Israel's tech business withstanding conflict stresses – report

The Israel Innovation Authority launched a report right this moment inspecting the state of the Israeli know-how business a yr after the beginning of the Swords of Iron conflict. The business is important to Israel’s economic system: high-tech accounts for over half of the nation’s exports, a fifth of its GDP, and 1 / 4 of state revenues from earnings tax and firms tax, in keeping with figures from the Ministry of Finance.

Among the many worrying factors raised by the report is the rising focus of funding in cybersecurity, and in addition in late-stage startups. It finds that 60% of investments in the course of the interval of the conflict have been in massive financing rounds by established corporations, with cybersecurity attracting 35% of whole funding, which is double the proportion in earlier years. As well as, in keeping with the report’s findings, substantial gaps have opened up between returns on funding in Israeli corporations and on corporations elsewhere on the planet. The Tel Aviv Know-how Index has risen by simply 14% for the reason that outbreak of conflict on October 7 final yr, which compares with a 31% rise within the Nasdaq index.

An extra concern is a standstill within the variety of individuals employed within the know-how sector, which has remained steady at about 400,000 since 2022. Furthermore, the employment combine has modified, with development in analysis and growth jobs however a decline in product and enterprise jobs, which is liable to limit the business’s skill to develop in the long run.

Nonetheless, the report additionally factors to indicators of power. Israel has maintained its standing as a spotlight of know-how funding, and is ranked third on the planet in that respect, after San Francisco and New York. In response to the report, since mid-2022, funding in Israeli know-how corporations has stabilized at round $2 billion per quarter, which has similarities to the degrees seen in 2018-2019, earlier than the height of 2021. Furthermore, for the reason that outbreak of conflict, the change in funding in Israeli know-how corporations in contrast with a yr beforehand has been just like the common change in the primary know-how hubs all over the world.

As well as, the report finds that there was no substantial change within the variety of overseas enterprise capital funds energetic Israel. Overseas funds account for about two-thirds of enterprise capital exercise in Israel.

Israel Innovation Authority CEO Dror Bin informed “Globes”: “Israeli excessive tech has been within the midst of a extreme storm for the reason that begin of the worldwide disaster in mid-2022, and for the reason that starting of 2023 when Israel skilled political instability, and from the fourth quarter of 2023 we’ve got been at conflict. Regardless of all this, the quantity of funding for the reason that conflict began has been just like the earlier yr, and we aren’t seeing a decline in employment. That is all excellent news, indicating the robustness of the know-how sector. Nonetheless, there are issues of concern, resembling the truth that development has primarily been in R&D on the expense of enterprise roles, which is liable to hurt long-term development. One other concern is the rising dependence on cybersecurity.”

Advice to extend authorities funding

Among the many report’s suggestions is larger authorities funding in excessive tech, significantly in early-stage startups and in fields the place the supply of capital is low. The Authority additionally requires steps to be taken to cut back uncertainty within the enterprise surroundings, vis-à-vis overseas buyers, with the intention of preserving Israel’s standing as a worldwide chief in technological innovation. “Two essential issues must occur within the funds and the Financial Preparations Regulation,” provides Bin. “One is a taxation bundle for overseas buyers and multi-national corporations, whereby we attempt to create an surroundings for them not essentially of much less tax, however of larger certainty, to compensate for the uncertainty that at present exists in Israel, and the second factor, as occurred this yr, is a bigger funds.”

Revealed by Globes, Israel enterprise information – en.globes.co.il – on September 23, 2024.

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