Innovation in Israel – A Source of Pride and Rising Challenges
A week before the Jewish New Year, on September 16, 2025, the World Intellectual Property Organization (WIPO) published its Global Innovation Index 2025 (GII 2025). This is the 18th edition of the Index, which this year covers 139 economies, including Israel. What began as an academic project has, over time, become the leading international benchmark for innovation – thanks to its broad coverage, rigorous methodology, and institutional support.
Amid so many critical geopolitical developments centered on the Middle East, the release of the GII 2025 passed almost unnoticed in Israel.
In GII 2025, Israel ranks 14th worldwide, after France and ahead of Hong Kong. The top five economies are Switzerland, Sweden, the United States, the Republic of Korea, and Singapore. For Israel, this represents a relatively stable position compared to previous years – but it also raises a question: is Israel truly realizing its innovation potential?
A closer look at GII 2025 presents a far more flattering picture. Israel ranks first globally in seven indicators (out of 78 indicators), including Gross Expenditure on R&D (GERD) as a percentage of GDP, Venture Capital deals per GDP (PPP$), Business Enterprise R&D as a percentage of GDP, University–industry R&D collaboration, Cluster development, Unicorn valuation as a percentage of GDP, and ICT services exports as a percentage of total trade.
The media and various reports – such as the one recently published by Jefferies Israel Group in collaboration with Startup Nation Central (SNC) – see here – paint a similarly positive picture: “Israel is the world’s third largest high-tech hub by capital raised, second only to Silicon Valley and New York.” For a small country in the Middle East, this is indeed a remarkable achievement. Yet, it is important to remember that in the Global Innovation Index, venture capital is just one out of 78 indicators.
Risks Beneath the Surface
The GII 2025 also reveals areas of concern. The indicator “Operational stability for businesses”, which measures political, legal, operational, or security risks affecting business activity, shows a worrying decline – from 62nd place (2023 data) to 86th place (2024 data). In other words, business risk for entrepreneurs and investors has increased significantly.
To this must be added the phenomenon of “quiet relocation” – a steady outflow of young families, many of them well-educated and in their 20s and 30s. According to Israel’s Central Bureau of Statistics (CBS September 2024), more than a quarter of those leaving the country have 16 or more years of education. This trend could undermine Israel’s long-term growth engines.
In the indicator “Employment in knowledge-intensive services” (which relates to knowledge workers), Israel fell from 7th place in 2022 to 10th place. Still a strong position, but the downward trend is troubling.
The Key to the Future
The data are clear: the high-tech sector is the beating heart of Israel’s economy. According to the Jefferies/SNC report, high-tech accounts for 64% of Israel’s exports and roughly a quarter of all income tax revenues. Yet alongside these impressive achievements, the challenges are political instability, a prolonged war (hopefully ending soon), and the emigration of high-quality human capital.
Israel’s challenge is to preserve its competitive advantage and ensure its continued existence as a vibrant center of innovation. As Peter Drucker, the father of modern management, expressed nearly forty years ago: “Innovation is the specific instrument of entrepreneurship. It is the act that endows resources with a new capacity to create wealth.”
