Economy of Israel

Vol.1-2014

Israel - Killer or Leader?

With 20 years Economic Overview

The report is based on the authors’ opinion and the facts collected which may or may not be agreed by the readers.

Disagreement with any part of this report is welcomed.

Asim Siddiqui, Daniyal Kaleem and Saniya Salah Udddin

Daniyal, Asim and Saniya

2

By,

Daniyal Kaleem

Muhammad Asim Siddiqui

Saniya Salah Uddin


3

Dedicated to,

Dr. Tahir Ali

Chairman

Department of Commerce

University of Karachi


4

Serial # Chapter Page #

1 Acknowledgement 5

2 Introduction _______________________ 6 -9

2.1 Objective ………………………………………….. 7

2.2 Preface ………………………………………….. 8

2.3 Summary …………………………………………. 9

3 History __________________________ 10-20

3.1 Judaism-Background …………………………... 11-12

3.2 Formation of Israel …………………………….. 13-18

3.3 Overview ………………………………………. 19

3.4 Map …………………………………………….. 20

4 Economic Indicators ______________ 21-22

World Bank, CIA & United Nations …………... 22

5 Economic Performance _____________ 23-136

5.1 GDP 1995-2014 ……………………………….. 24

5.1-A Graph …………………………………………... 25

5.1-B Reasons for Variation …………………………... 26-28

5.2 Agriculture ----------------------------------------------- 29-62

5.2-A Introduction …………………………………….. 30

5.2-B History ………………………………………...... 31-32

5.2-C A Glance …………………………………………. 33-34

5.2-D Analysis, Planning, Research, Government ……… 35-38

5.2-E Irrigation and Technology ………………………. 39-42

5.2-E Fruits …………………………………………….. 43-46

5.2-F Vegetables ………………………………………... 47

5.2-G Dairy Farming …………………………………….. 48

5.2-H Poultry and Beef ………………………………….. 49

5.2-I Aqua Culture ……………………………………... 50

5.2-J Mari Culture ……………………………………... 51

5.2-K Floriculture ………………………………………… 52-54

5.2-L Bee Keeping ………………………………………. 55-56

5.2-M Economy, World Market, Future ………………….. 57-60

5.2-N Challenges …………………………………………. 61-62

5.3 Industry ------------------------------------------------------ 63-103

5.3-A Introduction …………………………………….. 64

5.3-B High-Tech Industry …………………………...... 65-68

5.3-C Defense Industry ...………………………………. 69-74


5

5.3-D Aerospace Industry ………………….………… 75-76

5.3-E Weapon Industry ………………………………. 77-78

5.3-E Electronics Industry ……….……………………… 79-80

5.3-F Diamond Industry ………………………………… 81-82

5.3-G Textile Industry …………………………………… 83-86

5.3-H Semi-conductor Industry …………………………. 87

5.3-I Chemical Industry ………………………………… 88-90

5.3-J Automative Industry ………………………….…... 91

5.3-K Design Industry …………………………………… 92-93

5.3-L Film Industry …………………………………….. 94-95

5.3-M Tourism Industry …………….………………….. 96

5.3-N Association of Different Industries …………...... 97-102

5.3-O Industry and GDP ………………...………........... 103

5.4 Services --------------------------------------------------- 104-136

5.4-A Introduction …………………………………….. 105

5.4-B History ……………………………………………. 106-107

5.4-C Finance ………….………………………........... 108-111

5.4-D Banking …….....…………………………………. 112-113

5.4-E Tourism …………………………….…………… 114-122

5.4-F Trade ….….……..……………………………… 123-126

5.4-G Public Sector …………………………………….. 127-129

5.4-H Health Care ……………………………………… 130-132

5.4-I Education ………………………………………. 133-134

5.4-J Taxation ……………………………………...….. 135

5.4-K Conclusion and Recommendation ……………… 136

6 Current Situation __________________ 137- 145

6.1 Budget ……………………………………………… 138-140

6.2 Revenue Indices & Receipts and Payments ……….. 141

6.3 Private Consumption and Capital Formation ……… 142

6.4 Expenditure on GDP and Uses of Resources ……… 143

6.3 Gaza War Impact ………………………………… 144-145

7 Summary __________________________ 146-151

7.1 Agriculture ……………………………………………… 147

7.2 Industry ………………………………………………... 148

7.3 Services ………………………………………..……… 149-151

8 Comparison __________________________ 152-160

8.1 Economy of Pakistan …………………………………… 153

World Bank, CIA & United Nations 8.2 Agriculture ………………………………………….. 154-155

8.3 Industry …………………………………………… 156-158

8.4 Services …………………………………………….. 159-160


6

9 Conclusion ___________________________ 161-164

9.1 Recommendation ………………………………………. 162-164


7

Acknowledgement

The report is the mandatory research of the Course, Development Economics, studied in the 4th

Semester of BS program at Department of Commerce, University of Karachi.

1st of all we would like to thanks Allah the Almighty, who give us the opportunity to study at this

department from the best faculty of country.

We have decided to dedicate this report to our honorable Chairman, Dr. Tahir Ali because he is

always been so helpful to his students in every matter. Thanks to the great Chairman for giving

us the best environment and faculty to learn from.

Then we would like to thanks Madam Ayesha Farid who is the course in-charge. She taught all

the chapters that are to be covered in this report in the 3rd

Semester’s course and this semester

also. Then she gave us this report to do which basically not emphasizes on the Israel’s economy

but the main purpose was to identify the flaws in Pakistan’s economy and make it a better

country to live. It was a highly challenging research since our 1st semester and at some moments

we were not very hopeful on completing this report. However, her confidence given to us helped

actually in completion of this difficult research. We thank the great teacher for her cooperation in

this regard.

At last, we would also thanks the other faculty members of this department especially to one of

our greatest teachers, Sir Muhammad Farrukh Aslam who always assisted us in this report.


8

Introduction


9

Objective

Since we started to understand the world countries, we always heard few country names which

were very common to us, like United States of America, United Kingdom, Kingdom of Saudi

Arabia, India, China and Israel.

Israel-A country whose name whenever called was always taken negatively, whenever some

worst, any terrorist attack had occurred. People always used to express hatred for the country.

When we studied the course, Development Economics, we were assigned the economic report of

Israel. Firstly, we also expressed negative emotions as the report was assigned at the time of

Gaza Genocide-2014. We started to research on Israel which gives us very shocking and

unexpected knowledge.

The report carries the history of Israel, the economic position of the country among the world

along with a very detailed 20 years analysis of the country’s economy. The report covers all the

economic sectors which make the country one of the strongest economy of the world. The report

also covers the non-economic sectors which don’t have a direct impact on the economy however

they are considered in the economic plans.

At the end of the report, we have given a 20 years brief economic position of Pakistan. The basic

purpose of the report was to compare our country with the economy of Israel. We have also

given necessary recommendations with reference to Israel to improve the economy of Pakistan.


10

Preface

The State of Israel was founded on 14th

May 1948. The country is located in Western Asia. The

geographical alignment of Israel includes latitude of 31° 30' N and longitude of 34° 45' E. The

particular latitude shows its position in Northern Hemisphere. Israel covers a total area 20,770

sq. km, is the 154th largest country of the world.

Jerusalem, the capital and largest city of Israel is also partly claimed by Palestinians. The city has

major religious significance in the world; this is the birthplace of three major religions: Islam,

Judaism, and Christianity. Israel is the only country in the world following Hebrew calendar,

also called as Jewish calendar.

Israel has since fought several wars with neighboring Arab states, in the course of which it

has occupied the West Bank, Sinai Peninsula, part of South Lebanon, Gaza Strip and the Golan

Heights. It annexed portions of these territories, including East Jerusalem, but the border with the

West Bank is disputed. Israel has signed peace treaties with Egypt and with Jordan, but efforts to

resolve the Israeli–Palestinian conflict have so far not resulted in peace.

It is a developed Middle East country. It is the member country of the Organization for

Economic Co-operation and Development (OECD). The country is considered as the 43rd

largest economy of the world as per GDP 2012. The country has the highest standard of living in

the Middle East.


11

Summary

Israel has a technologically advanced market economy. Cut diamonds, high-technology

equipment, and pharmaceuticals are among the leading exports. Its major imports include crude

oil, grains, raw materials, and military equipment. Israel usually posts sizable trade deficits,

which are covered by tourism and other service exports, as well as significant foreign investment

inflows. Between 2004 and 2011, growth averaged nearly 5% per year, led by exports. The

global financial crisis of 2008-09 spurred a brief recession in Israel, but the country entered the

crisis with solid fundamentals, following years of prudent fiscal policy and a resilient banking

sector. In 2010, Israel formally acceded to the OECD. Israel's economy also has weathered the

Arab Spring because strong trade ties outside the Middle East have insulated the economy from

spillover effects. The economy has recovered better than most advanced, comparably sized

economies, but slowing demand domestically and internationally, and a strong shekel, has

reduced forecasts for the next decade to the 3% level. Natural gas fields discovered off Israel's

coast since 2009 have brightened Israel's energy security outlook. The Tamar and Leviathan

fields were some of the world's largest offshore natural gas finds this past decade. The massive

Leviathan field is not due to come online until 2018, but production from Tamar provided a one

percentage point boost to Israel's GDP in 2013 and is expected to contribute 0.5% growth in

2014. In mid-2011, public protests arose around income inequality and rising housing and

commodity prices. Israel's income inequality and poverty rates are among the highest of OECD

countries and there is a broad perception among the public that a small number of "tycoons" have

a cartel-like grip over the major parts of the economy. The government formed committees to

address some of the grievances but has maintained that it will not engage in deficit spending to

satisfy populist demands. In May 2013 the Israeli government, in a politically difficult process,

passed an austerity budget to reign in the deficit and restore confidence in the government's fiscal

position. Over the long term, Israel faces structural issues, including low labor participation rates

for its fastest growing social segments - the ultra-orthodox and Arab-Israeli communities. Also,

Israel's progressive, globally competitive, knowledge-based technology sector employs only 9%

of the workforce, with the rest employed in manufacturing and services - sectors which face

downward wage pressures from global competition.


12

History


13

Background of Judaism

What is Judaism?

Judaism is the religion, philosophy, and way of life of the Jewish people. Judaism is

a monotheistic religion, with the Torah as its foundational text while part of the larger text

known as the Tanakh or Hebrew Bible, and supplemental oral tradition represented by later texts

such as the Midrash and the Talmud.

Judaism claims a historical continuity spanning more than 3,000 years. Judaism has its roots as a

structured religion in the Middle East during the Bronze Age. Of the major world religions,

Judaism is considered one of the oldest monotheistic religions.

Judaism includes a wide corpus of texts, practices, theological positions, and forms of

organization. Within Judaism there are a variety of movements, most of which emerged

from Rabbinic Judaism, which holds that God revealed his laws

and commandments to Moses on Mount Sinai in the form of both the Written and Oral Torah.

Historically, this assertion was challenged by various groups such as

the Sadducees and Hellenistic Judaism during the Second Temple period;

the Karaites and Sabbateans during the early and later medieval period; and among segments of

the modern reform movements. Liberal movements in modern times such as Humanistic

Judaism may be nontheistic. Today, the largest Jewish religious movements are Orthodox

Judaism, Conservative Judaism and Reform Judaism.

Judaism is considered by religious Jews to be the expression of the covenantal relationship

that God established with the Children of Israel. The Israelites were already referred to as "Jews"

in later books of the Tanakh such as the Book of Esther, with the term Jews replacing the title

"Children of Israel". Judaism's texts, traditions and values strongly influenced later Abrahamic

religions, including Christianity, Islam and the Baha'i Faith. Many aspects of Judaism have also

directly or indirectly influenced secular Western ethics and civil law.

Who are Jews?

The Jews are an ethno religious group and include those born Jewish and converts to Judaism.

The Jewish ethnicity, nationality and religion are strongly interrelated, as Judaism is the

traditional faith of the Jewish nation. Converts to Judaism typically have a status within the

Jewish ethnos equal to those born into it. Conversion is not encouraged by mainstream Judaism,

and is considered a tough task, mainly applicable for cases of mixed marriages

In 2012, the world Jewish population was estimated at about 14 million, or roughly 0.2% of the

total world population. About 42% of all Jews reside in Israel and about 42% reside in the United

States and Canada, with most of the remainder living in Europe, and other minority groups

spread throughout the world in South America, Asia, Africa, and Australia.


14

Christianity and Jews

The most profound difference between traditional Jewish belief and that of Christianity is in its

belief in the expected Messiah. Traditional Jewish belief holds that the Messiah of Israel is yet to

come, while Christians view the Messiah in the personage of Jesus. The disparity between these

two views has often given rise to tension and, occasionally, has spilled over into violence.

One of the basic positions held by Orthodox Jews regarding the Messiah is that he will come

from King David’s lineage and he will bring peace into the world.

Historians and theologians regularly review the changing relationship between

some Christian groups and the Jewish people; the article on Christian–Jewish

reconciliation studies one recent issue.

Islam and Judaism

Both religions claim to arise from the patriarch Abraham, and are therefore considered

Abrahamic religions. Jews have interacted with Muslims since the 7th century,

when Islam originated and spread in the Arabian Peninsula, and many aspects of Islam's core

values, structure, jurisprudence and practice are based on Judaism. Muslim culture and

philosophy have heavily influenced practitioners of Judaism in the Islamic world.

Jews in Muslim countries were not entirely free from persecution—for example, many were

killed, exiled or forcibly converted in the 12th century, Jews were confined to walled quarters

beginning in the 15th century and increasingly since the early 19th century.

In the late 20th century, Jews were expelled from nearly all the Arab countries. Most have

chosen to live in Israel. Israel has since fought several wars with neighboring Arab states after

which it has signed peace treaties with Egypt and Jordan, but efforts to resolve the Israeli–

Palestinian conflict have so far not resulted in peace.


15

Formation of Israel - A Chronological Presentation

1880 - The Jews in Palestine The Turks had ruled Palestine as

part of the Ottoman Empire's Syrian

province since conquering the entire

Middle East in the early 1500's.

During all these years a Jewish

presence had continued to exist in

the area, mainly in the four holy

cities of Safed, Tiberias, Hebron and

Jerusalem. The size of the Jewish

community had varied, in 1880

numbering around 25.000,

comprising about 1/10 of the total

population.

The Ottoman Empire, 1914.

1880 - First Wave of Immigration from Europe

Oppression and persecution in 1880's Europe lead many Jews to emigrate, especially from the

Russian controlled Eastern European provinces. One of the targets was Palestine. In the first

major wave of immigration an estimated 25.000 Jews arrived. Thus, at the turn of the century

there were about 50.000 Jews in Palestine, of a total population of 350.000.

1897 - Herzl and the Zionist Idea The first Zionist Congress (Zion is another word for Israel) a world-wide organization was

founded with the explicit aim of "establishing a home for the Jewish people in Palestine,

guaranteed under international law". Herzl and the other Zionist leaders sought backing for the

project with the leaders of the major powers - the Ottoman Empire, Germany and England. Only

the latter showed any interest in the idea.

1904-14 - Second Wave of Immigration Renewed Russian pogroms at the start of the century spurred another wave of immigration to

Palestine. Jewish organizations collected funds all over the world and purchased land, on which

the newly arrived Jews established farms and towns. In 1909 the first kibbutz (socialist

agricultural community) was established, and the same year the city of Tel Aviv was founded

close to the Arab port of Jaffa. Many Arabs also found their way to Palestine during these days.

In 1914 the Jewish population had grown to 85.000, the Arab to 500.000.

1915-17 - Promises and Alliances As Britain planned its invasion of the Ottoman Empire, of which Palestine was a part, it tried to

build alliances in several directions. In 1915, in a secret correspondance with the Emir of Mecca,

Britain promised support for Arab independence in the Middle East. In 1916 a secret deal to

divide the spoils of war was struck with France, and in 1917 the British government issued

the "Balfour Declaration" promising the Zionist Organization support for the establishment of "a

national home for the Jewish people" in Palestine.


16

1917 - The British Invasion As the Ottoman Empire entered World War I on the side of the Central Powers it was now at war

with England, and soon after British troops invaded all of the Ottoman Middle East. In 1917

General Allenby conquered Jerusalem, and one year after Damascus.

1920 - The Establishment of "Mandates"

After the war the victors divided the Middle East into a number of "mandate" areas, under

French and British administration. Syria (today Syria and Lebanon) was awarded to France,

while Palestine (today's Jordan and Israel including Gaza and the West Bank) and Mesopotamia

(Iraq) came under British control. The promise of the establishment of a national home for the

Jews in Palestine was integrated into the mandate agreement.

1920 - Arab Nationalism in Palestine

During and immediately after World

War I Arab nationalism awakened.

Feisal Ibn-Hussein, a son of the emir

of Mecca, and the Zionist leader,

Chaim Weizmann, tried to work out a

plan to realize the national aspirations

of both Jews and Arabs. But with the

loss of Damascus, the base of the Arab

nationalists, to France, cooperation

with the Jews ended, and the focus of

Arab nationalism was instead directed

towards Jerusalem and Palestine.

The mandates for Syria, Palestine and

Mesopotamia.

1920-21 - The first Arab Riots

Arab Nationalist leaders arranged demonstrations against the Jewish National Home. In april

1920 rioters attacked the Jewish population in Jerusalem. Many, both Jews and Arabs were killed

or wounded. In May 1921 Arab nationalists attacked Jews in the port city of Jaffa, and soon the

violence spread to other parts of the country with several Jewish farming communities coming

under attack. After a week of fighting 47 Jews were killed and almost 150 wounded. Many Arabs

were also killed and wounded, mostly in clashes with the British troops that quelled the uprising.

As a consequence of the Arab violence the British administration tightened the rules of Jewish

immigration to Palestine.

1922 - The League of Nations and the Palestine Mandate On July 24th, 1922 the agreement on the mandates for Syria, Palestine and Mesopotamia was

confirmed by the League of Nations - the predecessor of the United Nations. At the same time

the League of Nations approved the wording of the Balfour Declaration. Thereby the

international community charged Britain with securing "the establishment of a Jewish homeland"

in Palestine.


17

1922 - Jordan Severed from Palestine

In September 1922 Britain and the League og Nations decided that the 3/4 of Palestine east of

the Jordan River would be excluded from the area, in which the Jewish homeland was to be

established. The area was initially awarded limited autonomy under the name of Transjordan, but

was later granted full independence as The Kingdom of Jordan.

1922-23 - Failed Attemps at Arab-Jewish Power Sharing Several attempts were made by the British High Commissioner to Palestine at establishing

various kinds of home-rule for the mandate, in which both Jews and Arabs were to participate.

But the Palestinian Arabs rejected any proposal that included power-sharing with the Jews.

1920's - Development of the "Yishuv" The Jewish community in Palestine (the "Yishuv") developed rapidly in the 1920's. A Jewish

parliament, "Knesset Israel", was established, for which also women could both run and vote.

Responsibility for Jewish religious, culturel and social affairs was transferred to the Knesset.

Later, in 1927, it was also authorized to collect taxes from the Jewish community, and became

responsible for education, health and social welfare within the Jewish sector. Unproductive and

arid land areas were cultivated, industrial businesses were founded, and power plants and other

infrastructure were being built. Hebrew was used as a business language, there was a Hebrew

press, and in 1925 The Hebrew University was inaugurated just outside Jerusalem.

The Arabs also benefitted from the economic growth of the Jewish sector. In 1925 the Jews

made up only about 15% of the population, while accounting for 45% of the mandate's total tax

revenues. Conversely, most of the money was spent on the Arab sector, which, contrary to the

Jewish sector, didn't have any functioning welfare system

1929 - Renewed Arab Attacks on Jews The Muslim leader in Palestine, the Mufti of Jerusalem, Haj Amin al-Husseini, initiated a

campaign of false rumors about Jewish threats against Muslim holy places, followed by calls for

attacks on Jews. Soon Jewish communities all over Palestine were under attack. In some cities

Jews succeeded in defending themselves, but in other areas regular massacres on Jews took

place. In Hebron 67 Jews were murdered, and the rest of the Jewish inhabitants driven out,

ending two thousand years of uninterrupted Jewish presence in the town.

1930-31 - Uncertainty about the Jewish National Home

In reaction to the Arab violence of 1929 the British leadership in Palestine tightened the rules for

Jewish immigration and the sale of land to Jews. But after protests from both The Zionist

Organization and The League of Nations, and an intense debate about Britain's continued support

for the Jewish National Home, the provisions were annulled.

1933 - Jewish Immigration Increasing

Hitler's rise to power in Germany in 1933 resulted in renewed Jewish emigration from Europe,

and Palestine experienced the largest wave of Jewish immigration yet. In the period of 1933-36

an estimated 175.000 Jews arrived, bringing the Jewish population up to around 370.000. The

Arab population too, experienced massive growth during the mandate period, since 1914 almost

doubling to 950.000.


18

1935 - Nazi and Arab Anti-Jewish Propaganda Arab scepticism towards Jewish immigration from Europe was further exacerbated through

German and Italian anti-Jewish propaganda in the Arab World. Arab political commentators

disseminated myths of Zionist plans to kill Arabs and desecrate mosques, and called for a

Palestinian "Jihad" against both Jews and the British. In 1935 the powerful Arab Al-Husseini

clan founded the "Palestine Arab Party", along with an armed militia, "al-Futuwwa", for battle

against the infidels.

1936 - The Arab Revolt In April 1936, as a protest against the immigration policy of the British mandate, the Mufti of

Jerusalem, Haj Amin al-Husseini, organized an general strike and total Arab boykott of the

mandate. Spontaneous violence erupted, followed by organized attacks on Jewish farming

communities by Arab gangs. Civilian Jews were murdered, livestock killed and crops destroyed.

The British accepted a Jewish demand for the arming of 3000 Jewish guards ("ghaffirs"), which,

together with the Jewish underground organization, Haganah, established in reaction to the Arab

riots of the 1920's, partly succeeded in defending Jewish settlements against the Arab attacks.

The revolt and the accompanying strike was quite costly for the Arab community, and by autumn

the strike was called off, and the violence died out.

1937 - The Peel Commission's Partition Plan A British commission of inquiry, led by Lord Robert Peel, was sent to Palestine in order to find a

solution to the conflict. It suggested that the remaining part of the mandate (after the detachment

of Transjordan) be partitioned into two states, one Jewish and one Arab. The north-western fifth

of the area would constitute a Jewish state, the remaining, much larger part, would be Arab,

while a strip from Jerusalem to the port city of Jafffa would remain an international zone. The

plan included a "population swap" in order to make the proposed states as ethnically

homogeneous as possible. Opinions on the issue were divided among the Jews of Palestine, but

the general sentiment pointed towards hesitant acceptance. The Palestinian Arabs, on the other

hand, along with the rest of the Arab World, rejected the plan, which was then abandoned.

1937 - Arab-German Alliance

Nazi-Germany also rejected any partition of Palestine, which could lead to "a Jewish position of

power", and intensified its efforts to strengthen its position among the Arabs. In July 1937 the

Mufti of Jerusalem, Haj Amin al-Husseini, expressed his personal admiration of the new

Germany. The Arab press in Palestine too, showed support for the European Nazism and

fascism, and copied energetically from the European anti-Semitic propaganda. In exchange the

Nazis supplied weapons for the Palestinian Arabs' fight against the Jews.

1937 - The Arab Revolt Resumed

In the autumn of 1937 the Arab revolt was resumed, and attacks on Jewish settlements and

murders of Jewish civilians reached a new high. In 1938 the Haganah adopted a more offensive

strategy and organized mobile units, which staged nightly attacks against Arab guerrilla bases,

inflicting heavy losses on the Mufti's rebels. Also British soldiers were victims of Arab attacks,

prompting Britain to clamp down on the Arab leadership. Mufti Haj Amin escaped to Lebanon,

from where he continued to direct the fighting - not only against Britain and the Jews, but also

against his Arab opponents in Palestine. When the revolt was finally suppressed in August 1939


19

the number of dead had reached 2.394 Jews, 610 British og 3.764 Arabs, including hundreds of

Arab victims of the Mufti's terror.

1938 - Britain's Last Partition Plan In November 1938 the British Woodhead Commission issued a report recommending a partition

plan uniting a Jewish and an Arab state in a common economic union, allowing the Arabs to

enjoy the benefits of progress within the Jewish community. The partition was modified

(compared to the Peel-plan) so that the Jewish state would cover only 1/20 of Palestine, or about

1/100 of the original mandate. The Jews rejected the plan, arguing that the proposed Jewish state

was too small. The Arabs rejected the plan, ruling out any form of Jewish independence or

national self-determination.

1939 - British Abandonment of the Jewish National Home The British government presented a plan severely restricting Jewish immigration to Palestine,

while proposing the establishment of a single Arab majority state, with no specific protection of

the Jewish minority. The leader of the Palestinian Jews, David Ben-Gurion, warned the British

that a Jewish uprising in Palestine could be in every way as destructive as the recently ended

Arab revolt.

1939 - Jewish-British Alliance As tensions mounted between Britain and the Jews of Palestine, the latter were forced to make a

fateful decision: To be with or against Britain in the impending war against Germany. The choice

wasn't difficult. Jewish welfare and security depended on the democratic world. British-Zionist

quarrels had to be suspended for the greater cause. The Jewish community in Palestine threw

itself wholeheartedly into the war on the side of Great Britain.

1939-45 - Palestine during World War II

During World War II many Palestinian Jews were mobilized as soldiers on the side of the allies,

e.g. under the British East Kent Regiment ("The Buffs"), and later in the "Jewish Brigade," while

the rest of the Jewish commumity in Palestine employed all available resources in the production

of equipment, foods and other necessities in support of the allied war effort. The leaders of the

Palestinian Arabs, on the other hand, supported the Nazis. The highest Muslim authority, the

Mufti of Jerusalem, Haj Amin al-Husseini, was especially active, and travelled several times to

Berlin in order to persuade the Nazis to extend their program for the extermination of European

Jewry to also include the Jews of Palestine. In addition al-Husseini helped organize Bosnian

Muslims into the special "Hanzar" SS-division.

1945-48 - Refugees from Europe Despite Jewish support for the victory against Nazi Germany, and the enormous pressure from

refugees in the wake of the Nazi Holocaust, Great Britain, in an attempt to appease the

Palestinian Arabs, continued to enforce strict quotas for Jewish immigration. Some Jews were

smuggled into Palestine, while many perished at sea or ended up in refugee camps in Cyprus. In

respons to Britain's policy on Palestine the Jewish military underground organization, Haganah,

launched a campaign of sabotage against the mandate's installations. Some smaller, but more

radical, Jewish groups carried out regular terror attacks against the British administration in

Palestine.


20

1947 - The UN Partition Plan

In February 1947 Britain decided to turn over the problem of Palestine to the United Nations,

which had just been established following the end of World War II. A commission appointed by

the UN recommended a partition of the remainder of Palestine into two states, one Jewish and

one Arab, with Jerusalem as an international zone controlled by the UN.

On November 29, 1947 the UN's General Assembly adopted Resolution 181, thus approving the

partition plan. The Jews of Palestine, who by 1947 made up one third of the population, were

unhappy with the area allotted The leaders of the 1.2 million Palestinian Arabs, along with the

rest of the Arab World, rejected the plan, and declared to attack and destroy the Jewish state.

1947-48 - Preparation for War Immediately after the UN's decision on the partition of Palestine into one Jewish and one Arab

state in November 1947 Arab gangs began attacking Jewish communities all over Palestine. As

Britain prepared to pull out its last troops, Jewish and Arab underground militia fought to

position themselves most favorably in anticipation of the imminent Arab invasion. The prospect

of war made tens of thousands of Palestinian Arabs, including most of the elite, leave Palestine.

1948 - Israel's Independence War On May 14, 1948 Israel's 1

st Prime Minister, David Ben-Gurion, proclaimed the establishment of

the new Jewish republic. Next day the joint armies of Egypt, Jordan, Syria, Lebanon and Iraq

invaded the Jewish state. Measured by military equipment at the outset of war the Arabs were by

far superior. But internal strife between the Arab governments, along with the higher morale and

better organization of the Israeli troops, caused the war to turn in

Israel's favor. When the final cease-fire came into force in the

spring of 1949, the Israelis controlled 40% more land than

proposed by the partition plan. Egypt and Jordan occupied the

Gaza Strip and the West Bank. The projected Arab-Palestinian

state never materialized, but also never requested, neither by the

Palestinian Arabs, nor by the rest of the Arab World. Even

though Israel's Arab neighbors all signed armistice agreements

with Israel, they didn't recognize the Jewish state's right to exist


21

Overview

Particulars

Name State of Israel

Founded 14 May 1948

President Reuven Rivlin

Prime Minister Benjamin Netanyahu

Capital Jerusalem

Religion Judaism

Language Hebrew

Currency New Shekel

Area 20,770 km square

Population 8,146,300 (2014)

Financial Year January to December

GDP $272.7 billion

GNI $264253.00

PCI $36,200

HDI 0.888

Calling Code +972


22

Map


23

Economic

Indicators


24

Indicators by World Bank, CIA, UNO and Israel Ministry of Finance

Indicators Rates Reference

Gross Domestic Product $ 291.36 billin 2013-12-31

GDP Growth Rate 0.36% 2014-05-15

GDP Per Capita $ 23414.98 2013-12-31

Gross National Product ILS 264253.00 million 2014-05-15

Gross Fixed Capital Formation ILS 46853.60 2014-05-15

Human Development Index 0.888 2013-12-31

Inflation Rate -0.30% 2014-09-15

Interest Rate 0.25% 2014-10-27

Interbank Rate 0.26% 2014-10-15

Foreign Exchange Reserves $ 86416.00 million 2014-10-31

Exports $ 4644.00 million 2014-09-15

Imports $ 5603.50 million 2014-09-15

Balance of Trade $ -959.50 million 2014-09-15

External Debt $ 95376.00 million 2014-06-30

Foreign Direct Investment $ 4075.00 million 2012-12-31

Personal Income Tax Rate 50.00% 2014-01-01

Sales Tax Rate 18.00% 2014-01-01

Population 8.13 million 2012-12-31


25

Economic

Performance


26

Gross Domestic Product

Year Billion $ Variation

1994 82.9 -

1995 96.2 13.3

1996 105.2 9

1997 108.4 3.2

1998 109.8 1.4

1999 110.7 0.9

2000 124.1 13.4

2001 122.3 (1.8)

2002 112.8 (9.5)

2003 118.4 5.6

2004 126.4 8

2005 133.7 7.3

2006 145.1 11.4

2007 166.3 21.2

2008 201.5 35.2

2009 194.8 (6.7)

2010 217.7 22.9

2011 243.7 26

2012 241.1 (2.6)

2013 291.36 50.26


27

Graph


28

Reasons for Variation in GDP

1995

In 1995, the GDP was increased from $ 82.9 billion dollar to $ 96.2 billion. There was a huge

increase of $ 13.3 billion. In the same year, the assassination of Yitzhak Rabin took place on

November 4, 1995 (12th of Marcheshvan, 5756 on the Hebrew calendar) at 21:30, at the end of

a rally in support of the Oslo Accords at the Kings of Israel Square in Tel Aviv. The assassin, an

Israeli ultranationalist terrorist named Yigal Amir, strenuously opposed Rabin's peace initiative

and particularly the signing of the Oslo Accord. The assassination of Israeli Prime Minister and

Defense Minister Yitzhak Rabin was the culmination of Israeli right-wing dissent over the Oslo

peace process. Rabin, despite his extensive service in the Israeli military, was disparaged

personally by right-wing conservatives and Likud leaders who perceived the Oslo peace process

as an attempt to forfeit the occupied territories

The funeral of Rabin took place on November 6, the day after the assassination, at the Mount

Herzl cemetery in Jerusalem, where Rabin was buried.

2000

In 2000, the GDP was increased from $ 110.7 billion dollar to $ 124.1 billion. There was a huge

increase of $ 13.4 billion. President Clinton announced his invitation to Barak and Arafat on 5

July 2000, to come to Camp David to continue their negotiations on the Middle East peace

process. PALESTINE represented by President Anwar Sadat, and Israel represented by Prime

Minister Menachem Begin. On 11 July, the Camp David 2000 Summit convened, although the

Palestinians considered the summit premature. The summit ended on 25 July, without an

agreement being reached. At its conclusion, a Trilateral Statement was issued defining the agreed

principles to guide future negotiations

The negotiations were based on an all or nothing approach, such that "nothing was considered

agreed and binding until everything was agreed." The proposals were, for the most part, verbal.

As no agreement was reached and there is no official written record of the proposals, some

ambiguity remains over details of the positions of the parties on specific issues Also, Ehud

Barak announces his resignation as prime minister, and says there will be a new election for the

post. He will stay on as caretaker in the meantime.

2006-2007

In 2006 and 2007, the GDP was increased to $ 18.7 billion. The 2006 Lebanon War, also called

the 2006 Israel–Hezbollah War and known in Lebanon as the July War. and in Israel as

the Second Lebanon Warwas a 34-day military conflict in Lebanon, northern Israel and

the Golan Heights. The principal parties were Hezbollah paramilitary forces and the Israeli


29

military. The conflict started on 12 July 2006, and continued until a United Nations-

brokered ceasefire went into effect in the morning on 14 August 2006, though it formally ended

on 8 September 2006 when Israel lifted its naval blockade of Lebanon. Due to unprecedented

Iranian military support to Hezbollah before and during the war, some consider it the first round

of the Iran–Israel proxy conflict, rather than a continuation of the Arab-Israeli conflict.

The conflict was precipitated by the Zar'it-Shtula incident. On 12 July 2006, militants from the

group Hezbollah fired rockets at Israeli border towns as a diversion for an anti-tank

missile attack on two armored Humvees patrolling the Israeli side of the border fence.[

The conflict is believed to have killed at least 1,191–1,300 Lebanese people and 165 Israelis.It

severely damaged Lebanese civil infrastructure, and displaced approximately one million

Lebanese and 300,000–500,000 Israelis.

