Treasury: High-tech no longer Israel's main growth engine

Intel Kiryat Gat

Lack of skilled employees and rising salaries make Israel less attractive for foreign high-tech companies, the Finance Ministry warns.

A survey published today by Israel's Ministry of Finance states that high-tech is no longer the country's major economic growth engine. The report says, "In the years following the last global crisis (in 2008), there was a significant slowdown in the sector (high-tech)and it ceased being the growth engine of the economy. Since 2010, the rate of growth of the sector is only half the overall rate of growth in the economy and the sector stopped growing as a proportion of total exports. The most major challenge facing the sector is the supply of skilled human resources due to the relative size of Israel's high-tech sector (compared with other developing fields)."

The survey notes that there are 283,000 salaried employees in Israel's high-tech sector, representing 12% of the overall salaried workforce. High-tech contributes 9% of Israel's GDP and is responsible for 40% of exports.

In addition to the lack of skilled employees, the Ministry of Finance survey also cites other clouds that are gathering and likely to cast a shadow over the sector and hit startups and venture capital funds. "The fall in capital markets in the past few months is likely to hit activities in the sector, which are traditionally linked to the Nasdaq index (with a delay of a quarter). The importance of tracking developments in the sector stems from the findings of economic literature, which says that operations in the venture capital fund sector have a major contribution to innovation, growth and high productivity."

The ministry of Finance says that after the impressive growth in Israel's high-tech job market in the 1990's, "The stagnation in employment figures in recent years raises question marks about the future of the sector. The rapid growth of salaries in the high-tech sector backs up the assessment that the stagnation in employment reflects limitations on the supply side, in other words a lack of skilled manpower. In recent years, there has been rapid growth in salaries compared with the US, which is harming the attractiveness of expanding operations in Israel for foreign companies."

The Ministry of Finance says that the main reason for the lack of skilled employees is the fall in the number of computer science graduates and the rise on the number of college graduates in other disciplines. The survey notes that this trend is typical of the entire OECD but is more marked in Israel.

The survey says that the lack of skilled employees is not the only problem blighting Israeli high-tech. The Ministry of Finance also observes that Israel's status as a leader in innovation is being eroded and that in 2013 South Korea displaced Israel as the world's top country in terms of R&D expenditure as a percentage of GDP.

"More than this," the survey adds, "The erosion of Israel's status in the innovation sector is also seen in other international indices. For example, in the past two years, Israel has fallen to 22 in the WIPO innovation index and to 11 in the Bloomberg innovation index."

Published by Globes [online], Israel business news - - on February 14, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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Intel Kiryat Gat
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