Investment Climate in
Israel 2002
Presentation for OECD
Paris, April 10, 2002
Amir Hayek
Director General
State of Israel. Ministry of Industry and Trade 1
Presentation
I. Facts & Figures
II. Reasons for Success
III. Israeli Hi-tech – A Case Study
IV. Prospects for the Future
2
Net Foreign Inward
Investment ($ Billion)
10
9
8
7
6
5 Portfolio
4 FDI
3
2
1
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
3
Net Foreign Outward
Investment ($ Billion)
6
5
4
3
Portfolio
2 FDI
1
0
-1
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
4
Going Global
International Investors –
Some examples:
5
American Companies
Invested in Israel- Some
Examples
Microsoft GE
Pratt & Whitney Lucent
AOL Time Warner 3Com
Intel Hewlett Packard
IBM Merrill Lynch
Boeing Enterprises Motorola
Cisco Systems Sun Microsystems
6
European Companies
Invested in Israel - Some
Examples
Siemens Deutsche Telekom
DaimlerChrysler L’Oreal
Volvo British Telecom
Cable & Wireless Danone
Baan Ares Sereno
Volkswagen Unilever
7
Asian Companies Invested
in Israel - Some Examples
Samsung Sony
Electronics Toyo Ink
Daewoo Hyundai
Nomura Acer Computers
Hutchison Sumitomo Trading
Telecomm. Fuji
Nissho Iwai Honda
LG Group
8
Venture Capital in Israel
VC’s invested $3 Billion in 2000
VC invested alone = all of Europe
#4 worldwide for High Tech Deals
Startups raised over $1 Billion in first 6
months of 2000
9
Investments by Venture Capital
Funds ($M)
3500
3000
2500
2000
1500
1000
500
0
1997 1998 1999 2000 2001
10
Venture Capital by Industry ($M)
500
450
400
350
300
250
200
150
100
50
0
Software Communic. Computers Medical equip. Biotech
1997 1998 1999
11
High-tech Capital Raised
1995-2001
3500
3000
2500
2000
$ Million
1500
1000
500
0
1995 1996 1997 1998 1999 2000 2001
12
II. Reasons for
success:
13
1. High Annual Growth Rate
(GDP)
8%
6.7% 7.0% 6.8% 6.4%
7% 6.2%
5.9%
6%
4.5% Forecast
5%
3.3% 3.3%
4%
2.7%
3% 2.6%
2. 0 %
2%
1%
-0.5%
0%
-1%
90
91
92
93
94
95
96
97
98
99
00
01
02
19
19
19
19
19
19
19
19
19
19
20
20
20
14
2. Highly Skilled Workforce
Engineers per 10,000 Employees
Israel 135
U.S. 70
Japan 65
Netherlands 53
Canada 38
Switzerland 35
Taiwan 34
U.K. 28
South Korea 25
Iceland 22
Singapore 19
0 20 40 60 80 100 120 140 160
15
3. Deregulation and Privatization
The privatization process began in 1986
and was accelerated in 1997.
2002: There are currently 7 companies
in the process of privatization, including
Bezeq and El Al.
From 1986- 2000 $8.6 billion was raised
through privatization.
During this time around 80 companies
have ceased to be state owned.
16
4. Monetary Stability
Annual percentage change in CPI
20
18
16
14
12
10
8
6
4
2
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
17
5. Government support
Regional Development – Investment Center
Industrial R&D – Office of Chief Scientist
- Grants
- Technological Incubators
- Magnet
Investment Promotion Center – first stop for
Foreign Investors
18
Investment Center Approvals
as % of GDP (1996-2000)
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1996 1997 1998 1999 2000
19
Other:
6. International Investors’ interest in
Emerging Markets and Hi-Tech
Sector
7. Liberal Foreign Trade Regime
8. Foreign Currency Liberalization
9. Favorable Geo-political Climate
20
Jaffa Oranges vs Software
3500
3000
2500
exports 2000 Citrus
($millions) 1500 Software
1000
500
0
92
93
94
95
96
97
98
99
00
01
19
19
19
19
19
19
19
19
20
20
21
III. Hi-tech sector- a
case study
22
From every point of view,
Israel is technology:
36% of Israelis surf regularly on the
Internet vs global average of 7%
Over 70% are cell-phone users –2nd
highest usage in world
54% of all households have PCs
outranking US and UK
23
Hi-Tech as a
Percentage of GDP
16
14
12
10
8
6
4
2
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Total high-tech revenues as a % of GDP
24
Change in composition of Non-Diamond
Industrial Exports
1980 vs 2000
100% Mining and Quarrying
90%
Food and Beverages
80%
70% Others
60%
50% Textiles, Clothing and
40% Leather
30% Metal and Machinery
20%
10% Chemicals,rubber and
0% plastic
1980 2000 Electronics group
25
Formula For Success:
Investment
Ideas
Innovation
Ingenuity
26
#2 – Investment in Civilian
R&D as % of GDP
% of GDP (2000)
Finland
Israel
USA
Germ any
France
Denm ark
UK
Norway
Ireland
Italy
H. Kong
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
27
High Tech Education
Investment in Education as a % of GDP (1995)
Israel
Sweden
Finland
USA
France
Spain
OECD Av.
Australia
Mexico
Ireland
0% 2% 4% 6% 8% 10%
28
IV. Prospects for the
Future
29
2001
2001 economic indicators were affected by:
Slowdown in US Economy starting with
High Tech crisis
Worldwide downturn
Deterioration of the security situation
30
World Economic
Downturn
The Israeli economy was in a mature, strong
and stable position when the global recession
hit.
As a result, the economy was able to absorb
the shocks occurring abroad with minimal
effect on the local economy.
After a record breaking year in 2000, during
2001 economic indicators dipped, but
remained well above 1999 levels.
31
2001: Some Growth
Areas Continued
Despite the global tech downturn, during
2001, exports grew by:
Software +16%
Pharmaceuticals +37%
Security Products +19%
32
2000
– A Record Year
Industrial exports were up 24.4%.
Foreign currency reserves reached an all
time high of $22.93 billion.
TASE: 6th best performing market in the world
(Merrill Lynch Report, 28.12.00)
Electronics exports were up 150% over 1999.
The Israeli Shekel was one of the strongest
currencies in the world during 2000.
33
2000 vs 2001
So, 2001 economic indicators appear
low when compared to the unusual
example of 2000.
When viewed in relation to previous
years, 2001 figures point to modest
gains.
34
IMF Report, 2002
“The Israeli economy has withstood major
exogenous shocks remarkably well so far.
Once global demand begins to recover, there
is a good chance that the economy will return
to its high potential growth path relatively
quickly.”
IMF: Israel Interim Staff Visit, Concluding Statement (Preliminary)—
February 26, 2002, Section 12.
35
Recovery
“When the US economy stages a
recovery, the flexibility and structural
characteristics of the Israeli economy
means that it will be well-placed to
stage a quick recovery of its own.”
International ratings agency, Fitch- report on Israel, Feb 10, 2002.
36
Improved Outlook
The State of the Economy Index rose
0.4% in February 2002.
Industrial exports increased by 4%, and
high tech exports by 13.5% in January-
February 2002.
The number of job seekers dropped in
February 2002, after rising steadily from
January 2001 through January 2002.
37
OECD NATIONAL
CONTACT POINT
Established at Ministry of Industry and
Trade (web site: www.moit.gov.il/ncp)
Intra-ministerial Advisory Committee to
NCP
Guidelines translated to Hebrew and
Arabic
Ongoing dialogue with civil society
38