israel's economy march 2011

8/7/2019 Israel's Economy March 2011

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Overview of Israels EconomyOverview of Israels Economy

Economic Mission,Economic Mission, EmbassyEmbassy of Israel, Washingtonof Israel, Washington DCDC March 2011

Government of IsraelGovernment of Israel

Ministry of FinanceMinistry of Finance


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2

Facts & FiguresFacts & Figures

GDP (2010)

USD 226 billion

GDP per capita (2010)

USD 29.6k

GDP Growth rate2007 - 5.2%2008 - 4.2%2009 - 0.8%2010 - 4.5%

Economy

Advanced industrializedExport-led market economyMember of OECD (June 2010)

Area

21,500 sq km

Source : Israel Central Bureau of Statistics


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3

Comparing Israel with the USComparing Israel with the US

IsraelIsrael The U.S.The U.S. Israel/U.S.Israel/U.S.

GDPGDP

(2010)

$226 billion $14,600 billion 1.5%

GDP per capitaGDP per capita

(2010)

$29,600 $47,40062%

Annual BudgetAnnual Budget

(2012)

$100 billion $3,700 billion 2.7%

Source: Israel Ministry of Finance US CIA world facts book


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Steady GrowthSteady Growth

Discussion OutlineDiscussion Outline

33

44

Sound Monetary PolicySound Monetary Policy55

Responsible Fiscal PolicyResponsible Fiscal Policy

Business InnovationBusiness Innovation11

Global ReputationGlobal Reputation22

4


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SomeSome AmericansAmericans havehave comecome toto thethe MiddleMiddle-- EastEast

lookinglooking forfor oiloil.. WeWe havehave comecome toto thethe MiddleMiddle EastEast

lookinglooking forfor brainsbrains andand wewe stoppedstopped atat IsraelIsrael

WarrenWarren BuffetBuffet

BerkshireBerkshire HathawayHathaway


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5

Israel is a Leader in Business InnovationIsrael is a Leader in Business Innovation

65 Israeli companies are traded on NASDAQ* - More than all European Countries combined More than India, Japan and Korea combined

Venture capital investment per capita in Israel*- 2.5 times more than the U.S. 6 times more than the United Kingdom

* Dan Senor, Start-Up Nation: The Story of Israel's Economic Miracle

The StartThe Start--Up NationUp Nation

Source : WEF Global Competitiveness Report 2008-2009

0

20

40

60

80

100

120

140

1 1 12 2 2 3 4 4 5 7

44

65

124


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Israeli technology is essential to many of the applications used daily byIsraeli technology is essential to many of the applications used daily by

millions such as:millions such as:

PC-Pentium developed by Intel Israel

Enterprise network security Checkpoint

World leader in generic drugs Teva

Advanced voicemail systems, based on Comverse's technology

Billing systems for telephone companies designed by Amdocs

Pioneering instant messaging ICQ

Flash data storage - M-Systems (SanDisk)

Medical devices and biotech (Given Imaging, Medinol, Proneuron)

Israeli Technology and the WorldIsraeli Technology and the World

Source : Israel Venture Association7


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7

Israel Is a World Leader in Science, Technology, and InnovationIsrael Is a World Leader in Science, Technology, and Innovation

Source : IMD Global Competitiveness Yearbook 2008-2009

Civilian R&D as % of GDP

0.0

1.0

2.0

.0

4.0

5.0

6.0

Israe

l

SwedenFi

nland

KoreaJapan

Switzerland U

S

AustriaDe

nmark

German

y

OEC

DAvg

France

AustrailiaCa

nada

Belgium U

K

Netherlands

Norway

Luxe

mbourg

CzechRe

publicIrelan

d

Spain

NewZe

alandPo

rtuga

l

Italy

Ranked 1st for totalexpenditure on R&D

Ranked 3rd for Registered

Patents Per Capita

Ranked 3rd for Quality ofScientific Research

Organizations

Leads the world in NobelLaureates per capita.


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9

Israel is a pioneer and world leader in commercialization ofIsrael is a pioneer and world leader in commercialization of

academicacademic innovation:innovation:

12 Tech transfer companies in universities since 1956 (Yeda) and1964 (Yissum)

60-70% of the University tech transfer patenting activity is in the Life, Biotech

and Biomedical Sciences

Revenues from licensing is more than $10 billion and are among the highestin the world.

Yeda ranked # 3 and Yissum # 15 worldwide in terms of revenues.

Israel Is a World Leader in Science, Technology, and InnovationIsrael Is a World Leader in Science, Technology, and Innovation


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Global ReputationGlobal Reputation22

10


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A Member of the OECDA Member of the OECD

Implications derived from Israel's accession to the OECD:

International recognition of the quality of the Israeli economic policy

Attraction of foreign investors who rely on the "quality stamp"

provided by the OECD.

