Economy of Israel

Economy of Israel
1 New Israeli Shekel Coin
Rank	44
Currency	New Israeli Shekel (NIS)
Fiscal year	Calendar Year
Trade organisations	BIS, EBRD, IADB, ICC, ISO, ITUC, OECD[1], UN financial bodies, WCO, WFTU, WTO.
Statistics
GDP	$206.9 billion (2009 est.)
GDP growth	4.2% (2008 est.), 0.5% (2009 est.)[2]
GDP per capita	$28,900 (2008 est.)
GDP by sector	agriculture (2.7%), industry (31.7%), services (65.6%) (2008 est.)
Inflation (CPI)	3.9% (2009 est.)
Population below poverty line	23.6% (2007)
Gini index	39.2 (2008)
Labour force	3.01 million (2008 est.)
Labour force by occupation	Agriculture (2%), Industry (16%), Services (82%) (30 September 2008)
Unemployment	7.2% (2010) [2]
Main industries	high-technology projects (including aviation, communications, computer-aided design and manufacture, medical electronics, fiber optics), wood and paper products, potash and phosphates, food, beverages, and tobacco, caustic soda, cement, construction, metal products, chemical products, plastics, diamond cutting, textiles and footwear
Ease of Doing Business Rank	29th[3]
External
Exports	$44.35 billion f.o.b. (2009 est.)
Export goods	machinery and equipment, software, cut diamonds, agricultural products, chemicals, textiles and apparel, military equipment, food.
Main export partners	US 32.5%, Belgium 7.5%, Hong Kong 6.7% (2008)
Imports	$47.4 billion f.o.b. (2009 est.)
Import goods	raw materials, military equipment, investment goods, rough diamonds, fuels, grain, consumer goods
Main import partners	United States 12.3%, Belgium 6.5%, Germany 6.0%, China 6.5%, Switzerland 6.1%(2008)
Public finances
Public debt	78% of GDP (2009 est.)
Revenues	$45 billion (2008 est.)
Expenses	$58.6 billion (2009 est.)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

The economy of Israel is a diversified market economy with substantial state ownership and a rapidly developing high-tech sector. Poor in natural resources, Israel depends on imports of petroleum, coal, food, uncut diamonds, other production inputs, and military equipment. In May 2010, Israel was invited to join the OECD, which praised Israel's scientific and technological progress and described it as having "produced outstanding outcomes on a world scale."^[4]

The country's GDP (Purchasing power parity) in 2006 reached $195 billion according to the International Monetary Fund or $179 billion according to the World Bank (see List of countries by GDP (PPP)). GDP per capita has been $31,767 according to the International Monetary Fund in 2007 or $26,200 in 2006 according to the CIA World Factbook. The economy grew by 8% in the last quarter of 2006, faster than any of its Western counterparts.^[5]

The major industrial sectors include metal products, electronic and biomedical equipment, processed foods, chemicals, and transport equipment. Israel possesses a substantial service sector and the Israel diamond industry is one of the world's centers for diamond cutting and polishing. It is also a world leader in software development and is a major tourist destination. In 1998, Tel Aviv was named by Newsweek as one of the ten most technologically influential cities in the world.^[6] American billionaires and business tycoons including Bill Gates, Warren Buffett, and Donald Trump have each praised Israel’s economic environment,^[7] and the country was the destination for Berkshire Hathaway's first investment outside of the USA when it purchased ISCAR Metalworking, and the first research and development centers outside the USA for companies including Intel and Microsoft. The country has now become known as Silicon Wadi.

Israel has 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.^[8][9]

Israel also enjoys the availability of $3.148 billion in U.S. loan guarantees, whose conditions are negotiated each year at the U.S.-Israel Joint Economic Development Group (JEDG), if needed to help support government bond sales, though in recent years Israel has opted not to use this facility.^[10]

Contents 1 History 2 Economy Rankings 3 Macro-economic trend 4 External trade 5 Income 6 Sectors 6.1 Agriculture 6.2 Diamond industry 6.3 Energy 6.3.1 Electricity 6.3.2 Solar Energy 6.4 Financial sector 6.5 Industrial sector 6.6 Technology sector 6.7 Telecommunications 6.8 Tourism 6.9 Transportation 7 OECD membership 8 See also 9 References 9.1 Bibliography 10 External links 10.1 Updates 10.2 Articles and Documents 10.3 Books

[edit] History

Israel's strong commitment to economic development and its talented work force led to economic growth rates during the nation's first two decades that frequently exceeded 10% annually. The years after the 1973 Yom Kippur War were a lost decade economically, as growth stalled, inflation soared and government expenditures rose significantly. Also worthy of mention is the 1983 Bank stock crisis.

