"We need to see to it that within a short time an airlift of foreign workers comes here; this is critical, and we have to go wild about it," said Knesset Internal Affairs and Environment Committee chairperson MK Yaakov Asher on October 24 last year, in the first session of the committee that dealt with the shortage of foreign workers in the construction sector.
It was the first of a series of sessions on the matter, and in the meanwhile three government decisions have been drafted, with one of them due shortly to be brought before the government for approval as part of the revision of the 2024 state budget. On the ground, however, nothing has changed. 100 days have gone by since the war broke out, but the shortfall of about 100,000 construction workers has still not been made up.
Up until October 7, Israel’s construction industry relied heavily on Palestinian manpower. About 75,000 Palestinians in the West Bank held permits to work in Israel. There were another 12,000 in the Gaza Strip, while about 15,000 illegal entrants were employed in the industry. That amounts to about a third of the workforce in the entire sector. With the outbreak of the Swords of Iron war, the entry of Palestinian workers into Israel was stopped entirely, leading to an immediate shortfall of 100,000 workers.
According to the Association of Contractors and Builders in Israel, however, the numbers are much higher. In response to the proposal by the Ministry of Finance in the revised 2024 budget, the Association wrote that even before the war there was a permanent shortage of 40,000 workers for the industry’s needs. In other words, the industry is actually now lacking 140,000 workers.
The Association adds that at present almost 50% of the building sites in the country are shut down, because of the severe shortage of manpower. Those that are active are working at 30% of normal output. The most recent survey by the Central Bureau of Statistics found that 41% of the building sites in the Tel Aviv and central regions and 58% of the sites in the Jerusalem region had been shut since the war broke out.
As for foreign construction workers, before the war there were some 23,000 of them in Israel, mainly from Moldova and China. About 3,000 were reported to have left at the beginning of the war, many of them because of the security situation.
The cost to the economy
The paralysis of the construction industry is liable to bring in train substantial damage to the whole economy. According to estimates by the Ministry of Finance presented to the Knesset Special Committee on Foreign Workers last week, the industry will lose NIS 2.4 billion product a week, and, since the current situation is expected to continue in the coming months, up to 3% of national annual GDP could be lost.
"The economic cost is huge," a source familiar with the details and the Ministry of Finance’s numbers said. "There are sites where there has been no progress for three months or more. Contractors are demanding compensation from the state for delays in handovers, and it looks as though we will continue with the shortage of workers for a considerable amount of time. This is a macro event that the country has never experienced, but it seems that we are continuing with more of the same."
The damage is not just the direct cost of the halt in work. The average pay of a foreign worker is two to three times higher than that of a Palestinian worker, which means that wage costs will be higher, and that is just one of the factors that could eventually lead to a rise in home prices. The delays in handing over new homes will become a real issue before long. Among the contractors and developers, who see delays of several months in many cases, there are those who expect the state to intervene, and in any event matters will end up in court, adding to the existing load on the legal system. That too has not insignificant economic implications.
What the government is doing
The government is introducing measures to deal with the situation. On October 27 last year, it decided that the quota of foreign workers coming to Israel under bilateral agreements with other countries would rise from 30,000 to 50,000. On November 12, it made a further decision allowing 10,000 workers to be brought in on a rapid, private track, not under the bilateral agreements. Foreign construction companies operating in Israel were permitted to employ 12,000 people in the country.
Last week, a proposal was included in the revised 2024 budget to increase the quotas of imported workers under the bilateral agreements and on the private track. It was also proposed that the activity of foreign construction companies should be expanded. Although it appears that the real estate chapter in the revised budget will be rejected, the Ministry of Construction and Housing is fighting for the proposals concerning foreign workers to remain nevertheless in the version that is approved.
Despite all this, nothing is happening in the field, and the airlift that MK Asher asked for has not got underway. Not a single worker has yet been brought to Israel under the new bilateral agreements with India, Sri Lanka, and Uzbekistan, and the screenings for bringing them in will begin only this week. On the private tracks, the first thousands of workers will probably arrive in the coming weeks.
"Bringing in thousands of workers requires a great deal of effort," says Ministry of Construction and Housing director general Yehuda Morgenstern, adding that they will arrive in Israel by early February. "We are doing something completely new here," he says. "The private track has not been tried so far, and we are also making efforts to attract Israeli workers to the sector, as evidenced by the fact that within weeks 1,100 people registered for the training programs, many more than there were before the war.
"We are expanding what was already in operation, such as the bilateral agreements and the activity of the foreign contractors. Before the war, there were fewer than 50 foreign contractors here. We estimate that we will reach 200. So to say that we are doing ‘more of the same’ simply isn’t correct."
Meanwhile, there is talk of bringing the Palestinian workers back. Prime Minister Benjamin Netanyahu said this week that the possibility was being examined of a pilot program in which, initially, only Palestinian workers aged 45 and over will come into Israel. Security chiefs, headed by Minister of Defense Yoav Gallant, are supporting the reintroduction of the workers. Yesterday’s terrorist attack in Ra’anana, however, carried out by two illegal entrants from the West Bank (one of them aged 44) will not assist in their return any time soon.
The bottom line is that the construction industry is having to cope with an unprecedented worker shortage. In addition, many professionals, engineers and works managers, have been absent for days and weeks on end on reserve army duty. The shortage looks as though it will last for several more months before a significant mass of foreign workers arrives, enough to make a difference on the ground.
"While there is a slowdown in the construction industry, and the market isn’t managing to produce housing units at the desired rate, the fear is that there will be decline in supply in the near future - but the industry will succeed in bridging the gap," Morgenstern declares. "We have by now entered into a kind of emergency routine, and the contractors and developers are managing to find creative solutions and to work. If we manage to bring in a large number of workers in the next month or two, that will make it possible to bridge the gap that has opened up."
Published by Globes, Israel business news - en.globes.co.il - on January 16, 2024.
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