Business

For a Fistful of Shekels: Israeli Defense Contractors’ Profits Boom as Economy Takes a Beating

Inauguration of the Israel Aerospace Industries “visitor center” in Washington DC, May 23, 2024.

With the world watching in horror as the raging Palestinian-Israeli conflict approaches its eight month anniversary, arms makers continue to quietly make a tidy profit from the war. Israel’s domestic defense sector is no exception.US business media has warned of the “haunting parallels” between Israel’s ballooning military expenditures amid the Gaza War and the country’s 1970s ‘lost decade’ of surging inflation, out of control budget deficits, stagnant growth and faltering investor confidence.Israel’s Central Bank expects the war in Gaza to cost a whopping 250 billion shekels ($67.4 billion US) through 2025, as defense spending as a share of GDP jumps from 5.3% to 9%. That’s amid increasingly dour circumstances in the civilian economy, with Q4 of 2023 seeing Israel’s GDP drop by over 20%, while consumption dropped 27% and investment by 70%.

Most worrying of all for Tel Aviv is the potential loss of investment flows – particularly in the tech sector. “We can’t even begin to measure how many people have decided not to invest in Israel in the short term, let alone on a permanent basis,” Shoresh Institute economist Dan Ben-David told Bloomberg in a report published Thursday.

AnalysisIsrael Can’t Afford Escalation With Iran and Gaza19 April, 18:46 GMTBut as the civilian economy suffers, Israel’s arms makers have no complaints, boasting record profits, buoyed by Washington’s nod to an unprecedented $17 billion in new military aid (more than five times the $3 billion+ Tel Aviv has been getting from the US annually since the early 1980s). A portion of the funds can be spent on Israeli-made weapons – a privilege not granted to other US allies, with roughly half a billion dollars also typically slated for Israeli-US joint research in missile defense.Israel’s top three defense giants – Israel Aerospace Industries (IAI), Rafael Advanced Defense Systems and Elbit Systems have enjoyed surging stock prices and orders growing at a pace beyond their ability to keep up.IAI reported a 7% growth in sales to $5.3 billion in 2023, a 49% jump in net profit, with production ranging from drones, missiles, bombs, radars and electronic warfare articles to space-based defenses. Its order backlog has soared to $18 billion.Rafael – makers of Tamir missiles for the Iron Dome and an array of other air defense and anti-tank missiles and drones, saw a record 21% increase in sales and a whopping 85% increase in order volume, with net profits hitting $158 million – a 17% jump from 2022, and the backlog of orders reaching over $14 billion.Elbit, makers of much of the “guts” of Israeli weapons, plus drones, communications equipment, small arms, cluster munitions and armored vehicles, saw profits jump 8% in 2023, with revenues reaching nearly $6 billion, and Q1 2024 results this week showing $1.6 billion in revenues, and a $20.4 billion order backlog.MilitaryIsrael’s Defense Industry: Can Tel Aviv Survive Without American Weapons?11 October 2023, 16:51 GMT

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