Exploring Business Opportunity in Israel

A densely-populated country on the eastern shore of the Mediterranean Sea, Israel is the only state in the world with a majority Jewish population.

 It has been locked in conflict with the Palestinians and its Arab neighbours over ownership of land considered holy by many Jews, Christians and Muslims since its creation in 1948.

Israel is one of the most resilient and technologically-advanced market economies in the world. Its skilled workforce and concentration of venture capital allow the country to lead in innovative industries such as high-tech, cleantech, and the life sciences.

Over the years, Israel has experienced a high average rate of growth. Given its small consumer market domestically, Israel has strategically turned beyond its borders to sell its products and offer its technologies. This year, Israel was unanimously voted to join the Organization for Economic Cooperation and Development, signifying its status as one of the world’s 34 most developed economies.

Politics: Security concerns over the conflict with the Palestinians are a constant factor in a political environment.

Economy: Israel has a diverse and sophisticated economy

Foreign relations: Israel faces hostility from much of the Arab region. The US provides crucial diplomatic and military support. Some borders remain in dispute.

Israel Economic Overview:

Area: 8,367 sq. miles.

Population: 8.345 Million (June 2015)

GDP (PPP), 2014:$286 Billion

GDP per Capita (Prices), 2015:$34,600

GDP per Capita (PPP), 2014: $33,400

GDP Real Growth (2015, Est.): 3.2%

GDP–Sector Breakdown, 2014:      Services: 71.9%

Industry: 25.7%

Agriculture: 2.4%

Export of Goods, 2014: $66.58 Billion

Import of Goods, 2014: $71.89 Billion

FDI Stock, 2014: $97.05 Billion (home)

$83.62 Billion (abroad)

Currency: Shekels – 1USD = 3.8220 ILS (Bank of Israel, 2016)

GDP Growth Rate: 4%

Unemployment: 4.9% (June 2015)

Literacy Rate: 97.76% (2015)

Budget: Revenues ($51.52 Billion), Expenditures ($61.51 Billion, )

Labor Force: 3.015 Million

Major Industries: high technology products (aviation, medical devices, communications, fiber optics, etc.), wood and paper products, metal products, food, beverages, chemical products, plastics, textiles, diamond cutting

 

Sl. Bo.	Economic Indicators	Reference period:	Latest figure	Previous figure
1.	GDP per capita ($ thousand, purchasing power parity basis) (1)	Q4/2017	39.4	37.8
2.	Economy’s growth rate (percent) (2)	Q4/2017	3.6	2.9
3.	Bank of Israel forecast of economy’s growth rate (percent)	2018	3.4	3.3
4.	Unemployment rate (percent)	Q4/2017	4.2	4.1
5.	Composite State-of-the-Economy Index (percent)	01/2018	0.3	0.3
6.	Ratio of surplus in current account of balance of payments to GDP (percent) (1)	Q3/2017	-0.4	0.4
7.	Inflation rate (percent)	01/2018	0.1	0.4
8.	Inflation expectations derived from the capital market (percent)	02/2018	0.8	0.5
9.	Bank of Israel interest rate (percent)	03/2018	0.10	0.10
10.	Change in representative exchange rate, NIS per $1 (percent)	02/2018	-6.3	-10.3
11.	Means of payment: M1 (NIS billion)	01/2018	368.1	331.7
12.	Ratio of public debt to GDP (percent) (3)	12/2016	62.3	64.0
13.	Ratio of external debt to GDP (percent) (3)	06/2017	25.9	27.6
14.	Change in Tel Aviv 100 Index (percent) (1)	02/2018	7.6	2.0
15.	Gross return of unindexed 10 year government bonds (percent)	02/2018	1.9	1.7

Israel consistently ranks high among the world’s economies in terms of its technological readiness, venture capital availability, and the quality of its research organizations. The country ranks 1st in availability of scientists and engineers, number of start-ups per capita, and venture capital investments per capita.

Overview of best prospect sectors, major infrastructure projects, significant government procurements and business opportunities.

Hi-tech and defense dominate Israel’s trade numbers, and Israel remains a global center for hi-tech design and R&D. Hi-tech continues to provide opportunities for U.S.-Israel commercial partnerships, specifically in ICT technologies including cyber security, safety and security equipment and services, defense equipment, medical technologies and biotechnology products. Power generation and education/training also represent good opportunities.

There is strong U.S.-Israeli commercial linkages which often consist of U.S. firms providing electronic inputs which Israeli firms integrate into final products destined for re-export.

Road technology and infrastructure projects could offer millions of dollars’ worth of export opportunities for U.S. firms over the next five years, especially since Israel adopted U.S. standards in intelligent transportation systems.

Health IT in Israel is very advanced in the implementation of multi functional, interoperable health IT systems built around electronic medical records. However, since local software development companies and integrators provide Israel’s health IT infrastructure and services, there are limited opportunities for U.S. SMEs in this sector.

