Israel’s Economy - Persistent Defiance of Conventional Wisdom

By Ambassador (ret.) Yoram Ettinger

In defiance of the jagged cutting edge of the Middle East, the inherent regional unpredictability, uncertainty, instability, violence, brutal Islamic intolerance of the “infidel” and the lack of formal diplomatic relations with most of its neighbors, Israel has displayed a unique level of resilience, steadfastness, stability and creativity.

For example:

1. All-time record in tourism to Israel: a 38% increase in the number of tourists in April, 2017 over April 2016; a 28% increase in the number of tourists during January-April, 2017 over January-April, 2016.

2. According to Bank of Israel: Israel’s GDP per capita is $38,400 ($36,300 in Q1/2016); unemployment rate is 4.2% (4.4% in Q1/2016); inflation is 0.7% (0.9% in Q1/2016 and 450% in 1985); public debt-to-GDP ratio declines for seventh straight year to 62.1% (64.1% in Q1/2016 and 80.3% in 2006); external debt-to-GDP ratio reduced to 28.6% (30% in Q1/2016).

3. According to the Economist Intelligence Unit (May 18, 2017), Israel’s household consumption per head rose by 5.2% in 2016, overtaking that of the United Arab Emirates, comparable to France and Singapore, but well below the US and UK. “It reflects Israel’s declining unemployment, combined with a higher labor participation rate (in the ultra-orthodox and Arab sectors), an accommodative monetary policy, a strong local currency and falling global prices… helped by relatively high population growth. The number of immigrants entering the country rose in 2014-15 to its highest level since 2003…. Israel has largely overcome relatively low rainfall owing to desalination and sewage-recycling, and is now a major exporter of water technologies…. Israel spends a higher proportion of its GDP on civilian R&D than any other country. Its high spending on military R&D has had positive effects for the civilian technology sector… encouraging high rates of productivity growth. The local workforce is highly educated with more than 50% of the population enrolling in tertiary education….”

4. MizMaa, a Chinese venture capital fund, established in 2016, owned by three affluent Chinese families, and headed by a former Deputy President of J.P. Morgan in Asia, is investing $100mn in 15-18 Israeli startups in the areas of cyber security, autonomous vehicles, FinTech, artificial intelligence, robotics and cloud computing. $20nm were already invested in 6 Israeli startups (Globes Business Daily, June 14, 2017).

5. India is emerging as one of Israel’s leading trade partners, militarily and commercially. Two months following a sale of $2bn missile defense systems to India, a sale of $630mn additional missile defense systems was announced (Globes, May 22).

6. Bill McDermott, the CEO of Germany’s SAP, the world’s third largest software company: “Israel’s technology market – per size of population - is the most exciting in the globe. The number of Israeli engineers and scientists and the size of R&D investment - per capita - are the highest in the world. SAP will double its focus on Israel.” SAP employs 700 persons in Israel (Globes, June 1).

7. Germany’s Porsche announced its intention to invest a few scores of millions of dollars in Israeli autonomous-car startups (Globes, June 2).

8. Microsoft acquired the three-year-old Israeli cyber security company, Hexadite, for $100mn (Globes, May 25). UroGen, the Israeli developer of urological cancer treatment, raised $58mn on Nasdaq, 20% above expectations (Globes, May 8).