End-of-year reports rank Israel high on tech, low on infrastructure

A plethora of year-end reports peg Israel as a pretty good place to do business, rated among the top countries for higher education and research, and with excellent technology. But the country scores only so-so marks for government-fostered bureaucracy, economic freedom, physical infrastructure, and labor efficiency.

The reports — by business magazine Forbes, the World Economic Forum, and the Heritage Foundation — all rank Israel as one of the 30 best economies in the world to do business. But they point out that, with reforms, Israel could be doing much better.

Israel ranks as the 25th-best country in the world to do business, according to the Forbes Best Countries for Business rankings for 2015. With a “technologically advanced market economy,” the economy has good prospects, especially when the country starts reaping the benefits from the Laviathan gas field later this decade. However, over the long term, the magazine said, Israel faces structural issues, including low labor participation rates for its fastest-growing social segments — the ultra-orthodox and Arab-Israeli communities.

While Israel can be proud of its “globally competitive, knowledge-based technology sector,” Forbes points out that many Israelis are not benefiting from it. The tech sector “employs only 9% of the workforce, with the rest employed in manufacturing and services — sectors which face downward wage pressures from global competition,” said Forbes. Israel’s closest competitor in the Middle East is the United Arab Emirates, which ranked in 40th place.

The United States, it should be noted, rated only 22 on the Forbes list, “continuing its six-year descent since 2009 when the US ranked second overall,” wrote the magazine. The US is the financial capital of the world and its largest economy is $17.4 trillion (China is second, at $10.4 trillion), but it scores poorly on monetary freedom and bureaucracy/red tape. More than 150 new, major regulations have been added since 2009 at a cost of $70 billion, according to the Heritage Foundation. Denmark, for the second year in a row, ranks first.

A much more extensive report by the World Economic Forum (WEF) places Israel as the 27th most-competitive economy in the world — “competitive” used in the sense of being most likely to succeed. The WEF report ranks 144 countries around the world on 12 “pillars of success,” including the effectiveness of institutions (government and private), quality of infrastructure, economic environment, health, education, financial markets, innovation, and “technological readiness,” which measures an economy’s ability to absorb and utilize new technologies.

On that parameter, Israel ranks as fourth best in the world, and it scores even better on “capacity for innovation” and “quality of scientific research institutions.” Israel also does well on other components of the “innovation pillar,” including availability of scientists to tackle issues, per-capita patent applications, university-industry collaboration, and more.

Israel also ranks close to the top in health (10th overall), and is the fourth-best place to get venture capital for a start-up.

The country receives only middling scores for other important areas of competitiveness. It ranks 43rd worldwide for the quality of its government institutions, 44th on the quality of its ethics, 55th in transport infrastructure, 70th in port infrastructure quality, and so on. In this study, the US ranks far better — the third-most competitive economy — as opposed to its rank on the Forbes list. The most competitive economy in the WEF report is Switzerland; Denmark, first in the Forbes ranking, is No. 12 on the Forbes list.

In terms of economic freedom, Israel ranks No. 33 in the world. “A democratic and free-market bastion in the Middle East, Israel has entrenched the principles of economic freedom during its development,” reported the Heritage Foundation. “A small, open economy, Israel relies on its competitive regulatory environment and well-established rule of law to attract international investment. While government spending is sizable, the government has not interfered heavily with industrial activity.”