "Buy Israeli" act?

Much like the "Buy American" Act in the US, and various other public procurement laws around the world, the "Buy Israeli" Act states that the government must commit to preferring Israeli made products and services in its purchases. The law, first enacted in 1992, states that the government must spend public funds on Israeli products and services, as long as the extra cost does not exceed 15 percent.

The Israeli law, however, refers only to purchases made directly by the government, and not by other public bodies such as municipalities or government-owned companies. Israeli businesses have complained over the years that without extending the law to all public bodies, like in the US, it remains too diluted.

Government spending is by far the largest direct source of investment, particularly during the COVID-19 crisis, when spending by private investors and households has fallen dramatically. Israeli businesses have claimed that increasing government spending on Israeli products and services as opposed to imported ones could provide much needed aid to local businesses, which are in danger of failing due to the crisis. They have demanded the government extend the act to include all public bodies, which would see millions more in income for Israeli businesses.

Why has the law been so contentious?

The Israeli Treasury has long been opposed to the law in general, and has resisted calls to extend it due to the economic crisis. In many cases, adhering to the law means increasing public spending significantly, which would contribute to the already rising levels of spending. The treasury has been opposed to any extension of the law, despite recommendations by the International Monetary Fund (IMF) to increase government expenditure to help their economies weather the crisis, and despite the fact that an increased cash flow could help local businesses retain workers and mitigate the unprecedented unemployment numbers.

The second reason for opposing the extension of the law, which was recently supported by head of the Israel Competition Authority, Michal Halperin, is the idea that markets should decide which business succeed and which fail. The treasury seems reluctant to support what they call “zombie businesses,” and would give some businesses unfair advantage over others.

The treasury has not commented on the claim that many of these companies were viable before being hit by the economic impact of the pandemic, and their failure threatens to further deepen Israel’s massive crisis in unemployment.

What challenges is Israeli industry facing?

Even though much of the Israeli industry has continued to operate during lockdown, the fall in demand around the world, as well as in Israel, have caused businesses to suffer a heavy blow in recent months.

Business owners have been eligible for government support, including government-backed loans and several limited grant programs, but they claim these have not been sufficient in light of the crisis. Almost a million Israeli workers remain out of work, and businesses claim that without additional support they will be unable to rehire any time soon.