As every year, the Innovation Authority is proud to bring you the annual report outlining the state of the Israeli innovation industry. This state of affairs is different from all its predecessors due to the structural changes that have taken place in the global economy in general, and the Israeli economy in particular, in light of the unprecedented injection of capital made by the governments in most countries of the world due to the Corona crisis. At the end of 2021, a slowdown in capital inflows began, and at the same time there were declines in the global stock markets. Thus, in Israel, too, a certain slowdown in the rate of capital investments in high-tech companies was recorded in the first quarter of 2022, After reaching an impressive peak of about 27 billion dollars in 2021. This year was also a record year in the number of companies growing into complete companies reaching a value of over a billion dollars (unicorns), which is more than 40 companies. Another record recorded in 2021 is the number of companies going public (IPO), which stands at more than 75 newly issued companies. These records led to an accelerated increase in the demand for professional personnel, both for research and development workers and for workers in business professions, and in the process also to intense competition for workers. This competition translated into wage increases given the severe shortage of professional labor.

Despite all these records, the continued global leadership and growth of the Israeli high-tech industry is not guaranteed. The rate of development of the latest technologies is accelerating, and their application is accompanied by huge investments that change lifestyles and global power relations. Countries that keep pace with research and development and the implementation of innovation for the benefit of their economy, the well-being of their residents and their national strength will become a globally influential force. Countries that do not know how to invest, develop and adopt the accelerated innovation – will be left behind economically, socially and security-wise. These developments present Israel with a number of complex broad challenges, which require a combined government effort with the private sector, to allow the high-tech industry to continue to grow and sweep the Israeli economy with it. The centrality of the high-tech industry in the Israeli economy, which for the first time passed the 50% threshold of Israeli exports, requires the continued rapid development of the industry, which is the main economic growth engine of the State of Israel and provides it with national resilience.

The challenges to the Israeli Innovation Hub are many and are getting stronger. The lack of skilled workers for development tasks causes the transfer of R&D activities to other countries, so that in these countries, and not in Israel, new jobs are created. While the total investment in R&D in Israel, which also includes the private sector, is the highest in the world – at a rate of over 5% ( !) of the gross national product, the ecosystem is concentrated in a relatively limited variety of technological fields, based on software and low government investment in R&D compared to the rest of the world. This situation makes it difficult for the development of ecosystems in other fields of technology. Regulatory and bureaucratic barriers harm the ability to compete and the assimilation of innovation in Israel and prevent the assimilation of innovative Israeli technologies in the Israeli economy. Sometimes these barriers are the reason why Israeli companies move to operate abroad or even operate abroad in the first place. All of these can cause the country to lose Israel’s global leadership, which is already today expressed in various international rankings that measure global leadership in innovation. For example, in the Global Innovation Index (GII) ranking for 2021, Israel deteriorated to 15th place in the overall ranking. In view of this, the Israeli government and the Innovation Authority are working in different ways and developing new tools to adapt the ways of operation and to deal with the various challenges as discussed in the report below.

We would like to thank the Economics and Research Division of the Innovation Authority for preparing the report and for sharing the issues relevant to the continued prosperity of the high-tech industry in Israel and the Israeli economy. We would like to thank all the employees of the Innovation Authority for their high-quality and hard work during the year, the team of professional examiners and the members of the research committees in general, and the representatives The public in particular, for their dedication and professional work. We also thank the members of the Innovation Authority Council for their important work in outlining the policy and to all of the authority’s many partners, from the government and outside, for their activities to promote innovation in Israel.

Dr. Amiram Appleboom
Chief Scientist at the Ministry of Economy and Industry
Chairman of the Board of Directors of the Innovation Authority

Dror Bein
CEO of the Innovation Authority