A Stronger Shekel – Weaker High-Tech

Alongside the Covid crisis, Israeli high-tech is currently contending with an old-new challenge that raises its head every few years – the strengthening of the shekel in relation to the USD. During 2020, the exchange rate dropped from 3.5 shekels per dollar to 3.2 shekels per dollar – its lowest level since 2008 – where it has remained almost unchanged since. From the perspective of the Israeli industry, a stronger shekel means weaker high-tech due to higher expenses: Israeli high-tech companies typically sell and raise capital in dollars while their salary, rent, and other expenses are, largely, in shekels. As an export-oriented sector, a stronger shekel therefore leads to higher company expenditures without a parallel growth in activity, purely as the result of currency exchange rate fluctuations.

For Israeli high-tech companies, the stronger shekel impairs its profitability and thus weakens their global competitiveness. Many company directors and senior executives have recently expressed concern at the sector’s impaired competitiveness however a multi-year analysis of the NIS/USD exchange rate reveals a cyclical pattern. Over the last decade, the shekel has alternatively weakened and strengthened in value against the USD while there has been a parallel consistent increase in high-tech productivity. During previous periods of a strong shekel, senior high-tech personnel also expressed concern about its ability to maintain its competitive advantage. Nevertheless, data presented in this report shows that Israeli high-tech has gained in strength and grown despite the warnings and concerns, breaking records in capital recruitment and other indices.

One of the primary significances of the stronger shekel is the higher expense of employing Israeli engineers, already high by international standards.16 A survey conducted by Deloitte for the National Economic Council in 2018 found that the salary of Israeli R&D employees in multinational high-tech companies operating in Israel was similar to the average salary of R&D employees in the US (except in Silicon Valley) and approximately 20% higher than the parallel figure in Canada. If the shekel continues strengthening in relation to the dollar, some companies, especially those that also have development centers in other countries, will transfer jobs from Israel to countries in which salaries are lower. The long-term question is whether the chronic shortage of Israeli engineers and higher employment costs will result in companies deciding to leave Israel. Is it more likely that companies leave, or for them to decide that there is no replacement for local talent?

The NIS-USD Representative Rate

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  • 16. See the Deloitte report: ‘An Examination of the Activity of Multinational Development Centers and Innovation Centers in Israel’.
  • 17. Innovation Authority adaptation of Bank of Israel data.