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Friday, 21 June, 2002, 21:01 GMT 22:01 UK
Israel's battered economy
Israeli soldier
Israeli defence spending is up by $2bn

Life has never been easy in Sderot.

It's a 'development town,' one of the communities on Israel's periphery created to absorb new immigrants, less developed than Israel's heartland.

Many of the Soviets who flocked to Israel over the past decade have ended up in places like Sderot.

They had hoped for a new start, but the future is looking even gloomier for their children.

Sofia Khanukaev
Sofia Khanukaev: Things are getting worse

Sofia Khanukaev left school to go to work when she was 16 because her parents lost their factory jobs.

She has scraped together a fairly respectable business selling cheaply made clothes on the market circuit.

But as the Palestinian uprising drags on she is watching her opportunities shrink along with Israel's economy.

"Here in the south there are no jobs," she says. "Only in the last two years did it become so difficult. It was relatively stable before that, now it's just getting worse and worse."

Boom to bust

Israel is facing a serious economic slump.

Two years ago it was booming, but now unemployment and inflation are rising, investment and currency values are dropping.


We feel (the slowdown) in practically in all branches of the economy

Yoram Gabai, Israeli economist

So far the emphasis on security has overshadowed such trends, but economists are warning that Israel could face a crisis if things do not change.

An increase in food handouts is just one sign of how the intifadah has affected the economy.

One centre in Jerusalem, the Israel Association for Needy Single Parent Families, now supplies twice as many people as it did two years ago.

Some 600 families come to pick up aid throughout the week.

Oria Ben David is one of those who makes the trip. She can't find work, so she can't keep up with her rent, and now she's in danger of losing her flat.

"There's nothing I can do if I lose my home," she says, wiping away tears.

"I'll be out on the street."

Tourists stay home

News that the government is about to cut welfare payments has many worried. Military and security costs have taken a big bite out of the budget.

Economist Yoram Gabai estimates that defence spending has increased by two billion dollars a year since the intifadah began.

Just to keep the tanks rolling into Palestinian towns costs about $70m dollars a month.

Woman claiming food aid
Food handouts are in demand

And all of this has coincided with a global recession.

"Actually the main effect is not these two billion dollars, but the reduction in foreign investment, the slowdown in tourism, the slowdown in the business sector, so we feel it practically in all branches of the economy," said Mr Gabai.

Right now the standard of living and per capita GDP is dropping three or four per cent a year, he added.

"In the long run it could create a financial problem in Israel, because the reduction in foreign investment and outflow of investment from Israel abroad, could create problems in the currency."

There are almost no tourists spending cash in Jerusalem's medieval streets, a key source of revenue.

Add to that a dramatic drop in foreign investment from $11bn to $4bn in just two short years, and you get a picture of just how vulnerable the economy is.

Small business struggle

Like elsewhere, small businesses in the old city are struggling to survive.

"For now we manage to pay the bills little by little," says shop owner Ketty Sevillia.

"But we don't know what will be after six months or a year, it will be more difficult. Because of the terrorism people don't go out, they are afraid."

Man at market
Small business struggle on

A few local customers wander in from time to time to buy snacks.

Ketty has also opened the upper room for those who want to watch the World Cup, on condition they buy something first.

But to her disappointment they usually share drinks.

But she's not ready to criticize the government's military policy.

"I think what they're doing is all right," she says, "because we have to be safe."

So far people are putting up with hardship because they think there's no alternative.

But if the situation continues to deteriorate they may start to question a military policy that threatens their economic security.

See also:

09 Jan 02 | Business
18 Feb 02 | Business
22 Apr 02 | Business
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