THE ISRAELI ECONOMYSharon Kedmi | Former Director General, Ministry of Economy (Industry Trade & Labor)

Challenge's and Eco-System

Case study 1 - Internal

Overview

Case study 2 - External

Goals and challenges ahead

Orange's to Apple’s

Israel Challenges

A small country,

lacking natural resources

Israeli economy is

export oriented

Developing a global-facing Innovative industry

that can overcome geographic & geo political

challenges while leveraging the advantages

of its population Israel Challenges

3

Existence of key Success Ingredients

Israeli “DNA” mixture of knowledge, innovation & entrepreneurship

Commercialization of defense-related technologies

High quality of human resources: academia, defense, immigration

Critical mass: capital, investors, VC funds, start-ups

WORLD RECOGNIZED SOURCE OF INNOVATIVE TECHNOLOGY

Strong presence of major global technology companies

Government support: incentive plans, tax benefits

4

A small open atypical economy

Open• Market oriented policy• Inflation targeting & Public

debt reduction• A leading export base

high-tech sector• Stable banking system

Economic Survey: Israel

5

A small open atypical economy

Atypical• Significant resource

absorption by defense needs• Substantial international

trade –but limited with

neighboring economies• Complex society structure

Economic Survey: Israel

6

Challenge's and Eco-System

Case study 1 - Internal

Overview

Case study 2 - External

Goals and challenges ahead

Orange's to Apple’s

Criteria 2007 2008 2009 2010 2011 2012

GDP (current prices in $B)* 161.8 184.1 189.9 199.0 243.9 240.9

GDP Real Growth Rate(%) 5.3 4.0% 0.8% 4.8% %4.6 3.2%

GDP per Capita (PPP adjusted)

25,762$ 28,473$ 28,526$ 29,901$ $31,419 $30,476

GDP per Capita Growth Rate (%, Current prices)

3.4% 2.2% -0.9% 2.9% 2.7% 1.3%

Exports (Goods & Services) $B* (As Percentage of GDP)

71.3(44%)

83.3(45.1%)

75.1(39.5%)

85.3(42.9%)

91.0(37.3%)

90.1(37.4%)

Imports (Goods & Services) $B* (As Percentage of GDP)

73.7(45.5%)

81.3(44.0%)

71.0(37.4)

80.0(40.2%)

92.2(37.8%)

92.7(38.5%)

Unemployment Rate (%) 7.3 6.1% 7.6% 6.6% 7.1% 6.9%

Source: Ministry of Finance, Bank of Israel and CBS

Main Economic Indicators

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GDP and Business GDP

GDP Business GDP

Annual rate of change, constant prices, 2005

4.14.4

1.1

0.5

5.05.4

4.65.1

3.2 3.32.9

3.2

2.62.9 2.8 2.9

2.6

3.5

2.72.2

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GDP Growth

10

Advanced economies,

annual rate of change,

constant prices

ISRAEL compared to

Israel’s growth rate has

exceeded the average

growth rate of advanced

economies

2004

Israel experienced

a 1.1% growth

in it’s GDP

2009

35.0 28.0

0

10

20

30

40

50

60

70

80

90

100

GDP per Capita

11

$ U.S, Current prices, Current PPP, 2012

Israel

30.5

OECD

Average

35.0

Public Debt

12

93.9%

85.1%

78.6%77.4%

79.6%

76.3%74.0% 73.2%

70%

75%

80%

85%

90%

95%

100%

Effects of the global economic

crisis

As % of GDP

Unemployment Rate

13

Latest available data

8.0%6.9%

0%

5%

10%

15%

20%

25%

Israel

6.9

OECD

Average

8.0

Challenge's and Eco-System

Case study 1 - Internal

Overview

Case study 2 - External

Goals and challenges ahead

Orange's to Apple’s

Case study – 1The Economic Stabilization Plan 1985

From Social-DemocraticEconomy

To Liberal-Capital Economy

The plan was implemented in Israel in response domestic situation of the early 1980s

1984 inflation was reaching an annual rate close to 450% and projected to reach over

1000% by the end of the 1984

1983 Israel suffered what is known as "the Bank stock crisis"

The years after the 1973 Yom Kippur War were

a lost decade, as growth stalled, inflation soared and government expenditures rose

significantly.

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Case study – 1: ContinueThe Economic Stabilization Plan 1985

This was done after a series of smaller, so-called "package deals" that were negotiated with selected entities in the Israeli

economy

Inflation was successfully brought to under 20% in less than two years

The plan brought together all the main players in the economy at the

time (the government, labor unions, and the central

bank)

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In response, in 1985 the Knesset implemented an economic stabilization plan

Case study – 1: ContinueThe Economic Stabilization Plan 1985

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Some of its main points included:

1. Significant cut in government expenditures and deficit.

2. Reaching an agreement with the labor union to enact wage controls, thus decoupling rampant wage from price inflation

3. Emergency measures imposing temporary price controls

4. A sharp devaluation of the Shekel, followed by a policy of a long-term fixed foreign exchange rate.

5. Curbing the Bank of Israel's ability to print money

Challenge's and Eco-System

Case study 1 - Internal

Overview

Case study 2 - External

Goals and challenges ahead

Orange's to Apple’s

2007-2009 World Financial Crisis

Case study – 2: External

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The worst financial crises since the great depletion of the 1930s.

It resulted in the threat of total collapse of

Large Financial

Institutions

The bailout of banks by national

governments

Downturns in stock markets

around the world

The crisis played a significant role in the failure of key businesses,

declines in consumer wealth estimated in trillions of U.S. dollars

Minimal Impact by the Global Financial Crisis

Case study – 2: External

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Strong Entry Point1

Quick and Strict Response2

Challenge's and Eco-System

Case study 1 - Internal

Overview

Case study 2 - External

Goals and challenges ahead

Orange's to Apple’s

Goals

Supporting economic growth

while reducing socio-economic

gaps via

Responsible fiscal policyIncreasing investment in human capital and infrastructure

Increasing labor participation rate and strengthening weak populations

Strengthening the economic peripheryPromoting competition and productivityImproving government regulation

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Challenge's and Eco-System

Case study 1 - Internal

Overview

Case study 2 - External

Goals and challenges ahead

Orange's to Apple’s

Leading in Science, Technology, and Innovation

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1st for entrepreneurship

1st in quality of scientific research

institutions**

1st in R&D expenditure as

% of GDP*

2nd in public

expenditure on education

5th for strength of investor protection

4th in PCT patents applications per

million population

3rd in venture capital

availability

6

Nobel Prizes

24

Leading in Science, Technology, and Innovation

25

Civilian R&D as % of GDP, 2009

25

North America

New York

Massachusetts

Maryland

Virginia

Wisconsin

Colorado

Illinois

Oregon

BIRD (Foundation)

Ontario CIIRDF

South America

Argentina

Uruguay

Brazil

Europe

France

Russia

Italy

Germany

Greece

Czech Republic

Bulgaria

Lithuania

Slovenia

Denmark

Hungary

Turkey

Portugal

Finland

Sweden

Ireland

Spain

Cyprus

Netherland

Cooperation in Industrial R&D

26

Israel’s Free Trade Agreements

USA1985

EFTA1993

TURKEY

1997

CANADA1997

MEXICO2000

EURO2000

EGYPT2004*

JORDAN1998*

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Start up nation

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