Israel’s Economy – Main Characteristics

Israel’s Economy – Main Characteristics

• Export Oriented Growth• Rapid Development of Technology &

High-Tech Industries• Entrepreneurial Culture • Supportive Environment for Business• Investment & R&D Incentives

Facts & Figures Foreign Trade Industry Doing Business in Israel Benefits & Investments

Contents:

Facts & Figures

Facts & Figures

Criteria2001200220032004

GDP (current prices in B$)113.6104.2110.4117.6

GDP Real Growth rate (%)-0.9%-0.7%1.3%4.3%

GDP per Capita (current prices, 000’$)17.615.916.517.3

GDP per Capita Growth rate (%)-3.2%-2.7%-0.5%2.5%

Exports of Goods & Services (B$)35.037.038.450.5

Imports of Goods & Services (B$)42.745.644.357.7

Unemployment Rate (%)9.3%10.3%10.7%10.4%

Inflation Rate ( CPI, end of year)1.4%6.5%-1.9%1.2%

Current Account (% of GDP)-1.7%-1.5%0.5%0.4%

Source: Central Bureau of Statistics, Bank of Israel

Main Economic Indicators

Criteria2002200320042005F

GDP (current prices in B$)104.2110.4117.6123.2

GDP Real Growth Rate (%)-0.7%1.3%4.3%5.1%

GDP per Capita (current prices, 000’$)15.916.517.317.9

GDP per Capita Growth Rate (%)-2.7%-0.5%2.5%3.2%

Exports of Goods & Services (B$)37.038.450.553.8

Imports of Goods & Services (B$)45.644.357.760.2

Unemployment Rate (%)10.3%10.7%10.4%9.1%

Inflation Rate ( CPI, end of year)6.5%-1.9%1.2%2.8%

Source: Central Bureau of Statistics, Bank of Israel, Forecast: Ministry of Finance June 2005

Main Economic Indicators and Forecast

Facts & Figures

Source: Central Bureau of Statistics *Estimation

3.0

0.5

2.6

0.0

8.0

4.6

-0.9

-3.2

-0.7

-2.8

1.3

-0.7

4.3

2.5

5.1

3.2

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

1998 1999 2000 2001 2002 2003 2004 2005*

GDP GDP per Capita

GDP and GDP per Capita (Annual % Change, in Constant Prices)

Facts & Figures

Source: Central Bureau of Statistics, Bank of Israel *Estimation

Business Sector GDP Growth (Annual % Change)

10.2

-2.4 -2.6

1.7

6.1 6.4

-4

-2

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005*

Facts & Figures

Source: Central Bureau of Statistics, Bank of Israe l *Estimation

Major GDP Components(Annual % Change, in Constant Prices)

7.7

2.21.7

23.1

2.73.4

-4.8

-11.2

1.1

5.7

-7.0

-2.4

1.3

-2.0-4.9

6.2 5.7

-1.9-1.7

14.9

3.5 4.3

0.3

6.5

-15

-10

-5

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005*

Private Consumption Government ConsumptionInvestment in Fixed Assets Exports of Goods and Services

Facts & Figures


Exports of Goods and Services (B$)

31.1

14.5

28.1

11.8

27.4

10.9

30.1

12.3

36.3

14.2

2000 2001 2002 2003 2004

Goods Services

45.6

39.9 38.342.4

50.5

Facts & Figures

GDP Growth and Exports Growth(Cumulative Rate of Growth by Period)

115%

188%

62%

120%

34%

54% 54%

100%

30%

63%

0%

50%

100%

150%

200%

1960-1969 1970-1979 1980-1989 1990-1999 1994-2003

GDP Growth Exports Growth


Facts & Figures

Source: Ministry of Finance, 2005

General Government Expenditure (% of GDP)

Facts & Figures

55% 55%

54%

53%

52%

51%

53%

55%

53%

51%

48%

49%

50%

51%

52%

53%

54%

55%

56%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004


Gross Tax Burden (% of GDP)

Facts & Figures

40%

39%

40%

39% 39%

40% 40% 40%

39%

38%

37%

38%

39%

40%

41%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004


Budget Deficit (% of GDP)

Facts & Figures

2.6%2.2%

2.4%

0.7%

4.4%

3.8%

5.6%

3.0%*

3.8%

0%

1%

2%

3%

4%

5%

6%

7%

1997 1998 1999 2000 2001 2002 2003 2004 2005*

*Forecast, Including the Disengagement Program Expenses

Current Account (% of GDP)

