The Story of a Restaurant during the Corona Epidemic: A Period of Crisis for Businesses in the Arab Sector

In the new issue of Bayan, Adv. Nidal Othman's essay on the economic crisis among businesses in Arab society as a result of the State of Israel's response to the Corona epidemic.

Restaurant in Israel
Restaurant in Israel.
Yoram Shoval, from Wikimedia Commons [CC BY-SA 4.0]


96% of the businesses in Arab society are small and miniature businesses, most of which are not defined as "essential enterprises". As a result, they were shut down during part of the Corona crisis. 

The model of distance working and working from home is not common in Arab society. Only a miniscule proportion of Arab businesses have the potential to operate in this mode and as a result the Corona crisis took a heavy toll on businesses in Arab society.

The government made state-guaranteed loans available to small and medium-sized businesses; however, the conditions for eligibility were difficult to fulfil for Arab-owned businesses. Most of the loan applications were rejected, and businesses that managed to meet the conditions were awarded much smaller loans than they had requested. Their financial distress has led many business owners to take out gray market loans at exorbitant interest rates.

It is recommended that an interministerial forum be created with representatives of the Ministry of Internal Security, the Ministry of Welfare and the Ministry of Economy in cooperation with the Committee of Arab Mayors, with the goal of keeping Arab business owners from entering a vicious circle of crime and violence as a result of the debt they have been forced to take on.

Arab business owners need to become organized, whether at the national or local level.

The city of Tamra is located in the Western Galilee, near Haifa. The city has a culinary reputation based on its approximately twenty top-end restaurants, which host hundreds and even thousands of diners each day, most of them from outside the city. This is the situation in normal times but the Corona virus that is currently rampant all over the world has not skipped over Tamra or its businesses, most of which are in the small and miniature category.

As an example of the seriousness of the crisis, in what follows I will describe the situation of one of those businesses. The owner (let’s call him Ali instead of his real name) is aged 32 and is the son of older middle-income parents. He finished studying to be a lawyer and received his degree but did not manage to find work in a market flooded with lawyers who are already having a hard time making a living. Most of them are forced to open up their own offices since there are no law offices willing to hire them. Ali decided to go into business and opened a restaurant in one of the buildings built on the main street of Tamra without a permit. He obtained bank loans in order to finance some of his expenses and his family also helped him out by investing most of their savings in the new business. Beside the restaurant, Ali opened an open-air events venue. The business opened its doors in 2015 and Ali was able to enjoy the fruits of his labor. The restaurant drew customers all year round and he hosted events of up to 300 guests in the high season.

The restaurant has an area of about 300 square meters and the open-air events venue, which is active primarily in the spring and summer, has about 600 square meters of space. The cost of leasing these areas is NIS 14,000 per month and municipal taxes are about NIS 7,000 per month. The restaurant employs about 20 workers and its average monthly revenue is NIS 400 thousand, or about NIS 5 million annually.

According to the law, the restaurant is defined as a “small business” in accordance with Government Decision 2190 from 2007. A small business is defined as one with less than 50 workers and an annual turnover of up to NIS 25 million. As a result, there are almost no “mid-sized” businesses in Tamra, which are defined as having up to 100 workers and an annual turnover of up to NIS 100 million.

It is worth mentioning that according to the definition of the Central Bureau of Statistics,[1] 96 percent of employers in the Arab sector are small and miniature businesses and according to its data about 66 percent of Arab employees work in such businesses. Moreover, the annual turnover of 54 percent of Arab-owned businesses is less than NIS 500 thousand.

On March 15, 2020, the restaurant closed its doors in compliance with the government directives at the start of the Corona crisis. All of the restaurant workers were laid off: 12 of them were sent on unpaid vacation and they were eligible for unemployment benefits while the other eight were not eligible and therefore were left without any income. Even then, those eligible for unemployment benefits received very low support in accordance with their reported wage. Ali, the owner, had to deal with large debts and commitments, as well as paying the monthly rent for the restaurant. The restaurant’s storage space is full of inventory, consisting of goods bought for prescheduled events. Furthermore, the restaurant cannot make the adjustment to the delivery business since its menu is not appropriate for that kind of activity.

