Investment Climate in Israel 2000 Investment Promotion Center State of Israel. Ministry of Industry and Trade.

An Economy Transformed Until the 1980s, the Israeli economy was mainly focused on traditional industry such as agriculture and textiles. In the last 15 years, the economy has been radically transformed by a high-tech explosion.

Change in Export Growth Rate Jan- Jul 2000

Jaffa Oranges vs Software

Yesterday and Today In 1991 there was one VC fund in Israel. Today there are over 100. In 1992, total foreign investment in Israel stood at $537 million. For 1999, the figure was approximately $3.7 billion.

Today Today there are over 120 Israeli companies traded on US stock exchanges. More than any other country outside North America. During 1999, 12 Israeli companies made IPOs on Wall St, raising over $1.9 billion. There are over 20 Israeli companies traded on various European exchanges.

Direct Foreign Investment in Israel

Venture Capital Raised

Case Study: The Software Industry During the 1990’s, sales of Israeli software have increased 700%. Professional manpower has increased 250%. Software exports: 1997$1 billion 1998$1.5 billion 1999$2 billion 2000$2.5 billion (projected)

Multinationals Microsoft built their first, and Cisco has built their only R&D facilities outside the US in Israel. Motorola’s Israel facility is the company’s largest development center worldwide. In January 2000, IBM chose Israel for its first VC investment outside of the US.

American Companies Invested in Israel- Some Examples Microsoft Pratt & Whitney AOL Intel IBM Boeing Enterprises Cisco Systems Kimberly Clark 3M US Robotics Lucent 3Com Hewlett Packard Merrill Lynch Motorola Sun Microsystems

European Companies Invested in Israel - Some Examples Siemens DaimlerChrysler Volvo Cable & Wireless Baan Volkswagen Deutsche Telekom L’Oreal British Telecom Danone Ares Sereno Unilever

Asian Companies Invested in Israel - Some Examples Samsung Electronics Daewoo Nomura Goldtron Hutchison Telecomm. Nissho Iwai LG Group Sony Toyo Ink Hyundai Acer Computers Sumitomo Trading Fuji Honda

Recent Investments Lucent bought Chromatis for $4.8 billion. Intel bought DSP Communications for $1.6 billion cash. BMC Software bought New Dimension Software for $675 million. VerticalNet bought Tradeum for $474m. AOL bought ICQ for $407 million.

Technology Israeli startups, as well as more established companies, are leading the world in cutting edge technologies. Today, Israel has about 2,000 high-tech companies and more than 3,000 high-tech startups. These numbers represent the second highest concentration in the world, in absolute terms, after California.

VC Deals- 1999

The New Silicon Valley “Silicon Valley really has only one rival outside the US: Israel. Wall St. knows it” Newsweek, “The hottest market abroad these days is Israel, which offers a great tax climate, sophisticated high-tech and a culture that’s entrepreneurial down to its roots.” Forbes Global Business,

Technology Leader “ Thanks to quality education, Israel is one of the most advanced countries in the world.. Israel is advancing in high-tech even more than other developed countries.” Bill Gates, CEO Microsoft, World Economic Forum, Davos, January 2000 “Israel has the best engineers in the world... I view Israel as a tremendous source of technologies” Harry Bosco, President of Lucent’s Optical Networking Group (in “Globes”, ).

Where does Israel excel? Internet Software E-commerce Biotechnology Encryption and data security Agrotechnology Telecommunications Medical equipment Multimedia Electronics Computer aided education Datacommunications

1999 VC Investments by Sector

How did this remarkable transformation occur?

The transformation is a result of three major factors: Outstanding human resources Modern infrastructure for technological development A supportive environment for business development

Our Best Resources Apart from some minerals in the Dead Sea area, Israel has virtually no natural resources. Israel was forced to turn to the only resource that it has: Its human capital

1. Outstanding Human Resources 1. Outstanding Human Resources

A Product of Adversity Highly trained graduates of the Israel Defense Forces have spearheaded the high- tech boom; turning cutting edge defense technology into civilian applications. Close to 1 million highly educated immigrants from the former Soviet Union.

