A year after October 7, 2023, it is clear that despite the difficult year experienced by the entire Israeli economy, the high-tech sector has demonstrated resilience. The sector’s strength is expressed by the fact that it was the fourth largest global hub in terms of capital raised since the onset of the war. At the same time, employment in the Israeli high-tech sector over the past two years has been characterized by stagnation and was similar to the growth rate of the general population. Looking forward, the jump in the technology stock indices on the US stock exchanges, together with expectations for a lowering of interest rates by the central banks in the US and Europe in 2025, may contribute to the continued recovery of the technology sector in the different global hubs. We therefore offer the following recommendations aimed at helping Israel maintain its global standing as a leading innovation hub:
Recommendation 1:
To continuously monitor central metrics that indicate the state
In this report, we have surveyed the Israeli high-tech sector based on a variety of metrics that reflect its state in terms of fundraising and employment. The Innovation Authority will continue to monitor these metrics on an ongoing basis. At the same time, it is also important to continue monitoring the composition of the sector’s employees in development and other jobs, and the number of employees that Israeli companies employ overseas.
A further metric that may reflect the faith of entrepreneurs and investors in Israel is the place that new technology companies are registered in. Furthermore, there is a need to continue examining the distribution of startups’ fundraising according to the companies’ life-stage, the fields of their activity, and the prevalent mood in the sector. This is necessary in order to ensure available capital for investments in a variety of fields, both for young startups and for growth companies.
Recommendation 2:
To reduce the local uncertainty in the business environment
According to the Ministry of Finance, since the beginning of the war, the State of Israel’s GDP has been impaired by over 4%. In contrast, state expenditure has increased over this period by more than 20%. This is an unsustainable situation in the long-term, and to contend with the growing financing needs of the war, a need therefore exists for growth engines.
Considering the significant size of the high-tech sector, that comprised over 24% of the business GDP of the Israeli economy in 2023, it is expected to play a central role in returning the Israeli economy to a growth trend. To do so, there is a need to employ counter-cyclical measures to increase government investment in the sector, in order to ensure its continued future prosperity. Government investment in the sector must provide a response to the needs of Israeli technology companies in a diversity of life-stages and fields of activity and must continue encouraging investment entities to increase their investments in Israeli technology companies and venture capital funds.
Increasing state investment in the sector during this period will also constitute a positive signal for investors and will assist in reducing uncertainty, a signal that is significant in a high-tech sector that relies on foreign players – investors, clients and suppliers – that are sensitive to the local instigators of risk and instability in the business environment.