The crisis

As mentioned above, about 96 percent of the businesses in the Arab sector are defined as being in the small and miniature categories and most of them are not considered to be “essential enterprises”. Many of them, including restaurants, clothing stores, gift shops, etc., have closed up. Employees of the local authority, law offices and other service providers have been sent on unpaid vacation and have applied for unemployment benefits. The number of workers sent home in the Arab community in the first wave of Corona (since mid-March 2020) is about 180,000.

The low level of unemployment benefits received by these workers is the result of the regrettable phenomenon in the Arab labor market of paying less than minimum wage, particularly in the case of female workers in small and miniature businesses in the Arab towns. Thus, the unemployment benefit paid to those who are eligible is determined by reported income and therefore these individuals cannot provide for the basic needs of their families. Moreover, since their income has fallen drastically, so has their purchasing power and this has reduced the sales of essential businesses that have stayed open.

Ali, whose restaurant used to earn about NIS 400 thousand on average per month, received compensation from the Income Tax Authority of about NIS 6,000 per month. Meanwhile, during each of March, April and May his rental expenditure was NIS 14,000.

Distance working

The model of distance working and working from home is not very common in the Arab community and in most Arab-owned businesses workers must be physically present. Only a tiny proportion of Arab businesses are able to operate through distance working or working from home and therefore the Corona crisis has imposed a heavy price on them. The lion’s share of these businesses need their workers to be present (restaurants, shuttling, tourism, etc.). Moreover, the method of distance working is not an accepted part of the work culture in the Arab sector in Israel.

The local authorities and businesses in the Arab community during the crisis and following it

The Corona crisis and the decision to close most of the businesses in the country have led to a public discussion of the crisis’ effect on businesses. There are those who have tried to estimate the effect of the economic crisis that is expected as a result of the Corona crisis. The local authorities in the Arab community have begun to think about measures and initiatives in order to minimize the potential damage, including the encouragement of purchases from local businesses; encouraging lessors to exempt closed businesses from paying rent; creation of forums for economic counselling, including financial advice to individual businesses; and requests to banks in Arab towns and to the banks’ management to ease the burden on their business customers.

A document prepared by the Knesset Research and Information Center entitled “The agreement for compensation of local authorities for municipal tax discounts to businesses due to the Corona crisis – a budget analysis by sector”,[2] states that the rate of non-residential municipal tax within the total municipal tax collected in the Arab community is 32 percent, in the Jewish sector it is 53.1 percent and in mixed Jewish-Arab cities it is 64 percent, while the national average is 55.4 percent. Thus the rate of revenue from non-residential municipal tax in the Arab community is lower than that in the Jewish community and lower than the national average. Nonetheless, the rate of non-residential municipal tax is about one-third of the total revenue of the local authorities. In Tamra, the rate is 27 percent, which is even lower than the average for the Arab community. Of course, a crisis among businesses in the Arab community will reduce the local authorities’ revenues – not only during the Corona epidemic but also subsequently, when its effect on business survival becomes clear.

What has the State offered to businesses?

As a result of the Corona crisis, the State is offering guaranteed loans to small and mid-sized businesses and to this end it has budgeted NIS 35 billion. The problem is that the criteria and conditions for loan eligibility make the process difficult for Arab-owned businesses and most of their loan requests have been rejected. Businesses that have managed to meet the criteria were awarded much smaller loans than they had requested and therefore they chose not to take them. At a meeting of the Knesset Finance Committee on April 19th 2020, the Accountant General reported that 15 percent of the approximately 40 thousand requests submitted to the fund were from businesses in Arab towns, of which only 4 percent were approved. Naturally, Ali, the restaurant owner from Tamra, requested a loan in order to cover the checks he had already written. However, he was refused and was not among that 4 percent. In order to meet his obligations, Ali turned to the regular loan track at the bank; however, by the time he had put together his request his rating according to BDI—according to which the banks approve or reject loan requests from businesses both during the Corona crisis and otherwise—had fallen.

Bank policy in the Arab community during the Corona crisis

In view of the fact that the State is offering loans with a guarantee of only 15 percent of the amount of the request and that few businesses have managed to meet the criteria that have been put in place, the banks are willing to grant regular loans, but they are more cautious than during normal times. Although checks that had bounced because of insufficient coverage were not taken into account and business accounts were not frozen because of them, these checks did affect the business rating according to BDI and furthermore the banks made it more difficult for businesses to take out a loan than in normal times. Moreover, the accessibility of banking services has only been partial since many of the branches in the Arab towns were closed and the banks only provided services in certain branches. Therefore, in many cases, a business owner was unable to meet directly with the bankers at the branch where his account is located.