On 11 August 2006, the United Nations Security Council unanimously approved United Nations

Security Council Resolution 1701 (UNSCR 1701) in an effort to end the hostilities. The

resolution, which was approved by both the Lebanese and Israeli governments the following

days, called for disarmament of Hezbollah, for withdrawal of Israel from Lebanon, and for the

deployment of Lebanese soldiers and an enlarged United Nations Interim Force in

Lebanon (UNIFIL) in the south. UNIFIL was given an expanded mandate, including the ability

to use force to ensure that their area of operations was not used for hostile activities and to resist

attempts by force to prevent them from discharging their duties

ON MARCH 2006, Kadima party wins Israeli elections and Ehud Olmert becomes Prime

Minister. Voter turnout was the lowest ever (63.2%). Hamas ends 16 month long truce as cross

border violence escalates near Gaza.

2008

Israeli satellite Amos-3 is launched into space from the Baikonur Cosmodrome space launch

facility in Kazakhstan. Prime Minister Ehud Olmert announces that he would not seek re-election

as party leader and that he would resign from his position as Prime Minister immediately after a

new Kadima leader was named. One reason for resignation is the corruption scandal in which

Olmert is embattled

The Gaza War, also known as Operation Cast Lead was a three-week armed conflict between

Palestinians in the Gaza Strip and Israel that began on 27 December 2008 and ended on 18

January 2009 in a unilateral ceasefire. An Israeli ground invasion began on January 3. Infantry

commanders were given an unprecedented level of access to coordinate with air, naval, artillery,

intelligence, and combat engineering units during this second phase. Various new technologies

and hardware were also introduced.


30

On January 5, the IDF began operating in the densely populated urban centers of Gaza. The

conflict resulted in between 1,166 and 1,417 Palestinian and 13 Israeli deaths.

In September 2009, a UN special mission, headed by the South African Justice Richard

Goldstone, produced a report accusing both Palestinian militants and the IDF of war crimes and

possible crimes against humanity, and recommended bringing those responsible to justice.

2010

The 2010 Israel–Lebanon border clash occurred on August 3, 2010, between the Lebanese

Armed Forces (LAF) and Israel Defense Forces (IDF), after an IDF team attempted to cut down

a tree on the Israeli side of the Blue Line, near the Israeli kibbutz of Misgav Am and the

Lebanese village of Adaisseh. The Lebanese Army asserted that it opened fire on Israeli soldiers

to contravene the attempt of Israelis to intrude through the border of Lebanon in violation of the

internationally recognized border between Israel and Lebanon

The largest forest fire in Israel's history engulfs a bus carrying cadets from the Israel Prison

Service's officer course en route to evacuate prisoners from the Damun Prison in the area of the

fire, taking 44 lives, including 37 of the cadets and their officers. The fire devastates hundreds of

acres of pine forest on Mount Carmel in northern Israel, close to the city of Haifa, and is

eventually brought under control late on December 5, 2010.


31

AGRICULTURE

Fruits

Vegetables

Dairy farming

Poultry and beef

Aqua culture

Mari culture

Floriculture

Bee keeping


32

Introduction

Though small in size, Israel's agricultural sector is vibrant and highly advanced. Over the last

two decades, it has undergone a substantial structural change, during which the number of farms

and self-employed farmers has significantly decreased, while the farms themselves have become

much larger and more efficient. Farmers in Israel today are better equipped with highly

developed entrepreneurial skills and the managerial abilities required for coping with the

changing, dynamic world of modern agriculture.

The success story of Israel's agriculture can be attributed in large measure to the Israeli

farmers' responsiveness and willingness to introduce innovations, know-how and technological

transfers. In doing so, the farmers cooperate closely with research and development experts,

extension advisers and agro-technology companies. Israel's agricultural sector serves as an

excellent laboratory for the development of new agro-technologies, which are then disseminated

around the world for the benefit of all.

The structural change undergone by Israel’s agricultural sector has a broader scope: the adoption

of a comprehensive approach to rural development, in which fresh food production– the

backbone of rural life and livelihood everywhere – has leveraged a much larger set of economic

activities, such as food processing and packaging, other industrial projects,various services and

agro-tourism.

The name and essence of Israel’s Ministry of Agriculture was altered in the 1990s to the

“Ministry of Agriculture and Rural Development" while prioritizing environmentally-friendly

agriculture, rural development and food production. The consequent policies pertaining to the

rural population comprise professional assistance and beneficial incentives aimed at developing

infrastructure and services.


33

History

Historically, agriculture has played a more important role in Israeli national life than its

economic contribution would indicate. It has had a central place in Zionist ideology and has been

a major factor in the settlement of the country and the absorption of new immigrants although its

income-producing importance has been minimal. As the economy has developed, the importance

of agriculture has declined even further. For example, by 1979 agricultural output accounted for

just under 6 percent of GDP. In 1985 agricultural output accounted for 5.1 percent of GDP,

whereas manufacturing accounted for 23.4 percent.

In 1981, the year of the last agricultural census (as of 1988), there were 43,000 farm units with

an overall average size of 13.5 hectares. Of these, 19.8 percent were smaller than 1 hectare, 75.7

percent were between 1 and 9 hectares, 3.3 percent were between 10 and 49 hectares, 0.4 percent

were between 50 and 190 hectares, and 0.8 percent were more than 200 hectares. Of the 380,000

hectares under cultivation in that year, 20.8 percent was under permanent cultivation and 79.2

percent under rotating cultivation. The farm units also included a total of 160,000 hectares of

land used for purposes other than cultivation. In general, land was divided as follows: forest, 5.7

percent; pasture, 40.2 percent; cultivated, 21.5 percent, and desert and all other uses, 32.6

percent. Cultivation was based mainly in three zones: the northern coastal plains, the hills of the

interior, and the upper Jordan Valley.

Agricultural activities generally were conducted in cooperative settlements, which fell into two

principal types: kibbutzim and moshavim . Kibbutzim often served strategic or defensive

purposes in addition to purely agricultural functions. In the 1980s, such settlements usually

engaged in mixed farming and had some processing industry attached to them. A moshav

provides its members with credit and other services, such as marketing and purchasing of seeds,

fertilizer, pesticides, and the like. By centralizing some essential purchases, the moshavim were

able to benefit from the advantages of size without having to adopt the kibbutz ideology.

The agricultural sector declined in importance from 1952 to 1985. This decline reflects the rapid

development of manufacturing and services rather than a decrease of agricultural productivity. In

fact, from 1966 through 1984, agriculture was far more productive than industry.

Efficient use of the factors of production and the change in their relative composition explain a

significant portion of the increased productivity in the agricultural sector. From 1955 to 1983, the

agricultural sector cut back on employed persons and increased the use of water, fertilizer, and

pesticides, leading to a substantial increase in productivity.


34

Other factors that contributed to increased productivity included research, training, improved

crop varieties, and better organization. These changes in factor utilization led to a twelvefold

increase in the value of agricultural production, calculated in constant prices, between 1950 and

1983.

In absolute terms, the amount of cultivated land increased from 250,000 hectares in FY 1950 to

440,000 hectares in FY 1984. Of this total, the percentage of irrigated land increased from 15

percent in FY 1950 (37,500 hectares) to around 54 percent in FY 1984 (237,000 hectares). The

amount of water used for agricultural purposes increased from 332 million cubic meters in FY

1950 to 1.2 billion cubic meters in FY 1984.

The most dramatic change over this period was the reduction in the agricultural labor force.

Whereas the number of workers employed in agriculture in the early 1950s reached about

100,000, or 17.4 percent of the civilian labor force, by 1986 it had dropped to 70,000, or 5.3

percent of the civilian labor force.

Agriculture has benefited from high capital inputs and careful development, making full use of

available technology over a long period. Specialization in certain profitable export crops, in turn,

has generated more funds for investment in agricultural production and processing, as has the

development of sophisticated marketing mechanisms. In particular, Israel has had success in

exporting citrus fruit, eggs, vegetables, poultry, and melons.

Another factor important in Israel's agricultural development has been the sector's impressive

performance in foreign trade. The rapid growth of agricultural exports was accompanied by a

general increase in total exports. Between 1950 and 1993, a prominent development was the

decline (by 65 percent) in the importance of citrus fruit exports in relation to total raw

agricultural exports. This decrease was more than balanced by the increase in importance of

processed agricultural products, whose exports increased by 4,000 percent over the same period


35

Israel Agriculture at a Glance

Israel’s agricultural is characterized by an intensive system of production stemming from the

need to overcome the scarcity in natural resources, particularly water and arable land. The

constant growth in agricultural production is due to the close cooperation between researchers,

farmers, and agriculture-related industries. Together they develop and apply new methods in all

agricultural branches. The result is modern agriculture in a country more than half of whose area

is desert. As farmers and scientists have had to contend with a difficult environment and limited

water resources, their experience is especially relevant to the developing world. Its success lies in

the determination and ingenuity of farmers and scientists who have dedicated themselves to

developing a flourishing agriculture, demonstrating to the world that the real value of land is a

function of how it is utilized. The close cooperation between R&D and industry led to the

development of a market-oriented agri-business that exports particularly water solutions.

Agriculture in Israel is the success story of a long, hard struggle against adverse conditions and

of making maximum use of arable land and scarce water. When Jews began resettling their

historic homeland in the late 19th century, their first efforts were directed - mostly for

ideological reasons - to turning barren land into fertile fields. The secret of Israel's present

agricultural success lies in the close interaction between farmers and government-sponsored

researchers, who cooperate in developing and applying sophisticated methods in all agricultural

branches, as well as technological advancement, new irrigation techniques, and innovative agro-

mechanical equipment. Since Israel attained independence in 1948, the total area under

cultivation has increased by a factor of 2.6, to approximately 1.1 million acres. The irrigated land

area increased by a factor of 8, to about 0.6 million acres until the mid 1980s; however, owing to

the growing shortage of water, coupled with intensive urbanization, this is now less than half a

million acres. During the past half century the number of agricultural settlements grew from 400

to 750, but the share of the population living in them has fallen from 12 percent to less than 5%.

Today, most of Israel's food is domestically produced and supplemented by imports, mainly of

grain, oilseeds, meat, coffee, cocoa, and sugar, all of which are more than covered by agricultural

exports. Farm production consists largely of dairy and poultry products. Additionally, a large

variety of flowers, fruit, and vegetables is locally grown, especially in warm areas that give

farmers an early advantage in European markets. During the winter months, Israel is Europe's

greenhouse, exporting melons, tomatoes, cucumbers, peppers, strawberries, kiwis, mangoes,

avocados, a wide variety of citrus fruits, long stemmed roses and spray carnations. The share of

agricultural product of the GNP declined from 11 percent to 2.6 percent between 1950 and 2013,

and the proportion of agricultural exports decreased from 60 percent to less than 2 percent of

total exports. This, despite an absolute increase of annual exports from $20 million in 1950 to

$1.4 billion in 2013 due, inter alia, to the widespread introduction of innovative farming

methods, modern irrigation methods and export policies.


36

exportpoliciespolicies.treatmenexportfa


37

Strategic Planning for Sustainable Agriculture

The Ministry of Agriculture and Rural Development is in the process of defining a strategic plan

and comprehensive framework for agricultural and rural sustainable development, while

preserving the rural landscape and maintaining environmental values. The following principles

are incorporated for the plan:

Efficient use of resources and materials in agricultural activity.

Reduction of both degradable and non-degradable waste.

Reduction of agriculture related hazards and damage to the environment.

Preservation of agricultural land and open space, and maintaining the culture and landscape

values of agriculture.

Preservation of the nature/agriculture balance.

Efficient use of land and resources for rural development.

Preservation of the unique rural character of agricultural communities.

Maintaining rural open space as "green lungs" for the benefit of urban communities.

Promotion of sustainable development in accordance with national concepts and international

agreements.

Incorporating sustainable development principles into purchasing contracts among farmers

and by the Ministry.

Sustainable development for agriculture refers to the wise use of irreversible resources (land,

water, energy) and minimizing the adverse environmental impact of manmade resources used in

agricultural production (fertilizers, pesticides, non-degradable materials). It includes reducing the

use, replacing, and improving these resources as well as treatment for additional agricultural by-

products such as organic waste, spillage and gaseous emissions.


38

Detailed Analysis

Despite the decline in its importance relative to other economic branches, agriculture has been

growing in absolute terms and still plays an important part in Israel's economy, representing

today some 2.0 percent of the Gross Domestic Product and about 3.5 percent of exports.

Agricultural inputs produced in Israel are valued today at over $2 billion, of which 70% are

exported.

Agriculture is of major national importance; in certain areas, such as the Arava and the Jordan

Valley, it provides the sole means of livelihood for the population. In 1996 approximately 73,500

people were involved in farming, constituting about 3.0 percent of the country's workforce.

In monetary terms, Israel produces almost 70% of all its food requirements. It imports much of

its grain, oilseeds, meat and fish, and it’s the sugar, coffee and cocoa. However, these imports are

offset by exports of agricultural produce valued at around $800 million and $600 million worth

of processed foods per annum. Today, just under a quarter of the income of Israel's farmers

derives from the export of fresh produce, including items such as flowers, avocados, out-of-

season vegetables and certain exotic fruits grown for export. In 1996 some 140,000 tons of fruit

and vegetables - 14 percent of the entire crop - were sold to factories for processing and export.

This is a far cry from the situation a century ago. When Jews began resettling their historic

homeland in the late 19th century, their first efforts were directed towards reclaiming the mostly

semi-arid land, much of which was rendered untillable by deforestation, soil erosion and neglect.

Rocky fields were cleared and terraces built in the hilly regions; swampland was drained, and

systematic reforestation begun; soil erosion was counteracted, and salty land washed to reduce

soil salinity.

Since Israel attained its independence in 1948, the total area under cultivation has increased from

165,000 ha. to some 435,000 ha. and the number of agricultural communities has grown from

400 to 900 (including 136 Arab villages). During the same period, agricultural production has

expanded 16-fold, more than three times the rate of the population growth.

Israel's varied climatic, topographical and soil conditions (from sub-tropical to arid, from 400

meters below sea level to 1000 meters above and from sand dunes to heavy alluvial soils) made

it possible to grow a wide range of agricultural produce. The success of the country's agriculture

stems from the determination and ingenuity of farmers and scientists who have dedicated

themselves to developing a flourishing agriculture in a country which is more than half desert,

thus demonstrating that the real value of land is a function of how it is used.


39


40

Research & Development

The fact that agricultural production continued to grow despite severe water and land limitations

was no accident. It was the result of another unique Israeli phenomenon: a close and ongoing

cooperation between researchers, extension workers, farmers and agriculture-related services and

industries. Continuous, application-oriented research and development (R&D) has been carried

out in the country since the beginning of the century. The agricultural sector today is based

almost entirely on science-linked technology, with government agencies, academic institutions,

industry and cooperative bodies working together to seek solutions to problems and meet new

challenges. Dealing with subjects ranging from plant genetics and blight control to arid-zone

cultivation, lsrael's agricultural R&D has developed science-based technologies which have

dramatically enhanced the quantity and quality of the country's produce. The key to this success

lies in the two-way flow of information between research personnel and farmers. Through a

network of extension services (and active farmers' involvement in all R&D stages), problems in

the field are brought directly to the researcher for solutions, and scientific results are quickly

transmitted to the field for trial, adaptation and implementation.

The drive to achieve maximum yields and crop quality has led to new plant varieties, to breeding

of improved animal species and to a wide range of innovations in irrigation and fertization,

machinery, automation, chemicals, cultivation and harvesting. Many of these innovations are

also exported.

Government Involvement

The Ministry of Agriculture supports and supervises the activities of the country's agricultural

sector, including maintenance of high standards for plant and animal health, promotion of

agricultural planning, extension, research and marketing. For many years, agriculture was tightly

controlled, with the allocation of production and water quotas for each crop. At present, only

quotas for milk and some control of eggs, broilers and potatoes are in effect.

Ongoing programs to increase the country's water potential involve rainfall enhancement through

cloud seeding, desalination of brackish water and sewage recycling. The search for more water

has recently led to exploitation of the huge underground reservoir of brackish water in the Negev

desert, which has been found suitable for growing specific crops.

Supervision of the country's water supply includes determining water quotas, progressive prices,

fully controlling groundwater pumping and initiating supply-enhancing projects. A ten-year

program has been introduced recently, which proposes a cut in the supply of improved water for

agriculture; treatment of all urban waste-water; expanded utilization of desalinated brackish

water; a reduction of high water-consuming crops; storing of flood waters; development of

capital-intensive greenhouses; and massive desalination of sea water.


41

Irrigation

Near the Desert Plant Research Station of Ben-Gurion University in Be'er Sheva is a farm

cultivated over 2,000 years ago by the earliest desert farmers, the Nabateans. Their agricultural

methods were astonishingly sophisticated. By building terraces and clearing the soil of stones,

every drop of runoff water was collected and then diverted to the lower-lying fields and orchards.

The methods have changed, but saving water and making optimal use of scarce land still

characterizes agriculture in the region.

Water saving has been the farmers' leitmotif since the State of Israel was founded in 1948. The

country has ten major companies producing irrigation and filtration equipment, all internationally

active. In no other field of agricultural technology has Israel so excelled.

In terms of annual rainfall, 60% of the country may be defined as arid or semi-arid. Rain falls

only between November and April, with uneven distribution of yearly precipitation, ranging

from 28 inches (70 cm.) in the north to less than two inches (five cm.) in the south. Annual

renewable water resources amount to some 1.6 billion cu.m., about 75 percent of which is used

for agriculture. Of the latter, two thirds is potable - a share which is likely to decrease

substantially in the coming years as more sewage treatment plants come on line.

In the past 30 years agricultural output has increased almost fivefold* with hardly any increase in

the amount of water used. This reflects technological advances of different types - water

efficiency went up by about 30% and crops with higher yields and market-value were

introduced. To reduce water consumption for agriculture, advanced water-saving techniques

(notably the drip system) were applied, which direct the water flow straight to the root zone of

plants. Also, computerized irrigation systems were used and greenhouse agriculture was

significantly expanded. Israeli engineers and agriculturalists created the revolutionary drip

irrigation system, which has reduced water consumption by 50-70 percent compared with gravity

irrigation, and by 10-20% compared to sprinkler irrigation. At present, scientists are testing the

first generation of ultra-low application rate "minute irrigation" drip emitters for soil-less media

in greenhouses, emitters with 100-200 cc/h flow rates. Considered even more advanced than the

drip system, they will create optimal air-water relationships in the plants' root zone and, being

more efficient, save yet more water. Micro-spraying and micro-sprinkling irrigation accessories

have also been developed, mainly for use in orchards, where each tree is irrigated by its

individual sprayer.

To overcome regional imbalances in water availability, most of the country's freshwater sources

have been joined in the National Water Carrier, an integrated network of pumping stations,

reservoirs, canals and pipelines which transfers water from the north, where most of the sources

are, to the agricultural areas of the semi-arid south. As a result, the amount of irrigated farmland

has increased from 30,000 ha. in 1948 to some 186,400 ha. today.


42

Mechanization and Agro technology

In order to lower costs, increase yields, improve quality and save manpower, innovative

agricultural machinery and electronic equipment have been locally designed and manufactured,

and are widely used. Intensive experimentation on the drawing board and in the field has

resulted, inter alia, in the development of heavy-duty soil preparation machinery; advanced

tillage, planting, harvesting and transplanting equipment adaptable to intensive farming; and

diverse irrigation systems, ranging from sprinklers to computerized drip irrigation. Automated

milking and dairy herd management systems and egg-collecting equipment, computerized

feeding systems and production-recording computers have been introduced, as well as machinery

for the grading, packing, storing and transporting of produce. Locally-developed agro

technologies include computerized fertilization, which injects fertilizers through the irrigation

system, and advanced temperature and humidity control methods, which provide healthy

environments for poultry, flowers, out-of-season vegetables and the like.

Growing Crops in the Desert

Since 1948, the sparsely populated desert area between Be'er Sheva and Eilat has played an

important role in agricultural production. More than 40 percent of the country's vegetables and

field crops are grown in the Arava and Negev and 90 percent of the melons exported come from

the Arava.

Today, partly because of Jewish Agency and Government programs to promote settlement, and

partly because the supply of farmland in the country's densely populated central region is

shrinking (only 20 percent of the country's total land area of 22,000 sq. km is arable, and a

growing share is used for housing), the importance of the southern Negev and Arava for farming

is increasing. In the process, the pattern of farming in the desert is also undergoing change, with

new varieties of crops suited to the region's conditions being developed and introduced, along

with animal husbandry, hitherto confined to more northern areas.

The common advantages of the two regions are their long hours of sunshine and relatively high

temperatures, as well as the fact that land is relatively cheap and abundant and adequate water

(saline or recycled) is available. The further south one goes, the earlier crops ripen. This makes it

possible to grow for export to Europe during the winter months - October through March - when

prices are highest, with less expenditure of energy than required elsewhere.

Until the 1990s, the accent was on field crops, vegetables, fruit and dates. These branches

continue to expand in the Negev and Arava, and in addition giant citrus groves (10,000 acres),

have been planted by industrial companies in the northern Negev. Attempts to expand the

growing of flowers, grapes for wine, olives for oil, cattle for meat, ostriches and fish are now

taking off.


43

The new wave of 'greening of the desert' has been encouraging. In the Negev, improved climatic

conditions and cultivation of new citrus varieties have resulted in yields 50-100 percent higher

than those in the north. Olive plantations irrigated by brackish water have achieved per-acre oil

yields that are six times higher than in traditional rainfed groves elsewhere in the country. Within

three years the Negev/Arava fish farmers have achieved production of around 350 tons a year

and output is expected to reach 2,000 tons by the year 2,000. At Kadesh Barnea, a small moshav

(cooperative farm settlement) on the Egyptian border, one can get a foretaste of what Israeli

desert farming in the 21st century will look like. The moshav's beef cattle - the first in the Negev

- are fed fodder grown with brackish water recycled from 'bubbles' - covered tanks for intensive

fish cultivation. Similarly, at Kibbutz Revivim water from fish tanks nourishes alfalfa for

ostriches. Desert agriculture is already playing an indispensable role in Israel's economy.

Israel tries to learn from other countries: in recent years it has introduced a large range of arid

land plants from Asia, Africa, Australia and the Americas, and is trying them out under local

conditions, occasionally adapting and commercializing them. Know-how on desert growing has

become a focus for regional and international cooperation.

Since the late 1950s, Israel has been sharing its agricultural expertise with scores of countries.

MASHAV, the Center for International Cooperation of the Ministry of Foreign Affairs, is active

in Asia, Africa, the Mediterranean Basin, Eastern Europe and Latin America; and it is

broadening its cooperation programs with a growing number of countries in the Middle East.

Agricultural projects and research collaboration constitute about half of Israel's international

cooperation programs. Emphasis is placed on training courses in agricultural subjects, with some

1,400 participants from over 80 countries attending specialized farming courses every year and

thousands of trainees receiving on- spot training in their own countries. Since 1958, thousands of

Israeli agricultural experts have been sent abroad on long- and short-term assignments.


44

High-Tech Farming

Economists discussing the country's farming choices sometimes draw an analogy between a

kilogram of exported tomatoes, which might fetch around five dollars, and a kilo of hybrid

tomato seeds, which today may be selling abroad for $7,000. High-tech farming, it is suggested,

is the only way to survive. Indeed, market forces at home and abroad, and a scarcity of land,

labor and water are forcing major changes on Israeli agriculture. Increasingly, there is a shift

from extensively-farmed, mass-produced crops to intensive growing of niche products based on

scientific and technological R&D, such as hybrid, virus-resistant tomatoes or tissue-culture

propagated banana-tree saplings. The country's farmers face increasing competition. On the one

hand, ties with the Palestinian Authority have caused an influx of vegetables and poultry,

depressing prices. On the other hand, readjustment of world trade patterns in the wake of the

GATT agreement has led - for the first time in Israel's history - to imports of fresh and processed

produce from Europe and the US. On the export side, Israeli products like citrus and flowers face

stiff competition from other producers in the Mediterranean region and farther afield, while

avocados, one of the largest exports, have been facing cut-throat competition in Europe from

Mexican growers.

As in other countries, Israeli agriculture has been forced to employ fewer and fewer people. The

work force shrank almost 40 percent between 1960 (121,000) and 1996 (73,500). However, these

persons are producing and exporting more. In the early 1950s one full-time agricultural

employee fed 17 people. In 1994, one full-time worker produced food for 90 persons.

Most of Israel's agriculture is organized on cooperative principles which evolved in the country

during the first decades of the 20th century. Motivated by both ideology and circumstances, the

early pioneers set up two unique forms of agricultural settlements: the kibbutz, a collective

community in which the means of production are communally owned and each member's work

benefits all; and the moshav, a cooperative village where each family maintains its own

household and works its own land, while purchasing and marketing are conducted cooperatively.

Both provided a means to realize the pioneers' dream of rural communities based on social

equality, cooperation and mutual aid. Their output today comprises the lion's share of the

country's fresh produce, as well as many processed food products, both for the domestic market

and for export, and almost all meat, poultry and fish.


45

Agriculture - by Branches

FRUITS

In 2012, the area covered by fruit orchards, excluding citrus groves, was about 37,000 hectares.

In addition, there are 21,000 hectares of oil olives grown without additional irrigation, mostly in

the Arab sector. Produce reached 690,000 tons of fruit in 2012. The main fruit crops are bananas,

146,000 tons; apples, 110,000 tons; avocados, 90,000 tons; and table grapes, 75,000 tons. Fruit

accounts for 20% of the total agricultural production in Israel. Even though most of the fruit

production is for local consumption, in 2011 Israel exported 55,000 tons of avocados, 18,000

tons of persimmons, 15,000 tons of mangoes, 15,000 tons of dates and 16,000 tons of

pomegranates. The varied climate lends itself to a wide variety of fruit crops. In hilly and

mountainous areas, for example, deciduous fruit trees, which have chilling requirements, are

grown, while in the coastal plain or valleys, tropical and subtropical fruit trees can be grown In

the arid Arava, dates are grown successfully. Due to the varied climate and the advanced

technologies for growing fruit trees under protected conditions (greenhouses and shade-houses)

during the cold season, fruit can also be picked out of season, thereby prolonging the marketing

period and improving fruit quality A number of leading growers have succeeded in reaching

peak yields in Israel, for example: apples, 90 tons/ha; bananas, 100 tons/ha; plums, 50 tons/ha;

peaches and nectarines, 70 tons/ha; mangoes, 75 tons/ha; and pears, 50 tons/ha.

Yields of Fruits 2012

Fruits Average

Yield(tons/ha)

Apples 50

Pears 35

Plums 18

Peaches 30

Table Grapes 26

Bananas 65

Avocados 18

Mangoes 25

Dates 15


46

Storage

The use of advanced technologies enables the marketing of high quality fruit which can reach the

overseas consumer a few days after picking. Fruit can also be stored under refrigeration for long

periods. Advanced storage technologies are employed in the cooling houses and sorting and

packing facilities, as well as in the domestic and export distribution network.

Mechanization

Several mechanical means have been developed in order to increase the efficiency of handling

fruit. For example, a hydraulic lift with a booth allows the worker to reach the highest branches.

The lift can be steered, guided from tree to tree and raised or lowered to the desired height. In

addition to the standard model, a particularly high model has been developed for picking dates.

Research and Development

The growing of fruit in substrate culture has resulted in improved quality, characterized by larger

fruit and increased vegetative growth, particularly in heavy and alkaline soils. Mango is the most

outstanding example. Better fruit quality has also been achieved by using multi colored shade

nets, which improve the microclimate in the orchard. In recent years, the fruit branch has taken

the lead in developing phyto-monitoring systems which enable better quality management,

control and supervision, mainly with regard to the irrigation process and efficient water

management. One of the main goals of the fruit branch is examination of new species and

varieties some of them exotic, in order to expand the selection of products and extend the

marketing season, with an eye to the European consumer. These include pitaya, papaya,

passiflora, guava, raspberry and other “small fruits.” There is a local breeding program for

development of new varieties, focusing on table grapes, mangoes and avocado

CITRUS

In 2011, 600,000 tons of citrus fruit were produced in Israel from 18,200 hectares of orchards. In

2012, 1,500 hectares of new citrus orchards will be planted. In recent years, this sector in Israel

has been undergoing changes as it introduced new agro technologies to facilitate improved

operations, including the planting of new citrus varieties. Israel markets a wide variety of

oranges, grapefruits, easy peelers, and lemons, as well as a range of more exotic citrus fruit.

The traditional Shamouti orange is still Israel’s important citrus product. Other varieties of

oranges exported include the Valencia Late and the Navel. In the past, the white grapefruit,

originally cultivated in inland valleys, was one of the main varieties grown and exported from

Israel. This variety has been replaced by the Star-Ruby variety (Sunrise), whose peel and flesh

have a red tint, and the Sunrise is now the major product of Israeli citrus exports. New easy-

peeling varieties such as ‘Or’,’Orah’, ‘Rishon’, ‘Hadas’ and others were developed for export

and for the local market and have been planted on a very large scale in recent years.


47

Israel produces exotic citrus varieties, such as lime, kumquat (Chinese orange), limequat (a cross

between lime and kumquat), and both red and white pummelos. The citrus production of Israel is

designated for three destinations: 190,000 tons for export 180,000 tons for the local market

230,000 tons for the juice industry Israel exports its citrus products mainly to the European

markets (70%) and to the Russian market (20%).

Citrus fruit exported from Israel travels to 45 different countries all over the world, from

Argentina and the U.S.A in the west, to China, Australia, Japan and Korea in the east.

The Ministry of Agriculture and Rural Development and the Plant Production and Marketing

Board, are making a big effort to develop and promote new markets for Israeli citrus fruit.

Environment-Friendly Fruit

There is a growing awareness of the importance of ecologically-oriented agriculture. This has led

to the development of ‘green’ fruit, which is grown with minimal use of chemicals, to reduce

interfering with the ecosystem or harming the environment. Production is carried out according

to the quality management requirements of the European market, in compliance with EurepGAP

2000 principles, ISO standards and crop management protocols As part of the policy to reduce

the use of chemicals, 65% of Israel’s citrus groves have instituted Integrated Pest Management

(IPM) programs, which use natural control agents such as parasitic wasps and predator insects,

thus minimizing the need for chemicals. Development of new citrus is presently being geared to

attain a lower seed content, longer shelf-life, attractive appearance and a longer marketing

season. The intention has been to extend the area size of citrus easy peeler varieties, which is

preferred by consumers to traditional orange varieties. Model groves of newly developed easy

peelers, which have been planted in various areas across the State of Israel, have already shown

promising commercial potential. One leading new variety, ‘Or’, which was developed in Israel,

is one of the most requested fruits in Europe and provides the growers with good returns.

Rootstocks traditionally used in the past have been replaced by new ones, such as Volka

Mariana, Troyer, C-35, and Rangpur.

In 2011, 600,000 tons of citrus fruit were produced in Israel from 18,200 hectares of orchards. In

2012, 1,500 hectares of new citrus orchards will be planted. In recent years, the citrus sector in

Israel has been undergoing changes as it introduced new agrotechnologies to facilitate improved

operations, including the planting of new citrus varieties. Israel markets a wide variety of

oranges, grapefruits, easy peelers, and lemons, as well as a range of more exotic citrus fruit.

The traditional Shamouti orange is still Israel’s important citrus product. Other varieties of

oranges exported include the Valencia Late and the Navel. In the past, the white grapefruit,

originally cultivated in inland valleys, was one of the main varieties grown and exported from

Israel. This variety has been replaced by the Star-Ruby variety (Sunrise), whose peel and flesh

have a red tint, and the Sunrise is now the major product of Israeli citrus exports.


48

New Trends

The citrus sector, which has fluctuated over the years, has concentrated on increasing the

efficiency of its operations, introducing new methods and, in addition to the new varieties

developed, increasing efforts to meet changing market demands, while bringing citrus farmers

greater returns. Citrus marketing has changed considerably in the last decade, from marketing by

a monopoly - the Citrus Marketing Board of Israel (CMBI, which due to reorganization is now

part of the Plants Production and Marketing Board) - to private marketing entities authorized by

the CMBI to compete on the open markets. Currently, there are 50 authorized Israeli citrus

exporters.

Citrus Varieties and Yields

Variety Yield Per

Hectare in tons

Oranges 42.5

Grapefruit 65

Easy peelers 35

lemons 50

Exotics 20


49

VEGETABLES

Growing vegetables has become an art in Israel - based on choosing the right hybrid varieties,

fertilizers and irrigation methods, selecting greenhouse covers designed for specific crops and

employing innovative post-harvest treatments. Vegetables account for about 17 percent of

Israel's total agricultural production. In 1996, the country's farmers produced some 1.7 million

tons, of which about 150,000 tons were exported; large quantities of processed vegetables are

also exported.

Technologically advanced methods are employed, including soil-less greenhouses with climate

control systems. Some 1800 hectares of vegetables are grown in greenhouses. While tomatoes

growing in the open field reach yields of up to 80 tons per hectare, an average 200-300 tons can

be grown in greenhouses under controlled climatic conditions. Israel exploits the sunshine and

high temperatures to grow high quality vegetables during the competitors' off-seasons.

In the last few years varieties of some crops, notably tomatoes and melons, have been adapted

for growth in the desert with saline water irrigation. These are marketed under the brand name

"Desert Sweet."

Field Crops

With scarce water, Israel's field crop farmers have been concentrating on new varieties that

produce the same or higher yields, with less or no irrigation. Moreover, that irrigation

increasingly consists of recycled wastewater.

Some 220,000 hectares are devoted to field crops in Israel. Of these, 160,000 ha. are rain-fed

winter crops such as wheat for grain and silage, hay, legumes for seeds and safflower for oil. The

remainder is planted with summer crops such as cotton, sunflowers, chickpeas, green peas,

beans, corn, groundnuts and watermelon for seeds, mostly irrigated.

