STATE OF ISRAEL

MINISTRY OF FINANCE

International Affairs Department

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

September 2011

Economic Highlights 3rd Quarter 2011

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Table of Contents

Headlines ......................................................................................................................... 1

Latest News ..................................................................................................................... 2

Monetary News and Capital Market ............................................................................... 4

From the Press ................................................................................................................ 5

Environmental Economy News ...................................................................................... 6

Economic Figures ........................................................................................................... 7

We Welcome Your Feedback .......................................................................................... 8

Headlines

Interview with the Minister of Finance on OECD Observer Page 2

The Committee on Increasing Competitiveness in the Economy has submitted its interim recommendations

Page 2

Standard & Poor's Upgraded Israel's Credit Rating to 'A+' Page 4

Israel Ranked 22nd in Global Competitiveness Report for 2011-2012 Page 5

Israel Praised for its Innovation and Entrepreneurship Page 5

Agreement for the Construction of a Desalination Plant in Ashdod Page 6

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Latest News

The Committee on Increasing Competitiveness in the Economy has submitted its interim recommendations

The Committee on Increasing of Competitiveness in the Economy, appointed by the Prime Minister, the Minister of Finance and the Governor of the Bank of Israel has concluded the interim stage of the formulation of its recommendations at the end of September. The Committee has been requested to examine the effect of the existing structure of the economy on the level of competition in the various sectors of the economy, on its financial stability and on its economic efficiency. The Committee has been asked to recommend

advisable policy measures with emphasis on the control of real companies over financial companies, the control of a public company using a pyramid holding structure and the manner of the allocation of public assets.

Full Press Release Presentation on the Principal Recommendations of the Committee

(Source: Ministry of Finance, Prime Minister's Office)

Social Protests over the Cost of Living Sweep Israel

The last three months were times of unseen social protests over the cost of living in Israel. The government established a special committee to address the problems raised by the public.

After several specific demonstrations over prices of several products in Israel, such as the price of fuel and the price of cottage cheese, a protest over housing prices in Israel evolved into a cross-nation general protest over the cost of living, including the cost of basic grocery consumption products, housing, the price of raising children, and more. What began as a small protest tent in Tel Aviv's luxurious Rothschild Boulevard evolved into major "tent cities" all across the country.

The protest movement was comprised of institutional bodies such as the students' union, as well as non-institutionalized sub movements. This coalition of movements carried out massive demonstrations calling for social justice. The biggest demonstration so far was held on September 3, with estimations of more than 400,000 participants across Israel. 400,000 people are no less than 5% of Israel's total population.

On August 7, Prime Minister Benjamin Netanyahu appointed a professional committee for socio-economic change, chaired by Prof. Manuel Trajtenberg, in order to hold a broad dialogue with different groups and sectors within the public, listen to the distress and to proposals, and make recommendations that will be submitted to the Social and Economic Cabinet chaired by the Minister of Finance, Dr. Yuval Steinitz. The Trajtenberg Committee for Socio-Economic Change is comprised of government officials, academia representatives and social entrepreneurs.

(Source: Ministry of Finance, Prime Minister's Office, Ynet)

Israel's Prospectus for 2010 available on our website summarizes the

Israeli economic and financial positions.

Prospectus 2010

OECD Observer Q2 2011 Special Focus on Israel Interview with Israel's

Minister of Finance articles on Israel's economic strategy, banking sector, start-ups, and more.

Read More

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

OECD Report Finds: Israel Tops all other OECD Countries in Venture Capital According to

Entrepreneurship at a Glance 2011, Israeli venture capitalists allocate more financing to young firms than other OECD members.

OECD Press Release on the Entrepreneurship at a Glance 2011 report, mentioning Israel

Government Companies Authority Published its Report for 2010 The report

indicates an increase of approximately NIS 3 billion in revenues compared to 2009.