Source: Bank of Israel

-1.7 -1.3 -1.7 -1.5

0.5 0.4

-2

-1.5

-1

-0.5

0

0.5

1

1999 2000 2001 2002 2003 2004

Facts & Figures

11.8%9.9%

3.2%

0.5% -1.8% -5.1% -9.8%

-10%

-5%

0%

5%

10%

15%

1998 1999 2000 2001 2002 2003 2004

Net Foreign Debt (% of GDP)


Facts & Figures

Foreign Direct Investment (B$)


1.6 1.7

3.1

5.1

3.6

1.8

3.9

1.6

4.5*

0

1

2

3

4

5

6

1997 1998 1999 2000 2001 2002 2003 2004 2005

High-Tech Boom

High-Tech

Bubble Burst

Facts & Figures

*Forecast

Inflation Rate (% Change in CPI, end of year)

Source: Economist Intelligence Unit , Bank of Israel

7.0%

8.6%

1.3%

0.0%

1.4%

6.5%

-1.9%

1.2%2.8%

1997 1998 1999 2000 2001 2002 2003 2004 2005F*

Facts & Figures

*Forecast

Unemployment Rate by Quarters*(% of Total Labor Force)

*Seasonally Adjusted Data

9.1

9.8

10.5

10.1

10.910.8

10.9

9

9.2

9.4

9.6

9.8

10

10.2

10.4

10.6

10.8

11

2003-Q3 Q4 2004-Q1 Q2 Q3 Q4 2005-Q2

Facts & Figures


15.1

28.5

-2.4

21.8

33.8

12

73.8

-3.2

2001 2002 2003 2004

Business Sector Public Sector

New Employed Persons in 2004 (Change in Israeli Employed Persons, in Thousands)

Source: Central Bureau of Statistics, Manufacturers’ Association of Israel

Facts & Figures

CriteriaCentral Bureau of Statistics*

Real GDP Growth5.1%

Business GDP Growth6.4%

Exports Growth6.5%

Private Consumption Growth3.5%

Government Consumption Growth4.3%

Investment in Fixed Assets Growth0.3%

*Published: September 2005

Estimated Growth of Main GDP Components 2005

Facts & Figures

Central Bank Interest Rates-Israel vs. USA (%)

Source: Bank of Israel, Federal Reserve

Facts & Figures

Bank of Israel Rate

Federal Reserve Rate

0

1

2

3

4

5

6

7

8

9

10

20

02

2 3 4 5 6 7 8 9 10

11

12

20

03

2 3 4 5 6 7 8 9 10

11

12

20

04

2 3 4 5 6 7 8 9 10

11

12

20

05

2 4 6 8 10

Source: Credit Rating Agencies

Israel’s Credit Rating 1992-2005

0

1

2

3

4

5

6

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Moody's A2 Stable S&P A- Stable Fitch A- Stable

A1/A+

A2/A

A3/A-

Baa1/BBB+

Baa2/BBB

Baa3 /BBB-

Facts & Figures

Source: World Economic Forum, GCI 2004

Growth Competitiveness Index, 2004Israel Ranks 19 Out of 104 Countries (2003 Rank was 20)

6660

4847

4137

2723

2119

1513

117

1

46

Facts & Figures


Business Competitiveness Index, 2004 Israel Ranks 21 Out of 103 Countries (2003 Rank was 20)

5552

4741

3026

2422

21

1312

86

31

34

Facts & Figures

Source: The Global Competitiveness Report 2004-2005

Core Technology-Innovating Economies, 2003 Israel Ranks 4 Out of 103 Countries

Singapore

Canada

Germany

Finland

Sweden

Switzerland

Israel

Taiwan

Japan

USA

Facts & Figures

1

2

3

4

5

6

7

8

9

10

Foreign Trade

In 2004,

the Export Sector’s share in the total GDP growth was about 60%, making it the main contributor of GDP growth.

