Hier
Last update on Friday, August 7, 2026 At 6:25 AM
Israel has historically recorded low levels of public investment. This rate, which stood at around 3% of GDP in the 1990s, fell to 2% between 2004 and 2014 before gradually rising to around 2.5% of GDP. However, this level remains far below that of comparable European countries (particularly in Northern Europe), which maintain stable rates of around 4% of GDP. Consequently, Israel has failed to close its investment gap; the stock of public investment relative to GDP has dropped from nearly 50% in 1990 to less than 35% today—even though the country’s demographic dynamism (driven by both natural growth and migration), along with its needs regarding the energy transition and balanced regional development, would justify accelerating public investment.
Closing this investment gap would therefore require an additional annual effort equivalent to 3–4% of GDP. This investment gap creates economic bottlenecks.
Accustomed to neither large-scale infrastructure projects—due to its small size, population concentration, and lack of regional integration—nor the associated complexities, Israel lacks an integrated framework (both institutional and regulatory) for managing major public investment projects, particularly within a multi-year context. This results in a proliferation of stakeholders, inconsistent contracting methods (often misaligned with international standards), a shortage of skilled labor, and a tendency to favor Public-Private Partnerships (PPPs)—partly because the returns on infrastructure projects in Israel are significantly lower than those in the technology sector. The resulting development delays—with project implementation times estimated at three times those seen in South Korea—consequently impact business productivity. Furthermore, the concentration of national public infrastructure around the central Gush Dan region exacerbates the polarization of economic activity and land-use pressure in that area, limiting the development of counter-balancing metropolitan hubs.
The high elasticity of business productivity with respect to public investment justifies targeting a few key sectors.
A recent study by the Taub think tank identifies education and energy as the factors to which Israeli business productivity is most responsive. In contrast, public investments in transport and healthcare show lower elasticity.
According to the study, an investment of NIS 1 billion in the education or electricity sectors would generate a 1.1-point increase in private-sector GDP, whereas an investment of the same amount in healthcare would yield a 0.9-point gain, and an investment in transport (rail and/or road) would yield 0.2 points. However, the transport sector shows significantly higher elasticity (nearly 1.2) regarding the high-tech sector, the economy’s most productive.
The budgetary and operational impact of the war could delay ongoing projects.
The deterioration of security conditions since October 7, the war’s impact on the workforce (recall of expatriate experts, dismissal of Palestinian workers, and mobilization of reservists), and the concentration of budgetary priorities on the war effort have affected the development of major ongoing projects. While none have been formally cancelled, their timelines have been pushed back by an average of 18 months. To prevent these lags from widening further, it is now essential—as recommended by the IMF in its 2026 Article IV report—to reprioritize underinvested infrastructure sectors (particularly education), create the conditions (especially contractual ones) that enable broad participation by top-performing players (including international ones), and establish a regulatory and administrative framework conducive to a long-term strategic vision for infrastructure development across the entire territory.
Source: French Embassy in Tel Aviv
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