The October 7 War severely impacted Israel’s economy, particularly in the western Negev to the south of Gaza, which was quickly followed by destruction in northern Israel that has left diverse communities reeling from the past 500 days of war. Hamas-Hezbollah-Iran’s “[Ring of Fire](https://www.timesofisrael.com/spotlight/ring-of-fire-irans-proxy-network-against-israel-and-how-to-disrupt-it/)” crumbled under assault from the Israeli military. But the economic damage that effectively shrunk Israel’s North and Southern regions along with the country’s economic growth rate could become irreparable if policymakers don’t accelerate building toward the “day after” of this terrible conflict now.
###### Read It and Weep
When we started our research and planning for Israel’s post-war recovery last year in coordination with other business, finance, technology and policy practitioners, estimates of war-related impacts for rebuilding ranged from $6 billion to $10 billion. That figure, it should be noted, did not include the loss of GDP from war disruption, defense and civilian expenditures, restoration of military inventories, and rehabilitation for injured and displaced people. Moreover, as the conflict expanded and persisted over the past months, estimated war costs were revised upward by the Bank of Israel to as much as 10-18 percent of Israel’s annual GDP (between $56 billion and $95 billion).
Israel has been here before: after the 1973 Yom Kippur War, Israel lost a decade of growth. During that decade Israel sacrificed growth by diverting vast sums to ramping up defense at the price of underinvestment in physical infrastructure, energy and health. Indeed, it took almost two decades for Israel to achieve its cutting-edge competitiveness in disruptive technologies that gave the country a real per capita income in the same ballpark as South Korea, Taiwan and Spain.
###### Digging Out
With that experience, Israel learned that post-war recovery requires more than emergency relief. It demands novel financial solutions that can accelerate rebuilding while creating sustainable growth. Specifically, what’s needed is a practical roadmap for mobilizing capital formation and job creation at the scale required for comprehensive regional development that integrates regions in the north, center and south. The past decades have taught us that the term “periphery” for this tiny country’s outlying regions is obsolete. The country simply cannot afford to continue to marginalize places or people and still achieve the twin goals of rapid growth and fair distribution that will ensure social cohesion.
International experience after past wars shows that post-conflict reconstruction works best when it goes far beyond recreating what existed previously. Things can change quickly after wars and this compression of time in adopting and adapting innovation enables new solutions to emerge. Israel’s good at that.
Post-war recovery depends ultimately upon bringing home displaced (and highly productive) residents to as well as attracting newcomers who bring capital and technology. This, in turn, depends on solutions that move beyond budgetary fights in the Knesset now constrained by Israel’s growing debt-to-GDP ratio. The nation must create the capacity for public-private financial cooperation to catalyze a high-impact response that goes beyond emergency relief. The goal is to jumpstart economic recovery in the hardest-hit regions to rapidly return displaced communities and businesses to competitiveness.
Israel’s “center” — its social and spiritual ethos for resilience that binds the country together — must hold. Ultimately, that will only be possible by meeting the challenges of economic, energy, food and health security. Of course, all this amounts to platitudes if it isn’t backed up by practical suggestions. Hence our excitement in the conclusions of our [collaborative Financial Innovation Lab](https://motj.org.il/en/events/building-back-better-scaling-growth-and-impact-in-israel-through-financial-innovation/) sessions at the Museum of Tolerance Jerusalem last June, which identified opportunities to accelerate regional growth in business formation and job creation. The resulting analysis spotlights ways to address the post-war recovery costs and to reimagine the growth engine that the western Negev (and northern Israel) could become with the right incentives from public, private and philanthropic sources.
###### Details, Details, Details
What we concluded through our collaborative research and ongoing work with partners in the Tkuma National Recovery Authority and Western Negev Eshkol Regional District, along with other stakeholders in Israel and overseas Jewish communities, is that building a financing platform in Israel should be based on best practices elsewhere. Specifically, from development banks, sovereign wealth funds and public authorities (e.g. New York Empire State Development Authority, the California Infrastructure Bank, Danube Development Corporation). The Lab report details financing mechanisms designed to reduce risk, attract capital and accelerate economic activity, including:
* Public-private investment structures that leverage government funds as catalytic capital
* Small business financing built around structured credit to expand access to capital
* Strategic infrastructure investment targeting energy, water, agriculture and technology sectors to support long-term economic resilience
* Tax incentives and derisking measures built around joint government-philanthropic guarantees to encourage capital deployment
There is no getting around the reality that the pain of October 7 and its denouement will haunt Israel for decades. But the economic damage need not linger if Israel acts quickly and decisively.