October 7 and the ensuing war severely impacted Israel’s economy, particularly in the Western Negev.
This was closely followed by the destruction and displacement in Northern Israel, leaving diverse communities reeling from the past 528 days.
Though the hard rain of Hamas-Hezbollah-Iran’s “Ring of Fire” crumbled as the Israeli military ably acquitted itself in defending the country, economic damage to Israel’s North and South continues, and the country’s economic growth has stunted. This damage could be irreparable if we do not accelerate the “day after.”
When we began our research and planning for Israel’s post-war recovery last year along with other business-finance, technology, and policy practitioners, initial estimates of war-related impacts for rebuilding, equipment, infrastructure, and businesses alone (not including GDP loss from war disruption, defense and civilian expenditures, restoring military supplies, and rehabilitation for injured and displaced people) ranged from $6-10 billion.
As the conflict has expanded and persisted over the past months, war costs have been revised upward by the Bank of Israel with estimates as high as 10-18% of Israel’s annual GDP (between $55.6 billion-$95 billion) by the end of 2025.
We have been here before. After the 1973 war, Israel lost a decade of growth.
We cannot afford to repeat that experience with another lost decade.
During that time, Israel lost ground by vastly ramping up defense spending while under-investing in infrastructure, energy, and health. It wasn’t until almost two decades later, when Israel achieved its cutting-edge competitiveness in disruptive technologies and engineering innovations, that this led to prosperity.
With that experience, Israel learned that post-war recovery requires more than emergency relief. It demands innovative financial solutions that can accelerate rebuilding while creating sustainable economic growth.
What is needed is a practical roadmap for mobilizing capital formation and job creation at the scale needed for comprehensive regional development, integrating regions from the North, Center, and South to fuel a robust recovery.
From the experience over the last decades, we learned that the term “periphery” for this tiny country’s outlying regions must be eliminated. The country cannot afford to continue to marginalize any geographic or population of its citizens and still achieve its goals of accelerating economic growth. This must be shared equitably among all regions to ensure the social cohesion required for job creation and business formation.
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 new financial and technological innovation enables new solutions to emerge. Israel’s good at that.
In these times, we can address long-standing inequalities between Israel’s regions, building a more inclusive economy in which defense and economic burdens are shared, and new foundations for sustainable growth throughout the country, bridging trade and growth with Africa, Asia, and the Middle East.
Thus, we would further our economic integration into the family of nations as promised at Israel’s inception.
Post-war recovery depends ultimately upon attracting displaced (and highly productive) residents to return home as well as newcomers and direct foreign and domestic investors to accompany them.
This depends on solutions that move beyond fiscally constrained budgetary fights in the Knesset and Israel’s now growing debt-to-GDP ratio. These solutions will have a far-reaching impact on its ability to attract new capital and compete for foreign investments.
We must create the capacity for a public-private financial platform to launch a high-impact response that goes beyond the emergency relief that was understandably required in the first year of the Israel-Hamas War and build back better and faster now.
This public-private and innovation and investment fund will catalyze a regional economic recovery. It will rapidly return displaced communities and businesses and place Israel’s regions in a competitive position to pursue novel economic initiatives and acquire sustained growth, regionally and globally.
Israel’s “center,” that social and spiritual resilience ethos that keeps the country together, must hold. Ultimately, it is that social capital that will restore the cohesion in the northern and southern regions and throughout the country if it secures the financial means to do so.
Notwithstanding the chaotic effect of this disruptive war upon our economy, those who are able to advance financial and technological solutions cannot fail to do so. It will be by meeting the challenges of economic, energy, food, and health security that we will sustain the country’s diverse people and places devastated by this war.
Opportunities to accelerate regional growth rates
Research conducted through our collaborative Financial Innovation Lab sessions at the Museum of Tolerance Jerusalem last June identified specific opportunities to accelerate regional growth rates in business formation and job creation.
The resulting analysis spotlights ways to address the post-war recovery costs and reimagining the growth engine that Western Negev (and Northern Israel) can become. This will be based on strategic public, private, and philanthropic investments.
We concluded, through ongoing collaborative research with partners in the Tkuma National Recovery Authority, Western Negev Eshkol Regional District, and other business, tech, and community stakeholders both in Israel and among Jewish Diaspora communities:
• Building a financing platform in Israel should be based on best practices learned from development banks, sovereign wealth funds, and public authorities – such as New York Empire State Development Authority, California Infrastructure Bank, Danube Development Corp, Mekong River Commission, Better Society Capital, British Investment Bank, Mubadala, Japan). The lab report details several financing mechanisms designed to reduce risk, attract capital, and accelerate economic activity, including:
• Public-private investment structures: Leveraging government funds as catalytic capital to attract institutional and philanthropic investment.
• Small business financing: Developing structured credit solutions to expand access to capital for small businesses.
• Strategic infrastructure investment: Targeting energy, water, agriculture, and technology sectors to support long-term economic resilience.
• Tax incentives and derisking measures: Proposing investment tax credits and joint government-philanthropic guarantees to encourage capital deployment.
This is a comprehensive initiative that requires creative thinking and collaboration between relevant government entities, institutional bodies, philanthropy, and private investors. Their joint efforts will transition emergency aid into innovative financial solutions that accelerate sustainable economic recovery.
Without a determined effort to establish a strategic financial platform, Israel risks missing an opportunity for rapid recovery and renewed growth. Now is the time to act decisively, mobilize capital, accelerate reconstruction, and lay the foundations for strong and inclusive economic growth.
Prof. Glenn Yago and Steve Zecher are senior director and project director, respectively, at the Milken Innovation Center-Israel. For more information: www.milkeninnovationcenter.org