Israel: A Global Innovation Powerhouse

By Amb. Yoram Ettinger

The Ettinger Report

May 31, 2019

1. Arab integration in Israel. During 2017-2018, 18.3% of Israeli students studied engineering, compared to 17.9% studying social sciences.  25% of Israel’s undergraduates study engineering and computer sciences. During 2012-2018, the number of Israeli students studying tech subjects (electronics, engineering, software, optical, math, computers) grew 30%, compared to a 100% surge in the number of Arab students. In 2018, the number of Arab students in the hightech subjects accounted to 12% of the total, compared to 8% in 2012 (Israel Council for Higher Education).

2. Economist Intelligence Unit, May 15, 2019: Israel’s GDP of $356BN and $40,230 per capita in 2018 is expected to surge to $667BN and $62,070 in 2030, reflecting Israel’s advantage – over developed and developing countries – in the areas of technology and demography.  Israel spends the highest GDP proportion, in the world, on civilian research & development. Its high investment in military research & development has had positive impact on civilian technology. For example, Israel has overcome low rainfall through desalination and water/sewage recycling, evolving into a major exporter of water technologies. More than 50% of Israel’s workforce has gone through tertiary education, and is expected to grow due to a relatively high fertility rate and positive net-immigration. Population growth is faster than any high-income country. Israel’s dynamic hightech sector will continue driving export growth, together with a strong contribution by business services. Exports of natural gas will make an increasing contribution in the 2020s. Israel’s isolation in the region will diminish gradually, as relations with Egypt and Persian Gulf Arab countries are improved. Israel will maintain the free-trade agreements with the US and EU and will expand trade ties with Japan, China and India and mid-size Asian economies. Israeli exports will rise from $111BN in 2018 to $283BN in 2030, as imports rise from $108BN to $233BN.

3. According Forbes, May 27, 2019, Amir Mizroch, (Start-Up Nation Central), ”Israel is emerging as a leading innovation destination for a growing number of multinational corporations looking to Israel’s 6,000+ startups for new ideas, quick prototyping ability and infectious entrepreneurial culture…. Merck, the 350-year-old German pharmaceutical and chemicals [giant] firm, says almost half of its healthcare revenue is based on innovation stemming from Israel…. A PricewaterHouseCoopers report maps for the first time the activities of some 539 multinational companies, representing 35 countries, which are currently active in Israel [55% – USA, 27% – Europe, 15% – Asia-Pacific; 38% – technology,  pharmaceuticals and healthcare – 11%, financial services – 10%, industry products – 10%, telecommunications and media – 8%]…. Mitsubishi is the latest multinational corp. to open an innovation center in Tel Aviv….

“It is no longer just technology companies expanding innovation footprint, but multinational companies from a wider blend of industries.  Deutsche Telekom, for example, regularly hosts management teams in Israel to absorb startup thinking.  Pfizer, Genpact, Flex and Johnson Controls all have senior executives located in Israel, who manage their companies’ global scope of technology scouting, product development, or open collaboration activities.  Siemens’ Dynamo and Innogy’s Innovation Hub are unique innovation vehicles, not replicated anywhere in those groups’ global innovation portfolios…. A shift, starting in 2014, from a traditionally research & development-led focus on engineering talent or IP assets, to more investment-led and partnership-led open innovation operating models. This shift has been accelerating…. 80% of the multinational companies cite incremental innovation on existing products and services as a key benefit of their Israeli activities.  Mercedes Benz is working with local Israeli enablers….

4. The Silicon Valley-based cybersecurity multinational, Palo Alto Networks, is making another acquisition of an Israeli company – Twistlock which develops security solutions for virtual containers – for $410MN, in addition to acquiring Israel-based PureSec for $60MN-$70MN.  Prior acquisitions of Israeli companies by Palo Alto: Demisto – $560MN (2.2019), Secdo – $100MN (4.2018), Lightcyber – $130MN (2.2017), Cyvera – $22MN (3.2014), as reported by Globes Business daily, May 30, 2019.

5. The San Francisco-based San Francisco Partners Investment Fund acquired Israel’s Live U for $200MN (Globes, May 30). The $7BN Silicon Valley-based Proofpoint acquired 2.5 year old Israel’s Meta Networks cloud security for $120MN.  In 2016, Proofpoint acquired Israel’s Firelayers for $55MN, which became Proofpoint’s research & development center (Globes, May 7).

6. France’s Solabia, a global leader in the production of ingredients for cosmetics and skincare, acquired 80% of Israel’s Algatechnologies, which develops, cultivates and markets ingredients produced from microalgae (Globes, May 23).

7. Decline in the financial risk of doing business in Israel. Dr. Adam Reuter, Chairman and Founder of Israel’s Financial Immunities, Israel’s largest risk-management firm (Globes, May 7): Israel’s private debt is 42% of GDP, compared to 63% of GDP in the OECD. The dramatic growth of Israel’s hightech sector – which is based on capital rather than debt – has reduced the financial risk of doing business in Israel. The latter is declining in correspondence to the decline of the scope of business-credit relative to GDP, since its growth does not require increasing debt. Similarly, the debt of Israel’s business sector to banks and investors declines relative to GDP.