Through the large U.S. Foreign Military Funding/Sales program in Israel, the size of the aerospace industry exceeds $3 billion annually and most major procurement for the Israel Air Force originate in the U.S. The Israel Air Force (IAF) is in the process of a staggered replacement of its F-16 fleet of fighter aircraft with F-35s, and a helicopter procurement plan is under consideration.

Israel – Market Opportunities

Israel and India signed nine agreements on 15.01.2018 during the state visit to India of The Israeli leader Prime Minister Netanyahu in the areas of energy production, cyber cooperation, space and aviation, direct mutual investment and cinema production, ushering in a “dawn of a new era,” in bilateral relations between the two countries.

Both Indian Prime Minister  Modi and Israel PM Netanyahu were present during various memorandums of understanding were signed:

1.An agreement on cyber security cooperation and the development of training and proficiency programs in the field; cooperation in the oil and gas sector that will strengthen joint work in exploration, production and research and development, as well as advancing academic ties and promoting related startups

2. A protocol on amendments to a 1994 air transport agreement that will adjust the cost of flights and strengthen bilateral cooperation in developing air links
3. An agreement between the Indian Institute of Space Science and Technology (IIST) and the Technion – Israel Institute of Technology for space cooperation
4. An agreement on film co-production “granting joint government support funds for Israeli-Indian productions,” according to a statement by the Government Press Office
5. An agreement on maritime transport that “will encourage greater business between the shipping organizations of India and Israel,” according to a joint statement;

The leaders also “welcomed the completion of all formalities for the launch of the India-Israel Industrial R&D and Technological Innovation Fund (I4F),” launched when Modi visited Israel in July, the first Indian head of government to do so since diplomatic relations were established in 1992. The project is a $40 million fund initiative to foster tech innovation and R&D in industrial development and build strategic partnerships between Israeli and Indian innovators in areas like water conservation, using wastewater for agriculture, and desalination.

They also announced work on a five-year Joint Work Plan for strategic cooperation in agriculture and water.

One of the things that Israel brings to this world of innovation is that we achieve more with less. More crops with less water, more energy with less expenditure of money. More with less. We want more, a lot more and we can do that even more productively by cooperating,” Netanyahu said, adding that Israel was “a fountainhead of innovation” and a “global force of technology.”

India, he said, “abounds with creativity, with ingenuity, with scientists, with mathematicians and I think that when we join our respective talents together we can achieve tremendous things for our people.”

Netanyahu had  six-day state visit to India January 2018, leading a trade delegation of some 130 businesspeople and representatives of defense companies to the subcontinent. The trip is aimed at deepening political, cultural and business ties with India, and hopefully salvage a $500 million missile deal canceled by the Indian Defense Ministry last month with Israeli defense tech company Rafael Advanced Systems.

India-Israel Economic and Commercial Relations

Since the establishment of diplomatic relations between India and Israel in 1992, bilateral trade and economic relations progressed rapidly. From US$ 200 million in 1992 (comprising primarily of diamonds), merchandise trade diversified and reached USD 4.16 billion (excluding defence) in 2016.

2. India-Israel two-way trade in 2016 remained almost unchanged compared to 2015 – it grew by a mere 0.85%. The balance of trade has tilted in favour of Israel with Israel exporting goods worth USD 2.4 billion as opposed to India’s exports of USD 1.76 billion. India continues to be a ‘focus’ country for Israeli Government’s increased trade efforts. Trade with India constituted 3.3% of Israel’s total trade in 2016.
3. Major exports from India to Israel include pearls and precious stones, chemical and mineral products, machinery and electrical equipment, textile and textile articles, plastics, rubber, plants and vegetable products, mineral products, rubber and plastic products, base metals and transport equipment.
4. Major exports from Israel to India include defence, pearls and precious stones, chemical and mineral products, machinery and electrical equipment, base metals, machinery, and transport equipment.
5. Trade in diamonds constitute almost 54% of the bilateral trade. Nearly 40 diamond dealers have opened offices at the Israeli Diamond Exchange in Ramat-Gan. Some of these dealers have been active in Israeli for nearly 30-40 years. Though bilateral trade is dominated mainly by diamonds and chemicals, recent years have witnessed an increase in trade in areas such as electronic machinery and high tech products; communications systems; medical equipment etc.
6. Investment: According to figures released by the Department of Industrial Policy & Promotion, India, FDI inflows from Israel to India from April 2000 to September 2016 totaled USD 107.6 million. These figures may not accurately reflect FDI from Israel, as many Israeli companies invest in India through the US, Europe and Singapore.
7. There are over 300 Israeli investments in India mainly in high-tech and agriculture. These investments are varied in nature – manufacturing plants; R&D centers; subsidiaries etc. There is a growing preference for Israeli companies in sectors such as water technologies, homeland security and real estate in addition to traditional areas such as agriculture, chemicals etc. Teva Pharmaceuticals, IDE, Netafim are among the leading Israeli companies which have notable investments in India.
8. Indian companies are marking their presence in Israel through mergers and acquisitions and by opening branch offices. TCS started operations in Israel in 2005 and State Bank of India opened a branch in Tel Aviv in 2007. In 2012, Jain Irrigation fully acquired Naan-Dan, an Israeli irrigation equipment manufacturing company. Sun Pharma has 66.7% stake in Israel’s Taro Pharmaceutical Industries. Infosys, Tech Mahindra and Wipro Infrastructure Engineering have made notable acquisitions/investments in 2015 and 2016.
9. Indian majors are also leveraging on the Israeli innovation eco-system. In 2013, Tata Group invested US$5 million in the Momentum Fund of Ramot, Technology Transfer Center at TelAviv University. In 2016, Tatas joined hands with several leading global players to set up a new technology incubator, called i3 Equity Partners (i3), which focuses on developing next-generation IoT technologies. Wipro has invested in TLV Partners, an Israel-based venture capital firm. Sun Pharma has collaborations with Weizmann Institute of Science and Technion Institute of Technology.