Outstanding Human Resources I One of the most highly educated workforces in the world. A multilingual population with cultural, historic and business ties to almost every other nation. Israel ranks third in the industrialized world in the number of patents per head of population (after the US and Japan).

Scientists & technicians per 10,000 workers

An Educated Workforce 24% of Israel’s workforce hold university degrees (ranking 3rd in the industrialized world, after the US and Holland). 12% hold advanced degrees. 35% of Israelis between the ages of hold a university degree. 40% of new immigrants hold academic degrees.

Investment in Education

Outstanding Human Resources II Well established and strong academic infrastructure. An entrepreneurial environment. Large numbers of Israelis are eager to establish their own businesses and make their mark. Success stories breed success. Everyone wants to be an ICQ.

Establishing New Businesses

2. Modern Infrastructure for Technological Development

Modern Infrastructure I State of the art telecommunications and data- communications. World renowned medical, scientific, advanced research and educational institutions. A highly advanced banking and financial sector. Government supported technological incubators.

Technological Incubator Projects 24 incubators have accepted a total of 800 projects. 592 have left the incubators. Of these, 308 (52%) have continued to operate (either through private investment or on their own steam). 208 projects continue in the incubators today.

Modern Infrastructure II A large volume of high-tech and science based industry in centralized locations- including 19 hi-tech industrial parks. Israel has one of the highest rates of PCs per household (54%) in the world: US (42%) and the UK (37%).

Investment in R&D

3. Supportive Environment

Government Support Competitive government grants. Tax holidays for up to 10 years. Significant government funding for R&D projects. Labor training grants. Marketing Encouragement Fund.

Restructuring the Economy The Israeli economy has been transformed into a modern, liberalized and open system. An open and liberal foreign currency system. A major reduction in government involvement in the economy. Inflation in 1999 was just 1.3% -The lowest figure in 33 years.

Government Spending

Privatization From , $3.5 billion was raised from the government’s privatization program. A further $4 billion was raised in alone. During this time a total of 75 companies have ceased to be state owned.

Supportive Business Environment Worldwide taxation and customs treaties. Protection of trademarks, patents and intellectual property of all kinds. Comprehensive legal protection of foreign companies.

Trade and Research Bi-national funds for R&D projects with many countries (including the US, Europe, Singapore and the UK). Large number of free trade agreements in place with other nations. Israel is the only country to have a FTA with the US, the EU and EFTA.

Committed There is a unilateral commitment, across the political spectrum, to the restructuring and liberalization of the Israeli economy- including privatization. Similarly, there is an across-the-board consensus regarding the importance of government incentives for continued technological development.

Main Indicators 1999 Inflation 1.3% Unemployment8.9% Imports of Goods $ b Export of Goods $ b GDP$ 98.9 b Business Sector Production$ b GDP/cap$ 16,170

The New Economy Remarkably, just as Israel’s high-tech sector has boomed, it is this sector that is generating economic excitement across the globe. The ease of transfer of information today minimizes Israel’s traditional disadvantage of being physically distant from major markets.

Tomorrow More and more foreign companies are coming to Israel in search of startups. In the first half of 2000, the annualized growth rate reached 5.4%. Electronics exports were up 138% during the first seven months of Israel was placed in the World Bank’s list of the 35 developed countries of the world.

Tomorrow Industrial exports were up 28% during Jan- July According to the Israel Export Institute, 2-3 new startups are established in Israel every day. Hundreds of startups and incubators are just embarking on their road to success.

So, Why Do Business in Israel? n Outstanding human resources n Modern infrastructure n Supportive environment n Don’t miss out on the high-tech boom that is transforming Israel.

Ministry of Industry and Trade INVESTMENT PROMOTION CENTER 30 Agron St, Jerusalem Israel, Presented by Dani Wassner