Press Release

Presentation on the Report

Tax Treaties Signed between Israel and Malta and initialed with Panama

A treaty for the avoidance of double taxation has been signed between Israel and Malta, and a treaty for the avoidance of double taxation has been initialed between Israel and Panama. The treaties signed include a clause for the exchange of information between the tax authorities of both countries and Israel, based on the model treaty of the OECD. The treaties will enter into effect on completion of ratification proceedings in the two countries.

Full Press Release

(Source: Ministry of Finance)

Bill for Promoting Competition in the Credit Card Market Approved

The Knesset approved the bill submitted by the Ministry of Finance to amend the Banking (Licensing) (Clearing Credit Card Transactions) Law. The bill is intended to correct failures in the Israeli credit card market and to increase competition in the clearing sector, and is expected to reduce payments transferred by business owners to the credit card companies, with a resulting reduction in product prices for the consumer.

Full Press Release

(Source: Ministry of Finance)

USD 400 Million Raised by the Accountant General in a Private Placement to One of the World's Largest Asian Investor

The Accountant General at the Ministry of Finance has completed a USD 400 million private placement of one-year government bonds to one of the world's largest Asian investors, who is considered to be a strategic investor in the global capital markets and for whom this is the first investment in Israeli government bonds.

Full Press Release

(Source: Ministry of Finance)

Investment Commitments for More than NIS 400 Million Received from Institutional Bodies in Israel to Encourage Institutional Investments in the High-Tech Industry

Just 7 months after launched, the program to encourage investments by institutional bodies in high-tech has succeeded in garnering institutional commitments for investing more than NIS 400 million in venture capital funds. The stated goal was to raise a sum of NIS 800 million from Israeli institutional bodies during the years 2011-2013.

Full Press Release

(Source: Ministry of Finance)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Monetary News and Capital Market

Standard & Poor's Upgraded Israel's Credit Rating to 'A+'

This action reflects S&P's view of Israel's improved economic policy flexibility, as a result of strong growth and careful macroeconomic management.

Standard & Poor's Ratings Services (S&P) raised its long-term foreign currency sovereign credit ratings on the State of Israel to 'A+/A-1' from 'A/A-1'. At the same time, S&P affirmed the local currency ratings at 'AA-/A-1+'. Also, S&P's outlook is stable, and the transfer and convertibility (T&C) assessment remains at 'AA'.

S&P first upgraded Israel's credit rating to 'A' in 2007. In January 2009, it reaffirmed its decision, further giving Israel's market a "solid" forecast. This August, S&P reiterated its A/A-1 sovereign credit rating for Israel with a "Stable" outlook. However, in line with the downgrade of the US credit rating from AAA to AA+, S&P downgraded US guaranteed Israeli government bonds to AA+. With the decision to reiterate Israel's credit rating for 2011, S&P joined the two other major credit rating firms, Moody's and Fitch, as Moody's left Israel's A1-Stable rating unchanged, and Fitch ratings left Israel's A Stable rating unchanged. Then, S&P decided this September to raise Israel's credit rating to A+.

The decisions by all three major credit rating agencies to leave Israel's rating unchanged, and especially S&P's latest decision to raise Israel's rating, provide Further Significant Support for the Israeli Government's Economic Policy.

Minister of Finance, Dr. Yuval Steinitz, noted that "this is an impressive credit given to the Israeli economy and its successful coping with the global economic crisis. This achievement of credit upgrade is especially unique given the debt and massive unemployment crisis, which hurt many economies' credit rating." Minister Steinitz also noted that "the fact that S&P mentioned the latest natural gas findings as a point of strength for the Israeli economy indicated the importance of the work done by the Committee to Examine the Fiscal Policy on Oil and Gas Resources in Israel, Headed by Prof. Eytan Sheshinski." The minister added that "Israel cannot rest on its laurels, as the on-going global crisis demands us to keep our budget frameworks and economic policies.