The lion's share of the 80,000 ha. of wheat is devoted to growing grain, while some 7000 ha. are

for silage. Almost the entire cotton crop of 28,500 ha. is drip irrigated, using mainly recycled

wastewater. Cotton yields per unit of land are currently the highest in the world, averaging 5.5

tons per ha. of seed cotton for the Acala variety (with 1.8 tons of fiber) and 5 tons per ha. of seed

cotton for the Pima variety (with 1.6 tons of fiber). The cotton sector is completely mechanized

and each worker produces $100,000 worth of cotton annually.


50

DAIRY FARMING

Dairy and beef herds account for over 17 percent of the country's total agricultural production.

Israel has for several years held the world record for milk production - 10,200 kilograms of 3.3

percent butterfat milk per cow in 1997, 10,080 in 1996. This is no accident, but reflects a number

of complementary steps, each aimed at achieving maximum efficiency: GA careful breeding of

cows that can cope with Israel's hot climate. The dairy herd consists entirely of Israel-Holsteins,

a high-yielding, disease-resistant breed, developed through careful selection procedures.

Breeding, based on computerized production data and genetic factors, is by artificial

insemination; and since Israel has almost no grazing land, most of the herd's nutrition is based on

a total-nutrient barn-fed feed mix. GFeeding and milking the dairy herds by computerized

programs to determine feed ration composition, according to stage of growth and milking, and

yield. Thus, for example, the farmer can determine the correct balance for a milk-yielding or a

dry cow during the gestation period, or develop a suitable diet for young calves. In addition,

automated, computerized management systems have been developed that monitor the individual

cow's milk output per milking, mastitis infection warning and heat detection through counting

the number of steps a cow takes. Computerized climate control systems for the dairy parlor.

The result is that Israeli dairy know-how, equipment and experience are sought after worldwide.

Sperm from locally-proven bulls are in considerable demand abroad. Other dairy-related exports

include heifers; advanced, computerized milking and feeding systems; cooling systems for

dairies in hot countries; mini-dairies for milk processing; systems to recycle organic waste into

cattle feed; and recycling systems for cattle manure. All this is provided by Israeli government

agencies, consultancy firms and partnerships in international project development and, of course,

the companies that produce the inputs and equipment.

The sector supplies all of the country's dairy requirements. A surplus of butterfat is used for

producing a wide variety of dairy products. Production is regulated by a strict policy of planning

and quotas.

The sheep and goat milk sectors have developed significantly in recent years, with a growing

part of the cheeses produced earmarked for export.


51

POULTRY AND BEEF

Several years ago the USDA acknowledged the quality and standards of Israeli poultry, and in

1997 veterinary officials of the European Union granted Israel "associate member status" for

poultry imports and exports. This means, de facto, that Israel's breeding methods, the level of

veterinary services, veterinary legislation and independent supervision systems are regarded as

being up to world standards. Poultry-raising, almost equally divided between broiler chickens

and turkeys, is a major component of Israel's agriculture. Meat production doubled, to 340,000

tons, between 1976 and 1996 and today its processed products are also an important industry. At

home, per capita consumption both of eggs and poultry is among the highest in the world. This is

reflected not just in a large and well-organized network of breeders and producers but in the

development, by local companies, of specialized equipment for the poultry industry.

Breeders have concentrated on developing poultry breeds which are both heat- and disease-

resistant. The breeds are also characterized by a rapid growth rate, high egg production and low-

fat meat.

Eggs account for some 21 percent of the country's total poultry output. Average egg production

is 280 per layer. Annual meat yield per square meter of broiler house, over the course of five

growing cycles, now reaches 150 kg. Breeding and broiler farms, as well as meat processing, are

fully automated.

Israel is the world's largest per-capita consumer of turkey meat and the industry represents 25

percent of total meat output. A high level of automation, strict hygienic conditions and

development of disease-resistant breeds contribute to high meat production. A wide variety of

turkey products is exported, mainly to Western Europe.

At 83,000 tons in 1996 (half of it imported), Israel's consumption of beef was only a quarter of

its consumption of poultry products (344,000 tons). High poultry and low beef consumption are

partly habit, partly price dictated. Pasture is a limiting factor in production, though not to

consumption. Efforts are being made to expand grazing areas by improving existing pastures and

introducing different grasses and new grazing techniques.


52

AQUACULTURE

Fish culture in Israel, started about 70 years ago, is practiced mainly in inland aquaculture.

The leading species are freshwater fish – tilapias, common carp and grey mullet – constituting

together some 95% of total production. Israel is the most northern country in the world where

tilapias are cultured in open systems. However, this necessitated the development of technologies

to cope with the low winter, temperatures. In addition, a few farms also produce grass carp,

silver carp, black carp, hybrid striped bass, barramundi, rainbow trout, sturgeon and African

catfish. Aside from these edible species, the industry produces a variety of cold water and

tropical ornamental fish. During the last two decades a Mari culture branch has been developed

focusing on culture of Gilthead Sea-Bream in a few cage farms off the Mediterranean coast.

The Israeli Aquaculture by Sources

Inland

Aquaculture 70%

Mari Culture 12%

Inshore 10%

Lake kineret 8%

Inland Aquaculture

Despite being territorially small, Israel has diverse climate conditions. Most of the country is

semi-arid, with a distinct short winter (wet and cold) season and a long summer (dry and hot)

season. The average rainfall is relatively low, around 500 mm, with a large variation between

900 mm in the Upper Galilee to less than 100 mm in the southern desert named Arava. Israel has

been facing chronic water shortage for many decades. In spite of the obvious climatic constraints

and overall shortage of water, both agriculture and aquaculture succeeded in developing into

thriving industries. In order to cope with these impediments, different solutions and methods

aimed at maximizing water use and enabling the production of fresh edible fish have been

developed, including:

• Reservoirs to store rainwater during the wet season; many of which are used for fish culture

in integrated farming systems.

• Large-scale recirculating systems, in which water from outdoor fish ponds, raceways and

tanks, is passed into sediment ponds to remove the solids.

• Highly-intensive recirculating systems that incorporate water filtration devices, such as drum

filters, biological filters, protein skimmers and oxygen injection systems.

• Greenhouse technology was adopted from desert vegetable and flower agriculture and

includes environmental control, i.e. humidity, temperature, light and radiation.


53

These conditions are important in arid areas, which have large temperature changes between day

and night and summer and winter. Aquaculture activities in reservoirs began in the late 1970s. A

typical reservoir has 8-20 ha of surface area, a depth of 5-14m, and holds 500,000-1,000,000 m3

of water. Fish can be successfully reared in irrigation reservoirs; however, without appropriate

facilities or technology to harvest them, there is no biological or economical meaning to this

culture system. In early reservoirs, small earthen ponds located next to the reservoir were used

for harvesting the fish. An outlet pipe installed at the deep end of the reservoir drained the fish

along with water left over at the end of the season.

MARI CULTURE

The Israeli Mari culture sector grows fish in either land-based or off-shore farms. The expansion

of this sector is limited by low availability of suitable sites for land-based farms, and by the

rough conditions in the eastern Mediterranean. The main product (98%) of Israeli mariculture is

Gilthead Sea-Bream. Marine fish hatcheries produce around 15 million fingerlings annually.

Research and Development

The Ministry of Agriculture & Rural Development operates four R&D units supporting inland

aquaculture, and a few others are operated by universities and research institutes. Mari culture

research is mainly done at the National Center for Mari Culture in Eilat. The major research

topics include: Nutrition and feed ingredients, health aspects, genetics and biotechnology,

management and culture technologies, environmental issues and introduction of new species.

Fish Species

Mubt 10%

Carp 30%

Sea bream 10%

Tilspia 50%

The quantities of fish drained into the harvesting concrete tank were determined according to the

daily handling capacity of the crew, say 20 tons. From there the fish are elevated to grading

tables, sorted by size and species, counted and weighed and transferred in tanks to separate

holding ponds. This method made Israeli fish-farmers very efficient, and the reservoirs have the

world’s best ratio of output to production area – 20 t/ha.


54

• FLORICULTURE

Flowers and ornamental plants accounted for about 8.0% of Israel’s total fresh agricultural

export (in 2012). About 5,000 hectares are dedicated to the production of flowers, with the

typical farm size being about 5 hectares. Some 800 million cut flowers (65% of the total

production) are exported throughout the year, mainly to Europe. The floriculture sector in our

country is technologically advanced. Accelerated R&D efforts combined with prompt knowhow

transfer by the Extension Service, shortened the time needed for innovations (new varieties and

improved technologies) to be adopted by experienced growers. Consequently, a large selection of

more than hundred varieties of high-quality flowers are grown and marketed. There has been a

decrease in the number of Israeli growers, due to increasing competition from abroad and the

recent economic recession in target markets. In the past, traditional varieties (such as rose,

gerbera and carnation) accounted for about 80% of total flower production, but currently make

up less than 30%. Today, these flowers are perceived rather as commodities and are mostly

grown in African countries, while the Israeli floriculture sector is increasingly being based on

niche products. Acclimatization of new varieties of cut flowers and of many other varieties are

grown in Israel, including Solidago, Gypsophila, Wax Flowers, Roses, Ornamental plants,

Limonium, Lisianthus (Eustoma), Gerbera, Hypericum, Ranunculus, Ornithogalum and

Anemone. New varieties include: acclimatized ‘summer flowers’ from Europe, which are picked

and exported mainly during Europe’s winter season; various acclimatized flowers indigenous to

the Southern Hemisphere; improved varieties; and acclimatized native wild flowers that have

commercial potential.

During the last few years flowers of the geophyte section constitute a bigger part of the total

production of cut flowers. Many new varieties have been developed to suit the changing

demands of the world markets, ranging from fragrant, colorful and fruit-bearing branches to

flowers that are considered environment-friendly. Israeli flower growers have been complying

with EurepGAP (European Retailers’ Protocol for Good Agricultural Practices) projects to

promote flower production with the smallest possible harm to man and environment. Recently

the growers have considered joining the MPS standard, developed in Holland.

Seasonal Production

Originally, emphasis was placed on developing growing methods for winter flower production,

through greenhouse and climate-control technologies. Today, some 60% of all flower produce is

grown year-round in advanced, computerized greenhouses and other accomplishing

technologies.


55

Direct Marketing

The flower sector is based mainly on direct contacts between the local growers and their regular

customers abroad. Most of the flowers are sold directly by Israeli growers to auctions in Western

Europe. Other smaller markets are the USA and Eastern Europe. Minor quantities are exported to

Asian countries, mainly Japan. The largest Israeli exporter of fresh agricultural produce-

Agrexco, formerly owned by the government and farmers was sold to a private entrepreneur,

while several other exporters of fresh produce increased their volume at the expense of

Agrexco’s previous share. The chain of post-harvest handling and storage from picking to

delivery to end-user in Europe is strictly kept, in order to guarantee the highest standards of

reliability. In the past most flowers and ornamentals, were shipped from Israel to Europe by

cargo planes on regularly. This has been gradually changed to reduce costs. Following improved

post-harvest practices and logistics, sea shipment has become a feasible alternative.

Plants, Propagation Material and Flower Bulbs

Israel exports a variety of ornamental plants and propagation material, including cuttings,

seedlings for the home garden, cut flowers, pot plants, tissue culture material, bulbs, corms and

seeds. Exports of these products are constantly on the increase due to rising demands for high

quality products, with Israeli producers having the know-how to meet the high standards required

by European and American customers. Israel also produces a wide range of flower bulbs, many

of which are unique to the country. The bulbs are used for cut flowers, for garden and pot plants.

In addition to propagation material, Israel exports a variety of pot plants as a finished product


56

Total Quantity of Exported Cut Flowers 2012

Variety Total Exported

StemsX1000

Wax Flowers 52612

Gypsophila 71719

Ruscus 123957

Aralia 61128

Pittoporum 40498

Aspidistra 23940

Solidago 61038

Anemone 41217

Ranunculus 68344

Others 786325

Total Quantity of Exported Plants And Propagation Material 2012

Product Quantity X1000

Cuttings 405700

Bulbs 43840

Plants 3980


57

• BEE KEEPING

The Old Testament tells us that Israel is the Land of Milk and Honey. Indeed, traditional log

hives, found in archaeological excavations in Tel-Rehov in the Beit- Shean valley, were dated as

being 3000 years old. The diverse geographical zones in Israel enable beekeepers to produce

many types of honey originating from typical sources of nectar. In the small state of Israel, there

are about 500 beekeepers, with over 100,000 Langstroth beehives that produce more than 3,200

tons of honey annually. Nearly 75% of these hives are in large commercial apiaries, with

hundreds and even thousands of hives. This factor - in distinct contrast to most developed

countries where largescale commercial beekeeping is only a small fraction of the overall

beekeeping industry - has undoubtedly contributed to high standards of modern beekeeping and

apiary management in Israel. Due to shortage of natural pasture in Israel the availability of

nectar-rich crops is limited. This has been further aggravated by rapid urbanization and the

uprooting of orange groves and roadside eucalyptus trees, both of which used to be primary

nectar resources for honey production. Consequently, beekeepers had to adopt advanced and

efficient beekeeping methods, including mechanization and breeding, in order to increase honey

yield, resulting in average annual honey production of 40 kg per hive. Israel’s Ministry of

Agriculture and Rural Development, together with the Honey Marketing Board, have been

involved in a large-scale project to increase the availability of nectar and pollen by planting trees

and bushes. The intention is to enrich the potential of nectar by planting primary nectar-source

trees along the highways, railways and uncultivated land all over the country. Economically

speaking, honey production is a relatively marginal part of the significance of beekeeping; its

major importance lies in the pollination of various crops, which would otherwise be futile since

they are pollinated exclusively or primarily by the honeybee. The Israeli bee, originally bred

from selected local stock, Apis Mellifera Syriaca, is relatively defensive and is difficult to work

with in modern apiaries. Over the years, this bee has been crossbred with introduced strains, in

an attempt to moderate its temperament. Today the most common bees in Israel are the Italian

Bees, which were imported from the USA. This bee is generally non-aggressive and is

considered a good honey producer. A long-term breeding program aims to produce docile bees,

which are relatively easy to manage and produce a good honey crop. The present Italian Bees are

tolerant to most damaging bee pest, Varroa destructor, the main enemy of honey bees anywhere.

Distribution of Bee Farms according to Size

Size Percentage

Up to 150 hives 73%

151 to 500 hives 17%

more than 501

hives

10%


58

Honey Production

Israel produces about 3,200 tons of honey annually, with the yield per hive varying from 20-30

kg for small-scale beekeepers to 50-60 kg for large commercial apiaries. (The difference is based

on the fact that commercial beekeepers migrate their hives 3-4 times a year to different bee

pastures.) In the past, 40% of Israeli honey was produced from citrus blossoms. Today however,

due to the uprooting of citrus groves and changes of citrus cultivars, it is difficult to produce a

typical citrus honey. Most of the Israeli honey is usually produced from a wide variety of wild

flowers, herbs, thistles, eucalyptus trees, orchards and legumes. Local annual honey consumption

amounts to 4,000 tons, and the annual turnover is about $15 million.

Pollination

One of the most important aspects of beekeeping is the use of bees as indispensable pollinators

for many agricultural crops such as avocadoes, almonds, apples and plums, melons, cucumbers,

sunflowers, strawberries, winter vegetables and many seed crops. Many crops depend

exclusively on the honeybee for their pollination and others obtain up to 30% increased yields by

using bees. Over 100,000 hives are hired annually for pollination service in those crops. The

annual turnover of the beekeepers through the pollination service is about $6 million. In practice,

however, the commercial value of pollination is estimated as $480 million, in terms of its overall

impact on Israeli agricultural produce. The beekeeping industry, as well as many crops and

natural vegetation, has been facing an ever-growing concern due to CCD (Colony Collapse

Disorder) and the disappearance of bees from nature and the beehives. In Israel most feral

honeybee colonies vanished, chiefly as a consequence of a Varroa destructor invasion in 1984.

The beehives were however treated with appropriate acaracides against the Varroa mites, and

therefore they were much less susceptible to damage.


59

Agriculture and the Economy

Today, agriculture represents a mere 2.7% of the Israeli gross domestic product (GDP) and just

fewer than three percent of exports, compared to an average of 30% of exports during the 1960s -

the heyday of the famous Jaffa orange.

Nevertheless, despite the decline in its importance relative to other economic branches,

agriculture has grown in absolute terms and played an important part in Israel's economy for

more five decades. In 2013, the total amount of land devoted to agriculture was 3,887 thousand

dunams, nearly three times the amount of devoted land from 1948. Out of that area, field crops

comprised 1,316 thousand dunams, vegetables 741 thousand dunames, citrus 176 thousand

dunams, and aquaculture made up an additional 22 thousand dunams.

While the high-tech industry has boomed in Israel, agriculture remains of major importance,

especially in areas such as the Arava and the Jordan Valley where it provides almost the sole

means of livelihood. In 2013, only approximately 50,000 people were employed in farming,

constituting less than two percent of the country's workforce. In monetary terms, Israel produces

around 90 percent of its food requirements.

In 2013, Israel’s total input of resources invested in agriculture was 15.6 billion shekels - 31.1%

for fodder, 14.3% other inputs, 12% depreciation, 12% for fuel, lubricants and electricity, 8.7%

chicks, seeds and seedlings, 8.4% water, 5.8% packing and transport, 4.5% pesticides, and 3.3%

for fertilizers and manure.

The country’s output of final products in 2013 was 26.5 billion shekels, an increase of more than

10 billion shekels from input. This was made up by 23.4% vegetables, potatoes, and melons;

20% other fruits; 18.2% cattle, sheep and goats; 17.8% poultry; 5.5% citrus fruit; 5.3% field

crops; 4% flowers and garden plants; and, 5.7% miscellaneous.


60

Export of Fresh Agricultural Products (percentage of value)

Agricultural Output (percentage of value)

Export of Agricultural Inputs in 2000

(in millions of $US)


61

International Collaboration

Many of Israel's innovative agricultural methods and advanced agricultural technologies have

been shared with the United States and other nations around the world. This international

collaboration and cooperation benefits not only those countries receiving Israeli know-how to

maximizing and improving their agricultural products, it also helps Israel build friendships and

break down barriers that will enable it to continue to make advancements into the future.

Under the auspices of the Binational Agricultural Research & Development Foundation

(BARD), Israeli, American, Canadian and Australian farmers and scientists have collaborated on

more than 1,100 projects over the past three decades. This BARD-sponsored research has led to

innovative developments, new technologies and renewed focus in drip irrigation, pesticides, fish

farming, livestock, poultry, disease control and farm equipment. Some examples of these

projects include: improving wheat-seed proteins; spray technology that reduces pesticides;

control of pathogens; identification of QTL's; and, control of post-harvest decay in fruits and

vegetables.

Due to the success and quick implementation of BARD projects, other collaborative programs

have been set up between Israel and Jordan, the Palestinian Authority, the European Union and

various states in the United States.

One such program is the International Arid Lands Consortium (IALC), which connects

researchers from Israel with those in a number of universities across the United States as well as

the Egyptian and Jordanian governments to work on developing and applying new applications

in arid and semi-arid farming technologies. Since 1993, the IALC has funded nearly 100 projects

with more than $12.4 million. The knowledge gained from this collaboration has been used to

benefit countries from Kenya and Ethiopia, to Uzbekistan and Kazakhstan, to Australia and

Brazil.


62

Agriculture and Future

A combination of sophisticated, applied science, determination and government support have

helped Israel's farmers to modernize and adapt to changing geopolitical, market and climatic

conditions, creating a strong base from which to proceed in the coming decades.

Israel's agriculture continues to thrive, and supplies most of the country's food needs, though

profitability in export sectors has declined sharply in recent years. Among the numerous

problems the crop-growing sectors have contended with since the State was founded, water

scarcity remains the principal - and growing - threat. Nevertheless the ongoing introduction of

new and recycled water sources, coupled with altered irrigation methods and more water-

efficient crops, promises long-term security.

By the year 2020, Israel's population is expected to grow by 42 percent, to 8.5 million. This will

cause huge increases in demand for agricultural produce and products; but urban use of land and

water will also increase enormously.

In 2020 only half the amount of fresh water allocated to agriculture today (around 700 million

cubic meters a year) will be available for this purpose and the amount of suitable land available

for farming (360,000 hectares) will be 18 percent less than at present.

Part of the increased demand - notably for field crops (such as cereals, oilseeds and sugar) and

for milk products, fish and beef - will have to be met by increased imports. Nevertheless a

substantial part of that growing demand will have to come from increased domestic production.

Sweeping changes will be required, such as a 33% increase in the labor force and a reduction in

irrigated field crops, such as cotton, to make water available for growing fruit and vegetables for

the local market.

The above is based on a study by the Ministry of Agriculture, which forecasts that despite its

handicaps Israel will be able, by 2020, to increase production of agricultural goods by 48 percent

over 1993 figures, averaging a growth of 1.5 percent per annum in real terms. This is certainly

consistent with recent developments. Except for a brief period of uneven growth in the second

half of the 1980s, agricultural output has grown consistently since 1948.


63

Constraints Challenges for Agriculture Sector

Agricultural planning from an environmental perspective must take account of the sustainable

use of non-renewable production factors which are in short supply in Israel – water and soil.

Land availability in the center of the country will be dependent on how much agricultural land is

converted to residential, commercial and industrial development. Agriculture contributes to open

space by protecting rural landscapes and containing sub/urban sprawl, particularly in the center

of the country Fresh water is already in short supply today – both in terms of quality and

quantity. Since Israel’s freshwater potential will be allocated to the growing urban sector in the

future, development of marginal water sources and treated wastewater will be essential to supply

agricultural needs in the long term. While wastewater can and should be used in agriculture

throughout the country, its quality must be upgraded and adapted to each specific use.

Wastewater and sludge utilization in agriculture must be based on the potential risks to humans,

soil, crops and water sources.

Solutions and Recommendations

Water is one of the most sensitive political issues in the Middle East, regardless of whether it

relates to the Jordan Valley, the Nile River, or the Tigris-Euphrates River basin. No country

wants to cede water already under its control. None of the political leaders of the region is

willing at this time to discuss the need for a significant shift from low-value agriculture. Thus,

addressing the issue of water, and especially the price paid for it by farmers, is a political

bombshell; nonetheless, the solutions for resolving water disputes in the region lie in this realm.

There must be a new and fairer economic and rational approach adopted by the leaders of the

region. In order to reach this goal, a clear definition of universal norms and enforceable

international laws and institutions needs to be discussed, negotiated and accepted. The basis of

these solutions should be a universal apportionment of minimal water allocation of at least 100

cubic meters per year of water for domestic use.

In this approach it is always wise to be conscious of the basic fact: water equals money. There

are many ways of translating the value of water into money. Some of them are very complex and

require projects costing millions of dollars. Other ways are quite simple and logical and, at least

to begin with, don’t require mathematical genius, only people with common sense, and the

ability to see not only the individual wells, but also the overall well-being of the peoples of the

region.

This is a presentation of short- and mid-term solutions for the water conflict in the area, where

water is a scarce and finite resource, and unevenly distributed. Agriculture accounts for the vast

majority of the water used in the region. The problem is additionally complicated by the

significant rate of population growth there, which is expected to continue to grow.

Population growth and family planning is an explosive topic in this region, which, nonetheless,

must be addressed. More people create more demand for water. Each net addition to the


64

population raises the demand for water by at least 100 cubic meters per year. Policies that

encourage population growth must be addressed as the region is rapidly reaching its limits in

providing natural resources for the large populations. Education in family planning is essential,

not only for economic needs, but also as a means to protect the limited natural resources.

Religious as well as political leaders must together face this issue.

With extremely limited water resources, an intelligent use of water is essential. Economically

speaking, water is also a growth industry. The private sector, municipalities, the NGO sector and

regional and international governments are investing more and more resources into the design of

new strategies and products for a better and more efficient use of water in the area.

A Regional Water Technology Center, dealing with the elements below, is now being launched

by IPCRI — the Israel/Palestine Center for Research and Information — and NISPED — the

Negev Institute for Strategies of Peace and Development:

* A permanent display of water technologies provided by companies that produce the equipment;

* Temporary exhibits and displays by private-sector companies that wish to advance their own

water design and technologies;

* Courses and seminars for professionals and municipality water authorities on various

technologies and techniques;

* A portfolio of infrastructure projects seeking to link with donors and/or private-sector ventures;

* A regional water database and hydrology library;

* A facility for organizing water field trips in the area;

* A web page on water.

The center will aim to answer real needs for the advanced use of water technologies for home

use, agriculture and municipal use in supply and in wastewater treatment.

The proposals above need to be explored and

developed in much more depth than is possible in the scope of this article. Initial research shows

that these proposals seem to be feasible and beneficial enough to be taken seriously in

preparation for the future water negotiations in the region.


65

Industry

High tech industry

Defense industry

Aerospace industry

Weapon industry

Electronic industry

Diamond industry

Textile industry

Semi-conductor industry

Chemical

Automative Industry

Design industry


66

Introduction

For more than 40 years local demand fueled Israeli industrial expansion, as the country’s

population grew rapidly and the standard of living rose. More recently, world demand for Israeli

advanced technologies, software, electronics, and other sophisticated equipment has stimulated

industrial growth. Israel’s high status in new technologies is the result of its emphasis on higher

education and research and development. The government also assists industrial growth by

providing low-rate loans from its development budget. The main limitations experienced by

industry are the scarcity of domestic raw materials and sources of energy and the restricted size

of the local market.

Classification of Industry


67

Industrial Sectors

The major industrial sectors include high-technology products, metal products, electronic and

biomedical equipment, agricultural products, processed foods, chemicals, and transport

equipment; the Israeli diamond industry is one of the world's centers for diamond cutting and

polishing. Relatively poor in natural resources, Israel depends on imports of petroleum, raw

materials, wheat, motor vehicles, uncut diamonds and production inputs, though the country's

nearly total reliance on energy imports may change with recent discoveries of large natural

gas reserves off its coast

The percentage of Israelis engaged in scientific and technological inquiry, and the amount spent

on research and development (R&D) in relation to gross domestic product (GDP), is the highest

in the world. The Israeli high-tech industry is experiencing a high rate of growth which began in

the early 1990's. In 1998 sales originating in the high-tech sector totaled $8.05 billion, a growth

of 12% over 1997 sales. The Israeli high-tech industry is a major contributor to Israel's overall

industrial export (excluding diamonds and agricultural products and technologies). High-tech

exports, totaling $6.6 billion in 1998, grew 15.3% over exports in 1997. Israel's advanced

technologies are in great demand and many Israeli-developed applications can now be found in

the products of multi-national companies in the communications, computers, information

systems, medicine, optics, consumer goods and software sectors.

HIGH-TECH INDUSTRY

The Israeli high-tech industry is characterized by a high added value for the products it

manufactures and a high rate of per employee output, more than twice the average posted by

other industrial sectors. It is clear that Israel's high-tech industry today is one of the most

powerful engines driving its economy. The course of Israel's economic growth for the coming

years will continue to be determined by the future of this industry. The following are major

contributors to this growth rate:

Israel has the world's highest percentage of scientists, with 135 engineers per 10,000 citizens.

In comparison, the United States has 85 per 10,000.

Immigration of hundreds of thousands of skilled engineers and technicians from the former

Soviet Union.

Advanced technologies that were developed and utilized for military purposes are now being

used for developing commercial products for civilian applications.


68

The ongoing success of the Israeli high-tech industry is reflected in the local and foreign stock

markets. Israeli firms provide the third largest number of IPOs on NASDAQ (following the U.S.

and Canada), and the second largest number of IPOs on the relatively new AIM in London

(following the U.K.). Many of the leading American investment houses and Venture Capital

funds have established presence in Israel in order to support Israeli high-tech firms and benefit

from the current boom.

History

The Israel high-tech industry is fifty years old, as is the State of Israel. Its early origins extend to

the years prior to Israel's independence, when the newly created Israel Defense Forces

established what was euphemistically called "The Science Force."

One may be a bit doubtful about an army fighting for its country's very existence while spending

valuable time, people and money on "science." However, the facts are that in 1948 the Science

Force played a very important role in the establishment of Israel's independence. This group's

soldiers and officers were busy developing and providing the IDF with new arms, explosives,

booby traps and a variety of electric and electronic appliances which were necessary for a variety

of special operations. In the long run, the Science Force had an enormous influence on the

development of Israel's defense industries.

After Israel established its independence, the Israel Military Industry (IMI) developed at a rapid

pace, meeting the country's needs for armaments and technologies that it could not obtain for a

variety of reasons from its allies. During the same period, Israel was busy developing what was

to become the best education and science research system in the Middle East. These world-

renowned institutions include the Technion in Haifa, Weizman Institute in Rehovot, and the

Hebrew University in Jerusalem, and universities in Haifa, Beer Sheba and Tel Aviv. In the early

Sixties, Israel entered the nuclear era with the establishment of two nuclear plants, entering the

global arena in the areas of physics and related science research.

It was at the Weizman Institute that the first Israeli computer was developed and assembled, in

the early Fifties. "Golem" (dummy) was an all tube computer, similar to the first computers

developed in the U.S.A. in the forties. In the late fifties and early sixties, there were already

several mainframe computers in Israel, that were purchased from International Business

Machines (IBM) and Philco. Primarily government authorities, universities and a number of

banks used those computers. In the late sixties and early seventies, mainframe and mini

computers penetrated the financial and business sectors. In the eighties, Israelis hurried to adopt

personal computers.

Israel's hi-tech industry contributes around 7% to the country's GDP, but its success is no

accident. Like much in the state of Israel, it was born out of adversity.After the 1967 war, when

the French placed an arms embargo on the Middle East.


69

"The two real fathers of Israeli hi-tech are the Arab boycott and Charles de Gaulle, because they

forced on the need and develop an industry.

Another key factor is the military service which all Israelis - with the exception of ultra-

Orthodox Jews and Arab-Israeli muslims - are expected to do. Women serve two years,

In the 1990s, Israel became only the eighth country in the world to develop and launch satellites,

beginning with the Amos civilian communications satellite, followed by the Ofek military

satellites and the Eros civilian photo-reconnaissance satellite. Israel now partners with NASA,

the ESA and the Russian space program, building component and complete satellites for

scientific and civilian uses.

In 2002, two of Israel’s six largest industrial companies by turnover were high-tech

companies: Israel Aircraft Industries (IAI), Intel Electronics, as well as pharmaceutical

company Teva (Nasdaq: TEVA; TASE:TEVA). The largest exporters in terms of sales included

high-tech companies Teva, IAI, Intel Electronics, and Vishay Intertechnology (Israel), with over

$1 billion in exports each. The fastest growth rates (averaging 8 percent annually in recent years)

are to be found in the hi-tech sectors. These sectors are skill and capital intensive and require

sophisticated production techniques, as well as considerable investment in research and

development, on which 4.9 percent of Israel's GDP is spent - the highest among OECD

countries. The quality of this R&D in Israel is ranked, according to U.N. experts, among the first

10 in the world. A successful contribution to all these is due to academic research institutes,

which provide much of the basic R&D, and venture capital.

The significance of hi-tech industries' growth may be illustrated by their having accounted for

only 37 percent of the industrial product in 1965, a rate that grew to 58 percent in 1985 and

around 70 percent in 2006.

Almost 80% of hi-tech products are exported, while the more traditional, low-tech firms export

only close to 40 percent of their product. Hi-tech exports quadrupled from $3 billion in 1991 to

$12.3 billion in 2000 and to $29 billion in 2006 (plus another $5.9 billion of hi-tech services

exported). In 2009, the product of ICT (information and communications technology, a major

part of hi-tech industry) amounted to $19 billion. Contributing 17.3 percent of the business sector

GDP, it employed 204,000 persons, and its exports were close to $16 billion. Over 90 percent of

the public budgets for R&D ($7 billion in 2006) are allocated to hi-tech industries, much of

which is channeled via joint venture capital funds.

In recent years, the government has been collecting fair dividends on its shares in these funds,

over and above repayment of loans granted to successful start-up companies. In addition to the

six binational foundations mentioned earlier, Israel has agreements for joint funding of R&D

projects with the US, Canada, Italy, Belgium, Austria, France, Sweden, Germany, Holland,

Ireland, Portugal, Spain, Hong Kong, India, Turkey and China.

The age of information technology (the Internet, electronic commerce, etc.) placed Israel's

economy, and particularly its hi-tech industries, in the forefront of world development in these


70

fields. A number of internationally recognized Israeli companies have been bought by top

business conglomerates in multi-billion dollar transactions. The number of new start-ups is very

high due to the extraordinary innovative talent in Israel, coupled with the availability of highly

skilled manpower. The growing presence of Israeli firms on Wall Street and the European stock

exchanges is another manifestation of the respect with which Israel's hi-tech industry is regarded.

Examples of Israel High Tech environment

More than 50% of Israel's exports are from high-tech and life science industries

Israel is No. 3 in the number of foreign companies traded in the US (after Canada & UK)

Israel is No. 5 in VC’s & PE investments in High Tech, bigger then any individual European

country.

The largest generic pharmaceutical company in the World is Israeli company (“Teva

Pharmaceutical Industries Ltd”)

The largest producer of Generic agriculture crop protection chemicals in the World is Israeli

company (“Makhteshim Agan Industries Ltd.”)

One of the world’s major chemical companies is an Israeli company (ICL - “Israel Chemicals

Ltd.”)

Five of the 100 defense companies in the world are Israeli companies.