By 1984, the economic situation became almost catastrophic with inflation reaching an annual rate close to 450% and projected to reach over 1000% by the end of the following year. However, the successful economic stabilization plan implemented in 1985 ^[11] and the subsequent introduction of market-oriented structural reforms ^[12][13] reinvigorated the economy and paved the way for its rapid growth in the 1990s and became a model for other countries facing similar economic crises.^[14]

Two developments have helped to transform Israel's economy since the beginning of the 1990s. The first is waves of Jewish immigration, predominantly from the countries of the former USSR, that has brought over one million new citizens to Israel. These new immigrants, many of them highly educated, now constitute some 16% of Israel's 7.5 million population. The second development benefiting the Israeli economy is the peace process begun at the Madrid conference of October 1991, which led to the signing of accords led to a peace treaty between Israel and Jordan (1994).

Despite the Second Intifada, which cost Israel billions of dollars in economic terms^{[citation needed]}, Israel managed to open up new markets to Israeli exporters farther afield, such as in the rapidly growing countries of East Asia.

In the past few years there has been an unprecedented inflow of foreign investment in Israel, as companies that formerly shunned the Israeli market now see its potential contribution to their global strategies. In 2006, foreign investment in Israel totaled $13 billion, according to the Manufacturers Association of Israel.^[5] The Financial Times said that 'bombs drop, yet Israel's economy grows'.^[15] Moreover, while Israel's total gross external debt is US$84 billion, or approximately 44% of GDP, since 2001 it has become a net lender nation in terms of net external debt (the total value of assets vs. liabilities in debt instruments owed abroad), which as of June 2009 stood at a significant surplus of US$54 billion.^[16][17]

The Israeli economy withstood the late-2000s recession, registering positive GDP growth in 2009 and ending the decade with an unemployment rate lower than that of many western countries.^[2] There are several reasons behind this economic resilience, for example, the fact, as stated above, that the country is a net lender rather than a borrower nation and the government and the Bank of Israel's generally conservative macro-economic policies. Two policies in particular can be cited, one is the refusal of the government to succumb to pressure by the banks to appropriate large sums of public money to aid them early in the crisis, thus limiting their risky behavior. The second is the implementation of the recommendations of the Bach'ar commission in the early to mid-2000s which recommended decoupling the banks' depository and investment banking activities, contrary to the then-opposite trend, particularly in the United States, of easing such restrictions which had the effect of encouraging more risk-taking in the financial systems of those countries.^[18]

[edit] Economy Rankings

As of 2010, Israel ranks 17th among of the world's most economically developed nations, according to IMD's World Competitiveness Yearbook rankings. The Israeli economy was ranked as the world's most durable economy in the face of crises, and was also ranked first in the rate research and development center investments.^[19]

The Bank of Israel was ranked first among central banks for its efficient functioning, up from the 8th place in 2009. Israel was ranked first also in its supply of skilled manpower.^[19]

Israeli companies, particularly in the high-tech area, have enjoyed considerable success raising money on Wall Street and other world financial markets; As of 2010 Israel ranked second among foreign countries in the number of its companies listed on U.S. stock exchanges.^[20]

[edit] Macro-economic trend

This is a chart of trend of gross domestic product of Israel at market prices estimated by the International Monetary Fund and EconStats with figures in millions of Israeli Shekels. Average wages in 2007 hover around $109–133 per day.^[21]

Year	Gross Domestic Product	Per Capita Income (as % of USA)
1985	28,437	38.37
1990	106,475	53.15
1995	269,718	64.29
2000	470,732	58.45
2005	553,970	47.45
2007	624,2981

[edit] 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.^[5]

The United States is Israel's largest trading partner; two-way trade totalled some $12.6 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. 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.

Until the last decade, Israel's trade with the Arab world was minimal due to the Arab League boycott. Beginning 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, or any corporation that did business with a corporation that did business with Israel (the secondary and tertiary boycotts).

Israel is one of the world's major exporters of military equipment, accounting for 10% of the world total in 2007.

[edit] Income

Comparing incomes of a median household in Israel vs. other countries.

"OECD, PPP conversion rates". http://www.oecd.org/dataoecd/61/56/1876133.xls. Retrieved 2006-01-20.  "OECD, PPP conversion rates in Israel". http://www1.cbs.gov.il/shnaton57/st28_08.pdf. Retrieved 2007-01-25. 

