The Middle East Africa (MEA) region will gradually emerge from the challenges brought by COVID-19, growing at 4% YOY in 2021, up from a contraction of 4.3% YOY in 2020. While the Sub-Saharan Africa region includes some smaller markets that have been more insulated from the global economic and pandemic crisis of 2020, all major economies in MEA have seen significant disruptions to their economies. The recovery in 2021 will be very gradual; Q2 2021 should see some uptick in activity as COVID-19 restrictions are lifted and confidence and pent-up demand begins to return. However, a more substantial economic recovery is likely in late 2021, with most economies turning to their pre-pandemic levels of economic size in 2022. Scenario planning, close monitoring of financial risk and enhancements to the offering will be essential to outgrowing market conditions in 2021.
Our analysts are working to bring you our latest insights on the MEA region, preparing you for uncertainty, volatility, and uneven recovery throughout 2021. In this series, we do a deep dive into the key MEA markets that have the largest impact on your business so you can stay ahead of the curve this year. Check out our insights on Turkey healthcare and Nigeria, and keep an eye on our LinkedIn page for even more insights through the end of January. Keep reading for more on our current view of Israel’s recovery in 2021.
The COVID-19 pandemic has forced Israel’s economy into recession for the first time since 2001. Two nationwide lockdowns dampen the economy by 3.6% at the end of 2020. In 2021, however, the economy will grow by 3.3%, positioning it as one of the highest performers in the Middle East and North Africa region.
A relatively stable shekel will keep purchasing power strong, but higher unemployment compared to pre-COVID levels will weigh on consumption growth. We expect to see some government consolidation measures in 2021, curbing the mounting fiscal deficit, but stimulus for many businesses, including small firms, will likely continue into the second half of 2021. The risk of Knesset dissolution in the first half of 2021 will remain high, causing business confidence to grow cautiously. Businesses should strengthen their utilization of digital channels and align with their local teams and distributors to ensure they are ready to approach customer segments with the optimal product mix.
The economy will take at least nine months to return to pre-COVID levels. The easing of restrictions in early 2021 along with a successful rollout of a COVID-19 vaccine will push Israel’s economy out of recession in 2021; however, it is unlikely to recover fully before 2022. The level of government support to businesses in 2021 will determine the recovery speed.
A third wave of COVID-19 would slow appreciation momentum in 2021. The resumption of business activity among trading partners and the expansion of gas volumes available for exports will cause the Israeli shekel to appreciate in 2021. However, currency appreciation threatens Israeli exports’ competitiveness, so businesses should expect some central bank interventions to depreciate the shekel.
Businesses should monitor the sectors with high growth potential in 2021. Most industries will be out of recession by the end of 2021, but the hospitality and tourism industries will not recover before 2022, while the retail industry will be the fastest to fully recover. Businesses working in the healthcare industry are likely to face financially stressed customers, delaying industry recovery until the end of 2021.
Actions for Businesses Operating in Israel
- Prepare a scenario where some COVID-19 restrictions are reinstated in at the beginning of 2021.
- Prepare your local team to identify segments that will grow faster amid uneven recovery. Target customers in manufacturing, construction, retail, and oil as they will outperform in terms of revenue growth. Expect customers operating in the logistics and hospitality sectors to be more price sensitive than those in healthcare.
- Prioritize selling premium products to customers in the outperforming sectors and prepare your local teams and partners to offer flexible solutions for price-sensitive customers and to double down on value-added solutions to better-performing customers.
- Assess your partners’ exposure to financial risks in the short term amid the extension of government stimulus to some businesses until June 2021 and the reduction of credit costs.
- Prepare a scenario where political instability leads to loss in business confidence, which would delay securing business deals.
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