A positive influence on Israel's credit rating.

11

Israel is a member of OECD (JuneIsrael is a member of OECD (June 20102010))


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12

Main IndicesMain Indices 1010 Years Accumulated Returns (Years Accumulated Returns (20002000--20092009))

Israel presents a unique investment opportunityIsrael presents a unique investment opportunity

Combining emerging market growth with western market standardsCombining emerging market growth with western market standards

Source : Bloomberg


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30

32

34

36

38

40

42

44

46

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Imports

Exports

Openness of the Israeli EconomyOpenness of the Israeli Economy(percentage of GDP,(percentage of GDP, 19951995--20092009))

Source: Central Bureau of Statistics13


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14

50%

0%

40%

30%

20%

10%

33%

39%

16% 16% 14%12%

7%

5%

ExportExport ofof GoodsGoods andand ServicesServices as % of GDP (as % of GDP (20092009))

Export as % of GDP grew fromExport as % of GDP grew from 1313%% toto 3939%% betweenbetween 19951995 andand 20102010 fromfrom

Openness of the Israeli EconomyOpenness of the Israeli Economy

Source : IMF, OECD, CIA, CBS


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Israels Trade PartnersIsraels Trade Partners -- Imports and Exports of GoodsImports and Exports of Goods (excl. diamonds)*(excl. diamonds)*

Free Access to Key Global MarketsFree Access to Key Global Markets

Exports Imports

Free Trade Agreements

Source: Central Bureau of

Asia

20%

O rs+

21%

Eur an

Union

33%

N. America

26%

N. America

10%

European

Union

33%

O ers+

35%Asia

22%

*As of January, 2010+ Others include: Central / South America, Africa andOceania

15


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Selected International TechnologySelected International TechnologyFirmsFirms IInvestednvested in Israelin IsraelSelected IsraeliSelected Israeli BasedBased CCompaniesompanies

GlobalGlobal ReputationReputation

Source: Central Bureau of Statistics16


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Choice for Many Investors and Industry GiantsChoice for Many Investors and Industry Giants

17

Safra CatzPresident Oracle

Israel is an incredible source of

entrepreneurship and brilliant ideas

Bill Gates

Chairman Microsoft

.. The kind of innovation going on in Israel

is critical to the future of the technology

business . . . For Microsoft, having an R&D

center in Israel has been a great experience .

. . The quality of people here is fantastic."

Warren Buffet

President & CEO Berkshire Hathaway

weve invested $4Bn into a company based

here and its the only investment weve ever

made outside the US

Richard Nottenburg

ChiefStrategy Officer Motorola

Israel is an incredible

opportunity for us. It provides a growth

engine for innovation,

Michael R. Splinter

President & CEO Applied Materials

"The Israeli unit is an inseparable part of the

company and enables us to provide the

technological advantage that differentiates

us from our competitors and enables us to

expand our market share"

Stephen R. BolzePresident & CEO GE Healthcare

.. One of the Hi Tech centers of the worldwe see is in Israel,


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Choice for Many Investors and Industry GiantsChoice for Many Investors and Industry Giants

18

Henning Kagermann

CEO SAP

Israel has a very advanced technology

sector. Innovative Israeli softwarecompanies fit well into SAP's long-standing

organic growth strategy. With a current staff

of around 800 SAP employees in Israel, the

country is home to our fourth largest

development center and SAP remains

strongly committed to its operations here."

Buell Duncan

General Manager, ISV & Developer

Relations, IBM

"Israel is the most exciting place I know. Its

great to come here and see the dynamic

generation of ideas, the motivation to be first

and the professional daring of Israeli start-

ups

Dr. Heinrich Von Pierer

CEO & Chairman Siemens

"We find in Israel many leading

technologies. This is an excellentcombination: High-Tech coming from Israel

and access to international markets

provided by German companies.

Clifford Meltzer

Senior VP Network Management Technology

Group Cisco Systems

There are projects for which it wont matter

if tens of thousands of engineers work on it

or if a group of 100 engineers with a range of

talents do all the work. Israel has such

groups.


