Friday 11 August 2023
Last update on Friday, August 11, 2023 At 9:00 AM
For the past few months, Israel has been feeling the global downturn affecting high tech, a trend accentuated by internal political uncertainty. The inflation trend (5% in Israel) is accompanied by an increase in the key rate, which has been raised 9 times in one year and stands at 4.75%. This development marks the end of cheap money and a continuous rise in asset prices. In Israel more than elsewhere, investors have become more selective. They are abandoning the venture capital that fueled Israeli tech, while the country represented 20 to 25% of global venture capital three years ago.
Technological innovation has been Israel’s economic engine for the past decade.
The spectacular rise of the tech sector has created economic dependence, since it now represents 11% of jobs, a quarter of personal income tax and more than 1/6th of GDP.
For the past few months, Israel has been feeling the global downturn affecting high tech, a trend accentuated by internal political uncertainty.
The inflation trend (5% in Israel) is accompanied by an increase in the key rate, which has been raised 9 times in one year and stands at 4.75%. This development marks the end of cheap money and a continuous rise in asset prices. In Israel more than elsewhere, investors have become more selective; they are abandoning the venture capital that fueled Israeli tech, whereas three years ago the country represented 20 to 25% of global venture capital.
For a long time, the evolutions of the NASDAQ were correlated with those of the investments in Israel.
However, this has not been the case for several months: the NASDAQ seems to be on the rise again while the Tel Aviv Technology index continues to fall, following the evolution of venture capital in the world. This decoupling is all the more marked in Israel because venture capital – whose horizon is ten to fifteen years – does not adapt well to political uncertainties.
Israel’s contribution to the galaxy of innovative start-ups will continue to grow, but the question is where Israeli intellectual capital will be located/registered, and therefore taxed.
The new trend towards the registration of certain structures abroad could, in the long term, have consequences because the intellectual property of innovations will partly escape the control of the Israeli tax authorities. National productivity, which is driven by high tech, could also be eroded. Another consequence of this situation, the ten-year rise of the Israeli currency is a victim of the deflation of the “digital bubble” and the rise of political uncertainties. Uncertainties which also seem to worry American investors more than French ones.
The search for labor and political malaise indeed seem to combine to initiate a partial relocation of Israeli tech.
Trained Israeli labor is scarce and expensive; tech companies had therefore already outsourced certain functions of programmers and analysts to Russia, Ukraine, even the Balkans or India (overall estimate of more than 30,000 jobs). The war and sanctions (mobilization in Ukraine, payment difficulties in Russia) have partially challenged this choice.
The constraints of supply and wage competitiveness of Israeli tech, which were evident from 2022, were not then sufficient to trigger a movement of relocation. On the other hand, for the past few months, some entrepreneurs have been looking outward to develop their business.
Source: Embassy of France in Israel
Réagissez à cet article