Big Inventions:

Instant Messaging – ICQ

USB Flash drive - Invented by M-Systems

Firewall – Invented by Check Point

Voice Mail - Developed by Comverse

Pill Cam- Invented by Given Imaging

Waze – Social navigation system


71

DEFENSE INDUSTRY

The Defense industry of Israel is a strategically important sector and a large employer, as well as

major supplier of the Israel Defense Forces. Israel is one of the world's major exporters of

military equipment, accounting for 10% of the world total in 2007. Three Israeli companies were

listed on the 2010 Stockholm International Peace Research Institute index of the world's top 100

arms-producing and military service companies: Elbit Systems, Israel Aerospace Industries. The

Defense industry in Israel is a strategically important sector and a large employer within the

country. It is also a major player in the global arms market and is the 11th largest arms exporter

in the world as of 2012. Total arms transfer agreements topped 12.9 billion from 2004 to

2011. There are over 150 active defense companies based in the country with combined revenues

of more than 3.5 billion USD annually. Israeli defense equipment exports have reached 7 billion

U.S. dollars in 2012, making it a 20 percent increase from the amount of defense-related exports

in 2011. Much of the exports are sold to the United States and Europe. Other major regions that

purchase Israeli defense equipment include Southeast Asia and Latin America. India is also

major country for Israeli arms exports and has remained Israel's largest arms market in the world.

Born Of Necessity

The modern defense industry in Israel was set in motion in the early 1920s. Faced by an

increasingly hostile Arab population, the Jewish community began to manufacture homemade

hand grenades and explosives. In the early 1930s, members of the Haganah (the pre-state Jewish

underground defense organization) set up clandestine small arms factories, which became the

Israel Military Industries (IMI) in 1948. In the first two decades after independence, IMI

produced many of the basic weapons used by the IDF, including the Uzi sub-machine gun. The

more costly aircraft and other advanced weapons were procured from foreign suppliers,

principally France.

The major catalyst for Israel's metamorphosis from a small-arms manufacturer to a producer of

sophisticated military systems came after the 1967 Six-Day War. During the war, France

imposed an embargo on arms sales to Israel, including the Mirage planes already on order from

the Dassault aircraft factory. When the United States became the primary supplier of combat

aircraft, Israel began to develop its own production capability. The government-owned Israel

Aircraft Industries (IAI), founded as a maintenance facility in 1953, soon began developing and

assembling a variety of its own aircraft, including the Kfir - a replacement for the Mirage - as

well as the Arava and Nesher planes. At the same time, IAI's contacts with US suppliers

advanced from subcontracting jobs to joint ventures with Boeing and Lockheed-Martin. As a

result, employment at IAI grew rapidly from 4,000 to a peak of 14,000 in the late 1980s.


72

The growing sophistication of Israel's defense industry gave it the confidence to develop an all-

Israeli military aircraft, the Lavi. Over the first half of the 1980s, IAI developed avionics,

electronics and weapons systems for the aircraft, and by 1986 the first began to develop a variety

of products in the military and civilian spheres - such as advanced radar systems, precision

weapon systems, unmanned air vehicles (UAVs) and commercial and military aircraft

conversion - many of which were based on the technology developed during the Lavi project.

Industry Players

There are approximately 150 defense firms in Israel, with combined revenues of an estimated

$3.5 billion. The three largest entities are the government-owned IAI, IMI and the Rafael Arms

Development Authority, all of which produce a wide range of conventional arms and advanced

defense electronics. The medium-sized privately owned companies include Elbit Systems and the

Tadiran Group, which focus mainly on defense electronics. The smaller firms produce a

narrower range of products. In all, the industry employs close to 50,000 people, all of whom

share a commitment to high levels of research and development and the ability to make use of

the IDF's combat experience.

Israel's defense exports are coordinated and regulated through SIBAT - the Foreign Defense

Assistance and Defense Export Organization - which is run by the Ministry of Defense. SIBAT's

tasks include licensing all defense exports as well as marketing products developed for the IDF,

from electronic components to missile boats and tanks. Each year, SIBAT publishes a defense

sales directory, an authoritative guide to what the industry has to offer.

Despite their far-reaching client base, even the biggest local firms are relatively small players in

the global defense market. With increasing competition from the major world aerospace players,

Israeli companies tend to specialize in niche markets, or have sought to combine forces through

mergers or joint marketing efforts. In addition, declining global defense spending has provided

them with new opportunities as foreign governments seek to upgrade their existing arsenal rather

than buy new equipment. This policy is typified by the Phantom 2000, a sweeping modernization

of the F-4 aircraft that Israel acquired from the US in the early 1970s.


73

The Government Sector

In the wake of the Lavi's cancellation, IAI diversified and expanded with funding from the

United States, developing the Amos and Ofeq satellites and the world's first operational anti-

missile missile system, theArrow. IAI's unmanned air vehicles (UAV or pilotless aircraft)

systems, including the Hunter, have now become standard for military establishments in many

countries around world. The company is also engaged in the repair and maintenance of aircraft

and helicopters, and in upgrading aircraft with state-of-the-art avionics. It also designs, develops

and manufacturers naval and ground systems, electronic warfare and radar equipment and

missiles. Company sales in 2000 amounted to $2.18 billion, of which exports accounted for $1.7

billion. In the same year, IAI signed some 1,600 new contracts worth approximately $2.6 billion.

Israel Military Industries (IMI) was founded in 1933, as a secret small-arms plant. After the

establishment of the State in 1948, it was operated by the Ministry of Defense, developing and

manufacturing assault weapons - from the classic Uzi sub-machine gun to the Tavor assault rifle

- heavy ammunition, aircraft and rocket systems, armored vehicles like the Merkava tank, and

integrated security systems. In 1990, IMI was converted into a government-owned company.

Altogether IMI manufactures some 350 products and employs over 4,000 people. In addition to

Israel and the US, IMI has distributors in a number of countries, including Norway, Belgium, the

Philippines and Greece. Some 60% of its revenues, worth approximately $550 million, come

from exports.

The third government-owned defense firm, the Rafael Arms Development Authority, developed

and now manufactures Python and Popeye "smart" airborne missiles, both of which have co-

production agreements with major US aerospace companies. In addition, its products include

such varied categories as passive armor, naval decoys, observation balloon systems, acoustic

torpedo countermeasures, ceramic armor, air-breathing propulsion, and air-to-air, air-to-surface

and surface-to-surface missiles.


74

The Private Sector

Elbit Systems, based in Haifa, develops, manufactures and integrates advanced, high-

performance defense electronics systems, focusing on upgrade programs for aircraft and armored

vehicles. The company also manufactures command, control and communication (C3) systems,

and upgrades in weapons platforms and electronic systems and products for both Western and

former Eastern bloc countries. In 2000, Elbit Systems merged with another major private-sector

defense concern, El-Op Electro-Optics Industries Ltd, and combined sales reached $591 million,

up from $436 million the previous year.

The second major private sector defense firm is the Tadiran-Elisra Group, whose subsidiaries

specialize in defense electronics. The group's Elisra Electronics offers a range of electronic

warfare systems for the military, including radar warning systems, active countermeasure

systems, comprehensive self-protection systems, ESM and ELINT systems, and sophisticated

communication links complemented by extremely lightweight components and super

components. It employs a staff of over 800. Tadiran Electronic Systems designs and produces a

wide range of military applications, including intelligence, reconnaissance and electronic warfare

and specialized naval communication systems, all tailored to customer specifications. Tadiran

Spectra link specializes in pilot-rescue electronic equipment while BVR Systems develops

innovative flight simulators for fighter pilots. The group, which is controlled by Koor Industries,

announced sales of $284 million in 2000.

There are also scores of smaller, specialized defense firms in the private sector, including:

Cyclone Aviation, which upgrades helicopters and makes aircraft components; Urdan Industries,

which through its Associated Steel Foundries makes components of the Merkava tank; Magal

Security Systems, whose products include sensors for security perimeter fences and explosive-

detection devices for airports and other public facilities; BVR Technologies, which produces

airborne collision-avoidance security systems, trainers for pilots and for the use of "smart"

weapons, and a variety of simulators for combat training and pilot debriefing; the Elul Group, a

complex of companies which specialize in development and coordination of defense business for

Israeli firms abroad, and for international firms in Israel; RSL Electronics, which produces both

airborne electronics systems for airplanes and helicopters and muzzle-velocity radar for field

artillery & Soltam which makes mortars, heavy artillery pieces as well as most popular line of

stainless steel kitchen equipment.


75

Foreign Military Sales

By the late 1980s, Israel became one of the leading suppliers of arms and security services,

producing foreign exchange earnings estimated at US$1.5 billion annually, which represented

one-third of the country's industrial exports. Because the defense industry was not subsidized by

the government, it was indispensable for major arms manufacturers to develop export markets,

which accounted in some cases for as much as 65 percent of total output. Foreign military sales

at first consisted primarily of the transfer of surplus and rehabilitated equipment stocks and the

administration of training and advisory missions. Particularly after the October 1973 War,

however, foreign sales of surplus IDF stocks and weapons systems from newly developed

production lines increased dramatically. Rehabilitated tanks and other Soviet equipment captured

from Egypt and Syria were among the products marketed abroad. In addition to its economic and

trade value, the expansion of the arms industry assured Israel of the availability of a higher

production capacity to supply the IDF at wartime levels. It also provided Israel with

opportunities to develop common interests with countries with which it did not maintain

diplomatic relations and to cultivate politically useful contacts with foreign military leaders.

Initially, most of Israel's arms sales were to Third World countries, but, owing to financial

difficulties faced by these clients and to competition from new Third World arms producers such

as Brazil and Taiwan, different sales strategies had to be adopted. In part through joint ventures

and coproduction, Israel succeeded in breaking into the more lucrative American and West

European markets. By the early 1980s, more than fifty countries on five continents had become

customers for Israeli military equipment. Among Israel's clients were communist states (China

and Romania), Muslim states (Morocco, Turkey, Indonesia, and Malaysia), and so-called pariah

states (South Africa and Iran). To some degree, Israel was restricted in its marketing by United

States controls over arms transactions involving the transfer of components or technology of

United States origin. In one well-publicized case, the United States vetoed the sale of twelve Kfir

fighters to Uruguay in 1978. Intimidation of potential buyers by Arab states also presented a

problem. Observers believed that Arab pressure played a part in decisions by Austria and Taiwan

not to purchase the Kfir and in Brazil's decision not to choose the Gabriel missile for its navy.

The broader issues of Israel's foreign military sales program were decided by a cabinet

committee on weapons transfers. Routine applications to sell arms to countries approved by this

committee were reviewed by the Defense Sales Office of the Ministry of Defense. The primary

concerns were that arms supplied by Israel not fall into the hands of its enemies and that secret

design innovations not be compromised. After 1982, however, security restrictions were relaxed

to permit export of high technology weapons and electronics.

In the 1980s, South Africa was believed to be one of Israel's principal trade partners. South

Africa was known to have acquired 6 Reshef missile boats, more than 100 Gabriel missiles, and

radar and communications systems, and to have obtained Israel's assistance in upgrading its

British-built Centurion tanks. The South African-manufactured Cheetah fighter airplane unveiled


76

in 1986 was a copy of the Kfir C-2 produced in collaboration with IAI. Subsequent to the

passage of the Comprehensive Anti-Apartheid Act of 1986 in the United States, which mandated

a cut-off of military aid to countries selling arms to South Africa, Israel announced that it would

not enter into any new arms contracts with Pretoria. Existing contracts, however, which would

not be canceled, were reported to be valued at between US$400 and US$800 million.

Military cooperation between Israel and Iran had been extensive since the 1960s, under the

shah's regime. After a brief rupture of relations when Ayatollah Sayyid Ruhollah

Musavi Khomeini came to power in 1979, cooperation resumed. The Israeli minister of defense

in 1982 acknowledged the negotiation of an arrangement worth US$28 million, including spare

parts for United States-manufactured airplanes and tanks in the early 1980s. The Israeli

motivating factor was the belief that it was to Israel's strategic advantage to help Iran in its war

against Iraq, an Arab state bitterly hostile to Israel. Although Israel announced an embargo of

arms transactions after disclosure of its involvement in the plan to trade arms for the release of

United States hostages in Lebanon, a stricter directive had to be issued in November 1987,

following reports that weapons of Israeli origin continued to reach the Iranians.

Prior to the mass severance of diplomatic relations with Israel after the October 1973 War, Israel

had actively promoted military collaboration with a number of African countries. Training or

advisory missions had been established in At Least Ten African States. During the 1980s, Israel

quietly resumed these activities in several places, most notably Zaire. Israel dispatched teams

there to train elite units and to help reorganize and rearm a division deployed in Shaba Province.

Israel also equipped and trained Cameroon's presidential guard unit. Limited pilot training

programs were extended to Liberia and to Ciske.


77

AEROSPACE INDUSTRY

Israel Aerospace Industries (IAI) is a globally recognized leader in development and production

of military and commercial aerospace and defense systems. IAI has accumulated nearly half a

century of experience in creating and supplying advanced systems for the Israel Ministry of

Defense and for many demanding customers worldwide.

IAI is the largest Aerospace and Defense Company and is the largest industrial exporter in Israel.

IAI strives to be a world leader in all of its main areas of activity. IAI provides unique system-of-

systems solutions for a broad spectrum of needs in space, air, land, sea and homeland defense,

including:

Business jets

Unmanned air vehicles (UAV),

Radars, mission aircraft and AEW aircraft

EW, ELINT/ESM, SIGINT and COMINT/COMJAM

Anti-Tactical Ballistic Missiles (ATBM)

Missiles and smart weapons

Satellites, ground stations and space launchers Upgrading of military aircraft and helicopters

Maintenance and conversion of commercial aircraft, including conversion to aerial refueling

Navigation systems, EO payloads, communications and many other technologies, products

and services.

IAI and the Security of Israel

Israel Aerospace Industries was established in 1953 as Bedek Aviation Company, five years after

the establishment of the State of Israel. Contributing to the defense of the embattled new country

against neighboring Arab States, the Company worked closely with the Israeli Air Force (IAF) to

meet its needs.

Bedek Aviation was an "all-purpose service and supplies" outfit, situated in a hangar in the

coastal plains in the center of Israel. The Company was comprised of ambitious men and women

who worked under the determined leadership of Al Schwimmer - an American Jew, who had

moved to Israel to help build the new State. With the support of David Ben-Gurion, Israel's first

Prime Minister, and Shimon Peres, then Director General of the Ministry of Defense, he used his

experience and knowledge in aviation and business to create the foundation of today's leading

industrial corporation in Israel.


78

Since the 1950s, IAI has developed its capabilities in the modification, upgrade and

improvement of fighter and commercial aircraft and helicopters, engines and electronics systems.

The experience gained in battle fostered the relationship between IAI and the IAF, and

accelerated the development of new, improved systems and products.

Israel Aerospace Industries' scope has expanded to include technologically sophisticated

solutions for battle in the air, at sea or on land. These capabilities have contributed significantly

to the Israel Defense Force's strategic superiority in these arenas.

Over the years IAI has applied the skills and experience it has acquired in catering to Israel's

security needs, in order to capitalize on opportunities in export markets. As a result, the

Company has become a world leader in aircraft conversion and modernization programs,

unmanned air vehicles (UAVs), communication programs and defense electronics. Space is

Israel's latest area of leadership, with the development of the Ofeq observation satellite, the

AMOS communications satellite and the Shavit launcher.

Examples of systems currently in use by the IDF are upgraded F-16, F-15 and F-4 aircraft, Yasur

2000 and upgraded CH-53 helicopters, Dvora patrol boats, Gabriel sea-to-sea missiles, and the

Phalcon Early Warning aircraft. The Arrow anti-tactical ballistic missile, Israel's answer to the

threat of short and medium-range ballistic missiles, is currently in development at IAI, in

cooperation with the Israel Ministry of Defense and the US Ballistic Missile Defense

Organization.

IAI's development has paralleled that of the State of Israel and the Company has been privileged

to play a substantial role in the industrial, technological and economic progress of the country

and its national security.


79

WEAPON INDUSTRY

Israel Weapon Industries (IWI) Ltd. is one of the world's leaders, for the past 80 years, in the

production and marketing of unrivalled combat proven small arms.

The company’s weapon systems include the innovative TAVOR family of Assault Rifles, the

ultimate two caliber X95 (Assault Rifle & SMG), the reliable NEGEV Light Machine Gun

family, the well-known GALIL Assault Rifle family, including our recent addition of the

robust GALIL ACE family, the renowned GALIL SNIPER SA Rifle, the legendary UZI

SMG (Mini, Micro and Uzi Pro) and the acclaimed JERICHO family of pistols.

All these firearms are combat proven and are weapons of choice of top military units and law

enforcement agencies throughout the world. The company’s firearms are developed in close

collaboration with the Israel Defense Forces (IDF).

IWI and IDF have established joint Research & Development (R&D) teams to develop these

weapons, whose final configurations are the product of ongoing interaction, field tests and

modifications resulting from combat requirements.

The intensive and constant use of IWI's products by IDF and worldwide, enables the company to

design its products accordingly, optimizing, innovating, modifying and improving constantly its

weapon's features by using modern technology. All the weapon systems are in compliance with

the most stringent military standards (MIL-STD) and ISO 9000 standards.

IWI is a member of SK Group, a leading global Defense and Security group of companies that

includes Meprolight Ltd. (Electro-Optic systems), Pulse Inteco Systems Ltd. (Lasers and Night

Vision systems), Camero-Tech Limited (Through the Wall sensing), Shipyards Limited (Ship

manufacturing and repair), Uni-scope Limited (Optical periscopes) and more.

IWI's weapon systems can be specially adjusted to your particular needs and can be

complemented with various accessories, according to your specific requirements, like X6 0r X10

telescopic sights, reflex or Tritium sights, night vision, flash lights, etc.


80

Types of Weapons

TAVOR line of assault rifles

The Tavor was developed by IWI in cooperation with the IDF. Its compact rifle and long barrel

are key attributes for its excellent usability for modern, asymmetric combat. The weapon has an

integral, advanced and accurate sighting system attached directly to the barrel. Designed with

optimal ergonomics Tavor increases the user's comfort and confidence level.

NEGEV Light Machine Gun

The standard LMG of the Israel Defense Forces is highly reliable and versatile that suits a large

variety of operations. NEGEV can optimized for dismounted operations. It can also be used as

vehicle mounted weapon, on helicopters or naval crafts.

ACE and GALIL Assault Rifle

Galil is a lightweight, air-cooled, gas-operated, magazine fed multi-purpose personal weapon. It

is designed for firing from the shoulder or hip. The Galil was combat proven as a highly reliabile

weapon, proving itself in difficult and extreme conditions. The ACE is based upon the reliable

mechanism of the GALIL. It is perfectly suitable for modern battle field, with enhanced human

engineering. The five Picatinny rails allow adding an array of optical devices and accessories.

The ACE is easy to use and simple to maintain.

Galil Sniper Rifles

This is a semi-automatic sniper rifle, designed for high accuracy, ease of operation and

convenient carriage under tough operating conditions. The weapon is offered with a folding

stock for use by special units and law enforcement. Galil Sniper Rifle is in service with military

and government agencies worldwide.

UZI Submachine gun

The first and leading SMG is the legendary UZI has been the most popular weapon for over 50

years. Since the introduction in 1956 over 2 million units were sold worldwide. The combat-

proven UZI has proved itself as the most reliable SMG to date.

JERICHO and BARAK handguns

IWI is offering two types of handguns. Jericho is built on a high quality, all steel construction.

Its barrel has polygonal rifling for greater accuracy and longer barrel life. Its providing features

for reducing barrel jump, polymer stock and safety on slide. Barak Is a lightweight,

ergonomically designed handgun offered for self-defense and law enforcement needs. It is

available in 3 cal: 9mm, .40 S&W, 45 ACP.


81

Sales

By the late 1980s, Israel had become one of the world's leading suppliers of arms and security

services, producing foreign exchange earnings estimated at US$1.5 billion annually, which

represented one-third of the country's industrial exports..Now a days, Israel reveals more than $7

billion in arms sales,in 2011 israel earn 485.9 million dollars revenue from defence industry.

which is 100 %. Israeli defense sales in 2010 totaled 7.2 billion U.S. dollars, making the small

nation the world's fourth largest exporter. IAI said full year revenue for 2013 rose 9% to $3.64

billion from $3.34 billion in 2012, while net profit rose slightly to $75 million from $74 million,

as cash flow from operations rose to $551 million in 2013 from $274 million in 2012.

The company said all of its military and commercial divisions reported higher revenue in 2013,

except for Bedek Aviation, which only manages aircraft conversions and overhauls. Military

sales accounted for 73% of total revenue in 2013. R&D expenses rose 15% to $180 million in

2013 from $156 million in 2012.

ELECTRONICS INDUSTRY

Introduction

The electronics sector in Israel excels at the ability of incorporating varied industries and

components in interdisciplinary areas. Textile, printing, agriculture and medicine are a few of the

industries that now have electronics at their core. In the field of communications, R&D-based

applications include digital processing, transmission and enhancement of images, speech and

data. The products range from advanced telephone exchanges to voice systems and telephone-

line doubles. Israel is today a world leader in fiber optics, electro-optic inspection systems for

printed circuit boards, thermal imaging, night-vision systems and electro-optic-based robotic

manufacturing systems. The country has the world’s largest concentration of researchers and

skilled manpower in electro-optics and lasers. A high level of specialization has been achieved in

the areas of electro-optic testing, measurement and imaging systems, laser materials processing,

electro-optical component manufacturing and medical systems. Among the important companies

in the field are Indigo, Scitex, Orbotech, ELOP, Lanoptics, Elbit and Laser Industries.

Education in schools is enhanced by a variety of computer-aided instruction systems. Israeli-

made computer-based imaging systems are also widely exported. While some of Israel’s

software products are designed for use on mainframe computers, most have been developed for

small- or medium-sized workstations.


82

Software Design

Israel has also emerged as a major software design centre. It is significant to note that the Israeli

and Indian software industry started off at the same time, but the market value of Israel’s

software listed on NASDAQ is $50 billion today. Further, one may add to this a conservative

$10 billion in companies that are listed in the country or valued in private acquisitions. Software

R&D centres in Israel include setups of multinationals such as Microsoft, IBM and Digital to

name a few. Scores of Israeli companies are operating in the US market through joint ventures,

OEM and marketing agreements.

In 1993, the Israel Export Institute signed a memorandum of understanding (MoU) with an

Indian consultancy firm, Technova India, for the promotion of Israeli electronics technology in

India. Under the terms of the MoU, Technova chose to confine itself to identifying and aiding

collaborations and transfer of technology in the civil area. It was around the same time that

Electronics Industries (ELOP), the Israeli market leader in thermal imaging and other esoteric

areas, opened an office in India. ELOP made an unpublicised entry into India through a

technology tie-up with an NRI-promoted company in the Noida Export Processing Zone.

ELOP’s technology offered the capability of linking a computer-controlled vision system to a

fruit- or vegetable-processing line to automatically sort and grade fruits or vegetables by size,

colour and quality. That year also saw a number of Indo-Israel joint ventures in floriculture and

drip-irrigation industries. However, the drift is now more in the high-tech direction of

telecommunications and electronic machinery, medical equipment, education software and

digital printing technology. These products constituted over 15 per cent of Israel’s exports in

1998 and an increase of 45 per cent over similar exports in 1997. A number of joint ventures are

now being set up in areas like manufacture of high-speed modems, voice-mail systems and fibre

optics. Even the regional and development centres for such ventures are being set up in India. It

is significant to note that even low-profile companies like Gilat Satellite Networks are

determined to tap India’s potential in communications through VSATs. Gilat is in the process of

setting up a liaison office in Delhi and Magic Software is all set to cash in on the Indian ‘ERP

solutions’ market. Alladin Knowledge Systems caters mainly for the software-security-against-

piracy requirements in the market. Even giants like ELBI Systems are vying for this segment. A

small but significant beginning was made at building tie-ups between the Israeli and Indian

electronics industry in 1993. This association has now penetrated numerous areas that promise

high growth in volume and value.


83

Government Assistance

Israel has an incubator programme, which has been a key factor in promoting inventors and

innovators. This programme was initiated in 1992 to absorb emigrant scientists. Any Israeli

national can apply for assistance on the basis of a promising proposal and the assurance of

completion of the prototype within two years. Another such setup is run by Wiezmann Institute,

which receives an annual budget from the Israeli government. The budget allocation in 1998 was

$160 million. The institute encourages research even on technology that may not have immediate

practical applications. It also offers a programme for commercial inventions that it operates

through a separate company, Yeda. Under Yeda, researchers need not develop a prototype

compulsorily as is mandatory in the incubator programme.

Elron Electronic Industry

It is a technology holding company based in Haifa Israel; since 1962 the company has been

involved in setting up, funding and developing over 30 companies and is considered one of the

foundation stones of the high-tech industry in Israel. The company's sectors of interest

include: Clean technology, software, semiconductors, medical technology,

telecommunications, defense and aerospace. Today, the combined annual revenues of the

companies established by Elron are approximately $5 billion.

DIAMOND INDUSTRY

History

Since the fifteenth century, when an Antwerp Jewish diamond cutter Lodewyk van

Berken invented the scaif, diamond cutting was one of traditional Jewish crafts. The Israeli

diamond industry began in 1937, before theDeclaration of the Establishment of the State of

Israel, when the first diamond polishing plant was opened in Petah Tikva by refugee experts

from the Netherlands. In 1938 the 15% import duty on imported rough stones was removed. By

1944 the industry employed 3,300 workers in 33 factories, with £P.1,320,000 capital investment,

entirely Jewish. The value of exports was over £P.3,200,000 mainly to the United States,

Canada, and India; It was the largest value of any single commodity exported from Palestine that

year. Between 1944 and 1948 the industry suffered from the increasing lawlessness and in

February 1948 closed down completely. After a state was declared, the consumer economy was

shifted to a war economy. This came at the height of a diamond crisis, as many war torn

economies were struggling to re-establish. Since then, the industry has continued to grow,

producing a world leader in the diamond industry.


84

Current Position

In the beginning of the 21st century, Israel is one of the world's three major centers for

polished diamonds, alongside Belgium and India. Israel's net polished diamond exports slid 22.8

percent in 2012 as polished diamond exports fell to $5.56 billion from $7.2 billion in 2011. Net

exports of rough diamonds dropped 20.1 percent to $2.8 billion and net exports of polished

diamonds slipped 24.9 percent to $4.3 billion, while net rough diamond imports dropped 12.9

percent to $3.8 billion. The United States is the largest market accounting for 36% of overall

export market for polished diamonds while Hong Kong remains at second with 28 percent and

Belgium at 8 percent coming in third Diamonds constitutes about 24% in total country export.

In 2007 year, 12 percent of world diamonds (by their value) were polished in Israel. In 2010 this

number decreased to 9 percent. The Israeli Diamond Industry is based on a tradition that goes

back hundreds of years. It prides itself on its skillfulness, resourcefulness and uniqueness as well

as its unprecedented creativity and cutting-edge technology. It adheres to a strict ethical code and

offers buyers a wide variety of merchandise and services all under one roof.

The General Labor Federation – Histadrut – also is a part of the industry’s activities, particularly

in diamond factories and polishing plants. The Israeli Diamond Industry’s high technological

standards, its skilled and trained manpower, as well as the incorporation of the second and third

generation in the Industry, help to preserve its status as an international leader even during world

recessions.

Among the various entities, that function within the Israeli Diamond Industry is the Israel

Diamond Institute Group (IDI), which plays a central role in promoting the Industry in the world

market. The Group, along with its subsidiaries and various units, acts effectively to develop new

horizons and innovative methods that help to position the Israeli Diamond Industry at its fitting

place in the forefront of the world industry and sophisticated technological research. IDI Group

activity is conducted via offices in Hong Kong as well as through the Harry Oppenheimer

Diamond Museum.

The Israeli government also plays a role in the Israeli Diamond Industry through the Diamond

Controller within the Ministry of Economy. It supervises the import and export of diamonds in

Israel. Unlike other industries, the diamond industry was affected entirely by external factors not

under Israeli control. The diamond industry imported rough diamonds, cut and polished them,

and then exported them. The slump in the industry from 1980 through 1982 surprised many

Israeli firms that had speculative stockpiles. The result was a complete restructuring of the

industry in FY 1984, and the creation of approximately 800 new and smaller manufacturing

units. These small entities in mid-1986 concentrated exclusively on cutting, leaving the

marketing to larger export firms. This latter task was supported by the 2,000-member Israel

Diamond Exchange and the 300-member Israel Precious Stones and Diamonds Exchange,

together with the quasi-governmental Israel Diamond Institute.


85

The success of this revitalization can be seen in the trade figures for the industry. In 1982 net

diamond exports were US$905 million, equal to 18 percent of total exports; in 1986, however,

diamond exports had grown to nearly US$1.7 billion, approximately 24 percent of total exports.

Israel's net polished diamond exports slid 22.8 percent in 2012 as polished diamond exports fell

to $5.56 billion from $7.2 billion in 2011. Net exports of rough diamonds dropped 20.1 percent

to $2.8 billion and net exports of polished diamonds slipped 24.9 percent to $4.3 billion, while

net rough diamond imports dropped 12.9 percent to $3.8 billion.

The diamond industry in Israel adds 5 percent to the GDP and is a significant source of the

revenue needed to sustain Israel’s occupations. The US is Israel’s most important diamond

export market, accounting for roughly 40 percent of exports. In 2010 the net value of Israeli

diamond exports to America was $5.8 billion

TEXTILE INDUSTRY

Israel has succeeded in creating a thriving textile and apparel industry, overcoming the handicaps

of a small domestic customer base, distant export markets and high costs. Much of the credit

goes to the industry itself, which has adopted high tech manufacturing methods to produce

quality and cost-competitive goods, made strategic acquisitions in overseas companies and

focused on niche markets where medium-sized and small companies can be major players.

Part of the credit also goes to the Middle East peace process, which has enabled companies to

move production to lower-cost countries in the region, and to the free-trade agreements which

Israel has with two of the biggest apparel markets in the world, the United States and the

European Union.

History

Israel's textile and apparel industry started well before the founding of the State in 1948. In the

1920s, Jewish pioneers from Europe set up factories in the Land, replicating the businesses they

had run in the countries of emigration and adapting them to local conditions. The story of Lea

and Armin Gottlieb, founders of the world-famous swimsuit manufacturers Gottex Models Ltd.

illustrates this flexibility.

In its early years, the textile and apparel industry received substantial support and encouragement

from the State. Grants and loans were provided to build and expand factories, which were then

protected from competition by custom duties and quotas on imports. But over the last two

decades, the State has shed its old philosophy of direct intervention in business and the economy,

a process that was motivated by the growing realization of the benefits of free trade. Israel

became a signatory to GATT (General Agreement on Tariffs and Trade) and later the World

Trade Organization (WTO), which required it to conform to certain standards of open markets.


86

In 1975, the government signed a free trade area (FTA) agreement with Europe, and a decade

later one with the U.S. followed. At the beginning of the 1990s, an import liberalization policy

was unilaterally initiated that cancelled quotas and, over time, high duties on imports. Import

duties on textile and apparel have also been cut to 12%. Companies now competing with low-

cost Far Eastern products in both their domestic and export markets have responded in various

ways: by shifting labor-intensive manufacturing to low-labor-cost countries; by finding and

developing niche markets where they can have a relative advantage; and by employing the latest

automated methods for design and manufacture.

Free Trade

Because of the small Israeli market, the most successful apparel companies are export-oriented.

Israel is the only country in the world that has FTAs with both the U.S. and the EU, making it a

bridge between the continents. By virtue of the North American Free Trade Area agreement

(NAFTA), Israel also enjoys duty-free access to Canada and Mexico. This agreement, together

with the Israel-Mexico FTA (which became effective in the summer of 2000), allows Israel duty-

free access to practically all of North America. Israel also has FTAs with Jordan, Egypt, Turkey

and the Palestinian Authority.

The FTA with the U.S. is particularly important and has had profound effects on Israel's textile

and apparel industry. America is now the industry's biggest export market even though Europe's

proximity had traditionally made it a natural outlet for Israeli products. Israel exported some

$545 million of textiles and apparels to the U.S. in 1999, nearly tripling the level of 1990, while

exports to the EU declined from $580 million in 1996 to $485 million in 1999. The FTA's role is

so critical that it can open up entire markets; for example, since the U.S. increased its duties on

imported bed linen from European and other countries, demand has grown for Israeli home

textiles, which enter the U.S. duty free.

Today there are a number of manufacturing plants set up by Israeli textile companies in Jordan

and Egypt, as well as joint ventures between Israeli and Turkish manufacturers. Delta Galil

Industries (founded in 1975) is gradually shifting much of its labor-intensive manufacturing from

factories in England and Scotland to low-cost countries like Jordan, Egypt, Turkey and Romania.

Low-cost production rose to 35.9% of total sales in 1999, compared with 24.6% in 1998. At

Tefron, a manufacturer of intimate and leisure apparel, some 10% percent of the company's

production is now in Jordan, with management aiming to increase this figure to 50 percent.

Labor-intensive manufacturing is expected to continue moving to low-labor cost countries

further afield, with Mexico joining the list.


87

Haute Tech Fashion

Israeli companies have invested heavily in the best machinery which technology can provide,

have set up active research and development (R&D) units to be at the cutting edge of innovation,

and have transformed themselves from a purely manufacturing-oriented sector into a more

diverse, broad-based industry, offering customers complete packages including development of

materials, design and full collections.

Tefron's use of computerized robotic manufacturing methods, for example, has resulted in

international recognition as a leader in the implementation of new manufacturing technologies.

The company designs, develops, manufactures and markets high-quality men's and women's

lingerie and undergarments for export, mainly to the U.S. Complete apparel production - from

thread to completed garment - is a one-step operation replacing traditional finishing and cutting

methods, as well as conventional sewing processes. With its high tech edge, Tefron is a world

market leader in the production of seamless items, and counts as its customers Victoria's Secret,

Donna Karan, Gap and Banana Republic as well as European clients such as Cacharel and Dim.

In fabrics, too, Israel has made use of the best technology available. Nilit, which makes nylon

yarns for use in women's hosiery, intimate apparel and bodywear, competes successfully in the

major markets in Italy and the U.S. because it is a fully integrated manufacturer, producing both

the yarn and the polymer. The company invests heavily in new technology, buying the

machinery but designing its own production lines.

