The mass vaccination campaign in Israel, which was anticipated a year ago in the main countries, laid the foundations for the recovery of the economy after the slump of 2020. The OECD anticipates growth of 6.3% for 2021 and forecasts that it will continue between 4% and 5% in the next two years. The economic miracle that attracted more than 26,000 million dollars (23,200 million euros) of international capital to some 780 start-ups is behind this resurgence. Amid the boom in international investments in emerging technology companies, the thriving cybersecurity ecosystem, the sanctum sanctorum of Israeli innovation, accounted for 40% of the private funds injected into the sector worldwide, according to the National Directorate of Cybernetics.
“Israel entered the pandemic in a fairly healthy position with few vulnerabilities. The 2020 recession was relatively moderate, with a drop in GDP of 2.4%”, recalls Enrique Bal, economic and commercial adviser at the Spanish Embassy in Tel Aviv. “Exports of technological services have surpassed those of goods for the first time in history,” he points out, “and the technological economy breaks one record after another, encouraged by the atmosphere of entrepreneurship.”
Roi Yarom, chief economist of the National Cybernetics Directorate, considers that it is due both to the “increase in the global demand for innovation in cybersecurity, specifically in cloud security, and to the maturity of the sector, with companies that obtain increasing financing ”. This sector alone attracted 8.8 billion dollars from abroad. Recognized for its innovation and its ability to offer urgent solutions, Israeli cybertechnology responds, according to Yarom, to a growing global demand for cybersecurity. “Israel has to deal with serious cyber threats sooner than most countries and therefore has relevant experience in countering them,” he explains.
While inflation has soared to the highest levels in four decades in the United States and Europe, in Israel prices grew by a relatively moderate 2.8% in 2021. The Bank of Israel forecasts an average increase in the CPI of 1.6% for this year. The strength of the shekel, at its highest price against the dollar in the last quarter of a century, doped precisely by the manna from investments in technology companies, has contributed to lowering the cost of exports.
“The evolution of the shekel will depend a lot on external actions,” warns the Spanish economic adviser in Israel, alluding to the shift recently announced by the US Federal Reserve, which points to the month of March to adopt the first rise in many months. “The process of technological entrepreneurship can be affected, as it requires a lot of financing,” Bal stresses, “although Israel has powerful national savings.”
The gale of rampant energy spending, which in Europe has fueled inflation, has not hit Israel, where natural gas prices have held steady. The discovery and exploitation in the last decade of the Leviathan and Tamar macro-fields, in the waters of the eastern Mediterranean, have given the Israeli economy a high degree of energy self-sufficiency, with fixed prices agreed by the Government with the companies awarded the extraction of gas.
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stable salaries
Wage containment has also curbed inflationary pressure. This is reflected in the agreement between the Ministry of Finance and the Histadrut trade union center for the freezing of salaries in the public sector in 2022. In return, the Government has promised to increase the minimum monthly salary from the 5,400 shekels (1,500 euros) set for this year up to 6,000 shekels in 2025. Israel closed 2021 with an unemployment rate of 6%, 4.1% if covid patients are not counted, about to recover registered unemployment prior to the pandemic (3, 5% in February 2020).
In Israel, the second most expensive country in the OECD, after Switzerland, and with a cost of living that is 30% higher than the average of the member countries of this organization, the average salary is around 11,000 shekels (about 3,000 euros). It gives to live, if it is found where. The typical cost of purchasing a home in Tel Aviv exceeds 3.5 million shekels (975,000 euros), double the Israeli national average, according to the Central Bureau of Statistics.
The remuneration offered by the technology sector is twice the national average, with an average of 25,000 shekels and a salary increase of 8% in 2021. Workers in the start-ups They barely represent 10% of the working population. However, they contribute 25% of the income tax collection with their exorbitant salaries. “This situation generates a problem of inequality that Israel is not exempt from,” Bal stresses. The OECD notes that the highest rates of poverty are recorded among the two main minorities: the Arabs (21% of the population) and the ultra-Orthodox (11%).
The gap between the employees of the technological ecosystem and those of the traditional sectors of the economy, weighed down by low productivity growth, continues to widen, as warned by the economic editor of the daily Haaretz, David Rosenberg: “The pandemic has widened even more the distance between an elite that has been able to telecommute in start-ups awash in digital money and the rest of society”.
Bal, however, sees no risk of a tech bubble. “Israel remains in a virtuous circle with a fairly healthy fiscal position,” he says. “Many start-ups they fail, but they are too small and too varied to affect the whole. This diversified and fragmented environment does not seem to be a source of macroeconomic vulnerability. Quite the contrary”. And he adds: “It is a source of resilience, of the adaptability that characterizes Israel.”
Need for infrastructure
Spain has a favorable trade balance, with exports of goods of the order of 1,500 million euros in 2021 by some 2,500 companies (from the automobile, ceramics or machine-tool sectors, in particular) that usually operate in Israel, in contrast to the 680 million added by imports. “Now we pay attention to the enormous needs in infrastructure. Israel lags far behind other developed economies in maintaining massive use of the private car. Together with the constant increase in the population, this generates a serious mobility problem”, argues Enrique Bal. The economic counselor of the Spanish Embassy also highlights the opportunities that are opening up in the field of renewable energies in Israel.
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