Israel has one of the world’s fastest growing developed economies. Growth amounted to an impressive 5% in 2006 continuing the same rate of economic growth as the previous year.
In fact every single economic parameter in Israel in 2006 was positive. Despite strong growth, inflation was actually negative –0.1% in 2006 compared to 2.4% in 2005, while unemployment dipped sharply to 8.3% at the end of 2006 from 9% in 2005 and 10.4% in 2004.
Most impressive of all Israeli exports climbed to a record $46.5 billion in 2006 compared to $42.8 billion in 2005, while foreign investment soared to an all time high of $23 billion. Israel’s traditional mid-tech and low-tech industries remain strong, as stressed by Warren Buffet’s $4 billion acquisition of 80% of Iscar, which designs and manufactures industrial cutting tools for metal machining. These traditional industries often contain advanced technology processes, which give added value to Israeli diamonds, textiles, food and beverages, automotive products, rubber and plastics, electro-mechanical goods etc as well as defense and homeland security systems.
In 2006 Israel exported $711 million worth of food and beverages (up 9%), $929 million of textiles (up 3%), $1.78 million in plastic and rubber products (up 11%), $1.36 million in metal products (up 16%) and automotive products increased marginally to $1.3 billion. Diamonds remains Israel’s largest export item with $12.7 billion of cut and polished diamonds sold overseas in 2006, a rise of 5.8% over the previous year.
Nor is Israel’s largest industrial manufacturer a classic high-tech firm. Teva Pharmaceuticals, which had 2006 sales of $8.5 billion, is the world’s largest producer of generic drugs, although $1.3 billion in sales derives from an ethical drug – Copaxone® – for the treatment of Multiple Sclerosis which is the fruit of Israel’s biotech industry. The country’s few natural resources – phosphates in the Negev and minerals in the Dead Sea – now earn Israel Chemicals $3 billion in sales per year due to improved extraction processes. Israel has also used technology to overcome the region’s water shortages with much of the country’s needs now supplied by desalination and recycling of wastewater.
It is high-tech which has led Israel’s remarkable economic growth over the past decade. During 2006 Israel exported about $15 billion of electronics and software equipment. Of the $21 billion in foreign investments in Israeli industry, the lion’s share was in high-tech. This included HP purchase of Mercury Interactive for $4.5 billion, a global leader in business optimization technology software with annual revenues of $700 million, and Sandisk’s $1.5 billion acquisition of M – Systems, which developed revolutionary mobile storage systems for computer data. An estimated $3.2 billion was invested in Israeli high-tech start-ups and the country’s VC funds raised $1.62 billion in 2006, the highest amount for five years, with most of this capital from overseas and many Israeli firms had successful IPOs on stock exchanges in New York, London and elsewhere.
Israel’s economic success has been based on a highly educated workforce, which also possesses a strong sense of entrepreneurship and ability to adapt to rapidly changing demands. At the same time the government has invested heavily in universities and industrial R&D incentives.
In terms of trade North America remains Israel’s largest overseas exports destination with $18.7 billion worth of goods sold there in 2006, of which $17.85 billion was to the United States. During 2006 $15.5 billion worth of goods was exported to Europe and $8.5 billion to Asia. Israel is the only country in the world that has free trade agreements with both the European Union and NAFTA (United States, Canada and Mexico).
Israel also has bilateral R&D funds with the United States, Canada, UK, Singapore and Korea and is an active member of the Seventh Framework Program for R&D in the European Union. The country also has parallel funding agreements for joint R&D projects with Belgium, Finland, France, Germany, Holland, Ireland, Italy, Portugal, Spain, Sweden, China and Hong Kong, India and Taiwan.
Other positive indicators from 2006 include the reduction of Israel’s balance of trade deficit from $2.26 billion in 2005 to just $1.3 billion in 2006. In fact with other foreign currency income Israel now has a foreign trade surplus. At the end of 2006 Israel’s foreign currency reserves climbed to a record high $29 billion. As a result Israel’s currency the New Israeli Shekel appreciated against the dollar during 2006 from 4.6 shekels to the dollar to 4.2. Israel’s Tel Aviv Stock Exchange yielded record gains for the third straight year – rising 22.6% in dollar terms in 2006 after rises of 24.7% in 2005 and 24.6% in 2004. Bank interest rates were reduced during 2006 to just 4.25% while a government budget surplus facilitated the lowering of income taxes as well as VAT from 16.5% to 15.5%. The cost of living rose by 2.5% during 2006. Privatization has also increased the government’s income with the country’s national airline El Al, the shipping company Zim, the major banks and oil refineries among the assets sold to private enterprise in the past few years.
All economic forecasters anticipate similar positive figures for the Israeli economy during 2007. The International Monetary Fund (IMF) estimates that the Israeli economy will grow an additional 4.5% in 2007.