Economy - overview

Israel has a technologically advanced market economy with substantial, though diminishing, government participation. It depends on imports of crude oil, grains, raw materials, and military equipment. Despite limited natural resources, Israel has intensively developed its agricultural and industrial sectors over the past 20 years. Israel imports substantial quantities of grain but is largely self-sufficient in other agricultural products. Cut diamonds, high-technology equipment, and agricultural products (fruits and vegetables) are the leading exports. Israel usually posts sizable trade deficits, which are covered by large transfer payments from abroad and by foreign loans. Roughly half of the government's external debt is owed to the US, its major source of economic and military aid. Israel's GDP, after contracting slightly in 2001 and 2002 due to the Palestinian conflict and troubles in the high-technology sector, has grown by about 5% per year since 2003. The economy grew an estimated 5.4% in 2007, the fastest pace since 2000. The government's prudent fiscal policy and structural reforms over the past few years have helped to induce strong foreign investment, tax revenues, and private consumption, setting the economy on a solid growth path.

source: cia.gov

"Ease of Doing Business”

Israel is ranked 29th for "Ease of Doing Business”.Israel reaches the 29th position on the 178 countries that have been ranked by the World Bank on the “Ease of Doing Business Index”. Singapore stands at the 1st position for the 2nd successive year, followed by New Zealand, the US, Hong Kong, Denmark, the UK, Canada and Ireland.

The survey is based on 10 comparative factors: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, contract enforcement and closing a business.

Source: TAMAS.GOV

Read more on The Israeli economy at a glance

Israel's economy is 66.1 percent free, according to our 2008 assessment, which makes it the world's 46th freest economy. Its overall score is 1.5 percentage points higher than last year, reflecting improved scores in investment freedom and financial freedom. Israel is ranked 4th out of 17 countries in the Middle East/North Africa region, and its overall score is much higher than the regional average.
Israel enjoys high levels of trade freedom, investment freedom, property rights, and freedom from corruption. The economy is open to foreign investment in almost all sectors except defense. Tariff rates are low. Inflation is low, although the government interferes with the market by subsidizing certain basic goods.
Israel is weak in two areas: government size and fiscal freedom. Government spending is high, constituting almost half of GDP. Income tax rates on individuals and corporations are also relatively high, as is total tax revenue. Although relatively advanced for the region, Israel's financial sector is still subject to government intervention and control.

Read more HERITAGE.ORG

ECONOMY: Major Reforms

Foreign Currency Liberalization
The New Israeli Shekel (NIS) is now a "hard" currency, traded freely on all international money markets. This is a comparatively recent development after decades of currency control, which was essential - as in many countries after World War II - for the survival and growth of the economy.
The severe shortage of foreign currency in the first years of the state was due mainly to its imports being so much larger than its exports. This called for the "rationing" of foreign currency - allocating it only for very basic requirements (such as food, fuel, and defense equipment). Production machinery and raw materials were added to the list only later on, followed by a meager $10 allocation per person for travel abroad.

Read more on Mfa.Gov

Israel Economy

After having enjoyed for many years one of the fastest GDP growth rates among world economies, Israel is continuing the economic recovery it began in 2003, after a two-year distinct slowdown in almost all economic activities. This trend continued in 2007, according to all economic parameters. In the years 2006-2007, Israel's gross domestic product (GDP) continued its rapid growth, reaching 5.1 percent in 2006, in spite of the Second Lebanon War, which caused a temporary loss of 0.7% of the GNP. The speedy recovery and the continuation of the rapid growth were again led by the business sector, which expanded by 6.4 percent, resulting in a $20,138 per capita GDP in 2006.
In 2006-2007 Israel continued to achieve its main macroeconomic objectives: a very low, sometimes even negative rate of inflation, a very low budget deficit, and a limited increase in public expenditure. At the same time, Israel continued to attract foreign investments as well as enjoying a rapid growth in exports and a positive trade balance for the first time. These trends continued in the first half of 2007 and the forecast for the whole year was of continued economic growth with no inflation, a low budget deficit, and economic stability on all fronts.
With a population of more than 7 million, Israel has been internationally acclaimed throughout the years, in particular for its extraordinary achievements in agriculture and agrotechnology, irrigation, solar energy, and in many hi-tech industries and start-ups. Based on intensive R & D, even in traditional industries, Israel today is not only the land of milk and honey but also the land of hi-tech, including software, communications, biotechnology, pharmaceuticals, and nanotechnology.

Read more on mfa.gov

Israel: Economy

Israel has the highest average living standards in the Middle East, but a large portion of the population, often Palestinians and immigrants, are not benefiting from the wealth of Israel. Costs of living in Israel is high, and for many their wages never manage to cover more than just the basic costs. Israel has a large portion of the population that lives under very modest conditions, often surviving only on aid from the government's side.Much of the growth in Israeli economy comes from a politics that has allowed high deficits on state budgets and foreign trade balance. Israel has the most diversified economy of the Middle East, and has a high level of modernization.Israeli economy has in the recent years experienced an upswing, much due to less need for transferring funds to the military.Mining is an important activity for Israeli economy, of which much is extracted from the Dead Sea. Petroleum extraction exists in Israel, but is very small scale.Agriculture in Israel is very effective, as is able to covering about 75% of domestic needs, despite the limited land available. Citrus fruits and eggs are exported. Yet, agriculture contributes to only 3% of Israel's GNP.Israel has large income from heavy tourism, as well as from donations from individuals and organizations around the world. USA is aiding Israeli economy at the level of US$ 3 billion annually, of which 1,8 billion is allocated to military expenses, the remaining to the civil economy of Israel. Since Israeli economy still runs on heavy deficits, the country cannot be without this help, even if the recent governments have declared economic independence as of its main objectives.

