Israel’s economy minister makes 'innovation ecosystem' work

Q: According to fDi Markets, in 2017 greenfield FDI into Israel reached its highest level since 2009. How do you explain this?

A: From my point of view, the figures from 2017 are the climax of a much longer trend. In the decade from 2007 to 2017, the annual rate of multinationals opening their first centre in Israel trebled from about 10 a year to more than 30. The main reason for this is the surge in demand for innovation and Israel’s unique innovation ecosystem and ability to support this demand. ‘Innovation ecosystem’ is an overused concept today, but Israel is one of the prime and mature examples of this concept: the combination of world-class academia, a prosperous venture capital market, the significant and long-standing presence of multinationals, outstanding engineering talent and a culture of entrepreneurship – all in a close-knit network in an area the size of New Jersey.

Q: Where are the best opportunities for FDI into Israel?

A: Nowadays, many people know Israel as ‘the start-up nation’, and as a location for ground-breaking R&D. This is certainly true, but there is also another, lesser known story: the potential for advanced manufacturing in Israel. Some 30% of industrial multinationals that operate R&D centres in Israel also choose to co-locate manufacturing activity. These companies enjoy an R&D-manufacturing proximity feedback advantage, making the production process much more dynamic, enabling a far more efficient ‘learning by making’ process. 

In addition, the vibrant start-up ecosystem is producing many technologies that enable next-generation manufacturing, specifically Industry 4.0, which includes big data, cybersecurity and more. Furthermore, Israel holds a strategic geographical position in terms of market access, as we are situated at the meeting point of Europe, Asia and Africa, with an extensive network of free-trade agreements that facilitate trade. Our country is situated close to the European market and benefits from an EU-Israel trade agreement that facilitates open trade. Our relative proximity to Asian markets, which are enjoying spectacular growth, speaks for itself. The emerging African market is also an option.

Q: What could be improved to make Israel more attractive to FDI? 

A: Israeli regulation should be made more efficient in order to reduce bureaucracy and red tape, and make business a much smoother process.

Q: What was the most exciting, interesting or large-scale foreign investment in Israel in 2017, and are there any on the horizon?

A: Intel’s activity is exceptional, including the acquisition of Mobileye [for $15.3bn] and turning it into its Autonomous Driving Group global centre. This is in addition to Intel’s plans to expand its Kiryat Gat advanced manufacturing fabrication plant. This will involve large capital expenditure and create opportunities for thousands of additional employees.

Q: Is Israel doing anything to diversify and attract more investment from countries other than US, its biggest source of FDI? 

A: Israel is proud of its strong business ties with the US, and indeed according to our data, 70% of multinationals in Israel are from the US. Nevertheless, we are also working hard on diversifying. First, we are looking towards Asia, with its growing importance in the global economy. In recent years we opened several new economic missions and held investment events and roadshows in China, Japan, India and Singapore.

China [leads] the Asian region in terms of investment in Israel – first in more indirect involvement through investment in Israeli venture capital funds, and recently through a direct presence via companies such as Alibaba, Medea and Fosun. According to the China Going Global Investment Index 2017 by the Economist Intelligence Unit, Israel is now ranked 11th globally in attractiveness to Chinese investors. This is a big jump from 2013, when it was ranked 31st. Furthermore, the annual investment flow from Japan was almost 20 times higher in 2014 to 2016 compared with 2011 to 2013. In 2017, we saw the $1bn acquisition of Israeli pharma company Neuroderm by Mitsubishi Tanabe. 

Second, we are looking for more investments from Europe, which is a leader in traditional industries and as such is keen to benefit from the Israeli experience in tech, while sharing its industrial knowhow with Israel. We have an upcoming investment event in Munich called I-Mobility, focused on expanding investment in the automotive sector from Germany. We’ve already seen some notable examples in recent years, with Daimler and Bosch opening R&D and innovation centres in Israel, and Continental investing almost $500m in Argus, a vehicle cybersecurity firm.