Private Label

Few Israeli companies have established independent brand names, but they are frequently the

manufacturers behind the prestige label. Research by the Israel Export Institute shows that in the

clothing sector, more than 90% of exports are sold using the "private label method", meaning

that their products are sold under a different company's brand name.

Delta Galil, which makes high-quality ladies' intimate apparel, men's underwear, socks, baby

clothes, leisurewear and fabrics, sells its products to leading brands such as Polo, Ralph Lauren,

Donna Karan, Calvin Klein, Victoria's Secret and Hugo Boss, as well as to retailers JC Penney,

The Gap and Banana Republic in the U.S., Marks & Spencer in the UK, Hema in The

Netherlands and Carrefour in France. Polgat Textiles, which creates worsted wool fabrics from

the thread to the finished material, counts as its customers high-fashion designers Armani U.S.,

Calvin Klein and Liz Claiborne, and retailers Marks & Spencer. Bagir markets its private label

products to Marks & Spencer and Brooks Bros, and its own label, Pierre Balmain, Paris, to

Selfridges and John Lewis in the UK.

Many Israeli subcontractors to bigger companies like Delta Galil and Tefron are already eager to

become private-label exporters in their own right.


88

Going Global

With textile and apparel production now a global industry, many Israeli manufacturers have

expanded operations by acquiring companies outside the Middle East. This year, Delta Galil

acquired the Canadian sock marketer and manufacturer Dominion Hosiery Mills, and Wundies

Industries (U.S.), a manufacturer of intimate apparel and girls' underwear. Tefron has also

become an international company, having acquired in 1999 Alba Waldensian Inc, a leading

American manufacturer of seamless clothing and unique knitted medical products.

Making Waves

Gottex is the swimsuit brand that has put Israel on the map of high fashion. The genius of Lea

Gottlieb, who founded the company with her husband and became its chief designer, was to

complement swimsuits with matching tops, pareos and skirts, creating fashionable beach outfits.

Gottex is also as much a story of how important good management is to an apparel company as

high fashion.

Lea and Armin Gottlieb arrived in Israel in 1949, and set up a raincoat factory similar to the one

they owned in Hungary. However, because Israel is hot and dry for most of the year, they shifted

production to swimwear in 1954.

Before long, Gottex became available worldwide, with bathing suits and accessories -

characterized by bold cuts, colors and innovative textiles - sold in more than 80 countries. Gottex

also blazed a trail for other Israeli swimwear companies some of which, like Gideon Oberson,

sell under their own name but most, like Marlin, Klil Yofi Model and Diva Hirschthal, under

other brand names. Exports of swimwear from Israel totaled $44 million in 1999.

At the end of 1997, after a series of poor production, planning and purchasing decisions, the

Gottliebs sold 80% of their firm to a holding company, Africa Israel Investments; but 82-year-

old Lea Gottlieb is still a member of the design team.

Since then, Africa Israel has reorganized the company. The strategy has paid off: in 1999, Gottex

recorded a $2 million profit, turning around a $17 million loss from previous years. Sales

exceeded $30 million in 2000 (resulting in a $3 million profit), 85% for export, mainly to major

retail stores in the U.S. like Sacks Fifth Avenue and Bloomingdales. In the UK, Gottex is sold by

prestigious retailers such as Harrods, where Gottex has its own shop. Other world markets

include France, China, Japan, Australia and South America.

Recently, Gottex has launched two less pricey lines, "Free by Gottex" aimed at young working

women, and the "Lady Gottex" brand for older clientele.


89

SEMICONDUCTOR INDUSTRY

Israel has long been recognized as a leading force in the semiconductor industry. Semiconductors

continue to drive growth in many other markets including microprocessors, data and voice

communications, wireless, IP and networking communications, medical, consumer, automotive,

defense and more.

Israel presently maintains 5 semiconductor manufacturing plants (fabs). Intel has three plants and

Tower Semiconducter maintains two. Israel also has over 150 fabless semiconductor companies,

R&D facilities and design centers. Several companies develop and manufacture equipment for

manufacturers of Semi-conductors. The world's first nano-wire (three times thinner than those

used in microchips) was created at the Technion-Israel Institute of Technology

Local Innovators

SELA Ltd., an Israeli company that develops automated scanning electron microscope (SEM)

and transmission electron microscope (TEM) preparation equipment, was named as Editor's

Choice Best Product Award in 1998 by the prestigious Semiconductor International magazine

for its TEMpro sample preparation system.

Israel’s Saifun Semiconductors Ltd., acquired by Spansion in 2007, developed technology to

quadruple memory capacity in serial flash memory devices for products such as digital

cameras, cellular phones, PDAs and other devices.

Israel’s DSP, with, 60% market share, is leading the development and marketing of

components and software in the cellular communications market. The company creates,

markets, licenses and supports software and integrated circuits based on digital signal

processing (DSP) technology and proprietary ASICs for the

analog and digital cellular, wireless data communications and wireless PBX markets. DSPC

was acquired by Marvell in 2006.

Negevtech's proprietary Step & ImageTM

technology is a highly developed numerical aperture

ultraviolet inspection tool which combines bright and dark field imaging and is used by leading

memory manufacturers worldwide.

Electronic peptides were discovered by a research team at the Technion. Peptides are organic

semiconductors using proteins designed from scratch in the laboratory. The proteins, linked

together in precise chains to create electronic-grade material, are used in sensor devices to

detect tiny amounts of diseased molecules in the body or toxins in the environment.


90

Statistics

Sales of semiconductors by Israeli chip makers reached $2.9 billion in 2007, representing 18%

of total sales of Israel ’s industrial electronics sector (IMA).

Currently, there are approximately 150 companies developing chips in Israel.

Israel's fab-less sector is third after the USA and Taiwan.

More than 7,000 engineers are employed in the semi-conductor industry (IEI)

CHEMICAL INDUSTRY

Israel’s chemical industry has played a major role in the country’s economic development and

has in some areas established Israel among the world's leading chemical-producing nations. The

industry can be divided into several subsectors: minerals and fertilizers; bromine, refined oils and

petrochemicals; pharmaceuticals; and cosmetics. Israel’s chemical Industry employs over 30,000

workers.

History

Israel’s chemical industry began formally at the beginning of the last century, when efforts were

made to extract potash and later bromine from the Dead Sea. By 1946, the manufacture of

potash fertilizers had begun in Haifa and with the establishment of the State, the new government

created several state-owned companies to mine raw materials and process their derivatives. In

1952, the Dead Sea Works was founded, followed in 1955 by the Dead Sea Bromine Company.

Chemical production for export purposes on a large scale began in the 1960s.

Industry Profile

In 2008 annual turnover in the industry grew to an unprecedented high of $25 billion owing to an

increase in demand for many services and products and a concomitant rise in prices. Potash, one

of the main ingredients in fertilizer which helps plants resist disease and improves crop yields,

rose in price from about $150 per ton to almost $1,000 per ton from 2007 to 2008. When the

financial crisis hit, however, demand dropped by almost half and prices fell nearly to their 2006

levels. The potash industry is fully consolidated, with eight companies controlling more than

80% of global supplies.

A major factor in the expansion of the chemical industry can be credited to Israel Chemicals

Industries (ICL) and its subsidiaries, with its innovative accomplishments in fertilizers,

chemicals, and by-products based on raw materials, such as phosphate, potash magnesium and

bromine. Commercial production is dominated by their subsidiary companies Dead Sea Works

(DSW potash and salt), Dead Sea Bromine (bromine and bromine derivatives), Dead Sea

Periclase (magnesia-based precuts), Dead Sea Magnesium (magnesium metal), Rotem Amfert


91

Negev (phosphates, phosphate chemicals and fertilizers), Rami Ceramic Industries (ceramics and

refractories), Negev Industrial Materials, (Fertilizers and Chemicals), and PAMA (oil shale).

Dead Sea Works and Rotem are responsible for the marketing and logistics of these products.

Another strong company in this sector is Makhteshim Agan (MA) Industries, the world’s largest

producer of generic crop protection chemicals. In January 2011, China National Chemical

Corporation agreed to buy 60% of MA Industries in a deal that valued the company at $2.4

billion.

Israel's burgeoning high-tech sector is another major customer of the chemical industry. The

semiconductor industry, for example, uses many of the industries products which results in a

large demand for such products. US electronics giant Motorola established a facility in Israel as

early as 1964. Chip maker Intel arrived in Israel in 1975 and now has three fabrication plants in

the country, while Israel's Tower Semiconductor has two highlights.

Natural Resources

Israel has been blessed with one of the world's unique natural resources- the Dead Sea.

Extremely dry conditions have created an inland sea (416 meters below sea level) with resultant

high evaporation characteristics creating salt and other minerals of extraordinary quality. These

products have led to thriving magnesium and potash industries, and the export of black mud and

Dead Sea salts for therapeutic and cosmetic purposes as well.

At present, approximately 200 quarries are in operation within the country. Overall annual

production totals about 50-60 million tons of raw materials, including different kinds of

aggregates, gravel, dimensional stones, sand and other materials used mainly in construction.

Phosphate mines are found in the southern part of the country, and the minerals extracted are

used primarily in the chemical industry and agriculture sector.

Minerals and Fertilizers

• Dead Sea Works produces approximately 3.5 tons of potash annually in Israel, and together

with ICL’s worldwide facilities, produced almost 10% of the world’s requirements.

• Israel is one of the world leaders in the production of white phosphoric acid.

• Haifa Chemicals, with two production facilities, generates 30% of the world's "green"

fertilizer, potassium nitrate, sold to more than 100 countries and is one of the largest

producers in the world.

• The Timna valley near Eilat, home to Timna Mines, served as Israel's primary copper

mining area from 1958 to 1985. In recent years, there have been renewed efforts to continue

copper mining at this historical mining site that is also known as King Solomon's Mines

with a goal of producing over 20,000 tons of pure copper annually.


92

Bromine, Refined Oils and Petrochemicals

• Bromine, produced in the Dead Sea area, is the cheapest source of bromine available

worldwide. There are also plants for the production of bromine compounds for plastics,

electronics, furniture and textiles, as well as products based on bromine which are used for

soil fumigation, water treatment and drilling equipment.

• ICL’s bromine production plant at the Dead Sea in Sodom has a production capacity of about

250,000 metric tons of bromine a year and is the largest single bromine production facility in

the world.

• There are currently two oil refineries in Israel producing refined products for local and

foreign consumption. Petrochemical production, based on these refineries, produce raw

materials for export and the local plastics industry. Oil Refineries (Bazan), the larger of the

two refineries located in Haifa, is building a $500 million hydrocracker to more efficiently

transform crude into diesel and jet fuel once it becomes operational in the first half of 2012.

• Other petrochemical facilities produce aromatic products and intermediates for the chemical

industry.

• In 2012 Makhteshim Agan Industries announced that it is expanding its Israeli operations by

opening a new production facility based on a unique chemical process for aroma & chemicals

products. The process was developed at Ben-Gurion University.

Pharmaceuticals

Teva Industries is the world’s largest manufacturer of generic pharmaceuticals with a history of

successfully introducing several groundbreaking drugs to the market, such as Copaxone for the

treatment of MS. See more about Teva here.

Other outstanding companies, some of which are listed on international stock exchanges,

include Dexxon, Taro and Perrigo, which have production facilities in Israel. Like Teva,

these companies export most of the drugs they produce worldwide.

In the area of biotechnology, Israel has a bounty of small companies working on a wide

variety of products in different stages of development. Many have already reached the

production stage.

Cosmetic Industry

There are more than 100 cosmetic manufacturers in Israel certified by the Ministry of Health,

about half of which use Dead Sea minerals. Exports of Israeli cosmetic products reached $450

million in 2010, 7% more than 2009.


93

AUTOMATIVE INDUSTRY

Although Israel does not engage in large-scale vehicle manufacturing (it only alters vehicles to

local requirements), about 150 Israeli manufacturers supply systems, parts, modules and tooling

to OEMs (original equipment manufacturers) and the auto aftermarket. Israeli companies have

also successfully adapted military solutions for civilian use. Furthermore, Israel’s skilled

workforce, strict compliance with international quality standards, computerized logistics and

advanced R&D capabilities position the country as a prime destination for outsourcing and

development of new products. In recent years Israel has developed a number of breakthrough

technologies for use in cars. As electronics become an increasingly significant aspect of every

vehicle, having recently risen from 15% to 35% of total car cost, Israel is well placed to become

a leader in this market segment

DESIGN INDUSTRY

Israel’s creativity in design has gained the country a reputation for being highly marketable and

competitive. Israeli designers are today organized and business-like and are being sought by the

global community for their innovation and creativity. The Israeli economy demands design

excellence. The country is strongly export-oriented and dependent on its advanced technologies

sold on world markets. These include a wide range of electronic and information technology

products, medical devices, especially diagnostic equipment and defense and security products for

use by governments, industry and private consumers. Creative and innovative Israeli designers

play a significant role in advancing Israel’s local high-tech start-up and media companies, as

well as promoting international and multinational companies worldwide.

The concept of design spans all industries. Israeli designers have had breakthrough achievements

in communications, interactive media, home and office products, medical devices, military,

jewelry, textiles, fashion, toys and graphic design for advertising and branding. Israeli industrial

designers collaborate with engineering teams to produce original and creative concepts that are

both functional and appropriate for manufacturing. Graphic designers support corporations by

communicating verbal and visual information, through corporate identity and branding

applications.

Highlights

Israel’s design market is divided into: Visual communications – branding, advertising, packaging, corporate

Website and user-interface design (GUI, UI)

Industrial design services

Israel has more than 3,000 active independent design professionals. There are 400 small

businesses and thirty large well-established companies, many of them working with overseas

corporations.


94

Design Schools

There are number of well-known design schools in Israel:

Bezalel Academy of Art and Design, which has provided education and training in design

and arts since 1906.

Holon Institute of Technology offers bachelors programs in industrial design, visual

communications and art & design.

Shenkar College of Engineering and Design in Ramat Ganincludes departments in

jewelry, fashion, graphic, textile and industrial design and boasts a center for digital model

making

Jerusalem’s Hadassah College, with roots reaching back to 1922, has a school of visual

communication and a school of design and communication.

Awards and Achievements:

Among the global companies that have recently expressed interest in Israeli design

are Mercedes Technology, Samsung and Siemens.

A large number of major corporations are engaged in R&D in Israel. For example, IBM,

Motorola, Intel, Google and Nokia, use Israeli designers for their products.

In 2008, 4 Israeli designers were presented with awards for product design by the

international "Red Dot Design Award," one of the largest and most renowned design

competitions in the world: Pure Soda Machine designed by 12D; Connex500 Multi-Material 3D

Printing System designed by 12D; Wave Cleaning Robot designed by Mobius Design; Propeller

Ceiling Fan designed by Yaakov Kaufman.

Two young Israeli fashion designers from Shenkar College recently won the first place in

the Art & Fashion De La Villa fashion competition, which took place in Bilbao, Spain.


95

Companies Using Israel’s Designs Around the Globe:

Some recognized companies and their designers include:

Hisense, a Chinese electronic manufacturer (~$6.7 billion revenue in 2007),

used OPEN design for its branding.

Muller, a leading European dairy product manufacturer based in Germany, used the

services of Adlai & Partners. The company prepared the packaging designs for Muller's

products sold in Israel and Eastern Europe.

Altec Lansing, developer and manufacturer of speaker systems, used industrial designs

created by Nekuda, as well as for the sound system design for Apple’s iPod.

Evoka, a UK jewelry company, used Adlai & Partners for its branding.

Sandisk, an American multinational data storage cooperation, used I2D for its industrial

designs.

Orca, an Israeli developer of enhanced entertainment services for TV, used Netica to design

its website and user interface.

Israeli Ministry of Tourism used the services of the Israeli company Open

Israir Airlines used the services of Sandra Shekel for creating it’s cooperate identity.

El Al Airlines used the services of Neo Group for creating it’s cooperate identity.


96

Film Industry

At the heart of Israel's growing film industry is a vibrant and creative film community committed

to encouraging cooperation with international filmmakers and producing acclaimed films in

varied genres. In recent years, the worldwide success of Israeli films has led to a marked increase

in co-productions with international companies and foreign investments in Israeli films, as well

as a surge in awards recognizing Israeli films for artistic and technical excellence.

New Media

New media refers to on-demand access to content anytime, anywhere, on any digital device, as

well as interactive user feedback, creative participation and community formation around the

media content. Another aspect of new media is the real-time generation of new, unregulated

content. Most technologies described as "new media" are digital, often having characteristics of

being manipulated, networkable, dense, compressible, and interactive.

Why Is Israel a Growing Center Of New Media?

Israeli new media companies, bolstered by a digitally-saturated, media-savvy local culture of

early adopters, are vital players in an increasingly digital world. Known for creating unique

solutions, Israeli companies are sought-after by media outlets, operators and content providers

for their novelty and utility, as well as for their ability to generate increased revenues while

enabling a rich user experience. More than 700 new media companies: Israel is home to more

than 700 new media companies whose offerings span the range of new media possibilities,

including content creation, delivery and management, gaming, broadcast, digital & cable TV,

IPTV and satellite services.

Innovative start-ups: Israel continues to be home to global giants and it is also the location of

more than 400 media companies classified as start-ups. These start-ups are characterized by

innovation and entrepreneurship, with low production costs aiding competitiveness, combined

with a willingness to adapt solutions to customer requirements.

Focus on entertainment: While Israel has a recognized global presence in Internet applications

and services, e-commerce, online advertising, and social networks, many involved in the industry

are now directing their focus to the entertainment sector.

Digital media culture: Tel Aviv, along with other Israeli cities, has become a global city for

high tech and innovative companies, with a beach lifestyle and many incubators and accelerator

programs helping to grow its unique innovation ecosystem. This dynamic atmosphere has been

the background for the launch of many new media companies and has also nurtured them to

success.


97

Multinational New Media Companies

Some technology giants active in the Israeli market include Apple, e-Bay, Google Cisco,

Ericsson, HP, Intel, IBM, Microsoft, Motorola and Nokia-Siemens.

Export oriented: Given the small local market, many of Israel's most innovative companies are

export oriented in order to make use of global economies of scale.

Increase in investments from around the world: As products are developed for the international

market and according to the highest standards, international investment in Israel's digital media

companies has increased. In the last 10 years, Live Person acquired Human Click, eBay bought

Shopping.com, Harmonic acquired Scopus, Yahoo bought Foxy Tunes, and Orca was acquired

by France Telecom.

Some Up-And-Coming Israeli New Media Start-Ups

• Waze is the world's fastest-growing community-based traffic and navigation app.

• Wibbitz developed a video plug-in for blogs and other media platforms.

• Bizzabo is a business discovery app designed to help event organizers communicate with

attendees and create networking opportunities.

• SProphet lets fans share sports knowledge by predicting outcomes of real sporting events.

For example, they can predict which baseball batter will have the longest batting streak in

the MLB this week.

• Mobli develops social networking apps for sharing pictures and videos. Mobli is best

known for its famous investors, including actor Leonardo DiCaprio, who invested $4

million a year ago in the company's second funding round. Tennis player Serena Williams,

actor Tobey Maguire and cyclist Lance Armstrong are also investors.

Recent Acquisitions Of Israeli New Media Companies

The Gifts Project, a social commerce platform that enables users to give and receive group

gifts on social networks and ecommerce websites was purchased by e-Bay for $20 million.

Wibiya, a company that enables web publishers to integrate multiple services, applications and

widgets into their environment through customized web-based toolbars sold to Conduit for $45

million.

Picscout, which monitors the usage of images on the web, sold to Getty images and Picapp,

which offers free premium quality images, sold to Ybrandt.

LabPixies, a leading developer of online widgets was the first Israeli company sold to Google.


98

Tourism Industry

Israel has some of the most important tourism sites in the world, ranging from religiously

significant sites such as Jerusalem, with all its attractions, through national and international

heritage sites such as Masada, to unique natural sites like the Dead Sea.

Israel's Ministry of Tourism is working to develop a unique and variegated tourism product by

providing assistance to entrepreneurs for the construction of hotels and attractions, and through

investment in the development of major visitor attractions (archeological, religious, historical

and scenic) and development of tourism centers, among many other activities. To learn more

about the Tourism industry, see the resources below.

Tourism Industry Resources for Investors

The Ministry of Tourism's Electronic Bulletin Board is meant to serve as a channel for linking up

entrepreneurs in search of funding for a tourism project, with investors looking for a business

opportunity in the field of tourism. The board is an easily accessible, discreet and inexpensive

meeting place for entrepreneurs, investors and owners of land rights, for the purpose of

promoting tourism projects.


99

ASSOCIATIONS OF DIFFERENT INDUSTRIES

1. Metal, electrical and infrastructure industries

These are the backbone of Israeli industry. These industries include large companies that

manufacture dozens of products and employ thousands of workers, on the one hand; and family

enterprises producing solely for the local market, on the other.

The metal and electrical industries produce approximately 25% of industrial production in Israel

(approximately NIS 70 billion in 2010), export approximately 24% of all Israeli industrial export

(approximately $10 billion in 2010) and employ approximately 26% of the workforce in Israeli

industry (approximately 90,000 employees).

The Metal and Electrical Industries Association has approximately 500 enterprise members,

producing a wide variety of products in a variety of technologies.

The Association is headed by a public management board comprising 25 manufacturers

Association members represent the entire industry:

Aviation and defense – aircraft and spare parts, sailing vessels, tanks, missiles, weapons,

ammunition, etc.

Sub-contracting and equipment for industry – cutting tools and drills, pipe fittings, cutting

electrodes, electronic outfitting/equipping, chip processing, etc.

Construction and infrastructure – iron for concrete reinforcement, pipelines, electricity and

communications cables, electricity boxes, doors and windows, valves, elevators,

transformers, transport vehicles, generators, manufacturing and conveyor systems,

machines for packaging and weighing, lifting devices, compressors and pumps,

desalination facilities, etc.

Automotive products – military and civilian vehicles, fire engines, tankers, chassis for

buses, boxes for trucks, vehicle batteries, radiators, air and fuel filters, ball bearings,

pistons, rebuilt engines, etc.

Domestic electrical appliances – refrigerators, air conditioners, solar heaters, water heaters.

2. Building Materials and Consumer Goods Industries

Materials and Consumer Goods Industries in the Manufacturers Association comprises 13 major

industrial branches and constitutes an important level in the Israeli economy in general and

industry in particular.

The Association supplies the industry with solutions to the challenges facing both the individual

industrialist and the entire branch of industry .


100

The Association encompasses about 350 of the largest companies and factories in the economy

and the following divisions operate under its auspices: building materials, rubber and plastic,

printing and publishing, stone works (marble), paper and paper products, furniture and wood

products, cosmetics, concrete, milling and crops, shoes and tanning, quarry materials and toys.

A construction division operates under the auspices of the Association, uniting four entities:

Nesher Cement Industries, the Association of Quarry Materials Manufacturers, the Association

of Imported Concrete Manufacturers and the Association of Concrete Infrastructure Products.

The Association's primary objective is to advance the economic interests of Association

members and provide a wide range of services to every subdivision with specific needs:

economic and statistical information, news, innovation, information booklets segmented by

industrial branches, seminars, etc.

3. Chemical, Pharmaceutical & Environmental

The Chemical, Pharmaceutical & Environmental Society, established in 1979, is a strong and

highly influential professional body.

The Society numbers 120 enterprises representing most of the chemical industry output in Israel.

The Society's objective is to create a supportive business environment while maintaining

conditions of certainty in the long run for chemical and pharmaceutical industries in Israel.

The Society operates in the following fields:

- Dealing with the authorities and regular updates of legislative updates and relevant

requirements

- Maintenance of industry interests in aspects of environmental quality

- Providing professional and legal consultation in the fields of environmental quality,

standardization, patents, etc.

- Society representatives take an active part in Standards Institute committees, and they have

the ability to influence local standardization as well as to create employment opportunities.

Today chemicals make up almost every product that we consume – from complex products and

energy, electronics and life science industries to food and consumer products that our basic to

our existence.


101

4. The Food Industries Association

Israel’s food sector is a highly competitive arena in which local companies have been able to

prosper despite the import to the country of the food products from overseas manufacturers.

The Food Industries Association in the Manufacturers’ Association of Israel has more than 160

enterprises members, representing the bulk of Israel's food industry output. 100 companies are

able to export food items overseas.

Food Industries Association activities are diverse and covers areas such as standards, legislation,

foreign trade, marketing of the domestic market, exports, quality, information and data on the

industry, individual treatment needs of theindividual enterprise and other issues needed to

advance the development of food industry in Israel. Food Industries Association activities guided

by a Board consisting of 18 members, as the Food Industries Association chairman Mr Gedi

Lesin.

Food Industries Association is active in the following areas:

A comprehensive approach in the treatment packages.

Distribution of surveys on food expenditure.

relations between suppliers - retail chains.

sensible diet balanced lifestyle.

Encouraging R & D, technological innovation cooperation.

Legislation, regulations and technology of food.

5. Textile & Fashion Industries Association

Designs on Success:

Israel has a thriving textile and fashion industry with the “Made in Israel” label synonymous

with quality, style, innovation, creativity and imaginative design. Dozens of Israeli companies

manufacture a range of items including swimwear, home Textile,underwear, casual and formal

apparel, domestic textiles and military/security textiles as well as dyeing products, knitwear,

carpets and rugs and raw materials.

The Association comprises around 120 companies of which more than 100 are engaged in

exports and overseas sales. Exports of Israeli textiles, clothing and fashion products amounted to

$1. billion during 2009.

Setting Fashion & Technology Standards:

Israeli fashion began to earn a worldwide reputation in the 1960’s particularly in swimwear and

beachwear where they were recognized for their high fashion, glamour and chic sophistication.


102

Over the years Sophia Loren, the British Royal Family, Naomi Campbell, Sharon Stone, Claudia

Schiffer, Kate Moss and Cindy Crawford have all been seen wearing Israeli-made swimwear.

Israel also became renowned for its leather goods, both clothing and fashion accessories such as

bags, gloves and shoes.

Subsequently Israeli companies have been able to combine traditional industrial tailoring, design

and textile skills with advanced technology innovations to produce a wide range of quality

merchandize in all sectors including high performance fabrics and high-tech threads, which have

enjoyed global acclaim. For example Israel’s seamless products and new ultrasonic production

technology have proven particularly popular. Ultrasonic bonding equipment developed in Israel

cuts and seals fabric pieces without the need for conventional sewing and has become known in

the industry as seamless construction.

An excellent example of how an Israeli product can have a competitive advantage over rivals due

to technology can be seen in the sports socks sector. Most of the world’s leading soccer teams

wear Israeli made socks because advanced technology developments make them lighter, more

flexible and comfortable as well as efficient in absorbing sweat. In a related area Israel’s

engineered for performance active-wear also includes sports clothing favored by athletes.

Global Production and Marketing:

Israel’s textile industry is a truly global enterprise. In recent decades many facilities have been

re-located to countries where manufacturing is more cost-effective, thus enabling Israeli

companies to be more competitive on world markets. Therse shifts in production have caused

Israel to focus more on added-value in design, innovation and cooperation.

Over the years Israeli textile manufacturers have developed an ability to identify and target

specific niche markets in such sectors as intimate apparel and knitwear, fashion clothing, home

textiles (such as pillowcases, sheets and bedcovers), fabrics, high-performance threads and

sophisticated production technologies, while developing strong and ongoing relationships with

leading international fashion retailers including upscale department stores in North America,

Europe and the Far East, as well as mail-order catalogue houses.

Fashion

Israel have made their mark not only because of their cutting edge technologies but also strong

product development, using only quality raw materials, the strictest quality control and reliability

in delivering on-time as well as their trend-setting eye-catching designs. Quality assurance is

enhanced by Israeli high-tech, and for example, an Israeli imaging machine is used to scan fabric

for blemishes before they are packed. Digital printing developed in Israel reduces the costs of

digital printing onto clothing. There is also an advantage to Israel’s verticality.


103

By supplying a complete collection from raw material to finished product, the company’s textiles

companies are able to support customers’ ‘concept to market’ initiatives through reduced supply

time and the ability to stay very close to the design trends.

Renowned international retailers and brand name manufacturers that stock a wide range of Israeli

fashion items include: Macy’s, Marks & Spencer, Harrods, Nike, Pottery Barn, Ralph Lauren,

Banana Republic, Bloomingdale’s, Calvin Klein, Donna Karan, El Corte Ingles, The Gap, Hugo

Boss, J. Crew, Hema BV, Land’s End, Mitsukoshi, Neiman Marcus, Printemps, Sears, Spiegel,

Target, Tommy Hilfiger, Victoria’s Secret and Walmart.

Association Activities

The Textile and Fashion Industry Association determines overall policy and methods dealing

with macro-branch activity and handles ongoing problems relating to the branch as a whole and

to individual plants, vis-a-vis the Ministry of Trade, Industry and Labor, the Ministry of Finance,

Customs Authorities, Ministry of Defense, the Police Force and other relevant bodies.

Representatives from the Association’s management meet with leaders of the economy, with the

media and others who are likely to influence and to assist in dealing with problems facing the

sector.

The Association’s director and staff, who are in constant touch with the factories and relevant

authorities, put policy and management decisions into practice. Members of the staff visit

factories in order to learn at first-hand about individual and overall problems, with the aim of

solving problems in the framework of offered services. Elected member industrialists participate

in the meetings of the MAI Executive Committee and various other committees (foreign trade,

economics, labor, etc.), where they represent the sector’s interests. Secondary sections of the

association meet from time to time to discuss current issues The Association is represented in:

The Standards Institution of Israel; Shenkar School of Engineering and Design; WIZO College,

Haifa; Israel Textile Union; and the Editorial Board of the “Yalkut” journal.

6. Kibbutz Industry Association

The Kibbutz Industries Association is involved in economic processes in the country relating to

industry and supports the process of growth and renewal The Kibbutz Industries Association

represents, assists and promotes Kibbutz Industry, which is the main economic infrastructure of

the kibbutzim. The Kibbutz Industries Association, which was established in 1962, is the

umbrella organization representing more than 250 industrial enterprises in kibbutzim, collective

moshavim and regional enterprises, which are located across the country, mostly in the

peripheral areas.


104

Kibbutz Industry focuses mainly on traditional manufacturing industries , which are

characterized by the loyalty and commitment of the employees. By means of accelerated

development of exports, innovation and high level management, the Kibbutz Industries

Association caters for the common interests of kibbutz industrial enterprises and represents them

in public institutions and in various economic institutions in the economy.

7. Water Industries Forum

It provides service to the industry which encompasses manufactures that supply products,

services and advanced technologies that are directly connected or interface with the water

industry. There are more than 100 active members: manufacturers, consultants, engineering

companies, integrators and academics. Among the active manufacturers are: manufacturers of

pipelines, valves, filtering devices, pumps, engines, etc.

The forum maintains close relations with: the Water Commission, the Mekorot Company, the

Industrial Cooperation Authority and managers of the leading companies and projects in the

Israeli water industry.

Forum objectives:

Exposing the members to actual water-related business opportunities.

Preparing for the needs of the Israeli water industry in particular and worldwide water

industry needs in general.

Fostering cooperation between the industry and the manufacturers, and entities that are

promoting the water industry

Representing the general interests of water manufacturers (in work vis-à-vis authorities,

government offices and various officials in the economy).


105

Industry Contribution in GDP

YEAR

CONTRIBUTION

IN %

2013 31.5

2012 32

2011 32.6

2010 32.6

2009 32.5

2008 32.4

2007 30.2

2006 30.3

2005 30.5

2004 30.6

2003 31.7

2002 31.4

2001 30


106

Services

Finance

Banking

Tourism

Trade

Health Care

Education

Taxation


107

Introduction

As surprising as this may be, until today many decision-makers in the Israeli economy as well as

media personalities considered the Israeli economy to be divided into two principal segments:

a productive segment and a non-productive segment. The productive segment consists of heavy

industry, light industry, manufacturing and construction, whereas the non-productive segment

includes mainly the trade and services sector. This quaint anachronistic notion is one of the principle

factors of economic development in Israel. For years, the decision-makers were under the erroneous

assumption that all efforts must be aimed at encouraging industrial growth, and that the rest of

the sectors would take care of themselves. They maintained that in order to encourage the industry, it

is essential to change the Encouragement of Capital Investments Law and define the amount of

grants, which tax breaks will be given for how long, and the rating of benefits according to the

geographic zone. According to this approach, heavy taxes are imposed on everything; high income

tax, high employers’ tax, high corporate tax, and subsequently tax breaks, exemptions and benefits

are granted to specific economic sectors. What our decision-makers forgot is that apart from industry,

there is a huge and thriving private, entrepreneurial and independent business sector with

an enormous potential for economic development and for creating jobs. Instead of contemplating

how to stimulate growth throughout the business sector, the question addressed was how to boost

industry. In all developed western countries, the trade and services sector accounts for some 65-70

percent of the GDP. This is also the sector creating the majority of the jobs. 2004 marked an increase

of 38,000 salaried positions in the trade and services sectors as opposed to a mere 5,000 new

positions in industry. The trade and services sectors employ about 44 percent of all jobs in the

marketplace, including the public sector, sharply juxtaposed with only 14 percent in industry. In

effect, in the last five years the number of jobs in the industrial sector shrunk by 19,000, compared to

120,000 new jobs in the trade and services sector. Last March alone the trade and services sectors

generated 16,100 new positions, compared to only 1,500 jobs in industry. This development is not

unhealthy, but the natural path of development of any modern economy in the western world. We

are becoming an increasingly service-demanding and service-oriented society. Today, the need to

create many new jobs in the marketplace will not be met by the industrial sector. As mentioned

above, the trend in the last five years clearly indicates that industry does not have any real potential

to create new jobs. Today, we are producing more with far less manpower. The assembly lines are

taken out of Israel to countries where labor is cheaper. Therefore, the criterion for a business system

must not be based on the business content but on its cost-effectiveness. It makes absolutely no

difference if a successful business is in the field of manufacturing or services. The question that

should be addressed is whether the business stands on its own feet, isnot supported by public funds

and is able to generate jobs for its owners or for more employees. Ireland realized this when it

decided to change its economic policy. It lowered corporate tax across the board for the entire

business sector to 12.5 percent. The Israeli Ministry of Finance’s last tax reduction plan of lowering

corporate tax over a period of five years to 25 percent is the first harbinger that a change will also

take place in Israel’s economic approach. In Israel, the trade and services sector accounts for 62


108

percent of the business sector. We have room for another 8 percent growth in the business GDP

before reaching par with the economic structure of developed European countries. This sector also

provides opportunities for young people to go into business and develop ventures of their own. The

entrepreneurial high-tech industry indeed captures the imagination and draws more attention.

