The Israel Innovation Authority Annual State of High-Tech Report: Government Investment in Future Lowest in OECD, Must Be Increased

The Israel Innovation Authority released its “The State of High-Tech 2022” annual report and the results are mixed with both good and bad news for the Israel high tech sector moving forward.

For example, while the world talks about the success of Israel Startup Nation and its top tier research and development abilities, Israel is actually at the bottom of the OECD list for government investment in R&D. But maybe that’s just because the Israeli government prefers a Laissez Faire attitude on these things and prefers to let the industry run itself. If so, this has certainly worked over the past 30 years and one cannot argue with success.

Irrespective of the report, Israeli businesses have gotten some good and bad news this past week. The announcement that the U.S. Federal Reserve is raising its interest rates led to a sharp decline in the Shekel’s value against the dollar. This should help make it easier for foreigners to invest in Israel since their money will go further.

But at the same time, the move caused stock markets to drop everywhere. This is also happening due to global concerns over the ongoing crisis in Ukraine and how this has caused the price of oil to skyrocket. Lower markets, of course, discourage investors in new companies as they look to bonds as a safer bet for their investment.

As for the report, it states that over the past year, the high-tech sector saw record levels of capital raised, but its shares on the NASDAQ fell by about 10 percent; Israeli high-tech exports exceeded the 50 percent threshold for the first time, and employment in the industry rose above 10 percent of all employees; the growth in employment in the high tech sector stood at 8 percent, as opposed to 1 percent in the economy as a whole; and computer science is the popular undergraduate profession.

Innovation Authority: “Over the years, government investment in research and development in growing and future segments, as a percentage of GDP, has been steadily declining. The continued growth of the Israeli high-tech industry in the face of global competition is at risk due to substantially low government investment vis-à-vis other countries.”

Here is a quick summary of the main things learned from the report:
Fintech is big: During the past year, 56 percent of high-tech investments were directed to one of three areas: enterprise software, fintech, and cyber (25 percent, 17 percent and 14 percent respectively).

Israel has raked in 21.7 percent of the world’s cyber investments.

Israel is in first place on the OECD list of R&D expenditure as a percentage of GDP. In 2019 it crossed the five percent threshold for the first time and in 2020 the figure stood at 5.44%.

But at the same time, Israel is ranked in last place among OECD countries for the rate of governmental R&D investment as a proportion of all investment in the field.

Israel is not the main beneficiary of the knowledge stemming from Israeli academia: According to the Global Innovation Index, Israel is ranked in first place in the world in terms of collaboration between academia and industry, but only 15 percent of these collaborations are with Israeli companies.

The Innovation HUB in Israel is deteriorating in comparison to the rest of the world: In 2021, Israel dropped to 15th place in the Global Innovation Index, after it was ranked 13th place in 2020 and 10th place in 2019.

Israel leads the world in the rate of high-tech workers. But its tech sector is not diverse, with a very low representation from the country’s Arab minority as well as its ultra-orthodox community. But Israel is currently taking steps to greater integrate its ultra-orthodox into the modern world. However, the community chooses to shun modern things like the Internet.

In 2021 around 362,000 people were employed in the Israeli high-tech, constituting 10.4 percent of all employees in Israel. For the sake of comparison, the proportion of high-tech employees in Ireland is 9.2, in Sweden 5.7, in Germany 5.3, in the Netherlands 4.3 and in the United Kingdom 5.5.

The report found that the number of workers in the high-tech grew by eight percent during the past year, in contrast to the one percent rate of growth in the other branches of the economy, adding around 27,000 new workers.

Report Highlights
 88 mega-fundraising rounds of over 100 million dollars during the past year, but the market value of Israeli technology companies on NASDAQ fell during the same period by around 10 percent.
 For the first time, high-tech exports made up more than half of all Israeli exports, standing at 54 percent.
 For the first time, employment in high-tech exceeded 10 percent of all employment in Israel.
 A six percent decline in the amount of ultra-Orthodox employees, and stagnation in the rate of Arab employees.
 19 percent of Israelis aged 30-34 are employed in tech positions in all branches of the market.
 The rate of Israelis aged 45-49 employed in high-tech doubled over the past decade, from six percent in 2012 to nearly 12 percent in 2021.
 Only eight percent of those employed in high-tech are at companies defined as “young startups”.
 Around 11 percent of students study computer science for their undergraduate degree, making it the most popular degree.
 Israel is first place in the OECD rankings for R&D expenditure as a percentage of GDP but takes last place in terms of government expenditure in R&D as a percentage of the overall investment in the field.
 In 2021, Israel dropped to 15th place in the Global Innovation Index, down from 10th place in 2019.
 Israel is a global leader in cooperation between the academia and industry but only 15 percent of these collaborations are with Israeli companies.

Dr. Ami Appelbaum, Chairman of the Israel Innovation Authority commented on the problem of the country failing to invest more in this field.“Israel can’t bury its head in the sand and expect that, without long-term investment in high-tech, the economy’s main export sector will continue to lead in the global arena,” he said. “It is evident in the country’s decline in the Global Innovation Index, and in indices that examine the resilience of academia. Past national investments allowed Israel to claim its position as a global leader in the area of innovation and the country must continue to maintain this position.”