In­vest­ment in Is­rael off­sets di­vest­ment—for now

For­eign money stays, but ac­tivists see sub­tler ef­fects Cre­at­ing an “im­pact on the main­stream Is­raeli psy­che”

Bloomberg Businessweek (Europe) - - CONTENTS - The bot­tom line Is­raeli as­sets have been at­trac­tive to in­vestors, but a grow­ing move­ment has some in­sti­tu­tions pulling away.

In De­cem­ber the board of the United Methodist Church’s $20 bil­lion U.S. pen­sion added the five largest Is­raeli banks to its list of com­pa­nies in which it will not in­vest, be­cause of their op­er­a­tions in­side oc­cu­pied Pales­tinian ter­ri­to­ries. The ac­tion fol­lowed de­ci­sions in re­cent years by some large pen­sion and in­sti­tu­tional funds in Europe to di­vest from cer­tain Is­raeli com­pa­nies.

Yet these moves have had lit­tle dis­cernible im­pact on over­all for­eign in­vest­ment: Bloomberg cal­cu­la­tions show the per­cent­age of non-Is­raeli share­hold­ers in nine pub­licly traded Is­raeli com­pa­nies tar­geted by ac­tivists for ties to oc­cu­pa­tion or Jewish set­tle­ments in those ter­ri­to­ries has risen steadily over the past three years.

For­eign in­vest­ment in Is­raeli as­sets more broadly has also grown, hit­ting a record $285 bil­lion, nearly triple the to­tal in 2005, when the boy­cott, di­vest­ment, and sanc­tions move­ment, or BDS, was started by a group of Pales­tini­ans. Boy­cotters and di­vesters in­clude those who re­ject the Jewish state’s ex­is­tence, as well as those who specif­i­cally want to pres­sure it to change poli­cies to­ward Pales­tini­ans in the West Bank and Gaza Strip. Some tar­get Is­rael gen­er­ally, while oth­ers fo­cus on spe­cific com­pa­nies and groups they see as linked to oc­cu­pa­tion. The Methodist fund, for ex­am­ple, pointed out that it still in­vested in sev­eral Is­raeli com­pa­nies.

Yoel Naveh, chief econ­o­mist at Is­rael’s Min­istry of Fi­nance, ac­knowl­edges that some in­sti­tu­tions are pulling their in­vest­ments. But they’re more than off­set by oth­ers that are fun­nel­ing money in. “We don’t have a prob­lem with for­eign in­vest­ment in Is­rael— on the con­trary,” he says. Last year, non-Is­raeli in­vestors poured about $3.8 bil­lion into Is­raeli star­tups, the highest level in a decade, ac­cord­ing to IVC Re­search Cen­ter. And for­eign­ers spent an ad­di­tional $5.9 bil­lion ac­quir­ing Is­raeli com­pa­nies.

For some money man­agers, Is­raeli as­sets are at­trac­tive in a world of slow eco­nomic growth. The na­tion’s econ­omy is ex­pected to ex­pand 2.8 per­cent this year, com­pared with 1.8 per­cent for the U.S. and the Euro­pean Union. Still, calls to 30 fund man­agers who own shares in the nine tar­geted com­pa­nies yielded two will­ing to speak, and they in­sisted on not be­ing named. One says that while some in­vestors in Europe may be con­sid­er­ing di­vest­ment, oth­ers in China and else­where sim­ply want to own well-man­aged com­pa­nies with high div­i­dend yields and healthy bal­ance sheets. Both man­agers ar­gue it’s not clear what con­sti­tutes busi­ness com­plic­ity in Is­rael’s oc­cu­pa­tion.

Among the in­sti­tu­tional in­vestors that have said they were avoid­ing some Is­raeli com­pa­nies is Nor­way’s $862 bil­lion sov­er­eign wealth fund, which ex­cluded Tel Aviv-based Africa Is­rael In­vest­ments from its port­fo­lio in 2014. In the same year, Pen­sioen­fonds Zorg & Welz­ijn, the sec­ond-largest Dutch pen­sion fund, black­listed sev­eral Is­raeli banks. New Zealand’s Gov­ern­ment Su­per­an­nu­a­tion Fund also re­moved Africa Is­rael In­vest­ments and con­struc­tion com­pany Shikun & Binui from its in­vest­ment op­tions.

Ac­tivists say they’re not wor­ried that the in­vest­ment im­pact has been small so far. A few Euro­pean com­pa­nies have with­drawn from the Is­raeli mar­ket fol­low­ing pres­sure cam­paigns, and So­daS­tream In­ter­na­tional re­lo­cated op­er­a­tions out of the West Bank, al­though it cited com­mer­cial rea­sons. Mean­while, the BDS move­ment has scored vic­to­ries on the cul­tural front. Singer Lau­ryn Hill last year can­celed a Tel Aviv con­cert and ap­peared in a video with Pales­tinian ac­tivists. Some stu­dent groups have pushed to ban Is­raeli hum­mus from cafe­te­rias.

“BDS isn’t just work­ing,” said Omar Bargh­outi, a co-founder of the cam­paign, in an e-mail. “It’s work­ing far bet­ter and spread­ing into the main­stream much faster than we’d an­tic­i­pated.” Last month, Is­raeli au­thor­i­ties banned Bargh­outi, who lives in Is­rael, from trav­el­ing abroad. He ar­gues that the move­ment’s strength is in its “in­di­rect, pal­pa­ble psy­cho­log­i­cal im­pact on the main­stream Is­raeli psy­che about the coun­try be­com­ing more ‘iso­lated’ from the world.”

What most wor­ries Is­rael’s de­fend­ers is that for­eign­ers will qui­etly choose to avoid en­gag­ing with the coun­try sim­ply to avoid controversy. Shlomo Maoz, chief econ­o­mist at S.M. Tel Aviv In­vest­ments, says the move­ment may have an eco­nomic im­pact fur­ther down the road. “BDS now is not a big threat,” he says. “But when stu­dents go to col­lege in America, the U.K., and see anti-Is­rael BDS protests, and then go to be fund man­agers in five, seven years—then it could be a prob­lem.”

Sang­won Yoon

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