Country	Median household income national currency units	Year	PPP rate (OECD)	Median household income (PPP)
Switzerland[22]	(gross) 109,236 CHF, $100,387	2008	1.68375	$64,877
California, US [23]	61,021 USD	2008	1.00	$61,021
United States [23]	52,029 USD	2008	1.00	$52,029
Canada [24]	(After tax) 63,900 CAD	2008	1.23	$51,951
Switzerland[22]	(after taxes and health insurance) 77,580 CHF, $71,296	2007	1.640256	$47,297
Australia[25]	66,890 AUD	2007/2008	1.5162805	$44,115
New Zealand [26]	63,867 NZD	2008/2009	1.5881895	$40,214
United Kingdom [27]	24,700 GBP	2004	0.632	$39,000
Israel[28]	107,820 ILS	2006	2.90	$37,000
Ireland	35,410 EUR	2005	1.02	$35,000
Scotland, United Kingdom[29]	21,892 GBP	2005	0.649	$34,000
West Virginia, US[30]	US state			$33,000
Hong Kong[31]	186,000 HKD	2005	5.96	$31,000
Singapore[32]	45,960 SGD	2005	1.55	$30,000

Annual data 2006	Historical averages (%) 2002-06
Population (m) - 7.1	Population growth - 1.8
GDP per head (US$; purchasing power parity) - 27,588	Real GDP growth - 3.1
Percent of unemployed persons (May 2009) - 8.4%	Inflation - 1.9
Exchange rate (av) NIS:US$ - 3.8	Current-account balance (% of GDP) - 1.6

According to the data published by Ian Fursman 60% of the poor households in Israel are of the Haredi Jews and the Israeli Arabs in which there is a high birth rate and a low participation rate in the labor force. Both Groups together represent 25 - 28% of the Israeli population.

[edit] Sectors

[edit] Agriculture

2.8% of the country's GDP is derived from agriculture. Of a total labor force of 2.7 million, 2.6% are employed in agricultural production while 6.3% in services for agriculture.^[33] While Israel imports substantial quantities of grain (approximately 80% of local consumption), it is largely self-sufficient in other agricultural products and food stuffs. For centuries, farmers in Israel have grown varieties of citrus fruits such as grapefruit, oranges and lemons. Citrus fruits are still Israel's major agricultural export. In addition, Israel is one of the world's leading greenhouse food exporting countries.

[edit] Diamond industry

[edit] Energy

As of 2009, Israel relies on external imports for meeting most of its energy needs, spending an amount equivalent to over 5% of its GDP per year on imports of energy products.^[34] The transportation sector relies mainly on gasoline and diesel fuel while the majority of electricity production is generated using imported coal. The country possesses negligible reserves of crude oil but does have substantial domestic natural gas resources which were discovered starting in the year 2000. A 33 billion cubic meters (BCM) natural gas field is located offshore Ashkelon, however, as of 2009 it is approximately two-thirds exhausted. In early 2009, a significant gas find with proven reserves of 184 BCM (247 BCM probable) was located in deep water approximately 90 km west of Haifa.^[35][36][37] A smaller 15 BCM field situated nearer the coastline was also located in 2009. In the years 2009-2030, the Israeli market is expected to consume around 250 BCM of natural gas and proven domestic supplies can account for approximately 85% of this amount. The remainder is expected to be purchased by pipeline from nearby Egypt and in the form of LNG from other countries. Nevertheless, the large gas find near Haifa has significantly raised the prospect of finding additional domestic resources of natural gas along the Eastern Mediterranean shore, prompting increased exploration off Israel's coastline. As a result, preliminary findings from 3D seismic surveys undertaken in 2010 have indicated a potential 453 BCM natural gas prospect in a large underwater geological formation nearby the large gas field already discovered in 2009.^[35][37] For comparison purposes, the United Kingdom's total proven gas reserves as of 2009 are 343 BCM while Germany's consist of 176 BCM.

Field [38]	Discovered	Production	Estimated size
Mari-B	2000	2004	1 trillion cubic feet
Tamar	2008	Not in production	8.4 trillion cubic feet
Dalit	2009	Not in production	700 billion cubic feet

[edit] Electricity

As of 2010, the Israel Electric Corporation (IEC), a state-owned enterprise, produces nearly all of the electricity generated in Israel. The IEC has an aggregate installed generating capacity of 11,690 MW, virtually all of it produced from hydrocarbon fuels. In 2009 the Company sold 48,947 GWh of electricity. The IEC is in the midst of adding several thousand megawatts of generating capacity due to increased demand, though a debate is currently raging with respect to how much should be generated from new coal-fired versus gas-fired plants, a determination complicated by the fact that some of the company's capital investment decisions predate the recent discoveries of significant reserves of natural gas offshore. In addition, in order to encourage competition in the electricity market, the government of Israel is currently (mid-2010) considering proposals from four private companies to generate up to 3,640 MW of electricity in 11 new sites, most of which would be gas-fired combined cycle power stations.