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Global ReputationGlobal Reputation


22

33

44




19


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6.5%

5.6%

2.9%

4.3%

3.3%

9.2%

0.0%

-0.7%

1.5%

5.0%5.1%5.3%5.2%

4.2%

0.8%

4.5%

3.8%4.0%

-2%

0%

2%

4%

6%

8%

10% Average Growth 1950-1972: 10.2%

Average Growth 1973-2008: 4.1%

*2010 Official BOI Forecast

GDP GrowthGDP GrowthAnnual Percent ChangeAnnual Percent Change

4.0%

0.9% 0.8%

-7.5%

-3.7%-4.1%

-3.0%

0.5%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Israel* Ireland Spain E U Avg

2008 2009

Source: Central Bureau of Statistics and European Commission for EU Members20


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GDP GrowthGDP GrowthAnnual Percentage Change,Annual Percentage Change, 20102010

8 2

6 2

5 2 5 04 54 4

3.7 3.53.33.0 2.8 2.72.7 2.7

2.2 2.22.1 2.0 1.81.7 1.7 1.6 1.51.0

0.5

-3.6-3.9

-0.3-0.2

-

-u

k h

Mx

S

dn

pn n

Au tnd

*t Fin

nd

nitdSt

t

Sitz

nd

n

k

Z

nd ium

Aust

ia

Unitd

ind

m

Euroarea

Netherla

nds

Fran

e

Portug

alIta

ly

Norw

ay

Spa

in

Ireland

Iceland

reece

* Weighted average; Source: OECD Economic Outlook, Israel growth figure is CBS estimate.


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2010

2010Per

Capita

Per

CapitaGDP

GDP

((CurrentPric

es,USDollars)

CurrentPric

es,USDollars)

GDP

GDPP

er

P

erCapita

Capita

Source:IMF,2

010

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Swit

it St t s

Finland

F anc

Japan

Germany

Greece

Israel

Slovenia

Port al

Malta

Czech Republic

Korea

Slovak Republic

Estonia

Hungary

Poland

Lithuania

Latvia

Russia


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8.9% 8.7%

9.3%

10.3%

10.8%

10.3%

9.0%8.4%

7.3%

6.1%

7.6%

6.3%

53%

54%

55%

56%

5%

7%

9%

11%

Unemployment rates(left axis)

Unemployment and Participation RatesUnemployment and Participation Rates

Participation rates

(right axis)

6.1 6.0

7.07.6

11.7

17.9

9.1

11.3

0.0

5.0

10.0

15.0

20.0

Israel Ireland Spain EU Avg

2008 2009

Source: Bank of Israel and European Commission for EU Members23


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Global ReputationGlobal Reputation


Business InnovationBusiness Innovation


22

33

44


Steady GrowthSteady Growth11

24


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Government E penditureGovernment E penditure

General Government ExpenditureGeneral Government Expenditure(% of GDP)(% of GDP)

42.9

42.0

46.8

42.9

46.9

45.2

50.4

41.1

3

Source: Bank of Israel and Ministry of Finance Projections and European Commission for EU25


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Budget DeficitBudget Deficit

Source: Bank of Israel, 2009

Government Budget DeficitGovernment Budget Deficit(%(% ofof GDP,GDP, 20002000--20102010))

3

00

0

100

10

200 200

26

0.6%

4.1%

3.5%

5.2%

3.5%

1.8%

1.0%

0.0%

2.2%

5.2%

3.7%

6.0%

5.5%

3.0%

2.0%

1.0%

1.5%

0%

1%

2%

3%

4%

5%

6%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Budget Deficit

Ceiling


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27

Gross Public Debt as a % of GDP

100.699.9

101.3

95.3

85.1

89.9

97.6

99.9

98.2

94.3

85.5

78.377.1

79.6

76.6

97.4 96.8

98.4

92.6

82.6

87.4

95.1

97.496

92.2

83.5

76.475.4

77.9

75

65

70

75

80

85

90

95

100

105

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Public Debt Central Gov. Debt

Source: Ministry of Finance and Bank of Israel *Estimate Ministry of Finance


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-50

0

50

100

150

200

Japan

Iceland

Italy

Greece

Belgium

Spain

USA

Portugal

Hungary

Canada

UK

Germany

Ireland

Israel

Austria

Netherlands

OECDAVG

France

Poland

Norway

Sweden

CzechRepublic

Finalnd

Denmark

Switzerland

Solvania

Korea

NewZealand

Luxembourg

Austrailia

The Increase in Public Debt as a Percentage of GDPThe Increase in Public Debt as a Percentage of GDP

The 60%Maastrict

Level

2007 2010

Source: OECD, Ministry of Finance -Research Division28

The rise in the Israeli public debt is relatively moderate.The rise in the Israeli public debt is relatively moderate. The current publicThe current public

debtdebt--GDP ratio is close to OECD average.GDP ratio is close to OECD average.


