In February 2011, the serving Tel Aviv Stock Exchange CEO, Esther Levanon, made a rare public confession when she said the exchange was guilty of a long-running sin of omission against the Arab sector in Israel. “When I was asked why there was no Arab-owned company listed on the exchange I answered, ‘oops’, it was the most intelligent answer I could give,” said Levanon, who promised to act to set right an historical injustice
The years passed, Levanon was replaced by Yossi Beinart at the helm of the TASE, and unfortunately, the historical injustice towards the Arab public has yet to be corrected. Even though a fifth of Israeli citizens are Arabs and there are many companies owned by Israeli Arabs, not one of the more than 470 firms traded on the Tel Aviv Stock Exchange is Arab-owned.
Amir Assali, a 32-year-old Israeli Arab attorney, partner at S. Horowitz & Co. and market analyst, is highly concerned by that lack of representation and believes it is a ticking time bomb that will affect the Israeli economy. “Studies show that in 30-40 years, the Arabs and the Haredim will make up half the population of Israel. If these demographics are not integrated into the economy at all and in the market specifically Israel will reach a state of bankruptcy, a financial fiasco.”
After years working in the offices of Yigal Arnon & Co., Assali recently joined the market division of S. Horowitz as a partner, with a focus on the stock exchange. He sees his work not only as a job but as a calling, and he hopes to leverage it to avert the fiasco he talks about and to help better integrate Israeli Arabs in the economy.
Assali: “I believe in the future I will reach a position in which I could help promote change in the sector and integrate the Arab sector in the stock market more significantly or to be precise in any way possible. Whether it means listing an Arab-owned company on the exchange or by increasing the number of Arab board members into companies listed on the exchange, presently and in the future. The market is drying up; from a position of 700 listed firms, we are down to some 470 companies.
“The regulator is aware of these problems, the Israeli Securities Authority launched a series of relief measures to integrate more companies in the exchange, but it is not enough. There are more than a few Arab-owned firms which have the potential to be traded on the exchange, both according to the size of their operations and their viability, and they must be enabled to do so.”
“Globes”: Can you give examples of Arab companies that could start trading on the exchange?
“Rushdi Food Industries; Afifi Group in the automotive sector; AlphaOmega from Nazareth; BST Group from the Tannous family, who are top-notch developers; SBI Shjrawi Brothers in construction and more.”
Arab companies are less leveraged
G: What are the reasons that no Arab-sector firms are listed on the TASE?
“The Arab companies are not on the exchange because there are obstacles that prevent them. In the Arab sector nearly all the firms are family-owned, and it is difficult for them to get past the transition phase, from being a private family company to a public form that needs to ‘undress’ and reveal itself, to publish financial reports and the likes.
“Another reason they are not on the market the banks attribute Arab-owned firms much greater risk than they should. It is expressed by the interest rates the banks charge the companies. The credit terms offered to Arab sector groups tend to be less attractive than those offered to Jewish-owned companies. And there’s an additional reason when an Arab-owned company considers an IPO, it receives a lower value estimate than its true worth and the entire process becomes moot.”
The content of Assali’s message points to discrimination against Arab-owned firms by the banks and the market. But he tries to be diplomatic and not declaratively call out racism or discrimination. When he is asked if the issue comes down to discrimination, he said, “I have no answer to the reason for this treatment by the banks and the market to companies owned by Arabs. I know that is the current situation and I think it is far from justified. From my dealings with Arab-owned firms, they tend to be more conservative, take less risk, and are less leveraged than other companies.”
Assali said that in recent months several companies that may be interested in an IPO have turned to him personally. “There is a fertile field of Arab-owned firms that could become part of the market. It is also important to remember that every month there are tens of billions of shekels that institutional investors must invest in certain ways, and since the number of publicly listed companies in Israel in not going up, they are increasing those funds abroad. In order for these groups to be drawn back to invest in Israel we must widen the offerings. The money is available but there is nowhere to invest it. There could be an additional easing of the registration rules beyond the relief measures already undertaken by the Israeli Securities Authority.”
G: How do we change the status quo?
“I call on the leaders of the exchange to launch an initiative to draw those companies to the market, thus promoting the Arab sector and integrating it in the economy. The TASE management needs to physically go to the appropriate firms which are mostly up in northern Israel and meet them, get them interested in listing on the exchange. But that doesn’t enter into their agenda.
“I call on TASE CEO Yossi Beinart to do that to increase the feasibility of this route for these companies by meeting their executives and asking them to trade on the exchange. Additionally, we must work to place Arabs on the boards of public companies. Studies show that companies operate better when there are more women on the board. I believe adding more Arabs to boards will also lead to better business outcomes.”
Assali focuses on the discrimination of Arab-owned firms, but the financial and business sectors also discriminate against Arab Israelis as individuals. Assali is the exception that proves the rules the number of Arab partners in the top law firms in Israel can be counted on one hand.
“There are many law students in the Arab sector, but only a handful are accepted to intern at the top law offices, meaning they cannot continue to advance and promote themselves,” Assali said, noting that the problem wasn’t exclusive to the private sector.
Assali: “Out of 222 interns at the Supreme Court from 2007-2014, there were only 5 Arabs 2%. And even that only happened because Justice Salim Joubran tends to hire Arab interns. If it wasn’t for Joubran there wouldn’t be any interns in the Supreme Court. The opportunity for Arab law students to intern at a place that could be a launching pad for a career beyond damages and criminal law is almost non-existent, and the lack of representation by Arab attorney in sectors like capital markets and commercial law pains me.
“It is a missed opportunity, because there are Arab students with amazing abilities. As of today, it’s actually the largest law firms that almost all have at least one Arab attorney. It’s not much, but it’s an improvement from the past. When I started interning nearly a decade ago, there wasn’t even one in the top firms.”
The phenomenon isn’t exclusive to the legal profession but extends to other economic arenas, like high-tech, where it is rare to find Israeli Arabs in senior positions. According to Assali, “the reasons go way back to the university courses. The number of Arab students that study technology and similar subjects remains very low. And when it comes to Arab women, it gets even lower.
“The Jewish students have an advantage on the Arab students, since among other reasons they served in the military and many of them have travelled the world on a major journey. They arrive better prepared and more seasoned to their studies and know how to manage their time better than Arab students who arrive right after high school. Arab Israelis also go after professions that they see as in demand. Arab students identified a shortage of pharmacists and went out in droves to study pharmacology. Today some 60% of the pharmacists at the Super-Pharm are Arabs. It shows there is so much unfulfilled potential here.”
G: How did you overcome the barriers and obstacles to Arabs which you mentioned to reach your senior position in the firm?
“My whole life my parents told me, ‘Amir, you are Arab, Muslim, and there is nothing you could about that, in order to be considered the equal of a hypothetical Jew at university or work, you must work ten times harder.’ That’s how I was raised and that’s what I did I put in ten times the effort.
“At the end of the day, the client in the office doesn’t care if the person handling his business is an Arab, Jew, Chinese, or whatever. What matters to businessmen is the bottom-line. If you give them the results they wanted, you will continue to be employed and promoted.”
Published by Globes [online], Israel business news - www.globes-online.com - on August 20, 2015
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