The blooming of the desert: Key stages of Israel’s economic growth

The absorption of immigrants, an economic stabilization plan, a vibrant tech scene and fiscal restraint have helped the country prosper

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

Illustrative image: Azrieli Towers, Tel Aviv (Moshe Shai/Flash90)
Illustrative image: Azrieli Towers, Tel Aviv (Moshe Shai/Flash90)

The establishment of the state in 1948 and the absorption of immigrants: Israel declared its independence in May 1948. Since its founding the nation’s population has surged from 806,000 to 8.84 million today, and the state has absorbed some 3.2 million immigrants over the years.

(See related story for Israel’s transition from struggling economy to global tech powerhouse.)

Financial institutions and fiscal restraint: Israeli leaders set up economic institutions including the central bank, commercial banks, the Israel Securities Authority, and the Finance Ministry that would safeguard the economy and shield it from crises. In the past 20 years, Israel’s governments have adhered to a policy of fiscal restraint that gives the nation credibility with foreign investors and lowers financial costs.

The stabilization plan of 1985 that reined in inflation and cut spending: Hyperinflation hit the Israeli economy in the early 80s and in 1984 it reached 445 percent. This disrupted the functioning of the economy. In 1985 a stabilization plan was set up, led by finance minister Shimon Peres together with US secretary of state George Shultz and IMF economist Stanley Fischer, which aimed to reduce public debt, curb government spending, and privatize government-owned companies. This process, and other liberalization steps the nation undertook in the 1990s, made Israel a member of the global economy.

The growth of Israel’s tech industry: In the 1990s the government set up a program called Yozma, which helped create a local venture fund industry that invested in burgeoning Israeli technologies. The internet boom combined with a surge in highly educated immigrants from the former Soviet Union, plus a determination to solve problems that seem unsolvable, led to a flourishing local tech scene. Today Israel is a technological powerhouse with products that are impacting the world.

The tech industry in numbers: In the 20-year period of 1997-2017, 16,000 high-tech companies were set up, of which 8,000 are currently active. The nation has 505 cybersecurity companies, which have raised some $5.6 billion; there are 1,487 life sciences companies that have raised $13.5 billion.

Israel has had $143 billion worth of exits, of which $132 billion were mergers and acquisitions and $11 billion were initial public offerings. Israeli venture capital funds raised some $20 billion in 1997-2017; the industry has some 1,800 female high-tech entrepreneurs, of which 490 are active CEOs and entrepreneurs; there are 365 currently active foreign R&D centers in Israel; and there are 356 currently active Israeli incubators and accelerators. The data was released by IVC Research Center on Tuesday, ahead of Independence Day.

Yuichi Imahata walks using an Israeli-developed robotic exoskeleton called ReWalk at Kanagawa Rehabilitation Center in Atgugi, Japan on April 17, 2015. Imahata, 31, has been using a wheelchair to get around for seven years after a serious spinal-cord injury suffered in an accidental fall while working for a transport company. (Shuji Kajiyama/AP)

The discovery of offshore natural gas reserves: The discovery of natural gas resources off Israel’s coast has been a game-changer for the economy, leading Israel toward energy independence since they are enough to supply the country with fuel for more than 50 years. The Tamar natural gas field, with some 10 trillion cubic feet of natural gas, started production in 2013 and currently meets 95 percent of the country’s demand. The giant Leviathan field, discovered in 2010, is estimated to hold 22 trillion cubic feet of natural gas, and is scheduled to start production in 2019. The field also has a potential of some half a billion barrels of oil, according to estimates published by the stakeholders, which include Texas-based Noble, Delek Group, and Ratio Oil Exploration (1992) LLP.  Israel hopes the development of Leviathan will allow it to export gas, which it says could help grease the wheels of regional diplomacy.

An aerial view of an Israeli offshore gas rig. (Albatross Aerial photography/Noble Energy/Flash90/File)

Mobileye’s sale to Intel Corp. for a whopping $15.3 billion in 2017: The deal is Israel’s largest tech deal to date and underlines the high esteem in which Israeli technology is held by foreign multinationals who are flocking to its shores, setting up local R&D centers and buying up startups to tap into the hottest developments.

Mobileye provides technology in the area of software algorithms that could enable autonomous cars. (Moshe Shai/FLASH90)

The economy today, in numbers: Israel had a gross domestic product (GDP) per capita of some $5,000 when the state was established in May 1948. The GDP per capita is today some $40,000, close to the median of other developed OECD countries, according to data compiled by the Bank of Israel. GDP per capita is a measurement that divides the country’s gross domestic product by its total population and is a measurement of its standard of living.

Israel’s economy in 2017 grew 3.4 percent in 2017, and has averaged 3.3 percent since 2000, higher than in many OECD countries, partly driven by a strong population growth. OECD countries grew at an average rate of 2.4% in 2017, while growth in the US was 2.3 percent for the period.

Israeli tech companies raised a record $5.2 billion in 2017 and there were $23 billion worth of company exits, defined as merger and acquisition deals and initial public offering of shares. Some 94 Israeli companies were listed on the NASDAQ exchange, according to a Doing Business in Israel 2018 report.

Life expectancy for Jewish men jumped to 80.7 in 2016 from 64.9 in 1949, and for women to 84.2 in 2016 from 67.6 in 1949, according to the Central Bureau of Statistics.

The nation’s population doubled in the four years after its founding, with some 700,000 Jewish immigrants from Arab countries flocking to its shores after being expelled from or having to leave their home countries, and with Holocaust survivors from Europe seeking security in their ancestral homeland. Another giant wave of immigration in the 90s brought with it more than 900,000 new immigrants, many of them engineers, professors, and scientists, from the former Soviet Union.

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