Cooperation in Agriculture and Water Technologies:

10. Agriculture: Under a comprehensive Work Plan for cooperation in agriculture signed on 10 May 2006, bilateral projects are implemented through MASHAV (Center for International Cooperation of Israel’s Ministry of Foreign Affairs) and CINADCO (Centre for International Agricultural Development Cooperation of Israel’s Ministry of Agriculture and Rural Development). Agricultural cooperation was formalized through three year work plans.
11. The Action Plan for 2012-2015 expanded cooperation to various States in India. Under this Action Plan, Israel agreed to set up 26 Centers of Excellence across 9 States. These Centers demonstrate an integrated and scientific approach to farming. These Centers were spread across different fields – in Maharashtra, Centers of Excellence was set-up for Mango at Ratnagiri; Citrus at Akola; and Pomegranate at Rahuri. A Center of Excellence for vegetables was set up in Karnal, Haryana. In Sirsa, Punjab the Center for fruits was established. 15 such Centers have already been commissioned. Third phase of agricultural work plan (2015-18) was signed in September, 2015. Under this plan, cooperation will be expanded into 6 more States.
12. Indian officials receive training in Israel from time to time. Indian official and business delegations regularly attend Israel’s triennial international agricultural exhibition event Agritech, which showcases Israel’s achievements in agriculture.
13. MASHAV, Israel’s Agency for International Development Cooperation, is active in India with many experimental and demonstration projects. MASHAV operates an agricultural demonstration farm in Pusa and regularly runs courses on developing small and medium sized businesses in rural areas.

Water Technologies

14.Ongoing cooperation between the two countries in the sector was formalized through a MOU on Water Resources Management and Development Cooperation which was signed in November 2016. India’s companies and official delegations regularly visit the biannual event WATEC in Israel which showcases Israel’s water and energy technologies.

15. Israeli company IDE has built several desalination plants in India. A 100 MLD per day desalination plant set up by IDE at Nemelli in Tamilnadu was commissioned in 2013, the second such plant in Chennai. Israel’s national water company Mekorot, is providing its expertise to concerned organizations in Greater Mumbai and West Bengal. Tahal group signed a US$ 74 million deal with the Karnataka Government to design, construct and operate a water supply system to 131 villages in the State

Industrial and R&D Cooperation

16. Under a bilateral agreement in May 2005 the India-Israel Initiative for Industrial R&D (i4RD) was set up to support joint industrial R&D projects, aimed at development of products or processes leading to commercialization in the global market. This cooperation agreement was signed between the Ministry of Science and Technology, Department of Science and Technology (DST), India and the Ministry of Economy, Israel. i4RD provides partner matching services and funding for joint bilateral research and development (R&D) projects, involving at least one Indian and one Israeli company.
17. The framework is jointly implemented by Global Innovation and Technology Alliance (GITA), and MATIMOP, Israeli Industry Centre for R&D. Currently funded projects are focused on the hi-tech sector, for development of both software and hardware technologies.
18. In March 2013, under an MOU between MATIMOP, on behalf of the Office of the Chief Scientist (OCS) in Israel; and the Karnataka Science and Technology Promotion Society (KSTePS) and the Karnataka State Council for Science and Technology (KSCST), the Karnataka-Israel Industrial R&D program was set up to provide partner matching assistance and access to funding for industrial R&D by Israeli and Indian companies based in Karnataka.

Start up Nation

Israel calls itself the ” startup nation.” Israelis say that technology is the country’s No. 1 export.

By some counts, Israel is home to 4,800 startups today. It’s also home to least two dozen accelerator/incubator programs in the Tel Aviv area, alone, including some run by Microsoft and Google.

There are more incubators in other cities, too, including a program in Jerusalem run by Jerusalem Venture Partners on a campus so big it has its own restaurant and nightclub.

All of this is to say that as a startup hub, Israel is second only to Silicon Valley.