Fuel Sources of Total Generated Electricity by the IEC in 2009

Coal	Fuel oil	Natural gas	Diesel
64.7%	1.2%	32.6%	1.5%

[edit] Solar Energy

Solar power in Israel and the Israeli solar energy industry has a history that dates to the founding of the country. In the 1950s, Levi Yissar developed a solar water heater to help assuage an energy shortage in the new country.^[39] By 1967 around one in twenty households heated their water with the sun and 50,000 solar heaters had been sold.^[39] With the 1970s oil crisis, Harry Zvi Tabor, the father of Israel's solar industry, developed the prototype solar water heater that is now used in over 90% of Israeli homes.^[40] Israeli engineers are on the cutting edge of solar energy technology^[41] and its solar companies work on projects around the world.^[42]

[edit] Financial sector

[edit] Industrial sector

Further information: Companies of Israel by industry

[edit] Technology sector

[edit] Telecommunications

[edit] Tourism

[edit] Transportation

[edit] OECD membership

In May 2007, Israel was invited to open accession discussions with the OECD.^[43] In May 2010, the OECD voted unanimously to invite Israel to join, despite Palestinian objections.^[4] It will become a full member of the group after the Accession Agreements are ratified by the Israeli parliament.^[44]

[edit] See also

• Economy of the Middle East
• List of countries by GDP (PPP)
• Tel Aviv Stock Exchange
• Silicon Wadi
• Science and technology in Israel

[edit] References

[edit] Bibliography

• Ben-Porath, Yoram ed. The Israeli Economy: Maturing through Crises. Cambridge, Massachusetts: Harvard University Press, 1986.
• Chill, Dan. The Arab Boycott of Israel: Economic Aggression and World Reaction. New York: Praeger Publishers, 1976.
• Kanovsky, Eliyahu. The Economy of the Israeli Kibbutz. Cambridge, Massachusetts: Harvard University Press, 1966.
• Klein, Michael. A Gemara of the Israel Economy. Cambridge, Massachusetts: National Bureau of Economic Research, 2005.
• Michaely, Michael. Foreign Trade Regimes and Economic Development: Israel. New York: National Bureau of Economic Research, 1975.
• Ram, Uri (2008). The Globalization of Israel: McWorld in Tel Aviv, Jihad in Jerusalem. New York: Routledge. ISBN 0415953049. 
• Seliktar, Ofira. “The Changing Political Economy of Israel: From Agricultural Pioneers to the “Silicon Valley” of the Middle East.” In Israel’s First Fifty Years edited by Robert Freedman 197-218. Gainesville, Florida: University of Florida Press, 2000.
• Senor, Dan and Singer, Saul, Start-up Nation: The Story of Israel's Economic Miracle, Hachette Book Group, New York, (2009) ISBN 044654146X
• Rubner, Alex. The Economy of Israel: A Critical Account of the First Ten Years. New York: Frederick A. Praeger Publishers, 1960.
• Aharoni, Sara and Meir (2005). Industry & Economy in Israel. Israelbooks.com

[edit] External links

• Israel Economic Development at the Open Directory Project
• The Macro Center For Political Economics
• International Monetary Fund Israel Page

[edit] Updates

• Economy Updates from Ynetnews
• News Updates of Israel Economy

[edit] Articles and Documents

• MSCI upgraded Israel from an emerging market to a developed market
• CIA World Factbook - Israel
• Israel and the International Monetary Fund
• Merrill Lynch: 7,200 millionaires living in Israel
• U.S.-Israel Free Trade Area Agreement
• Israel's economic growth defies experts Tobias Buck, Financial Times
• Trump upbeat on Israel's economy
• 'Israel could be one of world's most prosperous economies'
• Wertheimer joins Arison on Forbes' richest Israelis list
• Estimate of Total Direct U.S. Aid to Israel

[edit] Books

• The Global Political Economy of Israel
• Daniel Maman and Zeev Rosenhek, The Israeli Central Bank: Political Economy: Global Logics & Local Actors, Routledge, 2011.

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