1992

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1994

1995

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1998

1999

2000

2001

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2003

2004

2005

2006

2007

2008

2009

2010

2011

Moody's S&P Fitch

A1/A+

A2/A

A3/A-

Baa1/BBB+

Baa2/BBB

Baa3/BBB-

Aa3/AA-

Read More

(Source: Ministry of Finance, Standard & Poor's, Globes, Ynet)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

From the Press

Israel Praised for its Innovation and Entrepreneurship

During the last 3 months, Israel was praised by several media and news networks from around the world for its innovation and enrepreneurship. Following are several selected items:

CNBC: Innovation Nation

CNBC describes Israel as a "small country of 7 million that has become a hi-tech powerhouse", and reports on "why its talent for enterprise is pivotal to Israel's future".

The Telegraph: Israel, the Start Up Nation, is Taking-on Silicon Valley

The Telegraph reports that Israel's strong technology start up scene has "correctly earned the tiny state its growing reputation as the world’s second Silicon Valley".

Channel 4: The New Sillicon Valey

Britain's Channel 4 reports on Israel as the new sillicon valley, mentioning israeli innovations in the technology world, Israel's R&D spendings (as a % of GDP), high-tech sector, venture capital attraction, and more.

Wired UK: Europe's Hottest Startup Capitals: Tel Aviv

According to Wired UK, Tel Aviv is a hotbed of innovation, and so is included in their European Startups list. The report mentions, among others, the role of the Israeli military and the mandatory service in Israel as a major source of innovation,

(Source: CNBC, Channel 4, The Telegraph, Wired UK)

Hebrew University Ranked 57th in the World, Weizmann Institute named "Best Place to Work in Academia outside the United States"

The Hebrew University of Jerusalem has been ranked 57th in the 2011

Academic Ranking of World Universities (ARWU), conducted annualy by Shanghai Jiaotong University. Also, the Weizmann Institute of Science has once again been named "best place to work in academia between international institutions" in The Scientist magazine's annual survey.

(Source: Academic Ranking of World Universities, The Hebrew University of Jerusalem, The Scientist , Weizmann Institute of Science)

Israel Ranked 22nd in Global Competitiveness Report for 2011-2012

Israel climbed 2 ranks from the previous Global Competitiveness Report of 2010-2011, from 24th to 22

nd. among Israel's main strengths are capacity for innovation, high number of

patents and availability of venture capital, which has "further contributed to making Israel an innovation powerhouse". According to the report, these elements have become stronger in the past year.

Read More

(Source: Ministry of Finance, World Economic Forum)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Environmental Economy News

Agreement for the Construction of a Desalination Plant in the City of Ashdod

The Ministries of Finance and National Infrastructures signed an agreement for the Ashdod desalination project with Mekorot Development & Enterprise, which will plan, build and operate the plant. The Ashdod plant is expected to produce 100 million cubic meters per year, and on its completion, desalination plants will supply around 75% of the domestic water consumption.

Full Press Release

(Source: Ministry of Finance, Ministry of National Infrastructure)

Experts Call Israel a ‘Laboratory’ for Eco-Innovation

“Israel is a laboratory of innovative policies and practices in many areas, including technologies, financing and project management,” said Mr. Jan Kubis, UN under-secretary general and executive secretary of the UN Economic Commission for Europe, during a special conference held by the commission in Tel Aviv this July. The conference included members of the UN Economics Commission, Israeli contributors and other experts from across the globe, who agreed that “Israel is a laboratory” for eco-innovation and can serve as a platform for larger countries looking to harness sustainable technology.

(Source: Jerusalem Post)

Israel Adopts Green Building Standards

The Ministry of Environmental Protection and the Israel Standards Institution launched a national green building standard (Standard 5281). The Standard includes 9 fields: energy, land, water, building materials, health and welfare, waste, transport, construction site management and innovation. The standard is in line with advanced international standards, yet adapted to Israel’s climatic conditions and construction methods.