EXPORTS: The Engine of Israeli Growth

Foreign trade

Trade of Goods and Services (B$)

46 47

4044

38

43 42 44

51 52

2000 2001 2002 2003 2004

Exports Imports

Foreign trade


Trade Deficit (B$ and % of Exports)

1.0

2.2%

3.6

9.0%

4.2

13.0%

2.0

4.5%

1.52.0%

0.61.1%

2000 2001 2002 2003 2004 2005*

Trade Deficit Trade Deficit as a % of Exports

Foreign trade


*Note: Trade of Goods (exc. Diamonds )

Annual Trade* Growth

-7.1% -6.1%

-0.9%

-6.4% -6.5%

-0.7%

6.7%

2.2%1.3%

21.6%20.5%

4.3%

2001 2002 2003 2004

Exports Imports GDP

Foreign trade


Exports as a % of GDP

31%

35%36%

38%

43%

45%

25%

30%

35%

40%

45%

1995 2001 2002 2003 2004 2005F*

Foreign trade

Source: Central Bureau of Statistics, Bank of Israel, Israel Export & International Cooperation Institute, Ministry of Finance *Forecast

Exports of Goods by Commodity Group, 2004 (% of Total Exports of Goods)

Polished Diamonds

19%Rough Diamonds9%

Agricultural3%

Industrial69%

The High-Tech Sector Accounts for 33% of Total Exports of Goods

Foreign trade


The Growth of Industrial Exports (B$)

2.4

32.11.1

6.8

4

2.91.8

9

5.1

3.61.8

11

6.2

4.5

2

0

5

10

15

20

25

30

35

40

1993 1998 2003 2004

High-Tech Medium High-Tech Medium Low-Tech Low-Tech

`

Foreign trade


23.7

19.5

15.5

8.6

Exports of Goods by Region 2004 (exc. Diamonds)

Asia16%

Rest of the World13%

USA28%

Central & South America

4%

EU33%

Rest of Europe6%

Foreign trade


Imports of Goods by Region 2004 (exc. Diamonds)

Asia17%

Rest of the World14%

USA17%

South & Central America

2%

European Union39.5%

Rest of Europe10.5%


Foreign trade

Israel’s Main Trading Partners, 2004(inc. Diamonds)

0

5

10

15

20

B$

USABelgium

Germany

UKSwitzerland

Hong Kong

Netherlands

ItalyChina

IndiaFrance

Imports of Goods Exports of Goods

2.1

4.04.5

7.0

20.2

2.4 2.22.73.12.1

3.5


Foreign trade

Israel’s Main Trading Partners, 2004(exc. Diamonds)

0

2

4

6

8

10

12

B$

USAGerm

any

UK Netherlands

ItalyChina

France

Turkey

Japan

Switzerland

Belgium

Spain

S.Korea

Taiwan

Imports of Goods Exports of Goods

1.22.42.72.8

4.4

1.7 1.71.82.0

12.3

1.32.1

1.12.0


Foreign trade

Source: Global Trade Information Service (GTIS)

Growth Rate of Commodity Exports by Selected Countries, 2003-2004 (% of Change)

43

37

33

30

25 25

22 21 21 21 20 20 2019 19 18 18 17 17 16 16

Foreign trade

Source: OECD - Organisation for Economic Co-operation and Development

Real Growth in Exports of Goods and Services - International Comparison(Annual Average for 1999-2003)

8.3 8

7.1

5.8

4.84.5 4.5

3.6 3.62.9

1.91.4

0

1

2

3

4

5

6

7

8

9

Ireland

Turkey

Denmark

Germ

any

Israel

Greece

Japan

France

Portugal

Belgium

Norway

USA

Foreign trade

Medium High-Tech Export Development (B$)

3.5

1.1

0.5

4.3

1.4

0.5

2003 2004

Chemicals (exc. Pharmaceutical) Machinery & Equip. Transport & Electrical Equip.


Foreign trade

6.2

5.1

Medium Low-Tech Export Development (B$)

1.3

0.8

0.5

0.5

0.5

1.5

1

0.7

0.5

0.8

2003 2004

Rubber & Plastics Metal Products Mining & Quarrying Jewellery Goldsmith Other

Foreign trade


4.5

3.6

Low-Tech Export Development (B$)

0.3

1.0

0.5

0.3

1.1

0.6

2003 2004

Food products Textiles products Paper products

1.82.0


Foreign trade

Industry

Industry

Selected Indicators in Industry, 2001-2004(Real Annual Change, Yearly Average)

-2.4%

7.0%

-3.1%

1.1%

-2.4%

17.6%

-9.8%

8.0%

Industrial Output Employees Industrial Export Investments

2001- 2003 2004


Industrial Production and Exports(Real Cumulative Rates of Change)

