Investment in Israel offsets divestment—for now
Foreign money stays, but activists see subtler effects Creating an “impact on the mainstream Israeli psyche”
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.”