Dominant Israeli high-tech export industry, but investment needed
Israel’s high-tech sector accounted for more than half of the country’s total exports for the first time in 2021.
But it faces an uncertain future, largely due to the government’s low level of investment in long-term R&D, according to a report by the Israel Innovation Authority (IAA), “The State of high technology 2022”, published yesterday (May 11).
The good news is that high tech accounted for 54% of all of Israel’s exports last year, but the report warns that Israel needs to expand its reach beyond what it does best – software-based technology – and diversify.
The report shows that more than one in 10 workers – around 362,000 people – are now employed in high technology.
Israel has its highest number of unicorns on record — more than 40 private companies valued at more than $1 billion — and last year saw a record number of more than 75 companies launch IPOs (initial public offerings ). There were 88 mega-fundraisers of over $100 million in 2021.
Israel ranks first among the 38 OECD member countries for the percentage of GDP spent on research and development (5.44%). And capital investment in startups hit a record $27 billion.
Despite these positive statistics, the challenges facing Israel’s innovation hub are “multiple and intensifying”, the report warns.
The IIA recommends that the sector diversify beyond its current areas of success, recruit a more diverse workforce, and expand beyond the Tel Aviv area. Basically, it needs to attract more public investment in R&D and collaborate more closely with academic institutions.
Among the report’s less encouraging statistics: The market value of Israeli tech companies on the Nasdaq fell about 10% last year. The country slipped to 15th place in the Global Innovation Index for 2021. And despite leading OECD countries in overall R&D investment, Israel ranked last in public investment (9.6% in 2019).
Dror Bin, CEO of The IIA, said there was no guarantee Israel’s high-tech industry would continue to grow and dominate the world.
“Israeli high-tech successes blur the challenges we may face in the future. The report shows that the industry’s continued prosperity is threatened by industry overconcentration, both geographically and demographically,” Bin said.
In addition to “relatively low government investment in groundbreaking R&D,” he blames “regulatory and bureaucratic hurdles” that have forced Israeli companies to shift business or operations overseas.
And despite Israel’s reputation as a Startup Nation, the report says only 8% of tech employees work in what it defines as “young startups.” The proportion of ultra-Orthodox and Arab high-tech employees remains static at 4.7%. Only a third of the high-tech workforce lives in the north or south of the country, beyond the central economic hub, with the sole exception of Haifa.