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Dear Finance Minister Lapid

Cut the deficit wisely, pamper the high-tech sector and take Israel's show on the road

Dear Mr. Lapid,

First of all, allow me to congratulate you on your appointment.

You are entering your new position in an era of global turbulence, a time where Israel’s position as a center for groundbreaking innovation – and as such the economy as a whole – is at risk. The Israeli high-tech industry is inseparable from the general economy; Last year it accounted for 17% of Israel’s products and 27% of its exports. The industry employs some 240,000 people, 1,000 of whom lost their jobs in recent weeks.

On your first day you already face a budget dilemma. To implement an austerity budget – a commitment made by the previous government – you will need to reconcile public services, which are starving for funding, with a growing deficit. The question you need to answer is not whether to fulfill these commitments and cut the deficit but rather how to cut it.

The high-tech industry needs both an austerity budget and smart investments. A growing deficit affects the growth of the high-tech industry. As the government raises funds in the financial markets, it competes with the venture capital industry in the same markets for money. When secure government bonds that produce high yields are available, high-risk investments in startup companies become less attractive.

A growing deficit also creates expectations for future tax increases, making investors reluctant to invest in Israel. However, smart investments are essential for a successful high tech industry. One such investment is increasing the budget of the Office of the Chief Scientist. The Israeli Chief Scientist supports the early development of cutting edge technologies and products through grants and low interest loans. There are many large Israeli companies that owe their success to the support they received from this office during their early development stages; these include NICE, Gilat, Teva, Amdocs and Check Point. During the past four years, the Chief Scientist’s budget has been constantly reduced; in 2012 it reached its lowest point in over two decades, amounting to a mere two thirds of its budget a decade ago. Increasing this budget will be well worth the investment.

As you settle in your new position, don’t forget about travel. It is not customary for the Minister of Finance to travel extensively abroad; historically the task of negotiating with foreign officials has been left to the Ministry of Foreign Affairs and trade attachés. But in order to bolster Israel’s flailing high tech industry, you need to push for these trips. As startup companies need to be global from the get-go, economic relations and cooperation between Israel and the world must follow suit.

Finally, be clear and transparent. We are already operating in a world filled with uncertainties and risks; we don’t need more. How we in the Israeli high-tech industry manage these risks will determine our success in introducing new services and products to the global market. A transparent, forthcoming government can reduce some of the uncertainties we face, and help us to better plan and strategize. As such, please lay down a clear path for the coming years. Set simple goals and be open and transparent about your success and failure, in achieving these goals.

Your future actions will affect Israeli industry in profound ways. Changes in taxation will determine our ability to compete, reforms in financial markets will determine our ability to raise capital and grow. Israel’s relationships abroad will determine our ability to compete in global markets and investments in education will affect our ability to hire and retain exceptional people. Finally, your openness and transparency will determine how well we manage our own risks and uncertainties.

Best of luck in your new role; we all look forward to a prosperous future.


About the Author
Uri Goldberg is a management expert, specializing in serving governments and corporations on strategy, innovations and economic development issues. He worked with McKinsey& Co., where he directed key consulting projects for Fortune 500 companies as well as governments in Asia, Europe and the Middle East. His analytical pieces have been presented and reviewed at the World Economic Forum. Uri also served as foreign policy aide to Israeli President Shimon Peres in his former capacity as vice prime minister. He currently resides in Tel-Aviv, Israel.