109.6%

92.5%

83.3%

73.2%78.8%

46.4%

36.7%

22.4%

7.5%5.4%

7.2% 10.3% 11.9%

23.0%17.0% 14.8% 14.4%

22.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

1996 1997 1998 1999 2000 2001 2002 2003 2004

Industrial Exports Industrial Production


Industry

Labor Productivity in Industry, 2000-2004 (Real Annual Change)

7.7%

0.0%

1.3%

2.5%

6.0%

2000 2001 2002 2003 2004


Industry

A High-Tech Oriented Industry -

26%

43%

31%

34%

43%

23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1994 2004

High-Tech Mixed-Tech Low-Tech


Industry

The Israeli Industry is Undergoing Long Term Structural Changes

)Industrial Output Distribution 1994, 2004(

The High-Tech Sectors led Industrial Growth in 2004 (Real Annual Change)


15.1%

0.2%

3.4%2.2%

High-Tech Mixed High-Tech Mixed Low-Tech Low-Tech

Average 7%

Industry

The High-Tech Sectors Recruited the Largest Number of Persons in Industry in 2004(Real Annual Change)

4.5%

-2.1%

0.0%

0.7%

High-Tech Mixed High-Tech Mixed Low-Tech Low-Tech


Average 1.1%

Industry

Israel’s Major High-Tech Exports 2004

Software21%

Pharmaceutical Products

11%

Equipment for Control and Supervision

20%

Aircraft9%

Electronic Communication

Equipment 20%

Office and Computing Equipment

7%

Electronical Components

12%

Source: Israel Export & International Cooperation Institute, Israel Association of Software Houses

Total High-Tech Export (Including Software): 14 B$

Industry

Israeli High-Tech Exports by Geographic Breakdown 2004

Other7%

Oceania1%South and

Centeral America6%

Asia26%

North America35%

EU24%

Other European Countries

1%

Source: Israel Export & International Cooperation Institute, Central Bureau of Statistics

Industry

Expenditure on Civilian R&D in Israel & in Selected OECD Countries (% of GDP, 2002)

4.54.1

3.4

2.8 2.82.6 2.5

2.32

1.8 1.7

1.2 1.1

0

1

2

3

4

5

Israel

Sweden

Finland

Japan

Korea

Switzerland

Germany

USAFrance

Netherlands

UK Ireland

Italy


Industry

Qualified Engineers Index

Source: Institute for Management Development World Competitiveness Yearbook- 2004/5

4.1

5.65.9 6.0

6.6 6.7 6.9 6.9 7.07.3 7.5 7.6 7.7 7.9 8.0 8.1

8.5 8.68.9

0

1

2

3

4

5

6

7

8

9

10

Industry

Technology Index, 2004


Israel Ranks 8 Out of 104 Countries

5.1

5.1

5.1

5.2

5.2

5.3

5.3

5.3

5.7

5.8

5.9

6.0

6.2

4.0 4.5 5.0 5.5 6.0 6.5

Canada

Germany

Singapore

Norway

Korea

Israel

Switzerland

Denmark

Japan

Sweden

Finland

Taiwan

USA

Industry

Israel’s ICT* and Business Sectors Product 2004 (Annual Growth Rate %)

4

21

2

10 10

37

-2

-13

-3-7

23

69

-20

-10

0

10

20

30

40

1998 1999 2000 2001 2002 2003 2004

Business ICT

*ICT: Information & Communication TechnologiesSource: Central Bureau of Statistics, Bank of Israel

Industry

Software and Electronic Industries(Israel & the World Growth Rates 1994-2004)

Source: Israel Association of Electronics and Information Industries

13 12 13 13

107

11

7

11

1

79

34

15

-5

-9-12

-6

1

-5

16

9

-15

-10

-5

0

5

10

15

20

25

30

35

19941995

19961997

19981999

20002001

20022003

2004

Israel World

Industry

Israel’s Software Exports (B$)

Source: Israel Association of Electronics and Information Industries

0.3

0.6

1.0

1.5

2.0

2.6 2.72.6

2.7

3.0

-0.3

0.2

0.7

1.2

1.7

2.2

2.7

3.2

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Industry

Israel: A Major Player in the Global Biotechnology Industry

Sales from the Biotech sector generated

1.8 -2.3 US B$ in 2004.

Israel's share in global Biotechnology

sales is about 2.5%.

