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The Good News About the Israeli Economy

A huge surge in foreign investments in Israel is evidence of the strength of the economy here
People watch a board showing stock fluctuations at the Tel Aviv stock exchange. (photo credit: Moshe Shai/FLASH90)
People watch a board showing stock fluctuations at the Tel Aviv stock exchange. (photo credit: Moshe Shai/FLASH90)

There’s been some great news lately regarding the Israeli economy: in 2015, foreign direct investment in Israel totaled $11.6 billion dollars – a 90% increase over 2014, when $6.7 billion was invested from overseas.

This remarkable increase in foreign investment represents an overwhelming vote of confidence in the Israeli economy, and rightly so. In spite of the global recession of the last decade, Israel’s economy saw consistent GDP growth, above even that of the OECD and the United States. To boot, Israel’s unemployment rate hovers around 5% – among the world’s lowest.

Israel’s reputation as a hub of innovation – the “Startup Nation” with more startups per capita anywhere in the world outside of Silicon Valley – is another key factor attracting such significant levels of investment from around the world. From 2005-2014, Israeli hi-tech companies raised close to $19 billion dollars.

It is no secret that Israel’s entrepreneurial, innovative spirit is what has led the country to punch so far above its weight class in a staggering amount of fields, leading the future of innovation in global sectors such as Big Data, Cyber-Security, Water Technology, Agriculture Technology, Financial Technology, Health and Life Sciences, and many others.

Israel’s thriving startup industry is also complemented by a domestic venture capital industry that raises a total of $1 billion per year. Israel was ranked 4th by the Global Competitiveness Report 2015 for venture capital availability and has far outperformed other countries in VC volume per capita. The bottom line is that availability of venture capital and Israel’s highly efficient financial sector provide innovative industries the perfect environment in which to flourish.

Investing in Israel, however, is much more than venture capital. More than 270 multinational companies (MNC’s) have setup shop here, establishing over 320 world class R&D centers – for many, their only such center outside their home country.

Global giants including Microsoft, Motorola, Google, Apple, Facebook, Intel, HP, EMC, Siemens, GE, IBM, GM Deutsche Telekom, and Cisco all have a presence in Israel, viewing the country as an international hub for excellence and innovation. Why did they choose Israel? Mostly for its world-renowned talent, whose innovative spirit, and can-do, never-take-no-for-an-answer attitude have helped many of these multinationals develop breakthrough innovations and for some, even their flagship products. Israel’s extremely talented workforce – with the highest concentration of PhD’s and engineers per capita in the world – is without a doubt the foundation of Israel’s R&D success.

There are other reasons foreign investors are bullish about the Israeli economy. Israel invests more than any other country in R&D as a percentage of GDP – 4.21%. Combined with world-class academic institutions, it is not surprising that hundreds of global leaders in technology and life sciences want to partner with Israeli companies.

The government, through the Israel Ministry of Economy and Industry has also played a role in this success. In order to provide supportive conditions for companies and investors, the Israeli Ministry of Economy and Industry offers numerous incentives from tax breaks to supportive grants designed to offset the cost of R&D and to take advantage of what Israel has to offer.

As of January 2016, the standard Israeli corporate tax rate is 25%, a globally competitive rate. However, for competitive industrial enterprises that have registered to do business in Israel, those rates can drop to anywhere between 9%-16%, depending on where the company decides to establish its presence, with outlying and developing areas garnering the more gracious discount.

Israel also provides a conducive framework for multinationals looking to collaborate with Israeli startups in which the multinational and the government invest equally in joint R&D projects. At the Foreign Investment and Industrial Cooperation Division of the Ministry of Economy and Industry, which I lead, we are currently promoting new initiatives to develop Israel’s renowned advanced manufacturing sector, of which Intel is the leading example.

Later this month, our ministry is partnering with Landmark Ventures to hold its annual Israel Dealmakers Summit 2016. The conference, taking place in in Silicon Valley for the first time, is the premier Israel-focused business event of the year, representing a meticulously curated gathering of global corporations, investors, dealmakers and entrepreneurs converging from around the world. The event provides unrivaled dealmaking opportunities across key industries such as IoT & Smart Everything, Digital Media & Mobile, Advanced Manufacturing, Cloud & Internet Infrastructure, Artificial Intelligence, Virtual Reality and Big Data & Analytics.

If you want to get to know Israeli innovation without actually coming to Israel, the Dealmakers Summit is the place to do it. Hope to see you there.

About the Author
Ziva Eger has been serving as Chief Executive of the Foreign Investment and Industrial Cooperation Authority at the Israeli Ministry of Economy and Industry since October 2014. Eger, a retired IDF Colonel, received her BA and MA in Economics (with honors) from Tel Aviv University, an MA in Political Science from Haifa University, and another BA from the National Security College operated by the IDF. In the two years preceding this position, Ziva served as Chief of Staff of the Communication and Home Front Defense offices lead by Minister Gilad Erdan, where she was in charge of the promotion and execution of comprehensive reforms in the local communication market.
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