Source: http://i-cias.com/e.o/israel_2.htm

Israel's economy outperforms

(CNN) -- Israel's economy has done remarkably well for a country involved in a prolonged and violent political struggle over the Palestinian territories.

The are 3,361 high tech companies operating in Israel as well as 150 foreign research and development centers

The country's economy grew more than five percent last year -- faster than the U.S., Europe, UK and Japan.
While the Bank of Israel expects the country's fortunes to dip next year, along with the world economy, growth is still expected to exceed four percent. Not bad, given that the U.S., one of its biggest trading partners, is staring down the barrel of potential recession.
"The Israeli economy has managed to develop a kind of isolation from the political instability," says Yossi Mekelberg, Associate Fellow of the Middle East Program at Chatham House.
"It's almost isolated, mainly because it's based on hi-tech, pharmaceutical industries, and chemicals, and I think these are the things that are less conditioned by the political situation."
Israel says it spends a greater percentage of its GDP on hi-tech research and development than any other country.

read more on CNN report

Israel's economy

The Israeli market noted a surprising 5.4% growth in the first quarter of 2008, the Central Bureau of Statistics (CBS) reported Monday.

The growth, though lower than the one noted in 2007's third and forth quarters, exceeded expectations, especially when considering the various recession warnings heard around the world and in Israel since the beginning of the year.

Israeli lifestyle expenditures continued to rise in the first quarter as well, as private consumption increased by 14.1%. Housing industrial and transport investments all added some 9.6%, and goods and services exports have gone up by 23.6%.

Stanley Fischer, Governor of the Bank of Israel, is believed to announce interest rates will go up by only 0.25%, in order to maintain dollar rates from slipping back to the NIS 3.20 margin. Fischer is also expected to decrease interest rates over the next two months, aiming for a 4% interest rate by August.

Meanwhile, Jean-Claude Trichet, President of the European Central Bank, told Yedioth Ahronoth he believes the Israeli economy is the most successful one in the world today: "I'm amazed by the performance of the Israeli economy," he said

Trichet, considered Europe's most influential financial figure, said he believes the Israeli market is "in the best possible position to reap the fruits of globalization and not be affected by the sub-prime crisis."

Positive as he sounds, Trichet refused to sign off on the widespread belief that the worst is over: "We see world markets internalizing the changes and reconfiguring assessments… This is a long process that still has some ways to go."

Source: ynetnews

GCR Country Profile Highlights 2007/2008

In the Middle East and North Africa, Israel, at 17th, continues to lead the region in competitiveness. Israel’s strong showing is boosted by a large number of competitive advantages. These include its first-class educational system, which has provided the country with a large pool of high skilled labour and with top-notch research institutions.

Israel and Global Competitiveness

Israel jumped from 23rd place in 2005 to 15th place on the World Economic Forum’s (WEF) 2006 Global Competitiveness Index, outranking Canada, Austria, France, Australia, Belgium, and Ireland, which follow it in descending order. The United States fell from first to sixth place.
The WEF uses nine groups of criteria to calculate a country’s competitiveness – macroeconomic policy, market efficiency, business sophistication, technological readiness, innovation, infrastructure, health and primary education, higher education and training, and institutions. By affecting an economy’s productivity, the WEF believes that these factors will lead to sustained growth in the future.
The WEF attributes Israel’s improved ranking to the reforms prompted by the Bachar Committee which introduced a degree of competitiveness and professionalism to Israel’s economy, allowing for a revolution in asset management. According to the report’s author, Augusto Lopez-Claros, Israel is attracting a growing number of foreign investors and has exhibited impressive developments in its financial markets, to the extent that it has now developed along regional and international standards. Israel’s competitiveness is aided by its superior higher education and scientific research institutions, which have allowed the country to become a global technology powerhouse. 70% of Israel’s exports are high-tech products, the highest proportion in the world.
Israel is ranked 50th for macroeconomic policy, the lowest of all its rankings, and 29th in the institutions and basic requirements index. Despite its actual ranking in macroeconomic policy, the report favorably cites Israel’s fiscal policy and tax cuts, noting that while Israel’s public spending/GDP ratio was 47.3% is 2005, above the OECD average of 41.8%, the country plans to cut this ratio to 34.4% by 2010.
The US’ plunge in rank, behind Switzerland, Finland, Sweden, Denmark, and Singapore, was attributed to growing imbalances in some macroeconomic indicators as well as the country’s huge fiscal deficit.
Rapidly growing emerging markets, which are changing the global balance of economic power, got mediocre rankings. India is ranked 43rd, China 54th, Russia 62nd, and Brazil 66th.

source: GLOBES