However, an important part of the high-tech industry is computer applications, creating software and

Internet technology, and these mostly fall short in terms of services. The traditional services

sector also offers many opportunities. True, only 50 percent of new businesses succeed, but the

experience is worthwhile, especially for young people. The gratification and horizons for expansion

of a person who owns his own private business usually far exceed the satisfaction that a person

can derive as a salaried employee. This is especially true when the investment required in the trade

and services sector is usually not as high as in manufacturing. The trade and services sector does not

demand government assistance, but only that the government refrain from interfering and bearing

down on the business unnecessarily. All that the government needs to do is structure a system of

taxation, licensing and control that will make Israel a convenient and friendly place for doing

business. The population itself will do the rest, since we are living in a materialistic and

entrepreneurial economy. The Israel Federation of Chambers of Commerce has no less than 100

active divisions spanning the various economic sectors, such as wholesale trade, retail trade, export,

import, real estate, the capital market, financial services, tourism, private medicine, business services

and many more. This partial list demonstrates the wide variety of services existing on the Israeli

market today.

History

The years immediately following the state's creation in 1948 were difficult for the Israeli

economy. The new state possessed no natural or financial resources, no monetary reserves, little

economic infrastructure, and few public services. A sizable portion of the existing Arab

population fled the new state, while impoverished and afflicted Jewish refugees poured in from

the European displaced persons camps and, later, from the Arab countries. In contrast to the

1930s, when Jewish immigrants to the Yishuv (or prestate Israel) had arrived with ample

financial and human capital, after 1948 most immigrants lacked the wealth and skills needed by

the new state.

The new state had to supply food, clothing, shelter, and employment for its new citizens; set up

civil and community services; and establish an independent foreign exchange, monetary, and

fiscal system. Given the shortage of private capital, the burden of dealing with these problems

naturally fell upon the public sector. The financial capital needed to deal with the influx of

immigrants was drawn either from the high level of domestic savings, or from capital imports

(such as foreign loans and grants), or foreign private sector investments (such as Israeli bonds).

The government's solution to the capital shortage included an austerity program of stringent price

controls and rationing. The government also decided to promote investment projects in

agriculture and housing through the use of public funds rather than through private capital


109

markets. The public sector thus gained control over a large part of Israel's investment resources

and hence over the country's future economic activity.

The result of this long-term state intervention was the development of a quasi-socialist economy,

which, in terms of ownership, was divided into three sectors: private, public, and Histadrut (see

Glossary), the abbreviation of HaHistadrut HaKlalit Shel HaOdim B'Eretz Yisrael (General

Federation of Laborers in the Land of Israel). The Histadrut, the umbrella organization of trade

unions, quickly became one of the most powerful institutions in Israel. Although Histadrut-

owned enterprises generally behaved like privately owned firms, the collective nature of the

labor organization precluded the timely demise of economically inefficient enterprises. Public

sector firms were owned by local authorities and quasi-governmental bodies such as the Jewish

Agency. As in the case of the Histadrut-run corporations, criteria other than profit maximization

dominated the economic operation of these firms.

The Israeli service sector, therefore, became totally dominated by the government and the

Histadrut. Histadrut-affiliated cooperatives achieved a near monopoly in such areas as public

transport and the production and marketing of many agricultural products. The Jewish Agency

acquired Israel's two major banks, which together made up 70 percent of the banking system;

and the two largest insurance companies were (and in 1988 continued to be) owned by the

Histadrut.

The importance of the government and the Histadrut was not limited to the service sector. They

became increasingly involved in the industrial sector as well. Whereas the percentage of plants

owned by the public and Histadrut sectors in 1972 was less than 2.5 percent, their share of total

industrial employment was 27 percent. Similarly their share of total industrial output in 1972 was

34 percent. This situation continued until 1988, when discussions were initiated to decrease

government control of business activity.

The major factor accounting for the increased role in industry of the public and Histadrut sectors

was the development of Israel's defense industry. After the June 1967 War and the French arms

embargo that followed, the Israeli government decided to build as many domestic weapons

systems as it could. In the 1980s, companies such as Israel Aircraft Industries and Israel Military

Industries continued to be state owned and among the largest firms in the country. The Histadrut-

owned Tadiran Electronic Industries became a major defense contractor and the state's largest

electronics firm. Similarly, the government-owned Israel Chemicals Limited and its subsidiaries

held the sole rights to mine potash, bromine, and other raw materials in the Dead Sea area. The

oil refineries, as well as the retail gas distributors, were also mostly government owned.


110

Finance Sector

History

In the late 1980s, Israel's financial system consisted of various financial intermediaries providing

a range of services from short-term overdraft privileges to the financing of long-term

investments in construction, industry, agriculture, and research and development. This financial

system was concentrated among a limited number of large banking groups under the supervision

and control of the Bank of Israel.

The government-owned Bank of Israel is Israel's central bank. Its legal powers and functions

allow it to determine policies and regulate activities in all fiscal areas, including interest rates,

money supply, foreign currency, and export financing and control. As part of its duties, the Bank

of Israel seeks to create institutions specializing in defined sectors of business or customers.

Consequently, banking corporations have been divided into two main groups: ordinary banking

institutions, such as banks, foreign banks, and merchant banks--all of which are subject to

liquidity regulations on both assets and liabilities--and specialized banking institutions, such as

mortgage banks, investment finance banks, financial institutions, and joint services companies.

The financial system in 1988 consisted of five major bank groups: Bank HaPoalim, Bank Leumi

Le Israel, Israel Discount Bank, United Mizrahi Bank, and the First International Bank of Israel.

Given the high degree of concentration (the three largest bank groups accounted for more than

80 percent of total bank assets), banks operated in an oligopolistic environment, with little

competition in determining lending and borrowing rates.

The financial system provided three types of credit instruments: short-term, nondirected credit

financing; short-term, directed credit financing, and long-term and medium-term credit

financing. The granting of directed credit was the responsibility of the Bank of Israel. This credit,

however, actually was provided by joint funds of the Bank of Israel and the commercial banks,

and it was primarily intended to meet the working capital requirements of export enterprises.

Seventy-five percent of these funds were in foreign currency, with interest charges calculated on

the basis of United States dollar credits.

Apart from directed credit, the other major form of short-term capital was non directed credit,

which was composed of overdraft facilities. This credit facility provided the customer with great

flexibility at a non-indexed fee, which adjusted with inflation on a periodic basis. The other loans

that were denominated in new Israeli shekels were either indexed to the consumer price index or,

if non-indexed, were fixed-term credits.


111

Medium-term and long-term loans (exceeding eighteen months) were primarily directed

government loans. These credit flows were supervised by investment finance banks such as the

Industrial Development Bank of Israel. The government generally determined how medium-term

and long-term investment was encouraged and how it was financed. In an economy with a need

for short-term capital, long term financing was also used for financial activities other than

investment.

Government intervention in investment financing has taken forms such as direct budget credits,

development loans, and investment grants (under the Law for the Encouragement of Capital

Investment). Since 1974 development loans--whose interest rates were not adjusted for changes

in the rate of inflation--have contained a subsidy element that arises from the differential

between the low interest rate paid by the borrower on the one hand and a reasonable market rate

of interest plus the expected rate of inflation on the other. Beginning in 1979, the government

linked development loans, thus reducing this subsidization. Despite this linkage, the persistent

high rate of inflation had kept the effective real interest on these linked loans negative.

Although Israel had a well-developed banking system, it did not have a well-developed stock

market in 1988. The Tel Aviv Stock Exchange (TASE), founded in 1953, had never developed

properly because of the government's domination of activities relating to the raising and

allocation of capital. TASE thus remained a shallow market, poorly regulated and dominated by

the major banks, who assumed all stock market roles--brokers, underwriters, issuers, fund

managers, counselors, and investors.

Between 1975 and 1983, private corporations increasingly raised more of their capital on the

stock exchange. Most of the shares sold were highly overvalued and carried little or no voting

rights. By the end of 1982, the total value of the shares registered on the TASE reached more

than US$17 billion; in real terms, the value had more than doubled in a year and had multiplied

five-fold since 1979. This development stood in sharp contrast to Israel's stagnant GNP growth

and the worsening trade and debt position of the economy. In January 1983, however, the market

sharply declined. In a matter of days, most speculators lost 50 to 70 percent of the value of their

stocks. Mutual funds, which had been responsible for much of the market manipulation, became

nearly valueless.

In October 1983, the shares of the banks (which up to that point had been unaffected by the

market malaise) finally collapsed. Their crash precipitated a dramatic change in the development

of Israel's banking system.


112

The banking industry had expanded spectacularly in the 1970s, both at home and abroad. This

process had forced the banks to increase their capital base rapidly. The gradual advance of

inflation in the economy, and its distorting effect on financial statements drawn up under historic

accounting rules, only added to this thirst for capital. But in a capital market dominated by the

government, which was able and willing to issue endless quantities of index-linked bonds, the

banks found this capital difficult to rise.

The banks' solution was to transform their shares into indexlinked paper by creating a system

that ensured that the price of their shares would keep pushing upward, irrespective of the

underlying market forces. Over the years, bank shares were perceived as a riskless investment.

By 1983 the price of bank shares was steadily becoming more detached from their true value.

When it became obvious in 1983 that the government would have to devalue its currency, many

people began to liquidate their holdings of shekel-denominated assets in favor of foreign

currency. The assets most widely held and most easily liquidated were bank shares. The selling

wave began in the summer of 1983 and peaked in October, forcing the government to intervene.

In 1988 the government undertook to secure the US$7 billion obligation (equal to the public's

holding of bank shares) at the United States dollar value before the crash. The closing of the

TASE, on October 6, 1983, became known as the "economic day of atonement" and represented

the end of the speculators' paradise created and supported by leading Israeli banks.

Role in Gross Domestic Product

Israel has over 100 active funds operating throughout the country with $10 billion under

management. In 2004, international foreign funds from various nations around the world

committed over 50% of the total dollars invested exemplifying the country's strong and sound

reputation as an internationally sought after foreign investment by many countries. Israel's

venture capital sector has rapidly developed from the early 1990s, and has about 70 active

venture capital funds (VC), of which 14 international VCs have Israeli offices. Israel's thriving

venture-capital and business-incubator industry played an important role in the booming high-

tech sector. In 2008, venture capital investment in Israel, rose 19 percent to $1.9 billion.

Between 1991 and 2000, Israel's annual venture-capital outlays, nearly all private, rose nearly

60-fold, from $58 million to $3.3 billion; companies launched by Israeli venture funds rose from

100 to 800; and Israel's information-technology revenues rose from $1.6 billion to $12.5 billion.

By 1999, Israel ranked second only to the United States in invested private-equity capital as a

share of GDP. Israel led the world in the share of its growth attributable to high-tech ventures: 70

percent.


113

Israel's thriving venture capital industry has played an important role in the booming high-tech

sector, the financial crisis of 2007-2010 also affected the availability of venture capital locally. In

2009, there were 63 mergers and acquisitions in the Israeli market worth a total of $2.54 billion;

7% below 2008 levels ($2.74 billion), when 82 Israeli companies were merged or acquired, and

33% lower than 2007 proceeds ($3.79 billion) when 87 Israeli companies were merged or

acquired.[ Numerous Israeli high tech companies have been acquired by global corporations for

its reliable and quality corporate personnel. In addition to venture capital funds, many of the

world's leading investment banks, pension funds, and insurance companies have a strong

presence in Israel to financially back Israeli high-tech firms and benefit from its burgeoning high

tech sector. These companies include Goldman Sachs, Bear Stearns, Deutsche Bank, JP Morgan,

Credit Swiss First Boston, Merrill Lynch, CalPERS, Ontario Teachers Pension Plan, and AIG.

Israel also has a small but fast growing hedge fund industry. Within the last five years between

2007 to 2012, the number of active hedge funds have doubled to 60 while the total asset values

that the funds control have quadrupled since 2006. Israel based hedge funds have registered an

increase of 162% since 2006 and currently manage a total of $2 billion (NIS 8 billion) as well as

employing about 300 people. The ever growing hedge fund industry in Israel is also attracting a

myriad of investors from around the world, particularly from the United States.

Israel’s central bank, the Bank of Israel, issues currency and acts as the government’s sole fiscal

and banking agent. Its major function is to regulate the money supply and short-term banking.

The Israeli currency was devalued numerous times after 1948, and the new Israeli shekel (NIS)

was introduced in September 1985 to replace the earlier Israeli shekel. The government and

central bank introduced this measure as part of a successful economic stabilization policy that

helped control a rate of inflation that had grown steadily between the 1950s and mid-1980s and

had skyrocketed in the 1970s.

Israel has commercial (deposit) banks, cooperative credit institutions, mortgage and investment

credit banks, and other financial institutions that are supervised by the central bank. The banking

system shows a high degree of specialization. Commercial banks are privately owned and

generally are restricted to short-term business. Medium- and long-term transactions, however,

are handled by development banks jointly owned by private interests and the government, which

cater to the investment needs of different sectors of the economy: agriculture, industry, housing,

and shipping. The Tel Aviv Stock Exchange was established in 1953.

Israel possesses a highly developed banking system, consisting of a central bank, the Bank of

Israel, 14 commercial banks, 5 mortgage banks, and other financial institutions. Bank groups,

namely Bank Leumi group, Bank Hapoalim, and Israel Discount Bank, are at the core of the

industrial complex and hold 92 percent of the total assets of the banking system. Once owned by

the Histadrut, the all-powerful General Federation of Labor, they had to be bailed out by the

government during an economic crisis in the early 1980s. Since then, they have been quasi-


114

government owned, but there are plans for privatization. A law inhibiting banks to own more

than 10 percent of industrial holding companies , introduced to prevent another structural crisis,

has not been enforced strictly.

In 1997, the Tel-Aviv Stock Exchange (TASE) adopted an automated trading system leading to

lower transaction costs. The then ongoing peace process and flourishing high-tech industries

have since strongly attracted foreign investors. The real value of stocks traded in TASE

increased by 59 percent during 1999. In 2000, 681 companies were listed on the TASE. The

turnover was US$58.7 billion in 2000. In October 2000, Israel's Securities Authority adopted a

dual listing regulation, allowing for Israeli companies that are traded on the New York Stock

Exchange (NYSE) and Nasdaq to trade on the TASE without additional regulatory requirements.

This measure enables Israeli and foreign investors to trade in these shares at convenient hours,

and at low costs. Nevertheless, the general slump, especially in the high-tech shares, has affected

the TASE, too. The combined effects of the economic downturn and security uncertainties will

have to be monitored. Investment in the Tel Aviv Stock Exchange, acquisitions of Israeli

companies, and equity flotation by Israeli companies on foreign stock markets, principally New

York, have brought billions of dollars in new capital to Israel in recent years, primarily though

not exclusively to its high technology industries.

Banking Sector

The banking system plays a central role in every country. The public deposits most of its

monetary savings in the banks, and the banks, among other things, use that money to give credit

to businesses and households. The public's bank accounts are used to implement a major part of

payments made in the economy, and activity in foreign currency also takes place mainly via the

banks. The need to regulate and supervise the banking system arises from the vital role that the

system plays, from the recognition that the public's money must be protected, and the fact that a

failure in the system is likely to have a severe impact on the functioning of the economy and

those who deposited their money in the banks.The banking sector in Israel holds a dominant

position in the country’s financial system and plays a pivotal role in the overall economy. The

banking sector in Israel has gone through an array of reforms with the privatization of banking in

the country. Commercial banks in Israel offer an array of retail and corporate banking facilities

ranging from brokerages in capital market, both local and foreign, leasing, underwriting,

investment banking, mutual fund and other such asset management facilities.

The Central Bank of Israel is responsible for the given activities:

Defining and implementing the monetary policy

Imposing controls on the local banks

Maintaining the supply of notes and coins in the market


115

Managing the foreign exchange reserves of the country

Representing the country of global financial forums.

Israel’s major financial institutions are headquartered in Tel Aviv which is the country’s

commercial capital similar to Mumbai in India.

Banks in Israel

Central bank

Bank of Israel

Commercial banks

Arab−Israel Bank

Bank Hapoalim

Bank of Jerusalem Ltd

Bank Leumi

Bank Otsar Ha-Hayal

Euro Trade Bank Ltd

First International Bank of Israel Ltd

Industrial Development Bank of Israel

Investec Bank

Israel Discount Bank Ltd

Mercantile Discount Bank Ltd

Mizrahi Tefahot Bank

Union Bank of Israel Ltd

Foreign banks with a presence in Israel

Barclays

BNP Paribas

Citibank

HSBC

State Bank of India


116

Tourism

History

Prior to the establishment of the State of Israel in 1948, tourism could be characterized as

primarily pilgrimage. Pilgrims, Christians in the main, had been coming to the Holy Land to visit

the sites associated with the life of Jesus Christ. These sites were, by and large, under the

custodianship of the major Western Catholic and Eastern Orthodox Churches - Roman Catholic,

Greek and Russian Orthodox, and Armenian were the most prominent. These churches, with the

Anglican, had, during Ottoman times, gained ownership or control of key tracks of land on

which they had erected buildings to house their respective pilgrims. Even today, these Churches

still own these properties, leasing them out to the Israeli Government. The Russian Compound in

the center of West Jerusalem which is now leased by the Russian Orthodox Church (Moscow

Patriarchate) to the Israeli government for the use of the Central Jerusalem Police Station, the

Circuit Court and other government ministries, was, in the late 1800's, the center for Russian

Orthodox pilgrimage. Likewise, the Greek Orthodox Church owns the land on which the Knesset

(Parliament) and the Presidential House are situated.

With the rise of the State of Israel, pilgrimage gradually gave place to a more general interest in

Israel as a nation and as a people - "tourism" as we know it today. With the influx of Protestant

visitors from all over the world conversant with the Bible, the Land as a whole and the places

"where Jesus walked" began to attract attention along with the traditional holy sites and

churches. The rise of archeology and the intensification of the discovery of the actual sites

mentioned in the Bible, with, now, the support of the Israeli Department of Antiquities,

broadened "pilgrimage" into "tourism". People now wanted to see the places that they had read

about in the Bible, and now, thanks to the archaeological endeavor, had been made accessible.

"Support for Israel" played its part, too, as greater numbers of Evangelical Churches, along with

the Jewish communities of the Diaspora, saw that being faithful to the God of Israel entailed

faithfulness also to the new nation of Israel, itself a fulfillment of prophesy. And it is so today. In

the times of the the most turmoil and threat of war and, such as during the two Intifadas, and the

most recent "Second Lebanon War", it has been the Evangelical Churches which have enabled

the continuance of the Israel tourist industry.

Tourism today, cresting on an over 20% increase in 2007 than in 2006, is a rapidly developing

movement still holding its place, having displaced the diamond cutting industry, and now second

to the "High Tech" industry in providing revenue for the State of Israel. Muslim nations still not

having diplomatic relations with State of Israel, such as Malaysia and Indonesia, now have a

steady stream of tourism and it is not infrequent that Israeli tour guides learn their languages. But

there too, it is largely the small evangelical minorities of these nations, however great the

numbers, that are providing the tourists.


117

Some Nigerian states are now almost completely sponsoring their Christians, Catholic and

Protestant, making it possible for them to make pilgrimage to Israel, just as other Nigerian states

are sponsoring their people for the Haj to Mecca. The Jewish communities of the United States

bring large numbers of their youth to Israel through the "Birth Right" program enabling them to

"taste" Israel and in the process, to do as the other tourists do -- tour Israel. Russians are now a

common sight in the tourist hotels. This time, they come as curious tourists, not as Orthodox (in

the main) pilgrims, and are guided by Russian speaking new immigrants to Israel, driven in

buses owned by other Russian new Israelis. Tours to Israel, nowadays, are organized and

promoted not only by the traditional tourist agencies abroad, but large churches and well known

Christian pastors and "media magnets" are the new tourism promoters and organizers. It is

considered now as part of their ministry.

Introduction

Tourism has increased significantly and has become an important source of foreign exchange,

although its growth at times was affected by regional strife. Visitors are drawn to Israel’s

numerous religious, archeological, and historic sites—such as the Western Wall and the Dome of

the Rock and biblical cities such as Nazareth, and Bethlehem in the West Bank—as well as to its

geographic diversity, excellent weather for leisure activities, and links to the Jewish and

Palestinian Arab diasporas. There are numerous resorts in the highlands and desert and along the

coast, with most tourists coming from Europe and a growing number from North America.

Tourists are attracted by Israel's geographical diversity, its archeological and religious sites, the

almost unlimited sunshine and modern resort facilities on the Mediterranean, Lake Kinneret (Sea

of Galilee), the Red Sea, and the Dead Sea. In the year 2000, the largest number of tourists ever -

2.41 million - visited the country (compared to 33,000 in 1950, 118,000 in 1960, 441,000 in

1970, 1.18 million in 1980, and 1.34 million in 1990). This figure was topped in 2008 as Israel

opened its doors to more than 3 million tourists. Visitor figures continue to rise. In the first half

of 2010, 1.6 million tourists visited Israel, 39 percent more than in the same period last year, and

10 percent more than in 2008. Americans make up 21 percent of the tourists in Israel, with

Russians making up 15 percent and other European countries making up much of the rest.

Tourism provided foreign currency earnings of $2.8 billion in 2006, i.e. 5 percent of the income

from all exports and 16.8 percent of the export of services. In the first half of 2010, incoming

tourism brought in about $1.55 billion. Although this industry contributes less than 3% to the

GNP, it has a foreign currency added value of 85 percent (making it the added-value leader

among the country's export industries) and employs some 80,000 persons. This industry's large

potential is yet to be exploited, as it is a major factor in Israel's economic growth plan.


118

Structure and Function

The Ministry of Tourism is charged with developing and fostering the tourism industry in Israel.

Tourism is an export industry, whose economic importance lies not only in its major contribution

to the balance of payments, but also in its being a magnet for large and ever-increasing

investments. The tourism industry is the direct employer of 60,000 breadwinners throughout the

country and is a tool for regional development and population dispersal. Tourism is also an

effective, credible, and direct means of disseminating favorable information about Israel: every

tourist who comes to Israel gains a better understanding of the country's position, difficulties,

and accomplishments.

Tourism serves as a bridge for peace and the best link with Diaspora Jewry, whose visits here

reinforce their bonds with Israel. Tourism is also sometimes the first step toward aliya -

immigration to Israel.

The Ministry of Tourism is active both in Israel and abroad. Activities abroad fall into two

categories, both handled by the Ministry's tourism offices. The Tourism Marketing Department

focuses on identifying new markets and market sectors and on fostering relations with travel

agents, airlines, Jewish and Christian organizations, and other agencies active in the field. The

other category, information activities, handled by the Tourism Promotion Department, involves

public relations, publicity, and advertising to create the right atmosphere for encouraging tourism

to Israel. These activities are carried out via publicity and advertising in the trade press and mass

media.

Domestic activities fall into four categories:

Developing physical infrastructure - both accommodations (hotels, youth hostels, etc.) and

regional (promenades, tourist attractions, marinas, and so forth). This activity is directed by

the Ministry's economic unit, through its subsidiary companies: the Tourist Enterprises

Development Company (Tourism Bank), the Government Tourist Corporation, and the

Government Spas Authority.

Developing a manpower infrastructure for tourism professions, under the guidance of the

Tourism Services Department, through its training subsidiaries: the Tourism School (tour

guides, travel agents, and escorts for overseas groups), and the Tadmor Hotel School for

hotel workers (chiefly waiters, cooks, receptionists, and administrative and housekeeping

personnel). These activities are guided by the Tourism Services Department of the

Ministry.


119

Developing services and events for incoming tourists, so as to ensure an appropriate level

of reasonably priced services for foreign tourists in Israel. This is accomplished through a

system of accommodations at appropriate ratings, recommended stores and restaurants,

authorized travel agents, events throughout the year and throughout the country, aimed at

making the tourist's stay here more pleasant. These activities are directed by the Tourism

Services Department.

Developing domestic tourism. Despite the focus on overseas tourism, the Ministry also

develops domestic tourism by various sectors of the population, in coordination with local

associations, under the guidance of the Ministry's Tourism Services Department.

Tourism Guidance

The Tourism Marketing Department supervises the activities of Israel Government Tourist

Offices overseas, promotes international conventions, pilgrimage tours, Jewish, youth, and

student tourism, etc. The Ministry operates 18 tourist offices abroad - in Europe (9), North

America (7), South Africa (1), and Cairo (1) - and has branch offices run by local personnel

(Madrid, Hamburg, Vienna, etc.). The Department also runs seminars for travel agents,

clergymen, and rabbis, tourism evenings for the general public, participates in tourism fairs,

functions as a center for activities to encourage tourism overseas by the entire tourism industry,

and maintains a publicity, public relations, and marketing network throughout the world.

The Israel Tourism Services Department licenses various tourist services, including hotels,

restaurants, travel agents, tour guides, shops, etc.; monitors tourist service quality; maintains

tourist bureaus throughout Israel; promotes purchases of local products and arranges tourist

discounts and exemptions; promotes events geared to make tourists' stay in Israel pleasant; trains

hotel and tourism professionals; and prepares and implements emergency arrangements for

tourists. The Department also works through its four regions (Haifa/North, Tel Aviv/Central,

Jerusalem, Beersheva/South) and supervises its subsidiary personnel training corporations.

The Planning and Economics Department coordinates and manages the Ministry's current and

development budgets; coordinates statistical and marketing data and research; encourages

tourism investments (loans to tourist enterprises, land allocation, recommendations for granting

"Approved Enterprise" status in accordance with the Law for the Encouragement of Capital

Investments); and computerization to handle Ministry needs in Israel and abroad. The

Department also supervises the Ministry's development corporations.

The Tourism Promotion Department promotes and enhances Israel's image as a tourist

destination, developing and fostering ties with the media in Israel and abroad, and runs fact-

finding tours for journalists and other influential persons.


120

The Articles Service sends articles on Israeli tourism to the press and mass media throughout

the world.

The Tourism Information Center provides material in Hebrew and foreign languages. A

domestic information service promotes tourism awareness among Israelis and publishes position

papers, information surveys, and information pamphlets on a regular basis for use by the

Ministry and the tourism industry in Israel and abroad.

Tourism and Economy

Ever since the founding of the State of Israel, its tourism industry has been considered one of the

industries that has contributed most to the economy in areas such as employment, foreign

currency reserves, the development of regions distant from the center, the creation of a positive

image forIsrae all over the world, and more. Though its natural resources are limited, Israel has

been blessed with a wealth of tourism resources that attract people of different interests and

affiliations: sites that are holy to the West’s three monotheistic religions; world-class

archeological sites; seashores and holiday regions suitable for a vacation any time of the year.

Despite the crises and difficulties with which the industry has had to cope, especially as the

result of the negative ramifications of the security situation over the years, there is no doubt that

our hotel and tourism industry will continue to serve in the foreseeable future as a stimulus for

economic growth. As long as the security situation continues to improve, more and more tourists

will travel to Israel from the four corners of the globe and regional tourism cooperation - a sine

qua non for long-lasting prosperity in the industry - will develop. The hotel industry is certainly

the most important facet of Israel’s tourism industry. Rich in investments, our hotels, during the

years that they prosper, enjoy a high level of added value. They contribute greatly to the

economy in areas such as employment, foreign currency and peripheral geographic development,

while at the same time they serve as a catalyst to wide-ranging investments in industries crucial

to Israel and its inhabitants. As a result of significant progress in the peace process, and the visit

by His Holiness the late Pope Jean-Paul II, the year 2000 began with high hopes that our tourism

industry would enjoy great prosperity. However, between 2000 and 2002, the number of

incoming tourists to Israel dropped by more than 70 percent, and a similar decrease was

registered in income from foreign tourists, in the contribution by tourism to the nation’s GDP

and in the number of people employed in the tourism industry and related fields. In 2002, when

the crisis was felt most strongly, the average occupancy rate in Israel’s hotels dropped to 40

percent, 43 hotels closed down and others were tottering on the brink of closure. The crisis

resulted in the loss of more than 80,000 jobs in the industry, and its contribution to Israel’s

economic growth was negative. Faced with the need to survive, weather the crisis and maintain

their infrastructures, hotels adopted savings and efficiency measures and their owners injected

additional capital. It should be noted that all through the crisis and even today, domestic tourism

has been a solid and critical segment of the industry, enabling the hotels and the tourism industry


121

as a whole, to continue to operate. After four continuous years during which the tourism industry

had to deal with the hardest crises it ever had faced, the negative trend turned around, starting in

the second quarter of 2003. The return of tourists from abroad resulted almost immediately in an

increase in the number of people employed in the industry, and in its contribution to Israel’s

GDP. In 2004, about 17,000 additional employees were recruited – making for a total of 62,000 -

and the industry’s contribution to the GDP rose from $2 billion in 2003 to $2.7 billion in 2004.

This trend was clearly discernable at the start of 2005, with the prognosis that the industry’s

contribution to Israel’s GDP would be about $3.78 billion this year - 37 percent higher than for

2004. A similar increase can also be expected in the number of people employed in the tourism

industry. Expectations are that it will grow to about 85,000 by the end of the year, including

about 30,000 who work in hotels. This welcome trend has a direct effect on the industry’s

contribution to the GDP, income from tourism and the number of people employed in tourism

throughout the country. For the hotel industry, the most important segment of the tourism

industry as far as the economy is concerned and that which is most responsible for realizing the

potential that tourism offers, the improvements in all of these areas represent "the light at the end

of the tunnel." It is expected that in the foreseeable future, tourism will continue to be the

"growth stimulus" for the economy. The main infrastructures that are required for this to happen

- both material and human already exist, and with the right investments abroad in marketing

Israel as a tourist destination, we could significantly increase the number of incoming

tourists.The Israel Hotel Association is busy preserving the accomplishments that have been

recorded over the years by the hotel industry, and it will do all that it can to improve them in the

coming years. Among its other activities, the Association deals with infrastructure, marketing

both in Israel and abroad, industry-wide labor agreements, employment and professional

manpower training and in various other economic issues that affect tourism and the hotel

industry. I believe that today, especially in light of the incredible proven potential for tourism as

a stimulus for Israel’s economy, a long-term government program is required, the

implementation of which would increase the number of incoming tourists to four million by

2010, and would lead to the creation of 18,000 new jobs each year – making for a five-year total

of 90,000 - a significant number of which would be in outlying areas where unemployment is

rife Recently, the Association formulated a number of principles relative to the development of

tourism over the next five-year period that could serve as a basis for the establishment of a

government tourism policy. These principles are based, for the most part, on the Irish Model.

The economic success Ireland has been enjoying is the result of a strategic decision by its

government to position tourism as the primary branch of the Irish economy for employment and

growth. The principles of this model require a decision by the government that would grant

priority to the tourism industry as the leading stimulus in the economy, for employment and

economic growth. The model would serve as a basis for promulgating a tourism program with

clearly-defined goals and budgets for the coming five years. It would be implemented by a body

selected to include representatives from both the government and the private sector, with joint

staffs that would be empowered to implement, supervise and review the national results.As part


122

of this government policy, resources must be invested to upgrade and renovate existing tourism

infrastructures and superstructures, with preference given to those that serve the needs of

incoming tourism. For Israel to maintain its competitive status as a tourism destination, these

investments are absolutely necessary, especially in light of the large-scale investments in tourism

made by countries like Turkey and Egypt - major competitors for the incoming tourism dollar.

Another perquisite for the establishment of a national tourism policy designed to increase the

number of incoming tourists, is the implementation of a competitive civil aviation policy as

regards flights to and from Israel. There is no doubt that Israel’s current civil aviation policy is

one of the major barriers preventing the significant short-term expansion of incoming tourism in

the country. The economic significance of the implementation of an Israeli tourism model would

be the contribution of more than half a percent to the annual rate of economic growth in each of

the years between 2006-2010, which adds up to an average annual increase of $800 million in

Israel’s GDP. In addition, by the end of 2010, the number of people employed in the tourism

industry could reach 175,000 throughout the country. Today, as I have said, we can see "the light

at the end of the tunnel," as we look forward to a new era of hope, growth, peace and prosperity

for Israel and its tourism and hotel industry. In times of lasting stability, peace and security, the

tourism treasures with which Israel has been blessed can serve as the most important stimuli for

the economy, that will contribute to the attainment of other economic and national goals, such as:

creating tens of thousands of additional jobs, most of them in the Negev and Galilee regions;

advancing the needs of development regions; increasing Israel’s reserves in foreign currency,

and continuing the country’s economic growth, for the overall benefit of all Israel’s. I am

convinced that Israel possesses enormous tourism potential, and tourism can be utilized as a

central pillar of the national economy. Adopting the principles put forth by the Association as the

basis for a serious, long-lasting tourism policy, will contribute to positioning Israel in its rightful

place on the tourism map of the region and of the world.


