SAN FRANCISCO CHRONICLE
Saturday, August 19, 2006
Page C - 1
Matthew Kalman, Chronicle Foreign Service
Acre, Israel -- Like many residents of northern Israel, Doron Efrati has a few jobs.
By day he is a meteorologist, environmentalist and a lecturer at Western Galilee College. At home in the pastoral surroundings of Bustan Hagalil, a pastoral cooperative farming community on the outskirts of the ancient crusader city of Acre, he has built four holiday cottages on the grounds of his home that are rented out from June until September. But not this year.
"The war killed everything," said Efrati, who sat out the war with his family as the Hezbollah rockets exploded in the fields around their home.
Efrati's cottages may yet be filled. As Israel began to count the cost of the monthlong war against Hezbollah in Lebanon, Israeli Finance Minister Avraham Hirchson announced plans to bring Israeli and foreign tourists to the north in an attempt to provide an immediate cash injection for the beleaguered region.
Tourism slumped by 25 percent in July, compared with the same month in 2005, and the many hotels and guesthouses in the north of the country were occupied only by journalists, aid workers and soldiers.
The damage to tourism, worth $3 billion each year to the Israeli economy, came as officials were expecting a record-breaking 2.5 million passenger arrivals in 2006. Officials said cancellations were already being received for 2007. The Bank of Israel said in a report that the damage to tourism alone could erase half a percentage point off the country's annual earnings.
Hirchson said Israel's first priority is to repair the physical damage caused by the rocket barrages on homes, shops and community buildings. He said officials had already received more than 8,000 compensation claims and he expects that figure to rise sharply as the full extent of the damage becomes clear.
"This was a war with heavy economic costs. We will have to deal with it and restore the situation to what it was as quickly as possible in order for the north of the country to continue to grow," Hirchson said.
"We intend to use the last two remaining weeks of the summer vacation to bring everyone to the north with an aggressive marketing campaign, so they will fill the shops, make purchases, fill the hotels and holiday cottages, eat in the restaurants and create immediate earnings for the residents of the north," he said.
Israeli officials' initial estimate of the total cost was $5.3 billion, including defense spending, emergency aid to hard-hit communities, physical damage and the consequences of a $2 billion -- or 1.5 percent loss -- in the gross domestic product.
But analysts say that the Israeli economy was robust enough at the start of the war to endure the setback. "The ability of the economy to cope with this shock is quite good and will create a situation where it will have only a temporary negative effect and not longer-term negative effect," said Gil Bufman, chief economist at Bank Leumi.
Israel's gross domestic product showed healthy annual growth of 6.2 percent at the end of the second quarter of 2006, according to the country's Central Bureau of Statistics, led by exports, which grew by 25.8 percent over the year.
Two huge technology deals with Bay Area companies went ahead despite the war, signaling confidence in the Israeli economy. On July 25, Palo Alto's Hewlett-Packard Co. bought Mercury Interactive Corp. for about $4.5 billion, and on July 31, SanDisk Corp. of Milpitas, the world's largest maker of memory cards in consumer electronics, agreed to buy M-Systems Flash Disk Pioneers Ltd. for $1.7 billion.
In May, Warren Buffett's Berkshire Hathaway Inc. paid $4 billion to buy 80 percent of Iscar Metalworking Cos., whose headquarters is in the rocket-battered town of Carmiel northern Israel. Buffett is expected to visit Israel to inspect the company next month.
The Association of Israeli Chambers of Commerce estimated the direct losses to service and trade industries in the north at 5.9 billion shekels ($1.4 billion), affecting some 60,000 businesses employing 210,000 workers. The association said the average loss in revenue was 60 percent for the period. "There is no doubt that there are businesses where the loss in revenue was total because they were closed, like restaurants, shops, cinemas and others," the association said in a statement.