Treasury: Foreign investments in Israel plunged 60% in 1st quarter this year

Finance Ministry says Israel drew $2.6 billion in foreign funds, while noting 80% drop in mergers and acquisitions amid tech layoffs and with judicial overhaul spooking investors

Sharon Wrobel is a tech reporter for The Times of Israel.

Illustrative: View of the Phoenix Investment House in Tel Aviv on June 30, 2023. (Yossi Aloni/Flash90)
Illustrative: View of the Phoenix Investment House in Tel Aviv on June 30, 2023. (Yossi Aloni/Flash90)

Foreign investment in Israel has dived by 60 percent in the first quarter of this year, according to a report published by the Finance Ministry Wednesday.

Israel lured about $2.6 billion in foreign investment in the first three months of the year, reflecting a 60% decline compared to the average quarterly figures recorded in 2020 and 2022, according to the data, which did not compare this year to 2021 as it was a record year and viewed as an outliner.

A drop was seen in both the number of foreign transactions and the number of foreign investors during the first quarter of the year.

Citing data from the Central Bureau of Statistics, the report notes that foreign direct investment in the first quarter of 2023 fell 34% to $4.76 billion, versus the quarterly averages recorded in 2020 and 2022.

In addition, the average size of exit transactions — mergers and acquisitions or initial public offerings of shares — in the first quarter plunged 80% to $56 million from about $307 million in 2020 and 2022. The Finance Ministry attributed part of the sharp drop to the decline in the valuations of many technology companies in the United States.

Last year, foreign investment transactions amounted to $29.3 billion following a record year in 2021, which saw a staggering flow of $47 billion, according to the data. That compares with the $26.4 billion in foreign investment recorded in 2020.

Illustrative: View of the Tel Aviv Stock Exchange, November 29, 2020. (Miriam Alster/Flash90)

In the second half of 2022, investments in private companies slowed amid rising interest rates, a global stock market fall, and tech layoffs. Adding to this is the local political uncertainty around the contentious judicial overhaul announced at the beginning of the year, which has been pushing foreign investors into a wait-and-see position about deal-making.

The main concern in the business and tech community is that the proposed judicial overhaul will erode democracy and weaken checks and balances, which would make venture capitalists and other money-makers leery of investing their money in the country and trigger an outflow of funds.

In 2022, about 72%, or $21 billion, of foreign investments in Israel came from the US, similar to the percentage in the previous year. Another 8%, or $2.4 billion, was made up of investments from the UK.

In a report submitted Monday to the Knesset, Finance Minister Bezalel Smotrich touted Israel’s economy and finances as comparatively strong globally, but acknowledged that inflationary pressures have not eased as much as he had predicted.

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