Arab businesses and the gray market during the Corona crisis

The financial difficulties of Arab-owned businesses during the Corona crisis led many of them to turn to the gray market. They were forced to take out loans at draconian levels of interest, to the point that it will be difficult for them to service the loans. This may lead to the involvement of violent criminal elements and from there it is only a short distance to the collapse of the business and even of the business owner’s family. Indeed, some of the business owners have come into conflict with criminal elements who are involved in debt collection, after checks that were written prior to the crisis did not have sufficient coverage. These checks came into the hands of the collectors and they demanded immediate redemption and in many cases exploited the situation to offer additional high-interest loans. This created a vicious cycle of borrowing that led to the collapse of many Arab-owned businesses.

The necessary slowdown following the promising opening of the economy in June

The opening up of businesses in June gave business owners some hope and some room to breathe. Many of the Arab business owners opened up again, although in only a partial format. In the restaurant industry, for example, there was an optimistic increase in business in June, even to above average levels in normal times, according to Ali, the restaurant owner in Tamra. However, already at the end of June there were signs of the second wave of the Corona epidemic. The Ministry of Health reinstated the restrictions on events (weddings and others) and those restrictions will obviously affect not only restaurants and event hall owners but also the suppliers of those businesses and their workers.

Lessons from the first wave of Corona

  • The government is not attributing sufficient importance to the economy of the Arab community and has not taken sufficient measures to support Arab-owned businesses. For example, it should, among other things, create a loan fund with conditions that can be met by those businesses.
  • The banks view businesses in the Arab community  as a burden to be gotten rid of, rather than as part of the Israeli economy. It can be assumed that the banks would have closed many of the branches in Arab towns even if they had not been obligated to do so.
  • The Arab local authorities as well as the Committee of Arab Mayors have not done enough in order to organize businesses as part of local or national chambers of commerce. These businesses could potentially form pressure groups to influence the various institutions. Moreover, it appears that the local authorities are afraid of a situation in which Arab business owners, who pay municipal taxes, get organized and would demand that they receive the services they deserve.
  • Businesses in the Arab community  are not set up to operate optimally during a crisis and therefore they will not be able to comply with the directives. As a result, many businesses were closed and some of them were forced to pay unnecessary fines.

Steps that need to be taken

As a result of the Corona crisis, the government has taken several measures to support businesses; but they have not provided any real help for small and miniature businesses in Israel and in the Arab community in particular. Therefore, the following measures are needed:

  • An increase in the State-guaranteed loan budget and in the rate of the guarantee to 50 percent for small and miniature businesses.
  • The extension of the current level of government assistance (which in any case is low) to workers and businesses to beyond the scheduled three months due to the perseverance of the Corona crisis and in order to boost shrinking purchasing power, even after the end of the first wave.
  • To provide businesses that are closed with an exemption from municipal tax that exceeds 25 percent for the current fiscal year at least and to compensate the local authorities for any municipal tax not collected from businesses as a result.
  • To create an interministerial forum that includes the Ministry of Internal Security, the Ministry of Welfare and the Ministry of the Economy, as well as representatives of the Committee of Arab Mayors, with the goal of preventing Arab residents from entering a viscous cycle of crime and violence as a result of taking loans in the gray market.
  • The local authorities should encourage the consumption of goods and services from local businesses in the areas under their jurisdiction.
  • Arab business owners need to organize, whether on the national level or in each individual Arab town.
  • The local authorities need to get Arab business involved in their preparations for crises, in order that their special needs will be met.

Nidal Othman is the deputy mayor of Tamra. He is a social and political activist, a lawyer by profession and an advisor for community organizing and project development.

[1] Uri Attar, Demography of Businesses – Survival and Movements of Businesses, 2016–18,  Central Bureau of Statistics, July 28, 2019. [Hebrew]

[2] Noam Botosh, The agreement for compensation of local authorities for municipal tax discounts to businesses due to the Corona crisis – a budget analysis by sector, Knesset: Research and Information Center, April 27, 2020. [Hebrew]