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Innovative Israel: A model of resilience

Interview - May 4, 2015

Globus Vision sat down with the Head of Mission of Israel to the EU, David Walzer, who talks about how Israel’s impressive economic resilience is down to a mix of prudent macroeconomic management and innate innovation, while also praising the country’s growing ties with the European Union


I would like to start talking about the country as a resilient nation. Despite last year’s conflict, the country’s economy grew an estimated 2.6% in 2014, beating most western countries. Many attribute such resilience to Israel’s strong high-tech industry, as well as the way Israel has recognized the importance of financial sector regulation in recent years. Could you please discuss Israel’s impressive resilience, as well as the country’s economic and political outlook for this year?

To start with, you mentioned figures for the end of the year 2014 and I think that they are even more impressive taking into account the fact that last summer we had a military campaign in Gaza. That meant for almost 2 months the State of Israel committed a lot of resources into this campaign. Economic activity suffered a substantial slowdown but it still managed to grow very significantly.

The Israeli macroeconomic system is handled very well and we saw that during the economic crisis in 2008. The Israeli government did not need to invest even one dollar to save banks. The fiscal system, the economic system and the Israeli Central Bank were so resilient and successful in their programs and regulations to the extent that no Israeli bank needed pullout or saving by the government. No one went bankrupt and this is a phenomenon which has been going for quite a few years.

Through all this time the Israeli economy has been relying more and more on new fields whose world demand is growing steadily. You mentioned innovation but it is innovation in many fields, from biomedical inventions to clean energy and cyber. In all those issues the Israeli economy is very much involved and this manages to push overall economic activity in the country to a position where it can produce year by year quite impressive economic results.

Can you comment on the outlook for this coming year considering the recent elections?

First of all, you know we live in a rough neighborhood so I am speaking of 2015 assuming that there will not be any dramatic political events which will spoil our planning for the year. The forecast for 2015 is around 4.15% and more or less expected from the same leading areas. For example, the biggest generic medical company in the world producing generic medicines is an Israeli company called Teva, which has many factories around the world all the way from India to the EU. They have 12 or 13 in Europe itself and it is an Israeli company which generates many jobs, research and sales.  

Growth is also expected to come from engineering and the industry fields in which Israel is very good at, such as remarkably sophisticated ways of irrigation. Arid areas or semi-desert areas all over the world are in need of technologies and expertise and Israel is proudly cooperating with many countries in implementing those methods. For example, Israeli agricultural experts, using Israeli agricultural products, are working in India to increase their productivity tenfold within 2 years. So even Israeli agriculture is not just conventional agriculture, there are niche areas in which it is using high-tech products. There is a big demand in these areas as all over the world. You see what is going on: earth’s population is growing steadily and we need to produce much more food. To achieve that we need more sophisticated plans, systems and mechanics. This is an area in which Israeli researchers are keeping a leading role. All of this is contributing to our economic results.

Israelis are well known all over the world for being entrepreneurs, with the country consistently ranking highly for innovative capacity and entrepreneurship. Moreover, it is the second largest source of innovation after Silicon Valley. Can you share with us your thoughts on Israel as the so called ‘startup nation’?

Israelis are innovative and very good business people. A lot has to do with the need to improvise as we are in a very difficult situation. We created a nation very shortly after World War II and the Holocaust and we needed to give answers to millions of people quickly. This is part of what Israel is: innovation, innovative thinking and implementation. This is very much enshrined into the DNA of the people and it is not just about the economic results.

Let’s take another issue which I think is very telling about our entrepreneurial spirit. Between the collapse of the Soviet Union in 1990 and the year 2000 the Israeli population grew 40%, from 5 million to 8 million, yet unemployment is less than 5.5% and every family has a place to live and every child goes to school. The influx of population demanded getting together very quickly and creating new options out of nowhere because a 40% increase of the population was a huge burden on the economy, the government, companies etc., but it was still done.

One of the issues which is very popular today – and I think it is almost our slogan – is cyber. The field of cyber is very important and competitive, so the Israeli government undertook some projects in order to keep us at the top.  It took the decision two or three years ago to create a cyber capital; the city of Beersheba in the southern part of Israel. First of all, they strengthened significantly the State budget of the faculties in the Beersheba University which do research in the cyber field. Secondly, the government built a huge cyber center, half of it financed by government agencies and the other half by private companies such as Deutsche Telekom and other small players. The center is next to the university where students and professionals can just cross the street and walk inside it. The proximity of the university with the business center also created the opportunity for the demand and the supply to meet in the same place. As of next year, cyber will be on the agenda for high schools as well. Students in about 10 Beersheba schools will start a project which will allow them to do their high school qualification in cyber science. Once they finish school, they can go straight to university, and when they finish that, the cyber center is waiting.  

What’s more, today we are the first in the world in investment in R&D as around 4.5% of GDP is dedicated to it. If you combine government and private sector investment in R&D we are the first in the world and we hope to go over 5% in the next couple of years.

Can you comment on other areas of the economy that might be interesting for foreign investors?

First and foremost, Israel is small but beautiful. It is probably one of the only places in the world in which on a winter day you can start your day skiing on the Golan Heights and 3 hours later swim in the Dead Sea. The temperature difference would be of 30 degrees or more within 3 hours. So Israel offers huge variety. There are places of interest such as the Dead Sea, which is the lowest place on earth, or Jerusalem, with its archeology and history. The birth of monotheism was in this region, all the way from Jerusalem to Bethlehem to Nazareth.

Yet this is only one element, I think Israel is a very welcoming country to investors. Many Israelis speak fairly decent English, which is the international language for business people, but you also have a very open society. Israelis are friendly and it is easy to talk to them, you go to Tel Aviv and 5 minutes later you are everyone's friend! It is easy to do business in Israel; it is not just that you have talent but also the atmosphere and the government offering investors very generous tax returns. Israel not only offers the economic needs, but also if you come with your family you will easily find a decent place to live and enjoy the beach, the weather, the culture, the sports and the restaurants.

I would like to comment a little bit on the Israel-Europe relations. You share a long history in common and the EU is the largest export and import market, accounting for about a third of Israel’s total trade. Israel is also one of the EU’s leading trading partners in the Mediterranean. Meanwhile, the action plan concluded under the European Neighborhood Policy has helped to give new energy and focus to these relations. Can you please comment on the growth of EU-Israel ties?

I would like to emphasize that the data you brought is correct: the EU is our largest trade partner both ways, import and export, and over 30% of our trade is coming and going to the continent. Nevertheless, it is not only that. Anchoring Israel in the EU is a much broader vision and has many more aspects than trade. Israel is a full member of the European Research Program, the latest one being called Horizon 2020, and was the first non-EU member to be included as a full member. Moreover, we have signed agreements supporting the investment community; in fact last year we signed the Open Skies agreement which opens the room for more low cost flights and enhances the contact between Israelis and Europeans.

We have many other fields of cooperation with Europe. For example, twining programs with the EU which ensure everything we produce is absolutely compatible with European standards. There is a lot of effort to enhance this cooperation to many other areas, for example in education and research. It is a much broader effort than just increasing trade. Increasing trade might be a goal but it has to be supported by other efforts as well.

Is there any final message that you would like to send to our global audience inviting them to discover more about Israel?

The message is very simple: come and visit us. In Israel you have the history, the culture, friendly and innovative people, good food, wine and hotels. Come visit us and do business in Israel.