The high-tech industry is the fastest-growing sector in Israel’s economy, with the highest productivity and the most significant contribution to the economy, according to a new “State of the High-Tech Industry in Israel 2023” report from the Israel Innovation Authority.

According to the report, about 14 percent of Israeli citizens work in technological and non-technological high-tech professions. This sector enjoys the highest growth rate in the number of employees and the fastest increase in wages.

Salaries in the tech sector are nearly three times higher than in the rest of the economy, and job satisfaction in high-tech is twice that of other professions in Israel.

Highlights from Innovation Authority report:

• The high-tech sector is responsible for the largest share of exports from Israel — 48.3%, amounting to $71 billion.
• From 2012 to early 2023, the average annual growth rate in the number of high-tech employees was 6.3%, compared to 2.2% for the overall economy.
• In 2022, the high-tech sector accounted for 18.1% of Israel’s GDP, making it the largest sector in terms of economic output. The output of the high-tech sector more than doubled within a decade, reaching 290 billion shekels in 2022.
• Israel is the only OECD member country where more than 50% of R&D is funded by sources outside the country.
• Investments in Israeli startups have grown more than fivefold from 2013 to early 2023, with a total of around $95 billion raised during these years. This places Israeli innovation in sixth place globally in terms of capital raised for startups during the period examined.
• Since the second half of 2022, there has been a decline of 45% in the volume of investments in Israel compared to the previous year. This decline is expected to persist in the current year.
• Since the beginning of the year, Israeli technology companies have shown negative returns compared to technology companies traded on the NASDAQ. In the first quarter of 2023, the return on the index of the top 100 technology companies traded on NASDAQ was close to 24%, while the Tel Aviv Technology Index experienced a 1% decline.
• Since the beginning of the year, fewer positions were opened by companies for recruitment, while the increased layoffs led to a reduction in the number of employees in the sector.
• As of April 2023, there were 9,093 technology companies in Israel that raised money from investors throughout their existence. This places the Israeli startup ecosystem as the third largest globally in this measure, highlighting Israel as a prominent startup hub on a global scale.
• The number of active startups in Israel ranks third after San Francisco and New York (about 9,000, compared to approximately 14,500 and 12,500).

Life sciences and climate tech

Approximately 30% of the IIA’s investments in 2022 were directed toward life sciences, which includes pharmaceuticals, medical devices, and biotechnology, compared to only 7.5% of private investments in these segments.

The report also took note of Israel’s growing climate-tech sector, numbering 516 companies. Around 24% operate in the energy sector, while 37% are involved in agriculture, food, and water. Fundraising for Israeli climate-tech companies has grown threefold from less than half a billion dollars in 2018-2019 to over $2.5 billion in 2021.

At the same time, the report found that Israel remains a software nation, with organizational software, fintech and cybersecurity accounting for over 40% of startups established each year and over half of the investment flow. In 2022, 70% of the total investments were in software domains, compared to 48% in 2013.

“Concerns about the corporate structure in Israel and warnings from global rating agencies have joined a complex global economic period that began in 2022 with the halt of the extensive capital inflows that governments worldwide provided to stimulate markets during the COVID-19 pandemic,” said Dr. Ami Appelbaum, chairman of Israel Innovation Authority.

“This period continued with the Russia-Ukraine conflict, challenges in global supply chains, and a rise in global inflation and interest rates. All these factors have caused significant difficulties for the Israeli high-tech industry, resulting in a 70% decrease in capital raised in Israel.”

Today, Appelbaum said, “We are at the threshold of a period in which three domains of innovation are poised to transform the world as we know it: Generative AI, quantum computing and communication, and innovation in climate-related fields. The need to preserve Israel’s national resilience does not allow the country to slow down innovation in any of these areas and lag behind. It is a period of deep economic and social crisis, but also a period that presents opportunities if we can navigate wisely.”