There are 23 Technological

Incubators in Israel,

more than 20% of them

are Involved in Biotechnology projects.

Source: Israel's Ministry of Science

Industry

Biotechnology

1800

600

336250209

5015

149

100

63

87

135

2530

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2003199919971995199319901988

-10

10

30

50

70

90

110

130

150

Anuall Sales (M$) No. of Companies

Industry

Start-Ups – The Emerging Economic Force

Industry

Israel Enjoys

the Highest Concentration

of High-Tech Companies

Outside of the Silicon Valley“

”Robert Greifeld President & CEO NASDAQ 2004

Investments in High-Tech Companies 2004

Communications29%

Internet4%

Life Sciences22%

Software22%

Semiconductors10%

Others13%

Source: IVC - Israel Venture Capital

YearTotal in

$ B

19991.1

20003.2

20012.0

20021.1

20031.0

20041.5

Industry

Capital Raised by Israeli VC Funds (M$)

92 154 123 135299

580 608

1548

3711

1323

-174

14

724

1500

-500

0

500

1000

1500

2000

2500

3000

3500

4000

19921993

19941995

19961997

19981999

20002001

20022003

20042005*

Source: IVC - Israel Venture Capital *Forecast

Industry

VC Investments in Israel & Europe (M$)

Source: PWC - Price Waterhouse Cooper, May 2003

13162

320315

457

255

811

135

761

599

950

644

1569

790

1600

851

0

200

400

600

800

1000

1200

1400

1600

2001 2002

Industry

High - Tech

Source: IVC - Israel Venture Capital

92

33

13

29

14

43

30

8

40

16

9

4

9

16

42

20

14

12

4

15

37

18

15

11

4

18

33

19

13

10

4

22

29

22

0

20

40

60

80

100

1999 2000 2001 2002 2003 2004

Other Semiconductors Internet Life Sciences Communications Software

Capital Raised by Israeli High-Tech Companies by Sectors(%)

Industry

Israel’s Life Sciences Industry – Sectors 2004

Source: Israel Life Sciences Industry 2004

Medical IT3%

AGbiotech4%

Pharmaceuticals13%

Medical Devices54%

Biotechnology21%

Service1% Other

4%

Industry

Israel’s Biotech Companies – Subsectors 2004

Source: Israel Life Sciences Industry 2004

Biomaterials9%Immunology

9%

Research Tools3%

Research Equipment

6%Other

4%

Industrial8%

Drug Discovery21%

Genetics15%

Diagnostic Kits11%

Cell& Tissue Therapy

14%

Industry

Doing Business In Israel


Foreign Investment in Israel

At the crossroads of three continents –

Europe, Africa and Asia –

Israel enjoys an excellent reputation

as a technologically advanced economy,

which has made it a prime destination

for investment by multinational

corporations


Cooperation Between the Academy and Industry (1= minimal or nonexistent , 7= intensive and ongoing)

Source: World Economist Forum 2004/5

5.8

5.4 5.3 5.25.1 5.1 5.0 5.0 5.0 4.9 4.9 4.8 4.7 4.6 4.5

4.2 4.2 4.24.0

3.7 3.6

0

1

2

3

4

5

6


Over 20 Israeli Companies are Traded on the London Stock Exchange

Source: http://www.maarivintl.com/

Israel is ranked 2nd after Canada

in the number of foreign companies

traded on the American

Technology Stock Exchange.

Israel is second in the world

in the number of companies

of a foreign nation traded on Wall Street.


Number of Companies Traded on NASDAQ – Selected Countries

Compiled from NASDAQ data

7368

2319

1713 12 11 10 10

8 8 7 5 4 4

0

10

20

30

40

50

60

70

80


Recent M&AIsraeli

CompanyTechnologyAcquirerSumTime

Terayon Communication

Systems Inc. CommunicationsAris $345M 09/2005

Scitex Vision Ltd.

PrintingHP $230M 08/2005

Sheer Networks Ltd

CommunicationsCisco $122M 07/2005

Siliquent Technologies

Inc. CommunicationsBroadcom $84M 07/2005

Medimop Medical

Projects Ltd. Life Sciences

West Pharmaceutical Services Inc.

$42M 07/2005

Medcon Telemedicine

Technology Ltd. Life Sciences

McKesson Corp. Life Sciences

$105M 06/2005

Shopping.com InterneteBay$620M 06/2005


Recent M&A (cont.)

