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May 3, 2015 11:59 am

Israel’s Economy Defies Logic

avatar by Yoram Ettinger

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Yoram Ettinger explains how Israel's economy is expanding beyond expectations. Photo: Twitter, Arsen Ostrovsky.

Irrespective of a cynical and gullible “elite” media, independent of diplomatic pressure, political correctness and conventional wisdom, in defiance of the global economic slowdown, in the face of war and terrorism, and despite ill-advised threats of boycott, divestment and sanctions — but, due to principle-driven tenacity, inherent optimism, human capital/brain power, creativity, cutting edge ingenuity and breakthrough, game-changing innovations — Israel’s economy is expanding beyond expectations, reacting constructively to pressures and challenges, and developing unique commercial and security niches in response to local and global needs.

For example, the April 10 issue of the Financial Times reported that “Israel’s cyber security technologies claim 10 percent of the world’s investments, and Israel’s exports exceed $3 billion. … Buy Swiss watches from Switzerland and information security from Israel. … Israel built its cyber-related offensive, defensive and snooping functions as a byproduct of its regional conflicts, ‘turning lemons into lemonade’ (Udi Mokady, CEO of CyberArk).”

Leveraging Israel’s cyber know-how, Lockheed Martin, which joined EMC in fathering Israel’s CyberSPark Industry Initiative, collaborates with Israel’s National Cyber Bureau, Israel’s Technology and Information Administration and the University of Maryland, training Israeli students, reflecting its growing involvement in Israel’s cyber research and development.

PayPal acquired Israel’s anti-virus cyber company CyActive for $60 million, its second R&D center in Israel. In 2008, PayPal acquired FraudScience for $169 million. BottomLine acquired the Israeli cyber company, Intellinx, for $67 million.

According to the April 20 issue of the London Economist Intelligence Unit: “Israel’s high-tech sector is in the midst of a boom stronger than anything seen since the late 1990s. [Three hundred] startups raised a record $3.4 billion in 2014. … Israel has gained a global reputation as a technology innovation leader in several areas, with several hundred new technology firms emerging annually. … Some 82 Israeli startups were sold last year (for $7 billion), mostly to foreign multinationals, while another 17 conducted initial public offerings. … Foreign multinationals operate more than 200 R&D centers in Israel. … It is also significant in boosting Israel’s relations with emerging economic powers hungry for innovation, such as India and China.”

Contrary to the misperception of Israel’s supposed isolation, Renren (also known as China’s Facebook) and Tencent invested $100 million in an Israeli venture capital fund. China’s Internet giant Alibaba, known for the highest-ever IPO ($25 billion in 2014), invested about $50 million in Israel’s JVP, which is currently focusing on cyber technology. Chinese contractors are increasingly involved in major Israeli infrastructure projects, winning bids for the Mount Carmel tunnel, the Acre-Carmiel railroad, the port of Ashdod, the new deep water Port of Haifa, the supply of electric locomotives, etc. PingAn, YongJin and ZTE, Chinese giants in the areas of insurance, financial management and cellular technology, respectively, invested $25 million in Israel’s Rainbow, which invests in medical equipment.

Bloomberg reported on March 30 that India’s mega-billionaire Mukesh Ambani “is scouting for startups in Israel and the Silicon Valley. … Morgan Stanley predicts e-commerce sales will surge, in India, tenfold to $100 billion by 2020.” India’s information technology giant, InfoSys, acquired Israel’s Panaya for $230 million.

Israel’s defense giant Elbit represents the rapidly expanding ties between Israel and the emerging markets of India, China and Latin America. According to an April 12 Bloomberg report, “While U.S. defense spending is in a long term downward trend … demand from those regions helped push up Elbit’s backlog orders to $6.3 billion, an 8 percent jump from 2013. … While the U.S. accounted for 28 percent of total sales in 2014 ($3 billion) — the biggest slice … Elbit’s combined sales in Asia and Latin America in 2014 (35 percent) surpassed those in the U.S. for the first time.” Israel Aerospace Industries has teamed up with Brazil’s IACIT, establishing a radar maintenance center in Brazil, whose air force is using IAI-made airborne radars. Israel’s Gilat Satellites won a $285 million bid to establish a regional telecommunications infrastructure in Peru.

Long-term confidence in Israel’s economy was demonstrated by Microsoft, which inaugurated its second R&D center in Israel. Incidentally, Microsoft’s first R&D center outside the U.S. was also in Israel.

According to the Bank of Israel, $1.6 billion were invested by foreign investors in Israel’s high-tech, traditional industries and real estate during January-February 2015. In 2014, $8.3 billion were invested and $30 billion in 2012-2014. Industrial exports (excluding diamonds) catapulted from $5 million in 1948 to $47 billion in 2014.

How attractive are Israel’s high-tech companies? During January-March 2015, eleven Israeli companies raised $1.5 billion on Wall Street. Recently, Nielsen Global acquired Israel’s eXelate (digital marketing) for $200 million, in addition to its Nielsen Innovate incubator with nine Israeli startups. Canada’s NorthLeaf Capital acquired 40% of Israeli Ormat’s U.S. subsidiary for $175 million. Blackberry is buying Israel’s WatchDog for $100 million. Avid Technology acquired Israel’s OrAd for $70 million.

Apple’s largest R&D center (700 employees) outside the U.S. is in Israel. It consists of three companies: LinX, that was just bought for $20 million, Anobit Technologies and PrimeSense. TeraData acquired Israel’s Appoxee for $20 million, and DocuSign purchased Israel’s ARX for $30 million.

The long-term viability of Israel and its economy is also reflected by its economic indicators, which refute conventional “wisdom.” For instance, Israel’s growth rate (3%) is similar to the U.S.’s and higher than the OECD average, Canada’s, Britain’s and Germany’s. Israel’s unemployment is below the OECD average. Israel’s declining debt-to-GDP ratio (67%) is lower than the U.S.’s, the Euro bloc’s, Japan’s, France’s, Canada’s, Britain’s and Germany’s.

In light of Israel’s economic performance, one would hardly guess that Israel waged a six-week war against Hamas terrorists in July-August 2014.

This article was originally published by Israel Hayom.

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