Catalonia-Israel Commerce Chamber

Despite the current economic situation, Israel continues to be in solid economic shape. According to Bank of Israel Governor Stanley Fischer, the Israeli banking system does not face the same banking challenges that confront other countries, partly thanks to tighter regulations implemented several years ago.

Though it’s a small country with limited resources, Israel stands out as one of the world’s most competitive economies.  In fact, The World Economic Forum (WEF) ranked Israel as the 23^rd most competitive economy (out of 134) in its 2008-2009 Global Competitive Index.

The country’s market economy can be characterized as resilient, globally oriented and technologically advanced.  Over the last two decades, Israel has become famous for its high-tech capacity, particularly in telecommunications, information technology, electronics and life sciences.  Its capacity for innovation and highly-educated, skilled workforce have played a key role in its rating as a high-tech center next to Silicon Valley in California and the belt along Route 128 in the Boston area.

Outstanding Economic Performance

Despite security events that sometimes make world headlines, Israel’s economy has been growing steadily. Its 2007 GDP was $155.9 billion at current prices, representing a continuation of the sustainable growth over the last few years: 4.3% in 2004, 5.2% in 2005, 5.1% in 2006 and 5.3% in 2007. Furthermore in Purchasing-power-parity (PPP) terms, Israel’s GDP per capita is on par with developed countries such as Germany and Japan.   In fact, over the past 20 years, the country – with a population of only 7 million – has ranked as one of the world’s five fastest growing emerging markets.

The growth has been fueled by a steady increase in exports and foreign investment.  Exports have risen by an average of 13% over each of the past three years.  Foreigners show their recognition of Israel’s economic potential by increasing their investments in the country. Foreign Direct investment in 2006 was a record $14.3 billion, a 197% increase over 2005. Foreign Direct Investment in 2007 was $10 billion.

Sound and coherent economic strategies also play a role in the success.

Israel’s economic leadership has included some of the world’s top professionals, including current Bank of Israel Governor Prof. Stanley Fischer and his predecessor, Prof. Jacob Frenkel, the former chairman of Merrill Lynch. Responsible fiscal and monetary policies  have accompanied reforms that have liberalized the economy, accelerated the process of privatization and made the economy more competitive.  In recognition of these accomplishments, Israel was recently invited to participate in talks with the Organization for Economic Cooperation and Development (OECD) towards membership in that grouping of the world’s 30 top industrialized nations.

The effectiveness of fiscal and monetary policy is reflected in performance. Government expenditure decreased from 51.5% in 2003 to 44.9% in 2007; over the same period, Gross Public Debt contracted from 102% to 81.5%, while unemployment declined and price stability was maintained.

Israel’s Economic Indicators

Sources: The Ministry of Finance (2008), International Monetary Fund (2007)

Exports Lead the Way

Exports ($70.65 billion in 2007) are the engine that drives the Israeli economy.  First and foremost is the high-tech sector, which accounts for 75% of all industrial exports, the highest percentage in the world. 

The increase in exports is supported and enabled by an extensive network of international trade and economic agreements, including investment-protection agreements and treaties for the avoidance of double taxation.  Israel is integrated into the global economy, through free trade area agreements with the NAFTA countries (the U.S., Canada and Mexico), the European Union, EFTA, Jordan and Turkey. It also cooperates with neighboring Egypt and Jordan through Qualified Industrial Zone (QIZ) agreements with the United States, giving co-produced goods preferential access to U.S. markets; a similar arrangement of cumulation of origin exists also with the EU is already operational with Jordan.

Constantly seeking to expand its network of trade cooperation through bilateral agreements, Israel recently signed a free trade agreement with the Mercosur countries (Argentina, Brazil, Paraguay and Uruguay). In addition, Israel has developed an extensive network of technical cooperation, through R&D accords with many countries.

An Ecosystem of Support

Through government agencies like the Ministry of Industry, Trade and Labor’s Office of the Chief Scientist and Investment Center, a network of technology incubators for very-early-stage technologies and an active and alert private venture capital system, Israel provides extensive support for new ideas and technologies, as well as the refinement and further development of more traditional industries. Israel invests strongly in its educational system, the source of many of the new technologies for which it is famous, and in R&D, where the investment of 4.8% of GDP is the highest in the world. The investor-friendly environment is enhanced by government polices including tax rates and investment benefits. 

It’s hard to minimize the role of the Israeli venture capital industry, ranked second in the world (only to the U.S.) by the World Economic Forum.  Venture capital continues to pump a steady stream of essential financial resources into the technology sector, channeling its funds and knowledge into early-stage companies, especially in the technology sector.

This ecosystem of support has fostered what has become the world’s highest percentage of high-tech production relative to GDP, and the second-highest concentration of high-tech companies, behind only California’s Silicon Valley. The fact that Israel is the foreign country with the most companies listed on NASDAQ, the main stock exchange for technology companies, is testimony of its high-tech prowess.

The Investors Keep Coming

In recent years, Israel has become a magnet for foreign investors.  Almost every day, someone else discovers the opportunities that Israel has to offer – and takes advantage of them by setting up a new plant or development center, or joining into partnership with an Israeli firm.  The list of those who have taken advantage of Israel’s unique assets – among them the skilled, educated workforce and cutting-edge R&D capabilities – by establishing subsidiaries, production lines or R&D centers include some of the top international companies, names like Intel, Microsoft, Motorola, Google, Applied Materials, HP, Deutsche Telekom,  Samsung and many more.