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2010 2011 2012 2013 2014 2015 2016

Ma imum marginal

income ta45% 45% 44% 43% 42% 41% 39%

Corporate ta 25% 24% 23% 22% 21% 20% 19%

Ta PolicyTa Policy


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19841988 19881992 19921996 2006200919961999 19992001 20012005

ProPro--MarketMarket ReformReform PoliciesPolicies

1998: Foreign

Currency

Liberalization

19971998: Boost of

Privatizations

2003: Government

Cutbacks, Tax

Reform, Second

Pension Reform

1990: Successful

absorption of massive

immigration enhances

growth

1985: Stabilization

Program

1995: First

Pension Reform

1995: First Sovereign

Intl Debt Issuance

2000-2001: Capital

Market Opening and

Structural

Reforms, Debt Burden

Reduction

20062009: Capital

Markets

Reforms, Fiscal

Tightening, Financial

Stimulus Package

Unity

Government

Left Wing

Government

Left Wing

Government

Centrist

Government

ight Wing

Government

ight Wing

Government

ight Wing

Government

30


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Source: Bank of Israel

YearYear--End Inflation RateEnd Inflation Rate Central Banks Key Interest RateCentral Banks Key Interest Rate

0

2

4

6

8

10

1/03

1/04

1/05

1/06

1/07

1/08

1/09

1/10

Today = 1.25%

Inflation is Under ControlInflation is Under Control

0.0

1.4

6.5

-1.9

1.2

2.4

-0.1

3.4 3.83.9

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

32


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Current Account Has Been in Surplus Seven Years DespiteCurrent Account Has Been in Surplus Seven Years DespiteStrength of the ShekelStrength of the Shekel

-

-

--

-

-

-

-

-

-

--

-6%

-5%

- %

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Current Account BalanceCurrent Account Balance(%(% ofof GDP)GDP)

The Shekel vs. USD, EuroThe Shekel vs. USD, EuroEuro USD

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Oct-08

Nov-08

Dec-08

Jan-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Sep-09

Oct-09

Nov-09

Dec-09

2.8

3.1

3.4

3.7

4.0

4.3

4.6

Euro Dollar

Source: Reuters and the Bank ofIsrael

33


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27

Bank of Israels Foreign E change Reserves ClimbedBank of Israels Foreign E change Reserves Climbed

Sharply inSharply in 20092009

60.6

27.228. 29.0

42.

29.6

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2004 2005 2006 2007 2008 2009

X Reserves S$ Billions)

Source: Bank of Israel Reserves as of the end of February, 2010 = $60.7billion


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Strong Banking SystemStrong Banking System

9.2 9.49.9

10.310.7 10.7 10.8

11 11.311.6

12.813.4

6

78

9

10

11

12

13

14

2000 2001 2002 2003 2004 2005 2006 2007 2008 Q1

2009

Q2

2009

Q3

2009

Total Capital Ratio

Source: Bank of Israel

Real Estate:

Low LTV rate in Israel (around 50%- 60%)

Israel did not experience a mortgage default crisis during the recent market downturn


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Si e and Structure of Government DebtSi e and Structure of Government Debt

T

7

N

T

2

9

Total Government Debt for Year EndTotal Government Debt for Year End 20092009: US$: US$ 158158 billionbillion

Other

6%Sovereign

Bonds

21%

Bonds

Guaranteed

by the USA

45%

Bonds Org.

28%

Source: Ministry of Finance USD/ILS Rate of 3.78


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Si e and Structure of Government DebtSi e and Structure of Government Debt

Domestic

Tradable57%

DomesticNon

Tradable24%

ForeginCurrency

19%

Total Government Debt for Q3 2010: US$ 163 billion

BondsOrg.26%

BondsGuaranteed by the

USA

42%

SovereignBonds25%

Other7%

Source: Ministry of Finance


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Sovereign Foreign Currency Rating Peers

Sovereign Moodys S&P

Chile A2 A+

Czech . A1 A

Lithuania Baa1 BBB+

S. Korea A1 A

Poland A2 A-

China A1 A+

Slovakia A1 A+

Latvia Baa3 BB

Cyprus Aa3 A+

Hungary Baa1 BBB-Estonia A1 A-

Greece Ba1 BB+

Taiwan Aa3 AA-

Steady Climb in Ratings Reflects Sound Policies and aSteady Climb in Ratings Reflects Sound Policies and aDynamic Private SectorDynamic Private Sector

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Moody's S&P Fitch

A1/A+

A2/A

A3/A-

Baa1

Baa2/BBB

Baa3/BBB-

Aa3/AA-

Israels Current RatingIsraels Current Rating

Moodys - A1 (Stable)

S&P A (Stable)

Fitch A (Stable)

April 2008Moodys upgrade

Israel To A1

Feb 2008Fitch upgrade

Israel To A

Nov 2007S&P upgradeIsrael To A

Source: Credit Rating Agencies38


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Quality in Everything We Do

israel's economy march 2011

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