123

Tourism Share in Gross Domestic Product

0

0.5

1

1.5

2

2.5

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Value Added of Tourism as % of GDP

Value Added of Tourism as %of GDP

Year Value Added of

Tourism as % of

GDP

Year Value Added of

Tourism as % of

GDP

1994 1.8 2004 2

1995 1.8 2005

1996 1.9 2006

1997 2 2007 2.1

1998 1.8 2008 2.1

1999 1.8 2009 2

2000 1.4 2010 2.1

2001 1.5 2011 2

2002 1.6 2012 2

2003 1.7 2013 2.2


124

Conclusion

Israel’s unstable tourism industry is defined by periods of decline followed by periods of

recovery. The management of the declines and recoveries has not always been appropriate for

each situation and has not utilized the most effective means of stabilizing tourism. For many

years little money was invested into the development of the Israeli tourism industry because of

its vulnerability to the effects of frequent conflict. Also, little was done to combat the negative

image of Israel that prevailed in the media. Thus, Israel was viewed by many as an unsafe

destination despite the variety of tourist attractions and the religious and historical value the

country holds. Fortunately, the government and the private sector are now more aware of how to

handle the effects of crisis and conflict on the tourism industry. Recent efforts are proving to be

effective at changing Israel’s image globally and bringing more travelers to Israel. In order to

ensure that the Israeli tourism industry will continue to expand into a popular tourist destination

for all types of travelers, the government and the private sector need to continue to work in

cooperation and devise plans that will encourage potential visitors to come to Israel. The

development of crisis management programs and marketing campaigns are effective methods of

increasing tourism to Israel. In regards to crisis management, these programs must be handled as

a long-term process of increasing and then maintaining stability rather than be used on a short-

term, as needed basis. It is important for the government to work in cooperation with all parties

involved in the tourism industry and with investors on these efforts. Current marketing efforts

are positively reinforcing the idea that Israel is a generally peaceful location with lots to offer

travelers. The more widespread the Ministry of Tourism makes these campaigns the more people

will come to realize that Israel should be added to their list of possible vacation places. 28 The

Israeli tourism industry is still evolving and much can be done to improve the industry and

increase international arrivals. All of the efforts together are an ongoing process for future

growth. As long as the government and the private sector continue to see tourism as a major

contributor to the economy and a source of pride for the Israeli people, the tourism industry will

flourish.

Trade Sector

Access to foreign markets has been vital for further economic expansion. Israel has free trade

agreements with the European Union and the United States and is a member of the World Trade

Organization. These agreements and Israel’s many industrial and scientific innovations have

allowed the country to trade successfully despite its lack of access to regional markets in the

Middle East. A central problem, however, has been the country’s large and persistent annual

balance-of-trade deficit.

Imports consist mainly of raw materials (including rough diamonds), capital goods, and food.

Exports more than doubled in value through the 1990s and became highly diversified, originating

in all the major manufacturing sectors and in agriculture. High-technology products led the list of


125

exports, and Israel sells fruit (including citrus), vegetables, and flowers throughout Europe

during the off-season.

Trade in Services

Years % of GDP

1993 19

1994 19.7

1995 19.8

1996 19.5

1996 19.6

1997 19.8

1998 20.2

1999 21

2000 22.6

2001 22.5

2002 21

2003 22.8

2004 23

2005 22.9

2006 22.6

2007 22.4

2008 21

2009 19.5

2010 18.8

2011 18.6

2012 20.2


126

External Trade

For 2006, Israeli exports grew by 11%, to just over $29 billion; the hi-tech sector accounted for

$14 billion, a 20% increase from the previous year.

The United States is Israel's largest trading partner, and Israel is the United States' 26th-largest

trading partner; two-way trade totaled some $24.5 billion in 2010, up from $12.7 billion in 1997.

The principal U.S. exports to Israel include computers, integrated circuits, aircraft parts and other

defense equipment, wheat, and automobiles. Israel's chief exports to the U.S. include cut

diamonds, jewelry, integrated circuits, printing machinery, and telecommunications equipment.

The two countries signed a free trade agreement (FTA) in 1985 that progressively eliminated

tariffs on most goods traded between the two countries over the following ten years. An

agricultural trade accord was signed in November 1996, which addressed the remaining goods

not covered in the FTA. Some non-tariff barriers and tariffs on goods remain, however.

0

5

10

15

20

251

99

3

19

94

19

95

19

96

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

% of GDP

% of GDP


127

Israel also has trade and cooperation agreements in place with the European Union and Canada,

and is seeking to conclude such agreements with a number of other countries, including Turkey,

Jordan and several countries in Eastern Europe.

In regional terms, the European Union is the top destination for Israeli exports. In the four-month

period between October 2011 and January 2012, Israel exported goods totalling $5 billion to the

EU – amounting to 35% of Israel's overall exports. During the same period, Israeli exports to the

Far East came to $3.1 billion. Until 1995, Israel's trade with the Arab world was minimal due to

the Arab League boycott, which was begun against the Jewish community of Palestine in 1945.

Arab nations not only refused to have direct trade with Israel (the primary boycott), but they also

refused to do business with any corporation that operated in Israel (secondary boycott), or any

corporation that did business with a corporation that did business with Israel (tertiary boycott).

In 2013, commercial trade between Israel and the Palestinian territories were valued at US$20

billion annually. In 2012, ten companies were responsible for 47.7% of Israel's exports. These

companies were Intel, Elbit Systems, Oil Refineries Ltd, Teva Pharmaceuticals, Iscar, Israel

Chemicals, Makhteshim Agan, Paz Oil Company, Israel Aerospace Industries and the Indigo

division of Hewlett-Packard. The Bank of Israel and Israel's Export Institute have warned that

the country is too dependent on a small number of exporters.

Transport and Communication Sector

Beginning in 1948, the government invested large sums to develop a first-class transportation

infrastructure. The main projects undertaken were the construction of the Qishon element of the

harbor at Haifa and the Ashdod port, the building of railroads between Haifa and Tel Aviv and

from Tel Aviv south to Beersheba, Dimona, and Zin, and the construction of several major roads

in the center of the country as well as many new roads in peripheral regions.

Rapid economic growth and the removal of the limitation on importing private cars and buses

created a growing demand for transportation services in the early 1960s. This demand was met

by increased public transportation services and by private transportation expenditures. In 1984

the subsidy on public transport equaled US$13 million. In 1985 Israel's 13,410 kilometers of

roads were used by 776,000 vehicles, of which about 624,000 were private cars, about 115,000

were trucks and other commercial vehicles, and about 5,500 were buses. In 1988 there were two

main public carriers--Egged, with about 4,000 buses operating throughout the country, and Dan,

with approximately 1,500 buses. Both of these carriers were cooperatives that charged subsidized

tariffs determined by agreement with the government.

Israel also had a government-run railroad system. In 1986 there were 528 kilometers of state-

owned railroad linking Jerusalem, Tel Aviv, Haifa, and Beersheba. The government had a long-

term plan to extend the Beersheba line along the Dead Sea and south to Elat and to develop a

rapid rail line from Petah Tiqwa to Tel Aviv. Total railroad passenger traffic was 2,814,000 in

1985, and total freight carried (primarily phosphates, grains, coal, and potash) was 6,086,000

tons. Given the government status of the rail system, however, it could not compete with other

transportation modes.


128

Between 1965 and 1985, railroad use declined because of cutbacks in rail services. In 1986 travel

by truck or car was faster than by rail on all lines except the Haifa-Tel Aviv line, where it was

identical.

As a result of Israel's geopolitical situation, almost 99 percent of its trade was transported by

ship. Thus, in the first twenty years of statehood, the government made a special effort to build a

commercial fleet. In 1985 about 9,205 tons of freight were unloaded at Israeli ports: 55 percent at

Haifa, 39.3 percent at Ashdod, and 5.7 percent at Elat. During the same year, 7,088 tons were

loaded: 22 percent in Haifa, 68.7 percent at Ashdod, and 9.3 percent at Elat. In the 1970s, two

additional, specialized ports were opened: an oil terminal at Ashqelon and a coal terminal at

Hadera. These open-sea, offshore ports were operated by special port administrations

independent of the Israel Ports Authority.

The merchant fleet was 3,050,000 deadweight tons in 1984. The main shipping companies were

(in order of importance) Zim, El Yam, Dizengoff, and Maritime Fruit Carriers. During the late

1960s, two structural and technological changes took place in the shipping industry. First,

improved cargo-handling technologies and containerization led to the use of more specialized

ships. Second, ships increased in size, especially bulk carriers and tankers. Despite these

changes--and the importance placed on sea transportation--Zim (owned by the government, the

Histadrut, and the Israel Corporation) and El Yam continued to sell unprofitable old ships in the

hope of becoming profitable.

In 1988 Israel had one international airport at Lod, but special charter flights also used smaller

airports such as Qalandiyah, near Jerusalem, and Elat. El Al, the government-owned national

carrier, flew a total of 36.3 million kilometers in 1984, carrying 1,450,000 passengers on 9,646

international flights. In 1985 approximately 455,000 passengers arrived in Israel on charter

flights. Inland air services were provided by Arkia Israeli Airlines, which operated flights to

major cities.

Like other developing countries, Israel has constantly battled the excess demand for

telecommunications services. The telecommunications industry is characterized by its high

capital intensity--it requires a full cable network system. In 1988 Israel was still lagging in the

development of a telecommunications system adequate to meet the needs of its clients. While the

industry was expanding, it continued to represent a major weakness of the economy.

Israel has long been plagued by delays in building new telephone exchanges and laying cables to

meet the growing needs of the citizenry, businesses, and the new age of computer

communication. Israel had about 1.9 million telephones in FY 1986. More than 250,000 citizens,

however, remained on waiting lists to receive telephones that year. Some Israelis had been

waiting seven or more years for telephones. Around 99 percent of the telephones in Israel were

connected to the international direct dialing system.

Three ground satellite stations in 1988 facilitated satellite connections between Israel and the rest

of the world. Overseas connections also were possible through underwater cables. In April 1988,

Israel announced plans for a five-year telecommunications development program, costing

approximately US$2 billion.


129

The plan included an underground cable from Israel to Europe and the installation of various

satellite and cable television facilities. In addition, a multi capacity transatlantic cable was being

planned in 1988 to provide 600 channels for communication with the North American continent.

Furthermore, in May 1988 the cornerstone was laid for a US$170 million Voice of America

transmission relay station in the Nahal HaArava north of Elat.

The importance of the transport and communications sector largely exceeds its small share in the

economy's statistics, as it is an infrastructure industry serving all other branches of the economy

as well as households. It is a service rather than a production sector, and is growing - as is the

case in all modern economies - faster than the production industries. A remarkable growth in the

aviation part of this sector took place in recent years (thanks to a parallel increase in tourism),

but the growth of the communications sector has been even faster.

Transport and communications contributed 7 percent to the GDP in 2006, constituted some 8

percent of exports of goods and services, and employed 5 percent of the country's labor force.

Thirty-six percent of its product originates from land transportation, 20 percent from shipping

and aviation, 39 percent from communications, and the rest from various services.

Since the early 1950s, the total gross tonnage of the merchant fleet has grown more than tenfold,

while air carriers now fly more than 100 times as many passengers. During the same period, the

road length was doubled, the number of buses more than tripled, and the number of trucks

increased tenfold.

Public Sector

The high level of public consumption, in particular the resulting large deficit in the government's

budget, was always a primary cause of Israel's high inflation rate. All the resources the

government could recruit to finance the budget (domestic and foreign sources, loans from the

public, direct and indirect taxes) were not sufficient to cover the amount spent, and the

government found itself repeatedly compelled to resort to inflationary financing. This heavy

burden of the public sector was due mainly to the tremendous defense expenditure and the need

to repay internal and external debts, two items which only in the last few years have come down

from two thirds to less than a half of the government budget.

The pursuit of economic viability also called for checking inflation, reducing the balance of

payments deficit, and maintaining rapid economic growth, all of which required curtailing the

high public expenditure as Israel’s economy grew. The high ratio of public expenditure to the

GDP has been halved compared to what it was 25 years ago, from 95 percent to 43 percent of the

GDP between 1980 and 2009. In 2006 there was a surplus in the balance of payments and the

budget deficit was reduced to 0.9 percent of the GDP. The aggressive belt-tightening was relaxed

during the recession, with a deficit of 5 percent of GDP, still a great deal lower than what most

Western governments spent.

Although the government still encourages private economic initiatives, its policy succeeded in

reducing actual involvement in business concerns through their privatization which in 2005

yielded an income of almost $3 billion.


130

The two most important tools of economic policy in Israel have been the budget and foreign

exchange control. Through the budget, the government can deal with all financial activities of the

public sector. Defined in its broadest terms, the public sector includes the central government,

local authorities, and national institutions (where the central government clearly dominates). In

1986 government and private nonprofit institutions represented about 20 percent of GDP, which

was about a 20 percent increase over the public sector's importance in 1968. Similarly, the

provision of government-owned housing and rental services increased by 28 percent, rising from

8.4 percent of GDP in 1968 to 11 percent in 1986. Overall, in 1986 the business sector

represented 69 percent of GDP, whereas the public sector, in all of its dimensions, represented 31

percent of GDP.

Government Budget

By 1988 the government had been operating under a deficit for more than a decade. Between

1982 and 1984, the deficit equaled between 12 and 15 percent of GNP. After the implementation

of the July 1985 Economic Stabilization Program, the government succeeded in balancing its

budget. This balance was achieved not only because the government raised taxes and reduced

spending, but also because the reduced inflation increased the real value of tax revenues. During

FY 1986, the expansion of the economy compensated for the reduction in direct and indirect

taxes. The government also initiated plans to reduce further its public debt.

Before the July 1985 reforms, the tax system was considered to be very progressive on individual

income but barely touched corporate income. After the reforms, which included a new corporate

tax law, large sums of taxes were collected from business sectors that previously had been

untaxed. Personal income tax ranged from a base rate of 20 percent (payable on incomes

equivalent to about US$500 per month) to a top rate of 60 percent on a monthly income of about

US$2,100. Corporate income tax generally was 45 percent. Few corporations, however, actually

paid this rate once various government subsidies were included in the calculation.

Provision of Civilian Services

Civilian public services have employed a high proportion of the labor force and consequently

have absorbed a high share of Israel's GNP. Spending on health, education, and welfare services

rose from 17 percent of GNP in 1968 to 20 percent in the early 1970s. The level of spending on

civilian public services remained constant at about 20 percent through 1986. The share of the

total civilian labor force employed in civilian public services rose from 22 percent in 1968 to 30

percent in 1986.

The civilian services primarily responsible for these high outlays were education and health

services, whose share increased from 50 percent of the total in 1969 to more than 60 percent in

1986. At the other end of the scale were economic and general services, whose expenditures

declined from 33 percent of the total in 1969 to 23 percent in 1986. The share of other welfare

services (including immigrant absorption services) remained constant. The decline of general and

economic services reflected a transfer of some of these functions from the public sector to the

business community and a decline in direct government intervention in the economy.


131

Unlike social welfare and economic services, which were directly funded by the government,

until the early 1970s education and health services received substantial funding from foreign

sources. In 1968, for example, the government financed only 70.5 percent of Israel's education

services. By 1978 the government's share had increased to 84.5 percent. Whereas in 1968 the

Jewish Agency financed about 20 percent of the total national expenditure on education from

foreign aid funds, by 1978 only 7.6 percent came from foreign aid, and this percentage has

decreased further since. The result was an added burden on the taxpayer, equal to approximately

22 percent of the national expenditure on education. Direct private financing of education

expenditures contracted from 9.5 percent of the total in FY 1968 to 1.7 percent in FY 1978. The

key element explaining this latter drop was the institution of free, compulsory secondary

education in the late 1970s.

Health services' funding followed a similar pattern. The government's share rose from 53 percent

in 1968 to 62 percent in 1980. Here, however, the Jewish Agency's participation decreased even

more sharply, from 20 percent of the total national expenditure on health in 1968 to nearly zero

in 1980. The added burden of government financing from internal sources over the decade was

almost 30 percent.

In both health and education, the trend illustrated a transition from foreign financing to internal

resources and a switch from direct private financing (and independent fundraising by nonprofit

institutions) to the imposition of a greater burden on the central fiscal system. In the past, when

these services were expanded, the cost often was carried by aid from abroad. As this source

began to dwindle, the cost increasingly shifted to the government, which for political reasons

could not reduce these public civil expenditures.

Provision of Defense Services

Throughout its existence, Israel has been obliged to devote a considerable part of its resources to

national defense. Since 1973, Israel's annual defense expenditure has equaled that of the

Netherlands and exceeded that of Sweden. In per capita terms, Israel's expenditure has been two

to three times as large as theirs. Defense expenditures in the Netherlands and Sweden each

amounted to 3 to 4 percent of GNP in FY 1976; in Israel, they amounted to more than 25 percent

of GNP. The persistence of a high defense expenditure over a very long period makes Israel's

situation unique.

The simplest definition of the defense burden is the total budgeted resources diverted to defense

and thus precluded from other uses by citizens. Other resource costs include the opportunity cost

of labor working for the defense sector and therefore unavailable to other sectors, thus reducing

civilian output. Finally, foreign currency spent on military imports is unavailable for civilian

imports.

Although estimates of the defense burden suffer from inadequate data, the Central Bureau of

Statistics publishes data on the non-civilian component of public consumption, which is used as

a proxy for defense expenditures. Apart from the war years of 1967 and 1973, the annual

fluctuations have been dominated by long-term changes in defense costs.


132

By 1986 defense expenditure had declined to a range from 10 to 16 percent of GNP, depending

on the measure used. These official data do not include information on forfeited earnings of

conscripted soldiers, forfeited earnings of persons on reserve duty, and costs of casualties,

stockpiling, civil defense, land devoted for army training, and many other government and

civilian expenditures ascribed to defense. Although it is impossible to assign a rough order of

magnitude to the items mentioned, some economists have speculated that they are not

insignificant components of the civilian public sector. This becomes clear when one considers

that the length of time devoted to conscription, reserve duty, and regular army duty has been

lengthened. Government defense functions involved in operations in the West Bank and the Gaza

Strip add a further cost to the defense burden.

The cost of defense also includes direct defense imports and military aid from the United States.

In FY 1986, Israel received United States military aid in the range of US$3 billion. A large share

of these funds has regularly been spent in the United States.

On the other side of the defense-burden equation are the beneficial by-products associated with

military activity. The most important benefits are education, absorption of immigrants,

agricultural settlement, and the development and manufacture of weapons and equipment. An

example of these beneficial by-products was the development of the Kfir interceptor, which

created jobs for technicians and laborers. In short, when estimating Israel's defense burden it is

important to consider the cost reductions implicit from these beneficial by-products.

Health Care

In 1995, the National Health Insurance Law came into effect, which made membership in one of

the four existing Health Maintenance Organizations compulsory for all Israeli citizens. The law

determined a uniform benefits package for all citizens - a list of medical services and treatments

which each of the Health Maintenance Organizations is required to fund for its members.

Additionally, certain services were brought under the direct administration of the State, usually

by means of the Health Ministry. In addition, the law set out a system of public funding for

health care services by means of a progressive health tax, administered by Bituah Leumi, or the

National Insurance Institute, Israel's social security organization, which transfers funding to the

Health Maintenance Organizations according to a certain formula based on the number of

members in each fund, the age distribution of members, and a number of other indices. The

Health Maintenance Organizations also receive direct financing from the states money.

Before enactment the Health Insurance Law, the only Health Maintenance Organization to

accept members without discrimination based on age or medical situation was the Clalit HMO

which was then in the ownership of the Histadrut labour federation. After enactment of the 1995

law, membership in any of the four Health Maintenance Organizations was guaranteed for all

citizens, and Israelis were given the right to transfer between Organizations once per year.

The 1995 law also imposed a system of financial and medical oversight of HMOs by the State. In

addition to the uniform benefits package provided to all citizens, which provides coverage for

basic and essential health care, every HMO fund provides their members with the option to

acquire "supplementary insurance" (which includes services and treatments that are not covered


133

by the publicly funded system. The four HMOs: Clalit (the largest with about 54% of the

population belonging to it), Maccabi, Kupat Holim Meuhedet and Leumit.

Israel has maintained a system of socialized health care since its establishment in 1948, although

the National Health Insurance law was passed only on January 1, 1995 The state is responsible

for providing health services to all residents of the country, who can register with one of the four

health service funds. To be eligible, a citizen must pay a health insurance tax. Coverage includes

medical diagnosis and treatment, preventive medicine, hospitalization (general, maternity,

psychiatric and chronic), surgery and transplants, preventive dental care for children, first aid and

transportation to a hospital or clinic, medical services at the workplace, treatment for drug abuse

and alcoholism, medical equipment and appliances, obstetrics and fertility treatment, medication,

treatment of chronic diseases and paramedical services such as physiotherapy and occupational

therapy.

Participation in a medical insurance plan with one of the four national HMOs is compulsory for

all citizens, who can select and participate in any one of them regardless of factors such as age,

gender, or pre-existing conditions. All Israeli citizens are entitled to the same Uniform Benefits

Package, regardless of which health fund they are a member of, and treatment under this package

is government-funded for all citizens regardless of their financial means. The Uniform Benefits

Package covers all costs in the areas family medicine, emergency treatment, elective surgery,

transplants, and medications for serious illness. However, availability of services differs by

location, as each of these organizations operate their own medical facilities, including private

hospitals. In addition, they also operate their own supplementary health insurance programs,

under which non-essential health services are funded for an extra fee, though this fee is modest.

In addition, non-essential services can also be funded by a citizen sharing the cost with their

employer.

There are also private health insurance plans which citizens may participate in in addition to the

compulsory participation one of four national health insurance institutes. They provide coverage

for additional options for treatments. For example, in the area of elective surgery, a participant in

a private insurance plan may choose the surgeon, anesthetist, and hospital anywhere in Israel or

around the world. In the area of transplants, unlimited funding is available to ensure a donor is

found and the procedure is done without the need for government approval. In the area of

medications for serious illnesses, while the "basket of medications" which are funded by the

national HMOs is large and updated regularly, private insurance companies give access to a

wider range, as the Israeli government is not financially capable of covering all medications. All

major Israeli insurance companies provide a health insurance plan. In comparison with health

insurance in other countries, private health insurance in Israel is considered comparatively cheap,

but premiums are based on age, gender, and previous medical history.

All citizens doing their compulsory military service in the Israel Defense Forces have all their

health care costs covered by the military, including up to two free abortions for female soldiers.

In Israel, the publicly funded medical system is universal and compulsory. In 2005, Israel spent

7.8% of GDP on health care, or US$1,533 per capita. Of that, approximately 66% was

government expenditure


134

Nursing

As of 2011, there were 37,300 actively practicing nurses in Israel or 4.81 nurses per 1000

population compared to OECD country average of 8.7 nurses per 1000 population, ranking Israel

one of the lowest nursing ratio countries in the developed world, after Greece, Mexico, and

Turkey. This represents a 14% decrease in Israeli nursing per capita from 2001. Nursing

education is similar to that of other developed countries. There are many Registered Nurse

programs, Bachelor of nursing academic programs, and several graduate schools for advanced

degrees. A Bachelor's degree is a prerequisite for advanced certifications and clinical courses.

Licensed practical nurse programs ended, yet were recently re-approved as a solution to the

nursing shortage in Israel. Although nurse practitioners were legalized in Israel in November

2013, only Israeli-trained nurse practitioners are authorized to work. Although the law provides

for recognition of foreign-trained nurse practitioners, no process is in place for doing so. Only

geriatric and palliative nurse practitioners have been allowed to work thus far, although plans for

other NP specialties are in place. All NP courses to date have been provided by the Ministry of

Health, and are post-Masters certificate courses several months in length. Compared to Western

country standards and the International Council of Nursing, Israeli nurse practitioners have

relatively limited scopes of practice and independence


135

Education

Education in Israel refers to the comprehensive education system of Israel. Expenditure on

education accounts for only approximately 10% of GDP, and most schools are subsidized by the

state. The education system consists of three tiers: primary education (grades 1-6, approx. ages

6–12), middle school (grades 7-9, approx. ages 12–15) and high school (grades 10-12, approx.

ages 15–18). Compulsory education takes place from kindergarten through to 12th grade. The

school year begins on September 1, ending for elementary school pupils on 30 June, and for

middle school and high school pupils on 20 June.

In 2012, Israel was named the second most educated country in the world according to the

Organization for Economic Cooperation and Development's Education at a Glance report,

released in 2012. The report found that 78% of the money invested in education is from public

funds and 45% of the population has a university or college degree.

According to the Webometrics ranking, six of Israel's universities place in the top 100 schools of

Asia. Four universities place in the top 150 in the world according to the Shanghai Jiao Tong

University Academic Ranking of World Universities, and three are in the Times Higher

Education-QS World University Rankings (i.e. amongst the "Top 200 World Universities").

In addition, Israeli universities are among 100 of the top world universities in science and

engineering-related subjects, according to the QS World University Rankings: mathematics

(TAU, Hebrew University and Technion); physics (TAU, Hebrew University and Weizmann

Institute of Science); chemistry (TAU, Hebrew University and Technion); computer science

(TAU, Hebrew University, Weizmann Institute of Science, BIU and Technion); engineering

(Technion); life sciences (Hebrew University).

In the social sciences, TAU and the Hebrew University rank in the top 100, and these universities

are also ranked in the top 100 for economics; Israel is ranked 23rd on RePec's Country and State

Ranking for economics.

In 2010, Hebrew University reached 57th place in the global ranking list published by Shanghai

Jiao Tong University in China.

Despite strong post-secondary rankings, Israel spends less per student than countries like

Norway and Mexico.

Some officials have criticized the claim that the strong test scores prove Israel is a highly

educated country, pointing out that scores from standardized tests exclude haredi and special

education students, and thus are not an accurate reflection. Israeli teachers must contend with

large classes, low wages and low morale. Classrooms in Israel are some of the largest in the

world, teachers are some of the lowest paid, and only 17% of Israelis earn a college degree. In

2007, the OECD gave Israel a grade of an "F" noting these observations, as well as scores on

international tests that ranked Israel near the bottom, in terms of math and literacy, of 40

countries participating in the Program for International Student Assessment.


136


137

Taxation

The Israel Tax Authority is composed of Income Tax, Land Tax, Customs and VAT authorities,

and the Mechanized Processing Service. The Tax Authority is responsible for both direct and

indirect tax systems, tax monitoring and public service improvement. Israel has a similar tax

known as arnona that goes back to the days of the British Mandate of Palestine. It is levied by the

municipality (or, in smaller localities, by the moatza eizorit, i.e., Regional Council) based

(currently) on the square meterage of dwelling or business. Specific rates vary widely among

municipalities, with Jerusalem and Rehovot having the highest rates in the country. In rental

dwellings, tenants (rather than owners) generally pay the arnona. Single parents and some forms

of economic hardship qualify for discounts or even exemptions.

From 1961 to 1983, government expenditures grew far more rapidly than Israel's GNP, primarily

because of the sharp increase in defense outlays from the latter half of the 1960s through the

1970s. Taxation was insufficient to finance the increase in government spending. Although gross

taxes increased, net taxes declined continuously during the period. To meet the deficit, the

government resorted to domestic and foreign borrowing.

By the mid-1970s, the government increasingly relied on foreign sources to finance the domestic

deficit. These growing debts were equivalent to almost 14 percent of each year's GNP, during a

time when GNP was growing at less than 2 percent a year.

In the second half of the 1970s, the tax system collected approximately 47 percent of GNP,

compared with 35 percent in the 1960s and 41 percent in the first half of the 1970s. This rise

occurred mainly in direct taxes and taxation of domestically produced goods, while taxes on

imports declined by a small margin. During FY 1981, direct taxes represented 25.7 percent of

GNP; they were 14.3 percent of GNP in FY 1961. Taxes on domestic production represented 12

percent of GNP in FY 1981, a decline from the FY 1961 high of 13.9 percent. The introduction

of the value-added tax on both domestic and foreign goods added a tax base of 8.7 percent of

GNP in FY 1981.

The tax revenue(% of GDP) of israel from 1999 to 2003 is 27.8%.from 2004 to 2008 is around

26.18%.and from 2008 to 2013 is arround 22.5%.


138

Conclusions and Recommendations

The higher growth of service sector gives a new dimension of stability to Israel’s growth process.

The analysis shows that other commodity producing sector growth rate in employment is stagnant or

declining, while the services sector provides more opportunities in employment generation. This

helps to reduce the poverty alleviation and improve the quality of life. Through increasing trade and

investment, services sector leads to economic growth and competition. The study suggested the

measure and strategy for removing bottleneck in the growth of the services sector and to provide a

package of policy reform so that the services sector emerges as a key sector for growth, employment,

and poverty reduction. In the context to the services sector, information technology (IT) will best

be used for cluster based development. There is a dire need to pay attention towards improving

advance technical skill and education to the workers to cope with global requirements and more

absorption of labor in sophisticated industries, financial, trade, transport and communication services.

There is also a pressing need to find new avenues of services sector. In order to improve research

and development (R&D), technology up gradation and human resource development (HRD)

particularly management improvement and reformed policy environment will have to be formulated.

There is also a need of dynamic leadership at national level which should be purified of corruption,

nepotism, maladministration. Quality education with equal and uniform system can also serve in

better improvement of services sector, which ultimately can play a vital role in uplifting the ailing

economy and bringing the nation on a right tract.


139

Current

Situation (2013-2014)

Budget

Revenue Indices of All Industries

Domestic Receipts and Expenditures

Private Consumption Expenditure

Fixed Capital Formation

Expenditures and Resource Utilization

Impact Of Gaza-Genocide


140

GOVERNMENT BUDGET

At current prices; budget years

Budget section and

payment item Budget(2)

2014 2013

NIS MILLION

GRAND TOTAL(3) 445,085 432,959

Ordinary budget 304,949 297,040

Development budget and debt

repayment 123,757 119,853

Debt repayment to the Bank of

Israel - -

Business enterprises 16,379 16,066

ORDINARY BUDGET - TOTAL 304,949 297,040

President of the State, Knesset, 968 971

Cabinet Ministers and State

Comptroller

Prime Minister's Office 2,317 2,597

Ministry of - Immigrant Absorption 1,417 1,399

Finance 2,291 2,244

Defense 57,548 58,252

Health 27,073 26,046

Foreign Affairs 1,689 1,643

Education 54,937 52,934

Agriculture and Rural Development 722 719

Economy 3,729 3,104

Tourism 234 238

Energy and Water Resources 262 265

Interior 385 685

Public Security 14,157 13,335

Justice 3,649 3,588


141

Social Affairs 38,127 38,663

Environmental Protection 715 702

Construction and Housing 191 199

Science 1,173 1,160

Transportation, National

Infrastructure and Road Safety 550 556

- Communications 76 72

Financing political parties 143 385

Interest and fees 41,745 39,459

Pensions and compensations 15,684 14,079

Holocaust Survivors Rights

Authority 3,389 3,142

Construction and housing grants 2,055 2,081

Grants to demobilized soldiers 2,215 2,065

to local authorities 3,490 3,488

to the Atomic Energy Commission 148 148

Subsidies - for industries 2,655 2,540

miscellaneous subsidies 7,190 6,767

Miscellaneous 6,513 6,326

Survey of Israel 111 112

Subsidies to credit

-

Reserves 7,401 7,076

DEVELOPMENT BUDGET AND

DEBT REPAYMENT - TOTAL 123,757 119,853

Water projects 1,269 1,075

Industry and Trade 89 91

Tourism 541 530

Transport and roads 13,014 11,872

Housing 3,656 3,649

Loans to local authorities . . . .


142

Buildings for public and

government institutions

and investments in social services

3,375 2,775

Various companies 4,951 4,493

Debt repayment 96,862 95,368

BUSINESS ENTERPRISES -

TOTAL 16,379 16,066

Prime Minister's Office projects 401 401

Government hospitals 9,011 8,648

Israel Lands Authority 6,925 6,975

Yafo and Hadera ports 42 42


143

REVENUE INDICES OF ALL INDUSTRIES (excluding diamonds)

At 2011 current prices

Year

Transport

storage,

postal and

courier

services

Informatio

n and

Communic

ations

Construct

ion

Electricity

and water

Agricultu

re,

forestry

and

fishing

Whole

sale

and

retail

trade

Manuf

acturi

ng,

Minin

g and

Quarr

ying

Total

2013 108.5 `101.4 110.1 106.6 `102.6 104.1 100.5 `103.3

2014-

1st

Quar

ter

109.7 97.9 103.7 98.2 91.7 104.8 99.3 101.9

DOMESTIC RECEIPTS AND EXPENDITURES OF THE GOVERNMENT

AND RECEIPTS FROM TAXES (NIS million)

Year

Taxes

on

Civilian

Imports

Indirect

Taxes on

Domestic

Production

Direct Taxes

and

Contribution

to National

Insurance

Total

Deficit

–

/

surplus

+

Expenditures Receipts

2013 27807 101,365 167,701 293,382 -23,526 `286,722 263,196

2014

Jan-

Jun

-599 139,059 138,460

(Note: Tax data of 2014 not issued by the Ministry)


144

PRIVATE CONSUMPTION EXPENDITURE

Year

Person-nights in

hotels

(000s)

Import of consumer

goods

(Million NIS)

Marketing

networks sales

2008 = 100.0 Retail trade

(Grand

Total)

Israelis Tourists Durable

goods Total Food Total

2013 12,736 9,746 5,576 41,547 109.3 114.4 108.2

2014

Jan-Jun 12,839 11,047 6,298 43,627 110.0 115.4

(Note: Retail Trade (Grand Total) of 2014 not issued by the Ministry)

FIXED CAPITAL FORMATION

(NIS million)

Year Infrastructure

Imports of equipment and land transport equipment

Transport

equip.

Machinery

equip.

Total Excluding

Ships and

Aircrafts

2013 31,876 11,375 20,636 32,011

2014

Jan-Jun 11,122 21,386 32,990

(Note: Infrastructure of 2014 not issued by the Ministry)


145

EXPENDITURE ON GROSS DOMESTIC PRODUCT, AND USES OF

RESOURCES

(At Market Price)

Year

Gross

Domestic

Product

Per Capita

Gross

Domestic

Product

Excluding

Net Tax on

Import

Gross Domestic Product

Import

of

Goods

And

Service

(FOB)

Export

of

Goods And

Services

Business

Sector

Excluding

Startup Total

2013 130,588 1,014,581 780,819 1,046,175 1,052,019 329,973 343,224

2014

Jan-

Mar

32,533 255,241 195,623 263,626 265,214 81,382 87,963

Continued...