Israeli Company

TechnologyAcquirerSumTime

Impulse DynamicsHealthcare

Johnson & Johnson 80M$05/2005

SiliquentSemiconductors

FablessBroadcom~85M$05/2005

TecnomatixSoftwareUGS Corp228M$04/2005

KagoorVoiceover InternetJuniper

Networks68M$03/2005

SavientBiopharmaceuticalFerring

Holding SA80M$03/2005

OREX Radiography

Medical Equipment

Kodak51M$03/2005

Native NetworksCommunicationAlcatel~50M$03/2005

Oplus Technologies

Processors for Digital Display

DevicesIntel100M$03/2005

Modem-ArtSemiconductors

FablessAgere

Systems150M$02/2005


E-Readiness Score, 2004


7.0

7.1

7.1

7.4

7.5

8.0

8.0

8.2

8.3

8.3

8.6

8.6

8.7

Italy

Spain

Taiwan

Japan

Israel

Canada

Germany

Singapore

Finland

Hong Kong

Switzerland

Sweden

USA


Foreign Companies Invested in Israel (Examples)

US

• Microsoft• Pratt & Whitney• AOL Time Warner• Intel• IBM• Boeing Enterprises• Cisco Systems• GE• Lucent• 3Com• Hewlett Packard• Merrill Lynch• Motorola• Sun Microsystems

Europe

• Siemens• DaimlerChrysler• Volvo• Cable & Wireless• Baan• Volkswagen• Deutsche Telecom• L’Oreal• British Telecom• Danone• Ares Sereno• Unilever

Asia

• Samsung Electronics• Daewoo• Nomura• Hutchison Telecomm.• LG Group• Sony• Toyo Ink• Hyundai• Acer Computers• Sumitomo Trading• Fuji• Honda


IMD World Report 2004 (Examples)

Country Rank1st2nd3rd4th

Total Expenditure on R&D as Percentage of GDP

ISRAELSWEDENFINLANDILE-DE

FRANCE

Number of Mobile Telephone Subscribers per 1000 Inhabitants

ISRAELLUXEMBURGHONG KONGITALY

Total Public Expenditure on Education as Percentage of GDP

DENMARKISRAELCANADAMALAYSIA

University Education Meets the Needs Economy

FINLANDISRAELSINGAPORESWITZERLAND

Consumer Price Inflation –Average Annual Rate

HONGKONG

ISRAELTAIWANJAPAN

Source:Institute for management development World Competitiveness Yearbook- 2004


Entrepreneurship Index

Source: IMD - Institute for Management Development, World Competitiveness Yearbook- 2004/5

4.2

4.9 4.9 5.0 5.3 5.45.9

6.3 6.46.6

7.07.3

7.67.9


Technology Leadership

Thanks to quality education,

Israel is one of the most

advanced countries in the world.

… Israel is advancing in high-tech

even more than

other developed countries Bill Gates, CEO Microsoft, World Economic Forum, Davos, January 2000

”

“


Technology Leadership (cont.)

“Israel’s market is relatively large

and sophisticated, it boasts the world’s

greatest per capita number of engineers ,

scientists and doctors .

The Israeli economy is simply a reflection

of the country’s greatest natural resource -

which is the brainpower and ingenuity

of its citizens Mike Zafirovski ,COO,Motorola 2003 ”

Benefits and Investments


Main Economic Structural Reforms Launched and Planned by the Government

Next Stage:

Public sector reduction

Deep reform of the tax system- in process

Government expenditures reduction

Privatization policy: energy, transport

and communication sector

Further steps to reduce the public sector

Structural reform of the capital market

Structural reform of the education system

Further steps in the privatization policy


Government R&D Incentives

Source: Ministry of Industry Trade and Labor

The Law for the Encouragement of Industrial R&D supports R&D projects of Israeli Companies

by offering conditional grants

from 20%-50% of the approved

R&D proposal

Israel is a participant in the Sixth

Framework Program for R&D

of the European Union, the only

non-European Associated State,

fully participating in the program.


Government R&D Incentives (cont.)

Source: Ministry of Industry Trade and Labor

The Global Enterprise R&D Cooperation

Framework encourages cooperation

in industrial R&D between Israel

and multi-national companies (MNCs).


