Israel economy minister seeks innovation dividend

Q: What are your expectations from the free-trade agreement with Japan that Israel is negotiating?

A: Abenomics, the economic policy heralded by Japan's prime minister in recent years, is well aligned with the cause [of investing in foreign countries], and Japan has increased investment in Israel. Abenomics promotes 'open innovation' instead of more in-house innovation models that characterised Japanese firms in the past. This agile modus operandi squares with Israeli companies.

Furthermore, Japan's ageing population, along with the country's strong life science companies, have brought about a strong base for co-operation with Israel's blooming medtech sector. Israel has the most medical tech patents per capita in the world and is a hub for world-leading medical technology companies' R&D and advanced manufacturing sites. The sector in Israel enjoys a combination of mature companies (40% of the companies in the sector are at the marketing phase), alongside more than 1000 start-ups that enrich the pipeline of innovative products to perpetuate the current growth.  

It is also important to note that Israel is not only a leader in the development of medical devices, but also in manufacturing and exporting these devices. As proof of the industry’s development, life science exports reached $9bn in 2017, and they have been growing steadily since 2008. Exports in this field are expected to continue growing in the coming years. 

Q: A recent study by the Herzliya university points out that Israel lags behind other OECD countries with regard to trade openness. Is there room to improve on this?

A: Trade openness complications in Israel are mainly to do with import barriers, and the market being relatively small in comparison with other countries. That said, multinational companies invest in Israel because of the strategic assets that the country has to offer. Israel leads in innovation and the country's economic stability, with above average growth in recent years, makes it an attractive destination for foreign investment.

Ziva Eger, chief executive of Israel’s Foreign Investments and Industrial Co-operation Authority, was quoted recently as saying that "comprehensive governmental incentives make Israel one of the world’s most attractive places for foreign investors”. This is key to understanding the country's investment promotion strategy. 

Q: Israel has been successful in stirring development and attracting investment in sectors such as IT and R&D. What are you doing to improve productivity and attract investment in other sectors?

A: Israel’s core competency is innovation, and nowadays we can see that innovation is pursued in all business sectors. Israel holds an advantage in many sectors, such as health and life sciences, automotive, aerospace, cleantech and agritech, cybersecurity and fintech, among others. The aerotech industry in Israel is successful and is attractive for investors from across the globe. Israel is a world leader in unmanned aerial vehicle production and export and has advanced space launching capabilities. The first mini-satellites for the 200 kilograms to 300 kilograms range were produced in Israel and the country is one of only 12 in the world with independent launching capabilities. Analysts expect an 8% to 13% increase in composite material sales by 2020, due to demand from the commercial aircraft segment alone. With this in mind, the aerospace industry has huge FDI potential. 

Q: What role can FDI play in Israel’s overall economic development strategy?

A: Recent research by the OECD has found that multinationals that drive FDI up are to four times more productive than domestically owned firms. We believe that there is more untapped potential in advanced manufacturing, especially for the cutting-edge industries where benefits could be taken from co-locating R&D and manufacturing in the same country. In addition, FDI can add diversification among industries, such as the blooming automotive sector, and origin markets (such as Japan), and could help the ecosystem be more rounded and take Israeli innovation to new realms that would spur even more growth.