Israel debates use of huge grants to attract foreign firms

This controversial grant came out of a law designed to promote foreign investment in Israel.

Supporters said such aid would help attract more investments and create new jobs.

Opponents questioned the wisdom of backing a project that would generate billions of dollars in revenues for a multinational powerhouse.

Following the construction of the plant, Israel lowered such grants to between 20 and 24 percent of a total investment for priority zones like Kiryat Gat. However, even at this rate, the government cannot afford to finance Intel's latest $3.5 billion project. The government has set up a special committee to address the issue.

"We are very interested in the company continuing to grow here," said Uri Stein, a spokesman for Israel's Trade and Industry Ministry. "But an investment like this would wipe out our budget for several years."

Other Trade Ministry officials assess that after the strong success of Intel's first plant, government assistance may not be the decisive factor in Intel's decision this time around.

Indeed, the Finance Ministry committee that recently proposed sweeping tax reforms suggested tax breaks for foreign investors be lowered and also recommended that Israel reconsider its policy of providing investment grants. The committee said it believes the "heavy flow" of investment in recent years is a sign that such grants may no longer be necessary.

But Hanan Achsaf, president of Motorola Israel, another multinational firm that generates $1 billion in revenues from Israeli manufacturing operations, warns it is too early to eliminate government assistance.

"We should not underestimate the importance of government assistance," he said. "Every country in the world wants foreign investment. It would be a big mistake to scrap government support."

Micha Gabay, deputy mayor of Kiryat Gat, agrees.

"A plant like this that will receive massive government funding will return every cent it gets," Gabay said.

"My hope is that most of the Intel workers will eventually be Kiryat Gat residents, and I believe that it will happen."