Israel's Defiant Economic Growth

By Ambassador (ret.) Yoram Ettinger

The assumptions that Israel's economic growth depends on the conclusion of peace accords, and that Israel's economy cannot withstand BDS pressure (boycott, divestment and sanctions) are inconsistent with reality.

In fact, Israel's unique economic growth – from $1.5bn GDP in 1949 to $300bn in 2014, from $50mn annual exports in 1949 to $97bn in 2014, and from no foreign exchange reserves in 1949 to $92bn in 2014 – has been driven byAliyah (Jewish immigration), fiscal responsibility, brain power, cutting-edge commercial and defense technologies, exports, military posture of deterrence and (most recently) natural gas; not by the peace treaties with Egypt and Jordan, or the Oslo Accord with the PLO.    

For example, Israel's GDP surged by 8%-14% annually following Israel's victory in the Six Day War (1967-1972), and by 9% upon the launching of the Aliyah wave of one million Olim from the USSR in 1990. On the other hand, the post Oslo (1993-1996) economic growth of 4%-7% was triggered, mostly, by the Aliyah ripple effect, but was marred by rapidly worsening budget and trade deficits. 

In addition, Israel's 42.5% annual inflation in 1977 - when the Begin-Sadat peace initiative was launched - galloped to 111.4% in 1979 and 445% in 1984. Inflation was reduced to 19.7% in 1986, and to the current low single digit levels through an unprecedented policy of fiscal responsibility; not through the Israeli-Egyptian peace treaty. 

The BDS impact on Israel's economy is minor as demonstrated by the improved trade balance between Israel and Turkey and Britain, independent of the Turkish government and British Parliament support of BDS.  Moreover, Israel's vulnerability to BDS is highly constrained since 90% of Israel's exports are business-to-business, enhancing the cost-effectiveness and the level of health, medicine, irrigation, science, education and national security of Israel's trade partners. Furthermore, Israel's trade is trending away from Europe – the epicenter of BDS – towards India, China, Russia, Japan, South Korea and the former Soviet Republics.

Thus, according to the August 11, 2014 issue of the Turkish daily, Today's Zaman, "It is said that there has been a serious crisis between Turkey and Israel…. But, the foreign trade volume between the two countries rose from $4bn in 2011 to $4.86bn in 2013…. Giant ferries depart from Turkey's port of Iskenderun and anchor at Israel's port of Haifa, carrying Turkish semi-trailer trucks which then travel to Arab countries…. [Israeli] Defense exports to Turkey were never halted…. Oil coming from Iraq's Kurdistan to Turkey is indirectly sold to Israel…. Prime Minister Erdogan's son, Burak, shuttles his cargo ships between Israel's port of Ashdod and Turkey…."

The November 18, 2014 issue of the Times of India opined that "despite its burgeoning ties with China, Israel doesn't look at Beijing as a strategic partner the way it does at India, Israel's number one buyer of military systems…. [India's] Prime Minister Modi commits himself to taking ties with Israel to a new level…. With an annual trade volume of over $10bn, China is Israel's largest trading partner in Asia…. India's annual trade with Israel is still around $5bn, but this could double with the signing of a free trade agreement…." 

The Asian Defense News reported that Israel's Rafael won a $525mn bid to supply India with over 8,000 laser-guided, man-portable, anti-tank Spike missiles and more than 300 launchers. The Defense Industry Daily announced a successful test of the Israel-India "Barak8" medium range, land and ship-borne air and missile defense system, which followed a $300mn Indian acquisition of Israel's "Barak1" supersonic, vertically-launched, short-range air defense system. "Israel may be on its way to surpassing Russia as India's largest partner."

Irrespective of recent assessments of Israel's economic slowdown, the Organization for Economic Cooperation and Development (OECD) expects a 3% growth in 2015 and 3.5% in 2016, "which should avert any rise in unemployment [5.7% in October, 2014]."  The November 25, 2014 issue of the Economist Intelligence Unit maintains that Israel's recent manufacturing and export data "seem to confirm that the rebound in activity in September was sufficient to offset the impact on the Israeli economy of the July and August Gaza hostilities…."

Indeed, foreign entrepreneurs express their confidence in Israel's long-term economic viability, which is increasingly acting as a critical pipeline of cutting-edge technologies to the high tech industries in the USA. They seek to leverage Israel's unique brain power, which is equipped with minimal natural resources, having to produce solutions to unique agriculture, irrigation, energy, medical, health, homeland security and military challenges.

For instance, Lockheed Martin plans to hire about 1,000 employees for its new subsidiary in Israel's Beer Sheba Cyber Park (next to a subsidiary of another US giant, EMC), which has concluded cyber cooperation agreements with Ben Gurion University, the Technion in Haifa and Hebrew University.  Redmond, WA-based Microsoft – which operates two research and development centers in Israel - acquired Israel's Aorato for $200mn. South Carolina-based 3D Systems acquired Israel's Cimatron for $97mn.  China's Long Tec Venture led a $10mn round of private placement in Israel's RealView, South Africa's Naspers and Britain's Lord David Alliance Venture Fund led a $15mn round in Israel's Similarweb, Singapore's Temasek and India's Tata investment funds are co-leaders of the Tel Aviv University $23.5mn technology transfer fund. Private US investors led a $15mn round by Israel's AposTherapy, etc.

These companies, along with 250 US high-tech giants operating in Israel, concur with the assessment made on November 26, 2014 by Greg Case, President and CEO of AON, the leading global provider of risk management solutions: "Our clients are aware of the risks and the opportunities of doing business in Israel…. Risks in Israel are similar to other parts of the globe…. Israel is a vital, growing and innovative economy."