A year after the war in Lebanon, Israel’s economy is thriving. Who is taking advantage?During the past 12 months, the Israeli economy has fought off the effects of a war in Lebanon. On the southern border, Hamas has launched hundreds of rockets into nearby Israeli towns and villages. And yet, the Israeli economy has rarely had it so good.
The country’s statisticians have just released a further stream of positive news. Unemployment is at its lowest in years. Foreign direct investment is expected to grow by 8.0% in 2007, passing $15 billion. The stock market has seen new peaks. GDP increased by 6.3% in the 1st quarter of 2007. It is growth time, and the improvements have flowed from prudent policies, overseen by finance ministers of all parties.
CNBC Europe television recently developed this theme in a series of features on the Israeli economy. Covering a range of stories on local commerce and finance, one of the main conclusions was that Israel has departed from the international axiom that only peace brings prosperity. Sure, it is preferable if your neighbors love you. However, Israel has ‘invented a technology’ that enables its industries and services to develop, even as the guns are going off.
This process started back in the mid-1980s, when the government introduced a series of banking and structural measures to free up the economy. Jumping forward to 2007 – after a couple of ‘Intifadas’ and some wars with Hizbullah – and Israel regularly features in the top rankings of countries for commercial competitiveness. As Deutsche Bank observed in its July 2007 review; “We continue to view Israel as one of the most robust economies in Europe, Middle East, and Africa region.”
Multinationals have not waited for banks to issue surveys. Motorola’s Israeli facilities are the company’s largest development center outside of the US. Kodak and Intel have similar relationships with Israel’s expanding skilled workforce. In June 2006, Boston Scientific announced an agreement with Remon Medical Technologies in Caesarea, whose value has been estimated at $380 million.
The question is whether Israel is promoting itself abroad as much as possible. True, Israel’s exports are responsible for the boom, a trend continuing into 2007. And yet, others argue that this growth is often revealed through the lead of the country’s industrial giants like Teva. It is the little guys, the small and medium sized enterprises which make up the bulk of any economy, who are at the heart of Israel’s high tech economy and who are being ignored This sector has yet to realize its full potential.
An Israeli colleague of mine has experienced this contrast at first hand. He has begun working with a new European-based consortium, focused on the possibilities offered by Israeli high tech start ups. Although the consortium represents an experienced and sophisticated team in the many facets of international trade, they have been fascinated and surprised by the range and quality of opportunities available in Israel. They have come to understand how young Israeli companies frequently possess a unique IP, but need help to punch their message through to the beckoning European and American markets.
In a parallel development, Nobska Ventures from America opened up in 2007 a $50 million Israeli focused fund to invest in new projects. By June, it had already announced a $1.2m equity investment in ClassifEye Ltd, whose fingerprint authentication software is expected to expand mobile commerce applications in the US. In Israel, the company’s size can be a poor indication of commercial possibilities.
It is significant to recall the words of Alex Ricchebuono, regional sales director for Southern Europe of Janus Capital Group Inc, which has begun operating in Israel. Recently quoted in the Israeli financial columns of Globes, he said, “The perception that Israel is a small market is mistaken. The Israeli market isn?t large compared with other markets, but it has the potential for driving deals abroad. To define the Israeli market as an emerging and undeveloped market is a mistake.”
The Israeli economic machine, as expressed in its new and smaller companies, has learnt to brand itself, in spite of the geopolitical environment. The recent entry in to the hallowed club of the OECD is another vote of confidence in what Israel has to offer: a well-educated workforce, an in-built dynamism to create yet more technology, and the strength and the sense of purpose to succeed.
The international community has been used to hearing the news on Israel reported in the context of violence. The commercial and financial reality of the new ‘milk and honey economy’ has been hidden from view. The secret of the Israeli version of a peace dividend has finally been exposed. The opportunity exists to reap the commercial benefits.