(Source: Ministry of Environmental Protection, EarthTechling)

Cabinet approved renewable energy target of 10% by 2020

Israel has become the latest to announce an ambitious target for renewable energy, as this July the cabinet voted through a package of measures designed to ensure the generation of 10% of energy from renewable sources by 2020. The plan would result in over USD 5 billion of investment and deliver 1,550MW of renewable electricity capacity by the end of 2014 and 2,760MW by 2020.

(Source: Prime Minister's Office, Ministry of Industry, Trade and Labor, BusinessGreen)

Memorandum of Understanding (MoU) on Water Technologies Cooperation Singed with the Brihanmumbai Municipal Corporation (BMC) in India

The government, through the Ministry of Industry, Trade and Labor, will share with BMC its expertise on water management related issues, relevant technologies, research and .private sector colaborations. Indian officials mentioned that Israeli water technology is a platform for them to interact with "some of the world's most innovative and technology driven companies as they are the global leaders in the water arena".

(Source: Ministry of Industry, Trade and Labor, IBNlive)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

Economic Figures

Economic Data Data is calculated at an annual Year-on-Year rate of change

Data from previous editions is constantly being updated

See more extended economic data in our Economic Highlights PowerPoint Presentation

GDP Growth

Business GDP Growth

Private Consumption Growth

Public Consumption Growth

2009

0.8%

0.2%

1.4%

2.2%

2010

4.7%

5.4%

1.4%

2.2%

Q1 2011

4.6%

5.2%

9.0%

2.9%

Q2 2011

3.3%

1.9%

2.2%

-4.4%

GDP Per Capita, Based On PPP For 2009: 29,531$

Consumer Price Index In 2010 prices

Sep 2010

Oct 2010

Nov 2010

Dec 2010

Jan 2011

Feb 2011

Mar 2011

Apr 2011

May 2011

Jun 2011

Jul 2011

Aug 2011

101.0 101.3 101.4 101.8 102.0 102.3 102.5 103.1 103.6 104.0 103.7 104.2

99

100

101

102

103

104

105

9.2010 10.2010 11.2010 12.2010 1.2011 2.2011 3.2011 4.2011 5.2011 6.2011 7.2011 8.2011

Foreign Trade

Goods and Services

Import Growth

Export Growth

2009

-14.1%

-12.5%

2010

12.6%

13.6%

Q1 2011

28.9%

12.0%

Q2 2011

13.6%

3.4%

(Source: Ministry of Finance, Central Bureau of Statistics, IMF)

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1 Kaplan St. Jerusalem 91030, P.O. Box 3100, Tel: 02-5317200, Fax: 02-5695349

English: www.financeisrael.mof.gov.il Hebrew: www.mof.gov.il

We Welcome Your Feedback

Balances

2010 Q1 2011 Q2 2011

Current account Surplus

As % of GDP

2.9% 0.6% -0.9%

Budget Deficit

Central government

3.7% - - - -

Gross Debt (% of GDP)

General government gross financial liabilities

76.3% - - - -

Investments

Gross Domestic Capital Formation

Gross Investments in Fixed Assets

Gross Israeli Investments Abroad (Billion$)

Gross Foreign Investments in Israel (Billion$)

Gross Foreign Direct Investments (Billion$)

2010

1.9%

12.6%

27.7$B

17.6$B

5.2$B

Q4 2010

20.8%

19.6%

10.1$B

6.9$B

2.4$B

Q1 2011

37.0%

26.1%

5.8$B

5.2$B

2.2$B

Q2 2011

14.1%

8.8%

4.6$B

6.4$B

1.6$B

See more extended economic data in our Economic Highlights PowerPoint Presentation

(Source: Ministry of Finance)

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Mr. Roni Hershkovitz

Director

Overseas Economic Information

International Affairs Department

Ministry of Finance

Jerusalem

Israel

Mr. Assaf Luxembourg

Overseas Economic Information

International Affairs Department

Ministry of Finance

Jerusalem

Israel