Year

Fixed capital Formation Final consumption expenditure

Industry Building Total

General

Govt.

Consumption

Expenditure

Collective

Govt. Final

Consumption

Expenditure

Actual

Individual

Consumption Total

2013 141,876 64,171 206,047 240,418 111,648 128,770 128,770 720,123 831,771

2014

Jan-

Mar

34,212 15,893 50,105 61,444 28,178 33,266 148,500 181,766 209,944

Continued...

Year

Uses

of

Resources

Uses

of

Resources

Excluding

Increase in

stocks

Private Consumption Expenditure Per Capita

Excluding

Durable

Goods

Durable Goods Total

2013 1,381,992 1,381,042 67,383 6,022 73,405

2014

Jan-Mar 346,596 348,012 16,626 1,590 18,216

GAZA WAR IMPACT


146

In June 2014, Israel attacked on Palestine city Gaza killing a great number of people. This

brutality leads to major crisis for Israel where people stopped buying Israeli products, hence the

economy fall. There were major impacts of Gaza Genocide on Israel’s economy.

War Cost

The military action against Hamas and other hostile forces in the Gaza Strip has cost the

government about 2 billion shekels ($585 million) in just 12 days of fighting. The estimates

show that the latest round of fighting in Gaza cost Israel $50m for each day of the war.

Measures by Finance and Defense Ministry

Unlike previous military hostilities, after which the defense minister and the army presented a

detailed account of costs to the Finance Ministry, this time defense officials are appraising the

Finance Ministry of costs as the fighting progresses every one or two days. Defense officials

have made it clear, however, that they intend to insist on the government providing a budget

allocation for the full cost of Operation Defensive Edge, rather than funding a portion of it from

the existing defense budget.

Finance Ministry officials say the issue of the extent of an additional budget allocation will only

be dealt with once the fighting has concluded, and would be fully funded as part of the 2014

budget rather than carrying over any portion of the war’s cost to next year. This is possible, they

say, due to the relatively good state of this year’s budget, which would enable the government to

absorb the cost of waging the current military operations, even if it means cutting nonessential

funding from other budget lines. Among the factors permitting this has been the relatively high

level of tax receipts in the first half of the year, despite a slight decline in June.

Budget Compensations

Israel has been presented with a hefty bill for 50 days of war in Gaza, as the prime

minister, Binyamin Netanyahu, moved to slash government spending by 2% this year to offset

the $2.52 bn (£1.51bn) cost of the conflict. With only the Israeli military and domestic

intelligence agency Shin Bet exempt from the sharp spending reductions, the area to be hit

hardest emerged as the Israeli education system, with criticism, including members of

Netanyahu's cabinet predicted that the poorest Israelis will feel the brunt of the cuts.

The proposed emergency budget reductions, amounting to about $561m, will help fund a sharp

hike in the budget of Israel's armed forces. The Israeli budget for this year even before the war

and the latest proposed cuts had already heralded a bout of belt-tightening that had seen a fierce

fight over spending cuts, later reversed, to the Israeli defense forces.

GDP Fall in Different Sectors


147

The Israeli budget cuts come amid evidence that Israel's economy which had already been

slowing to a sluggish 1.7% growth in the second quarter of this year, including the key hi-tech

sector – had been hard hit by the weeks of conflict, not least tourism.

The hostilities have dented consumption, especially in the southern part of the country, near

Gaza. Tourism, which accounts for 7% of Israel’s GDP, has slumped throughout the country,

ruining this year’s peak summer season. Meanwhile, industrial production has shrunk and most

worryingly of all so have industrial exports.

Bank Interest Rate

The Bank of Israel, Israel’s central bank, the economy is in worrying shape. The bank’s

Monetary Committee, at its monthly meeting on August 25th, cut its main interest rate from

0.5% to 0.25%, the lowest on record.


148

Summary


149

Agriculture Sector

Israel’s agricultural sector is characterized by an intensive system of production stemming from

the need to overcome the scarcity in natural resources, particularly water and arable land. The

constant growth in agricultural production is due to the close cooperation between researchers,

farmers, and agriculture-related industries. Together they develop and apply new methods in all

agricultural branches. The result is modern agriculture in a country more than half of whose area

is desert. As Israeli farmers and scientists have had to contend with a difficult environment and

limited water resources, their experience is especially relevant to the developing world. Its

success lies in the determination and ingenuity of farmers and scientists who have dedicated

themselves to developing a flourishing agriculture, demonstrating to the world that the real value

of land is a function of how it is utilized. The close cooperation between R&D and industry led

to the development of a market-oriented agri-business that exports agro-technology solutions -

particularly water solutions.


of making maximum use of arable land and scarce water (including from modern desalinization

plants, the know-how of which is a winning export story). When Jews began resettling their








area increased by a factor of 8, to about 0.6 million acres until the mid 1980s; however, owing to

the growing shortage of water, coupled with intensive urbanization, this is now less than half a

million acres. During the past half century the number of agricultural settlements grew from 400

to 750, but the share of the population living in them has fallen from 12 percent to less than 5

percent.










150


total exports.

This, despite an absolute increase of annual exports from $20 million in 1950 to $1.4 billion in

2013 due, inter alia, to the widespread introduction of innovative farming methods, modern

irrigation methods and export policies.

Industrial Sector






nearly total reliance on energy imports may change with recent discoveries of large natural gas

reserves off its coast. Israel is active in software, telecommunication and semiconductors

development. The high concentration of high-tech industries in Israel, which are backed by a

strong venture capital industry, gave it the nickname "Silicon Wadi", which is considered second

in importance only to its Californian counterpart. Numerous Israeli companies have been

acquired by global corporations for its reliable and quality corporate personnel. The country was

the destination for Berkshire Hathaway's first investment outside the United States when it

purchased ISCAR Metalworking, and the first research and development centers outside the

United States for companies including Intel, Microsoft, and Apple. American business magnates

and investors Bill Gates, Warren Buffett, and Donald Trump have each praised Israel's economy

and each entrepreneur has invested heavily in numerous Israeli industries that range include real

estate, high technology, and manufacturing beyond their traditional business activities and

investments back in the United States. Israel is also a major tourist destination, with 3.54 million

foreign tourists visiting it in 2013.

In September 2010, Israel was invited to join the OECD. Israel has also signed free trade

agreements with the European Union, the United States, the European Free Trade Association,

Turkey, Mexico, Canada, Jordan, Egypt, and on 18 December 2007, became the first non-Latin-

American country to sign a free trade agreement with the Mercosur trade bloc.


151

Service Sector

Service sector of Israel contributes around 66% in the GDP of Israel. This sector includes

finance, banking, tourism, trade, transport and communication, defense services, education,

health services and taxation.

Finance and Banking

Israel has over 100 active funds operating throughout the country with $10 billion under

management. In 2004, international foreign funds from various nations around the world

committed over 50% of the total dollars invested exemplifying the country's strong and sound

reputation as an internationally sought after foreign investment by many countries. Israel's

venture capital sector has rapidly developed from the early 1990s, and has about 70 active

venture capital funds (VC), of which 14 international VCs have Israeli offices. Israel's thriving

venture-capital and business-incubator industry played an important role in the booming high-

tech sector. In 2008, venture capital investment in Israel rose 19 percent to $1.9 billion.

The banking sector in Israel holds a dominant position in the country’s financial system and

plays a pivotal role in the overall economy. The banking sector in Israel has gone through an

array of reforms with the privatization of banking in the country. Commercial banks in Israel

offer an array of retail and corporate banking facilities ranging from brokerages in capital

market, both local and foreign, leasing, underwriting, investment banking, mutual fund and other

such asset management facilities.

Tourism

Tourism has increased significantly and has become an important source of foreign exchange,

although its growth at times was affected by regional strife. Visitors are drawn to Israel’s

numerous religious, archeological, and historic sites—such as the Western Wall and the Dome of

the Rock and biblical cities such as Nazareth, and Bethlehem in the West Bank—as well as to its

geographic diversity, excellent weather for leisure activities, and links to the Jewish and

Palestinian Arab diasporas. There are numerous resorts in the highlands and desert and along the

coast, with most tourists coming from Europe and a growing number from North America.

Tourists are attracted by Israel's geographical diversity, its archeological and religious sites, the

almost unlimited sunshine and modern resort facilities on the Mediterranean, Lake Kinneret (Sea

of Galilee), the Red Sea, and the Dead Sea. In the year 2000, the largest number of tourists ever -

2.41 million - visited the country (compared to 33,000 in 1950, 118,000 in 1960, 441,000 in

1970, 1.18 million in 1980, and 1.34 million in 1990). This figure was topped in 2008 as Israel

opened its doors to more than 3 million tourists. Visitor figures continue to rise. In the first half

of 2010, 1.6 million tourists visited Israel, 39 percent more than in the same period last year, and


152

10 percent more than in 2008. Americans make up 21 percent of the tourists in Israel, with

Russians making up 15 percent and other European countries making up much of the rest.

Tourism provided foreign currency earnings of $2.8 billion in 2006, i.e. 5 percent of the income

from all exports and 16.8 percent of the export of services. In the first half of 2010, incoming

tourism brought in about $1.55 billion. Although this industry contributes less than 3% to the

GNP, it has a foreign currency added value of 85 percent (making it the added-value leader

among the country's export industries) and employs some 80,000 persons. This industry's large

potential is yet to be exploited, as it is a major factor in Israel's economic growth plan.

Trade

Access to foreign markets has been vital for further economic expansion. Israel has free trade

agreements with the European Union and the United States and is a member of the World Trade

Organization. These agreements and Israel’s many industrial and scientific innovations have

allowed the country to trade successfully despite its lack of access to regional markets in the

Middle East. A central problem, however, has been the country’s large and persistent annual

balance-of-trade deficit.

Imports consist mainly of raw materials (including rough diamonds), capital goods, and food.

Exports more than doubled in value through the 1990s and became highly diversified, originating

in all the major manufacturing sectors and in agriculture. High-technology products led the list of

exports, and Israel sells fruit (including citrus), vegetables, and flowers throughout Europe

during the off-season.

Transport and Communication

The importance of the transport and communications sector largely exceeds its small share in the

economy's statistics, as it is an infrastructure industry serving all other branches of the economy

as well as households. It is a service rather than a production sector, and is growing - as is the

case in all modern economies - faster than the production industries. A remarkable growth in the

aviation part of this sector took place in recent years (thanks to a parallel increase in tourism),

but the growth of the communications sector has been even faster.

Health Services

Israel has maintained a system of socialized health care since its establishment in 1948, although

the National Health Insurance law was passed only on January 1, 1995 the state is responsible for

providing health services to all residents of the country, who can register with one of the four

health service funds. In Israel, the publicly funded medical system is universal and compulsory.


153

In 2005, Israel spent 7.8% of GDP on health care, or US$1,533 per capita. Of that,

approximately 66% was government expenditure

Education

In 2012, Israel was named the second most educated country in the world according to the

Organization for Economic Cooperation and Development's Education at a Glance report,

released in 2012. The report found that 78% of the money invested in education is from public

funds and 45% of the population has a university or college degree.

Taxation

The Israel Tax Authority is composed of Income Tax, Land Tax, Customs and VAT authorities,

and the Mechanized Processing Service. The Tax Authority is responsible for both direct and

indirect tax systems, tax monitoring and public service improvement. The tax revenue (% of

GDP) of Israel from 1999 to 2003 is 27.8%.from 2004 to 2008 is around 26.18%.and from 2008

to 2013 is around 22.5%.


154

Comparison Overview of Pakistan

Agriculture

Industry

Services


155

Particulars

Name Islamic Republic of Pakistan

Founded 14th

August 1947

President Mamnoon Hussain

Prime Minister Nawaz Sharif

Capital Islamabad

Religion Islam

Language Urdu

Currency Pakistani Rupee

Area 796, 096 km square

Population 188.20 million

Financial Year July-June

GDP $236,625 million

GNP PKR 11175600 million

PCI $ 1,370

HDI 0.537

Calling Code +92


156

RELATIONS BETWEEN PAKISTAN AND ISRAEL

The bilateral relations between the Islamic Republic of Pakistan and the state of Israel have been

complex since their establishment in 1947 and 1948 respectively, shifting from close ties to

hostilities against each other. Politically and historically, both states were established based on

their ideological declarations (See Two-Nation Theory and Homeland for the Jewish people) in

1947 from British Empire. Despite many attempts to establish relations between the two states,

diplomatic ties have not been established and as many other Muslim countries have done;

Pakistan has refused to recognize Israel. However, the relations between Pakistan and Israel are

highly complex and complicated.

On many occasions, both Pakistan and Israel used their Embassies at Istanbul to mediate or

exchange information with each other, for instance Pakistan used its embassy in Istanbul to pass

information on a terror group to Israel in 2010 according to the whistleblowing website

WikiLeaks. The 1980s saw some strong coordination between two countries when their

respective intelligence agencies participated in Operation Cyclone against the Soviet Union and

the Soviet war in Afghanistan its invasion of Afghanistan, based on their common mutual

distrust of communism. But the hostilities are also widely reported with Israel labelling Pakistan

"an anti-Semitic state" and Pakistan counter-labeling Israel "a Zionist and racist state". However

recently, some politicians from both Israel and Pakistan have called for the normalization of

diplomatic relations.

Comparison between Agriculture of Pakistan and Israel

Israel


of making maximum use of arable land and scarce water (including from modern desalinization

plants, the know-how of which is a winning export story). When Jews began resettling their








area increased by a factor of 8, to about 0.6 million acres until the mid-1980s. However, owing

to the growing shortage of water, coupled with intensive urbanization, this is now less than half a

million acres.


157

During the past half century the number of agricultural settlements grew from 400 to 750, but the

share of the population living in them has fallen from 12 percent to less than 5 percent.










total exports. This, despite an absolute increase of annual exports from $20 million in 1950 to

$1.4 billion in 2013 due, inter alia, to the widespread introduction of innovative farming

methods, modern irrigation methods and export policies.

Pakistan

Agriculture is central to economic growth and development in Pakistan. Being the dominant

sector it contributes 21.4 percent to GDP, employs 45 percent of the country’s labor force and

contributes in the growth of other sectors of the economy. Overall agriculture development

strategy revolves to foster private sector-led development with public sector providing enabling

environment through policy interventions and play capacity building role to improve agriculture

related practices.

During 2012-13, agriculture sector exhibited a growth of 3.3 percent on the back of nominal

growth in agriculture related sub sectors, Crops grew at 3.2 percent, Livestock 3.7 percent,

Forestry 0.1 percent and fishing 0.7 percent. The agriculture subsector which included important

crops, other crops, grew by 2.3 percent and 6.7 percent, cotton ginning declined by 2.9 percent.

Important crops accounted for 25.2 percent of agricultural value added and has experienced a

growth of 2.3 percent in fiscal year 2012-13 against growth of 7.4 percent in 2011-12. The lower

growth in important crops is attributed to decline in production of rice and cotton by 10.0 percent

and 4.2 percent, respectively.

Other crops that contributed 12.3 percent value addition in agriculture witnessed a positive

growth of 6.7 percent in 2012-13 against negative growth of 7.7 percent during the same period

last year. The cotton ginning under new base 2005-06 has been included in agriculture value

addition showed a negative growth of 2.9 percent in 2012-13 against the positive growth of 13.8

percent during the same period last year. The Livestock sector which has a 55.4 percent share in

the agriculture grew by 3.7 percent in 2012-13.


158

The Fishing sector grew by 0.7 percent as against last year’s positive growth of 3.8 percent.

Forestry sector posted a nominal growth of 0.1 percent this year as compared to growth of 1.7

percent last year.

Keeping in view the increasing demand of credit has provisionally set an indicative agriculture

credit disbursement target of PKR 315.0 billion during 2012-13 as against PKR 285.0 billion

fixed last year. Out of which PKR 220.2 billion was allocated to Commercial Banks, PKR 72.0

billion to Zarai Taraqiati Bank Limited (ZTBL), PKR 13.8 billion to Microfinance Banks

(MFBs), and PKR 9.0 billion to Punjab Provincial Cooperative Bank Limited (PPCBL).During

(July-March), 2012-13, banks’ disbursement to the agriculture sector surged by 17 percent year-

on-year basis i.e. PKR 231.0 billion or 73.0 percent of the target, PKR 315.0 billion as compared

to the disbursement of PKR 197.4 billion of last year.

Comparison between Industrial Sector of Pakistan and Israel

Israel

For more than 40 years local demand fueled Israeli industrial expansion, as the country’s

population grew rapidly and the standard of living rose. More recently, world demand for Israeli

advanced technologies, software, electronics, and other sophisticated equipment has stimulated

industrial growth. Israel’s high status in new technologies is the result of its emphasis on higher

education and research and development. The government also assists industrial growth by

providing low-rate loans from its development budget. The main limitations experienced by

industry are the scarcity of domestic raw materials and sources of energy and the restricted size

of the local market.






nearly total reliance on energy imports may change with recent discoveries of large natural

gas reserves off its coast.

Pakistan

Pakistan's industrial sector accounts for about 24% of GDP. Cotton textile production and

apparel manufacturing are Pakistan's largest industries, accounting for about 66% of the

merchandise exports and almost 40% of the employed labour force. Other major industries

include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food

processing. The activity in the manufacturing sector is comprised of large, medium and small-

scale.


159

The industrial Production growth rate during the year 2005 remained 6%, large scale

manufacturing growth rate is 19.9%. From July, 1977 to 1980, the government initiated a large

number of measures to revise the economy. Cotton ginning rice husking and flour milling were

denationalized. The private sector was encouraged to invest in large scale industries. The

investment climate was gradually building up in the country. The annual growth rate in

manufacturing sector was 8.2% in the 1989's. The growth of large scale manufacturing slowed

down to an average of 4.7% in the first half and further to 2.5% in the 2nd half of the 1990's. In

the year 1999-2000 the manufacturing

The share of industrial sector was 18.2% in GDP in 2003-04. However it increased to 15.6% in

GDP in the year 2004-05. The main factors which contributed to rapid economic growth

supporting were monetary policy, financial discipline, consistency and continuity of

development policies, strengthening of domestic demand continuously improving macro-

economic environment a stable rate global expansion of markets due to liberalization of trade in

2005 etc.

The overall manufacturing recorded growth of 9.9% in 2005-06 and 8.45% in 2006-07. The

decline in the froth of manufacturing sector is due to multiple reasons like the reduced

production of cotton crops sugar shortage steel and iron problems and global oil prices.

Manufacturing and construction dominate the industrial sector, accounting for around 19 percent

of GDP. Since the 1980s, approximately 17 to 20 percent of the working population has been

employed in the industrial sector (25 percent in 2004), mostly in manufacturing and construction

Most of the present economic problems in Pakistan are ultimately linked to the slow pace of

industrial development. Rapid industrialization is considered by the economic exports as the

sovereign remedy to put our economy on a sound basis.

The industrialization sector has also in better position it has been growing two to three times

faster than agriculture. The contribution of industrialization in GDP is gradually increases from

fiscal year 2001-02 to fiscal year 2005-06 that are 15.9 percent to 17.9 percent respectively. The

condition of Constructions and power sector towards the contribution in GDP is again very

pathetic.

Development of industrial sector means more investment, employment and production. Increase

in production will increase the national income. If we study the history of economic development

we find that the growth in national income and per capita income has been accompanied by a

relative decline in their dependence on agriculture. At present the share of industrial sector to

GDP is 6.8%. Recently, the share of the industrial sector in the country's gross domestic product

(GDP) has increased by 0.40 percentage point in the outgoing fiscal and that of agriculture and

service sectors has slightly declined, according to the latest official survey report. Industry

contribution to GDP in 2013 was 21.6%


160

Industrial sector growth witnessed the highest level in 2013/2014 during the last six years owing

to comprehensive policy measure that were planned and implemented by the new government,

claimed the Economic Survey 2013/2014 released on Monday.

It said that the industrial sector contributes 20.8 percent in the GDP of the country; it is also a

major source of tax revenues for the government and also contributes significantly in the

provision of job opportunities to the labour force. It is relatively less volatile sector as compared

to other sectors of the economy.

Israel invest 72% of its budget on education and literacy rate of Israel is 97.1% while literacy

rate of Pakistan is 55% and Pakistan invest 2.2% of its budget in education. Pakistan's industrial

sector accounts for about 24% of GDP, while Israel has 31.5. Cotton textile production

and apparel manufacturing are Pakistan's largest industries, accounting for about 66% of the

merchandise exports and almost 40% of the employed labour force. . More recently, world

demand for Israeli advanced technologies, software, electronics, and other sophisticated

equipment has stimulated industrial growth. Israel’s high status in new technologies is the result

of its emphasis on higher education and research and development. The government also assists

industrial growth by providing low-rate loans from its development budget.

Pakistan should invest more money in education sector for increasing their efficiency in

technology because we live in 21st century and if we don’t have technology and education we do

nothing, also Pakistan adopt new methods for industrialization, research, information technology,

for this purpose we have to learn these things and government also support these activities by

collecting proper taxers from people and assure them that their taxes is for their own welfare.


161

Comparison between Services Sector of Pakistan and Israel

Israel

Israel has a technologically advanced market economy. Cut diamonds, high-technology

equipment, and pharmaceuticals are among the leading exports. Its major imports include crude

oil, grains, raw materials, and military equipment. Israel usually posts sizable trade deficits,

which are covered by tourism and other service exports, as well as significant foreign investment

inflows. Between 2004 and 2011, growth averaged nearly 5% per year, led by exports. The

global financial crisis of 2008-09 spurred a brief recession in Israel, but the country entered the

crisis with solid fundamentals, following years of prudent fiscal policy and a resilient banking

sector. In 2010, Israel formally acceded to the OECD.

Israel's economy also has weathered the Arab Spring because strong trade ties outside the Middle

East have insulated the economy from spillover effects. The economy has recovered better than

most advanced, comparably sized economies, but slowing demand domestically and

internationally, and a strong shekel, has reduced forecasts for the next decade to the 3% level.

Natural gas fields discovered off Israel's coast since 2009 have brightened Israel's energy

security outlook. The Tamar and Leviathan fields were some of the world's largest offshore

natural gas finds this past decade. The massive Leviathan field is not due to come online until

2018, but production from Tamar provided a one percentage point boost to Israel's GDP in 2013

and is expected to contribute 0.5% growth in 2014.

In mid-2011, public protests arose around income inequality and rising housing and commodity

prices. Israel's income inequality and poverty rates are among the highest of OECD countries and

there is a broad perception among the public that a small number of "tycoons" have a cartel-like

grip over the major parts of the economy. The government formed committees to address some

of the grievances but has maintained that it will not engage in deficit spending to satisfy populist

demands.

In May 2013 the Israeli government, in a politically difficult process, passed an austerity budget

to reign in the deficit and restore confidence in the government's fiscal position. Over the long

term, Israel faces structural issues, including low labor participation rates for its fastest growing

social segments - the ultra-orthodox and Arab-Israeli communities. Also, Israel's progressive,

globally competitive, knowledge-based technology sector employs only 9% of the workforce,

with the rest employed in manufacturing and services - sectors which face downward wage

pressures from global competition.

Pakistan

Services sector is largest and fastest growing sector in the world economy, accounting largest share

in total output and employment in most developed countries. The share of services sector in total


162

GDP is 47 percent in low income countries, 53 percent in middle income countries and 73 percent in

high income countries. The sector accounts for a significant and rising share in cross-border trade

and foreign direct investment and gives more export opportunities for services suppliers and lower

costs for imported services. It is expected that rising trend of services sector would continue to gain

more and more importance through advancement in the area of knowledge based and skill oriented

activities.

The rising consumer and business demand is steaming from service related activities in

manufacturing firms and enhancing role of IT. Kongsamut, estimates for 123 countries from 1970-80

that with increase in services raises the per capita GDP of these economies. These economies move

from agriculture sector to more in services sector and less inn industrial sector.

Rathetal analyses that higher growth in services sector leads to India’s economic growth. They argue

that service sector not only provides more job opportunities but also is widening the tax base and the

buoyancy of taxes. In case of Pakistan, the shares of services are increasing in all sectors of

economy over the period. In fact, the growth rate of services sector is higher than the growth rate of

agriculture and industrial sector.

Services sector accounts for 54 percent of GDP and little over one-third of total employment.

Services sector has strong linkages with other sectors of economy; it provides essential inputs to

agriculture sector and manufacturing sector. Service sector contributes the major share in the

economic activity of Pakistan.

Over the last few decades, the structure of Pakistan economy has experienced significant changes.

The good sector of Pakistan shows that share of agriculture has been declining gradually over time

from 43.6 percent in 1960-61 to 21.5 percent of GDP in 2009-10, and share of industry has increased

from 15.6 percent in 1960-61 to 25.2 percent of GDP in 2009-10.


163

Conclusion


164

Recommendations for Agriculture Sector of Pakistan

Feudalism should be abolished and lands should be allotted to poor farmers. This will enhance

the productivity and per acre yield of all the crops in Pakistan. Taxes should be levied on

Agricultural income but not without devising limit of land holding. Otherwise it would directly

affect poor farmers.

Federal Seed Certification and Federal Seed Registration is approved but it should taken

responsible steps in approving seeds as it has already approved 36 new kinds of seeds. Specially,

those seeds should be banned which can create pest problem in near future. These seeds are of

cotton mainly. International seed makers are providing those seeds which are not successful in

our country as these seeds are not tested on our soil.

A new Agricultural policy must be framed in which following steps should be focused on.

- Small farmer must be focused. The major problems of small farmers should be solved first.

- Consumer friendly policy must be projected.

- Productivity enhancement program must be constituted to adjust and support prices.

- Different Agricultural zones should be introduced. As Multan in famous for its Mangoes and

citrus fruits so it must be made Mango, citrus zone by which Perishable products should be

exported. This would enhance agro based industry and increase foreign reserves. Pakistan

Agricultural storage & Services Corporation needs to take steps in this regard.

- Corporate farming like giving lands to Mitehel, Nestle and Multinational companies is also a

good idea that will also help those who own a large area of fertile land but can’t manage it.

- Surplus vegetables and fruits must be exported. An Rs 39 million scheme has been approved

for the current fiscal year for establishment of agro export processing zone for fruits, vegetables

and flowers. This will also help in commercializing agriculture

- Latest machinery should be provided to the farmers to increase the per acre yield. This

provision should be on easy installments so that the farmers can avoid the burden of loans. If

possible subsidy should be given by the government of modern machinery. - Modern

techniques of irrigation can solve the problems of irrigation in Pakistan. This includes drip

irrigation and sprinkle irrigation methods. By using this technique the farmers can save a huge

sum of money which he pays for irrigation through tube wells and tractors.


165

- More dams should be constructed on Indus, Jhelum and Chenab rivers. This will enhance the

storage capacity of water and reduce the per acre cost of all the crops. This step will also reduce

the salinity chances of the lands as less tube well water will be flooded to the lands which cause

salinity.

Recommendations For Industrial Sector Of Pakistan

The following measures are suggested to improve industrial sector of Pakistan:

1) More allocation of funds for industrial research is required, which is necessary, for the industrial

development.

2) Industrial sector can be promoted by increasing capital.

3) Saving and investment should be increased to develop industrial sector.

4) To promote industrial sector, there should be technical know-how.

5) Tax concession is also needed to increase the investment in new industries.

6) In time supply of raw material is necessary for the improvement of industrial sector.

7) Advanced infrastructure is necessary for industrial development of Pakistan.

8) Financial institutions should provide credit facilities to industrial sector at flexible terms and

conditions.

9) There should be expansion of markets, at domestic and foreign level, of industrial goods.

10) Foreign investment should be encouraged; more incentives should be given to investors.

11) Political stability is compulsory for the development of industrial sector.

12) High degree of technical education is required to produce skilled, technical and efficient work

force.

13) Problem of load-shedding and irregular supply of electricity should be removed.

14) Commercial policy and self-reliance policy should be adopted to remove industrial

backwardness.

15) Foreign exchange reserves and the balance of payment position should be favorable to develop

industrial sector.


166

Recommendations for Service Sector of Pakistan

The higher growth of service sector gives a new dimension of stability to Pakistan’s growth

process. The analysis shows that other commodity-producing sector growth rate in employment

is stagnant or declining, while the services sector provides more opportunities in employment

generation. This helps to reduce the poverty alleviation and improve the quality of life. Through

increasing trade and investment, services sector leads to economic growth and competition. The

study suggested the measure and strategy for removing bottleneck in the growth of the services

sector and to provide a package of policy reform so that the services sector emerges as a key

sector for growth, employment, and poverty reduction. In the context to the services sector,

information technology (IT) will best

Be used for cluster based development. There is a dire need to pay attention towards improving

advance technical skill and education to the workers to cope with global requirements and more

absorption of labor in sophisticated industries, financial, trade, transport and communication

services.

There is also a pressing need to find new avenues of services sector. In order to improve research

and development (R&D), technology up gradation and human resource development (HRD)

particularly management improvement and reformed policy environment will have to be

formulated. There is also a need of dynamic leadership at national level which should be purified

of corruption, nepotism, maladministration. Quality education with equal and uniform system

can also serve in better improvement of services sector, which ultimately can play a vital role in

uplifting the ailing economy and bringing the nation on a right track.


167

References


168

http://www.pap.org.pk/population/pdf/population.pdf

http://www.finance.gov.pk/survey/chapter_10/16_Population.pdf

http://www.sbp.org.pk/departments/stats/PakEconomy_HandBook/Chap-1.3.pdf

http://www.mapsofworld.com/lat_long/israel-lat-long.html

http://en.wikipedia.org/wiki/Judaism

http://www.tradingeconomics.com/israel/indicators

http://www1.cbs.gov.il/www/statistical/meshek11_e.pdf

http://www.investinisrael.gov.il/NR/exeres/B52D66FB-60E9-46C8-B5D0-090E488793CB.htm

http://www.tradingeconomics.com/pakistan/indicators

http://kushnirs.org/macroeconomics/gdp/gdp_israel.html

http://www.indexmundi.com/israel/economy_profile.html

http://mfa.gov.il/MFA/AboutIsrael/Economy/Pages/ECONOMY-

%20Sectors%20of%20the%20Economy.aspx

https://www.jewishvirtuallibrary.org/jsource/agriculture/aggrowth.html

http://www.un.org/esa/agenda21/natlinfo/countr/israel/agriculture.pdf

http://www.photius.com/countries/israel/economy/israel_economy_agriculture.html

http://www.moag.gov.il/agri/files/Israel%27s_Agriculture_Booklet.pdf

http://www.jewishvirtuallibrary.org/jsource/brief/Agriculture.html

http://www.boi.org.il/en/NewsAndPublications/RegularPublications/Research%20Department%

20Publications/RecentEconomicDevelopments/develop136e.pdf

http://www.boi.org.il/en/NewsAndPublications/RegularPublications/Research%20Department%

20Publications/RecentEconomicDevelopments/develop137e.pdf

http://www.eaap.org/docs/newsletters/2007-07/Cattlenetwork%20Proc/Flamenbaum.pdf

http://countrystudies.us/israel/76.html


169

http://www.agricorner.com/pakistan-economic-survey/

http://finance.gov.pk/survey/chapter_12/02-Agriculture.pdf

http://finance.kalpoint.com/agriculture/articles/the-economy-of-agriculture-in-pakistan.html

http://www.yespakistan.com/economy/overview-pak.asp

http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Pakistan-

AGRICULTURE.html

http://www.mfa.gov.il/mfa/aboutisrael/economy/pages/focus%20on%20israel-%20israel-

s%20agriculture%20in%20the%2021st.aspx

http://www.un.org/esa/agenda21/natlinfo/countr/israel/agriculture.pdf

http://www.globes.co.il/en/article-258771

https://www.jewishvirtuallibrary.org/jsource/Economy/idc.html

https://www.cia.gov/library/publications/the-world-factbook/fields/2090.html

http://news.bbc.co.uk/2/hi/business/7654780.stm

http://www.indexmundi.com/israel/industries.html

www.jewishvirtuallibrary.org/jsource/Economy/eco1.html

www.israel-weapon.com

www.imi-israel.com

www.algemeiner.com/

www.iai.co.il, http://www.haaretz.com/

www.iai.co.il/2013/12019-en/CompanyInfo-IAIandtheSecurityofIsrael.aspx

www.israeldefense.com

www.army-guide.com/

economictimes.indiatimes.com/

http://www.electronicsforu.com/efylinux/efyhome/cover/articles-sep/israel


170

http://www.israelidiamond.co.il/English/news.aspx?BoneId=1436

http://www.ipsc.ie/press-releases/the-diamond-industry%E2%80%99s-double-standard-on-israel

www.jewishvirtuallibrary.org/jsource/Economy/eco7.html

http://mfa.gov.il/MFA/AboutIsrael/Economy/Pages/ECONOMY%20Sectors%20of%20the%20E

conomy.aspx

http://mfa.gov.il/MFA/AboutIsrael/Economy/Pages/ECONOMY%20Inflation%20and%20the%2

0Public%20Sector.aspx

http://www.ukessays.com/essays/economics/economic-analysis-of-israel-some-statistics-

economics-essay.php

http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Israel.html

http://www.country-data.com/cgi-bin/query/r-6770.html

http://www.conservapedia.com/Israel_Tourism

http://www.jewishvirtuallibrary.org/jsource/Politics/tourism.html

http://www.cbs.gov.il/statistical/touris2013e.pdf

http://www.miksam.co.il/uploaded/077-078_1.pdf

http://countrystudies.us/israel/67.htm

http://www.miksam.co.il/uploaded/065-066.pdf



Economy of Israel

Documents

Transcript of Economy of Israel