Israel's Economy Takes On The World

Illustration: Azrieli Towers by "StateofIsrael" [CC BY-SA 2.0] via Flickr

Despite international political pressures that have frequently been brought to bear on Israel, economic confidence in the Jewish state has blossomed in recent years regardless of the politics. Several key points below exemplify this phenomena for the first month of the year alone — developments that have largely escaped media attention.

1. In January, Israel’s most successful ever government bonds issue totaled 2.5 billion euros: a 1.25 billion euro 10-year bond and 1.25 billion euro 30-year bond. The European demand was six times the amount of the bond issued (15 billion euros!) in spite of the low interest rate — 1.5% for the 10-year bond and 2.5% for the 30-year bond — reflecting confidence in Israel’s responsible economy and solid bond-repayment track record.

Some 300 investors from Britain, Germany, France, and other European countries — including European Central Banks, pension funds, and insurance companies — participated in the bond issue. At the same time, Saudi Arabia had to increase its interest rate to 3% in order to raise 3 billion euros.

2. Israel surged to fifth place in the latest Bloomberg Innovation Index for 2019, trailing South Korea, Germany, Finland, and Switzerland, but ahead of Singapore, Sweden, USA, Japan, and France. Israel was tenth in the 2018 Index. In 2019, Israel is the only country ahead of South Korea in the category of research and development expenditure as a percentage of GDP (4.3%). Israel’s major surge is in the area of patent activity — from 19th in the world in 2018 to the 4th spot in 2019.

The Bloomberg Innovation Index ranks the globe’s 60 most innovative countries according to the following criteria: GDP, productivity, patent activity, concentration of researchers, postgraduate PhD students engaged in research and development per one million people, and concentration of high-tech companies.

3. The largest ever Japanese delegation of 200 senior executives of 100 leading Japanese corporations, including Mitsubishi and Toshiba, along with Japan’s minister of economic affairs visited Israel, exploring ways and means to expand bilateral trade and investment. In 2018, Israel’s export to Japan grew 42% to $1.16 billion, mostly consisting of medical, optical, and metal equipment and products.

Since 2014, Japanese companies have made over 200 venture capital investments in Israel’s hi-tech sector. However, Japan — the world’s 3rd largest economy — accounted for only 2% of foreign investment in Israel during the past five years. In addition to commercial hi-tech, Japan is increasingly interested in cooperation and acquisitions in the areas of defense and homeland security. Israel’s innovation track record has enticed dozens of Japanese companies to explore the potential of research, development, and production cooperation with compatible Israeli companies.

Japan’s and Israel’s economic ministers signed an agreement enhancing digital health cooperation, teaming substantial Japanese corporations and ground-breaking Israeli startups. Another agreement highlights the matching of Israeli innovations (e.g., artificial intelligence, cyber technologies) and Japanese manufacturers, targeting the Japanese market. A leading Israeli venture capital fund, Vertex, has benefitted from hundreds of millions of dollars invested by 31 Japanese investors, including financial institutions and major corporations.

4. The $17 billion US private equity fund, Thoma Bravo, acquired Israel’s cyber security Imperva for $2.1 billion. Imperva, which was established by Israeli entrepreneurs and developers, is headquartered in the Silicon Valley with its major research and development center in Israel, which employs 450 people.

5. The South Korean conglomerate Samsung agreed to the the acquisition of Israel’s Corephotonics (smartphone camera technologies) for $155 million. Samsung Ventures has already invested in 15 Israeli companies.

6. In 2018, Israeli startups raised a record $6.4 billion, 17% higher than 2017 ($5.5 billion) and 120% higher than 2013 ($2.95 billion), although the number of startups involved has decreased slightly. The last quarter of 2018 produced a new record of $1.8 billion raised by Israel’s high tech companies. The $5 million investments have decreased in number, while the number of the investments over $20 million has increased.

Israeli software companies’ capital raising has grown over 50% since 2015. 2018 was the strongest year for Israeli cybersecurity companies, which raised $1 billion. Artificial Intelligence companies have sustained their uptrend valuations. The growing maturity of Israeli startup companies is attracting a growing number of global corporations, venture capital funds, and individual investors. For the first time since 2013, the number of follow-on investments has exceeded the number of first-time investments.