Investment Climate

1

Investment Climate in Israel 2002

Investment Climate in Israel 2002

Amir HayekDirector General

State of Israel. Ministry of Industry and Trade

Presentation for OECD

Paris, April 10, 2002

2

Presentation

I. Facts & Figures

II. Reasons for Success

III. Israeli Hi-tech – A Case Study

IV. Prospects for the Future

3

Net Foreign Inward Investment ($ Billion)

01

2

34

5

6

78

9

10

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Portfolio

FDI

4

Net Foreign Outward Investment ($ Billion)

-1

0

1

2

3

4

5

6

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

PortfolioFDI

5

Going Global

International Investors – Some examples:

6

American Companies Invested in Israel- Some

Examples

Microsoft

Pratt & Whitney

AOL Time Warner

Intel

IBM

Boeing Enterprises

Cisco Systems

GE

Lucent

3Com

Hewlett Packard

Merrill Lynch

Motorola

Sun Microsystems

7

European Companies Invested in Israel - Some

Examples

Siemens

DaimlerChrysler

Volvo

Cable & Wireless

Baan

Volkswagen

Deutsche Telekom

L’Oreal

British Telecom

Danone

Ares Sereno

Unilever

8

Asian Companies Invested in Israel - Some Examples

Samsung Electronics

Daewoo

Nomura

Hutchison Telecomm.

Nissho Iwai

LG Group

Sony

Toyo Ink

Hyundai

Acer Computers

Sumitomo Trading

Fuji

Honda

9

Venture Capital in Israel

VC’s invested $3 Billion in 2000

VC invested alone = all of Europe

#4 worldwide for High Tech Deals

Startups raised over $1 Billion in first 6

months of 2000

10

Investments by Venture Capital Funds ($M)

0

500

1000

1500

2000

2500

3000

3500

1997 1998 1999 2000 2001

11

Venture Capital by Industry ($M)

0

50

100

150

200

250

300

350

400

450

500

Software Communic. Computers Medical equip. Biotech

1997 1998 1999

12

High-tech Capital Raised 1995-2001

0

500

1000

1500

2000

2500

3000

3500

$ Million

1995 1996 1997 1998 1999 2000 2001

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II. Reasons for success:

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1. High Annual Growth Rate (GDP)

6.4%

2.0%

-0.5%

6.2%5.9%

6.7%

3.3%

7.0% 6.8%

4.5%

3.3%

2.7% 2.6%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Forecast

15

19

22

25

28

34

35

38

53

65

70

135

0 20 40 60 80 100 120 140 160

Singapore

Iceland

South Korea

U.K.

Taiwan

Switzerland

Canada

Netherlands

Japan

U.S.

Israel

2. Highly Skilled WorkforceEngineers per 10,000 Employees

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3. Deregulation and Privatization

The privatization process began in 1986 and was accelerated in 1997.2002: There are currently 7 companies in the process of privatization, including Bezeq and El Al.From 1986- 2000 $8.6 billion was raised through privatization.During this time around 80 companies have ceased to be state owned.

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4. Monetary StabilityAnnual percentage change in CPI

0

2

46

8

10

12

14

1618

20

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

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5. Government support

Regional Development – Investment Center

Industrial R&D – Office of Chief Scientist - Grants- Technological Incubators - Magnet

Investment Promotion Center – first stop for

Foreign Investors

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Investment Center Approvals as % of GDP (1996-2000)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

20001999199819971996

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Other:

6. International Investors’ interest in Emerging Markets and Hi-Tech Sector

7. Liberal Foreign Trade Regime 8. Foreign Currency Liberalization9. Favorable Geo-political Climate

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Jaffa Oranges vs Software

0

500

1000

1500

2000

2500

3000

3500

exports ($millions)

CitrusSoftware

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III. Hi-tech sector- a case study

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From every point of view, Israel is technology:

36% of Israelis surf regularly on the Internet vs global average of 7% Over 70% are cell-phone users –2nd

highest usage in world 54% of all households have PCs

outranking US and UK

24

Hi-Tech as a Percentage of GDP

0

2

4

6

8

10

12

14

16

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Total high-tech revenues as a % of GDP

25

Change in composition of Non-Diamond Industrial Exports

1980 vs 2000

0%10%20%30%40%50%60%70%80%90%100%

20001980

Mining and Quarrying

Food and Beverages

Others

Textiles, Clothing andLeatherMetal and Machinery

Chemicals,rubber andplasticElectronics group

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Formula For Success:

Investment

Ideas

Innovation

Ingenuity

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#2 – Investment in Civilian R&D as % of GDP

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

H. Kong

Italy

Ireland

Norway

UK

Denmark

France

Germany

USA

Israel

Finland

% of GDP (2000)

28

0% 2% 4% 6% 8% 10%

Ireland

Mexico

Australia

OECD Av.

Spain

France

USA

Finland

Sweden

Israel

High Tech Education

Investment in Education as a % of GDP (1995)

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IV. Prospects for the Future

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2001

2001 economic indicators were affected by:

Slowdown in US Economy starting with High Tech crisis

Worldwide downturn

Deterioration of the security situation

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World Economic Downturn

The Israeli economy was in a mature, strong and stable position when the global recession hit.

As a result, the economy was able to absorb the shocks occurring abroad with minimal effect on the local economy.

After a record breaking year in 2000, during 2001 economic indicators dipped, but remained well above 1999 levels.

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2001: Some Growth Areas Continued

Despite the global tech downturn, during 2001, exports grew by:

Software +16%Pharmaceuticals +37%Security Products +19%

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2000 – A Record Year

Industrial exports were up 24.4%.

Foreign currency reserves reached an all time high of $22.93 billion.

TASE: 6th best performing market in the world (Merrill Lynch Report, 28.12.00)

Electronics exports were up 150% over 1999.

The Israeli Shekel was one of the strongest currencies in the world during 2000.

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2000 vs 2001

So, 2001 economic indicators appear low when compared to the unusual example of 2000.

When viewed in relation to previous years, 2001 figures point to modest gains.

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IMF Report, 2002

“The Israeli economy has withstood major exogenous shocks remarkably well so far. Once global demand begins to recover, there is a good chance that the economy will return to its high potential growth path relatively quickly.”

IMF: Israel Interim Staff Visit, Concluding Statement (Preliminary)—February 26, 2002, Section 12.

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Recovery

“When the US economy stages a recovery, the flexibility and structural characteristics of the Israeli economy means that it will be well-placed to stage a quick recovery of its own.”

International ratings agency, Fitch- report on Israel, Feb 10, 2002.

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Improved Outlook

The State of the Economy Index rose 0.4% in February 2002.Industrial exports increased by 4%, and high tech exports by 13.5% in January-February 2002.The number of job seekers dropped in February 2002, after rising steadily from January 2001 through January 2002.

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OECD NATIONAL CONTACT POINT

Established at Ministry of Industry and Trade (web site: www.moit.gov.il/ncp)

Intra-ministerial Advisory Committee to NCP

Guidelines translated to Hebrew and Arabic

Ongoing dialogue with civil society