Benefits for Foreign Investors

To qualify for these programs

the company must be

internationally competitive

The Law for the Encouragement

of Capital Investments offers

investors both investment

grants and tax benefits


Benefits for Foreign Investors (cont.)Grants program- Investment Grants of 24%

of the approved program in Priority Area A

and 10% in Priority Area B + corporate tax

benefits for foreign investors

at a rate of 10%.

Automatic Tax Benefits Programs –

offering foreign investors a complete

tax exemption when investing

in Priority area A for a 10 year period

or alternatively a 10% corporate tax rate

when not located in a Priority area.


Benefits for Foreign Investors – Investment Grants (%)

)Grants as a percentage of investments in fixed assets included in the Approved Enterprise Plan(

10%24%Industrial Projects

(Up to 140 Million NIS)

---15%Other Tourist Enterprises

10%

10%

Priority Area

“B”

24%

20%

Priority Area

“A”

Industrial Projects

(Above 140 Million NIS)

Investment in Hotels

Source: Investment Promotion Center


Investment in Technologies (M$)

Source: Earnest and Young, October 2004

According to foreign investors, the Silicone Valley, Boston, Texas and Israel are the main centers to search for new high technology investments Q1-Q3 2004

7,170

1,804

861

832

636

584

551

502

1 10 100 1,000 10,000

California

Massachusetts

Texas

Israel

Washington

New York

Georgia

New Jersey

Israel’s Free Trade Agreements


USA (1985)

EFTA (1992)

Jordan (1995): Bilateral Trade Agreement

Canada (1997)

Turkey (1997)

Mexico (1999)

Romania (2000)

European Union – Association Agreement 2000

Bulgaria (2002)

Avoidance of Double Taxation Agreements

Belarus

Belgium

Brazil

Bulgaria

Canada

China

Czech republic

Denmark

Finland

France

Germany

Greece

Hungary

India

Jamaica

Japan

Luxembourg

Mexico

Norway

Philippines

Poland

Romania

Russia

Singapore

Slovakia

South Africa

South Korea

Spain

Sweden

Thailand

The Netherlands

Turkey

USA


Cooperation in Industrial R&D Agreements

Belgium

CanadaChina

France

Hong Kong

Italy

Netherlands

Portugal

Spain

UK USA


Singapore

Ireland

Sweden

Finland

Germany

India

Austria

Korea

http://www.cia.gov/cia/publications/factbook/flags/be-flag.html

http://www.cia.gov/cia/publications/factbook/flags/ca-flag.html

http://www.cia.gov/cia/publications/factbook/flags/ch-flag.html

http://www.cia.gov/cia/publications/factbook/flags/fr-flag.html

http://www.cia.gov/cia/publications/factbook/flags/hk-flag.html

http://www.cia.gov/cia/publications/factbook/flags/it-flag.html

http://www.cia.gov/cia/publications/factbook/flags/nl-flag.html

http://www.cia.gov/cia/publications/factbook/flags/po-flag.html

http://www.cia.gov/cia/publications/factbook/flags/sp-flag.html

http://www.cia.gov/cia/publications/factbook/flags/uk-flag.html

http://www.cia.gov/cia/publications/factbook/flags/us-flag.html

Protection of Investment Agreements Benefits and Investments

Albania

Argentina

Armenia

Belarus

Bulgaria

Croatia

Cyprus

Czech Republic

El-Salvador

Estonia

Georgia

Germany

Hungary

India

Kazakhstan

Korea

Protection of Investment Agreements Benefits and Investments

Turkmenistan

Ukraine

Uruguay

Uzbekistan

QIZ Agreement

Egypt

Jordan

Latvia

Lithuania

Moldova

Poland

Romania

Slovakia

Slovenia

Thailand

Turkey

Business Contacts – Links Business Contacts With Israeli Exporters

List of Israeli Trading Companies

Israeli Government Portal

Technology Directory

The Israel Export & International Cooperation Institute

Efrat CohenEconomist

Tel: +972-3-5142820/961

Fax: +972-3-5142852E-mail: [email protected]

www.export.gov.il

Adrian FilutEconomist

Tel: +972-3-5142994

Fax: +972-3-5142852E-mail: [email protected]

www.export.gov.il

Editing: Alona Ron-Snir, Director Economic Department, IEICIProduction: Hani Erez, Executive Media & Productions Unit, IEICIPublished by: The Israel Export & International Cooperation Institute, 2005

For Further Information Please Contact:

Israel’s Economy – Main Characteristics

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