Some of the Reasons to Invest in Israel

Straight from the Jerusalem Boardroom #142, May 05, 2010

1.  According to (May 2, 2010), Some of the reasons to invest in Israel are:

*The banking sector remained stable during the global credit crisis and emerged strong last year. Unlike many banks in the West, none of the banks had any large sub-prime exposure and needed to be bailed out by the state. The five largest banks - Hapoalim group, Bank Leumi Bank, Discount Bank, Mizrahi-Tfahot Bank group and First International Bank - are all well capitalized and their capital adequacy ratio is much higher than the minimum required by Basel standards.

*Israel runs a current account surplus. In 2009, the current account soared 243% to $7.2 billion.

*By the end of this month MSCI will upgrade Israel to a developed market [OECD]. Hence Israel will join this select group of 23 other developed countries in the index.

*The high-tech industry forms a large part of the Israeli economy. While Germany is known for engineering, Israel can be called as a high-tech powerhouse. Some have called the incredible growth of the hi-tech industry in a short period of time as a hi-tech miracle. The country is a global leader in many hi-tech sectors such as electronics, generic pharmaceuticals, biotechnology and aeronautics. Export of products by the hi-tech industry has grown at an annual rate of 8.5% in the last five years. In March 2010, the sector brought in $2.1B in export revenue. In the manufacturing sector, sale of hi-tech products forms the largest source of export revenue as the chart for 2008 shows below

*Israel has the largest number of companies listed on the NASDAQ than any other country except Canada. This is very significant considering the country’s population is relatively small compared to many other countries such as India, China, Brazil, UK, France, etc.

*A December, 2009 Bank of America Merrill Lynch report titled “Playing Defense” recommended Israel as an attractive investment destination and recommended companies especially in the banks and telecom sector. According to Merrill Lynch, some of the reasons for investing in Israel were the strong currency vs. the US dollar, the resilient economic performance among other emerging markets and the strong leadership performance shown by The Bank of Israel and Israel's Ministry of Finance in handling the economy.

*The rate of investment in research and development as percentage of GDP in Israel is the highest in the world. High R&D spending coupled with a highly skilled and educated workforce spawns hundreds of start-ups producing many successful commercial products. Israel has the highest number of scientists and engineers per capita in the world. Hence one of the areas where Israel excels compared to other OECD countries is the Information and Communication Technologies (ICT) sector which forms a considerable portion of exports. Little wonder that after Silicon Valley, Israel has the highest concentration of start-ups anywhere in the world.

*Many of Israel’s leading multinational companies weathered the credit crisis and continue to expand both domestically and abroad. Companies like Teva Pharmaceuticals (TEVA), the world’s largest generic drug maker, generate most of their earnings from overseas markets. The Top 25 Israeli multinationals had over US $40B in foreign sales including exports) in 2008. The top five firms in this category are Israel Corporation, Elco Holdings, Teva, Amdocs (DOX) and Ormat (ORA).

*Some of the other factors that make Israel an attractive destination for investment are: general government consumption accounts for a small portion of the total GDP, relative low unemployment rate, stable and growing housing market, very low growth in debt to GDP during 2009, the Tel-Aviv 25 Index beating the S&P 500 over the last five years, etc.

2.  The $1.8BN NY-based private equity fund, Pegasus Capital Advisors, has increased its Israel-dedicated fund by $150MN, focusing on water technologies, alternative energy and homeland security technologies.  Pegasus invested $100MN in Israeli companies during 2005-8, acquiring controlling interest in 5 companies (Globes business daily, April 5, 2010).

3.  The European Union's Seventh Framework Programme (FP7), which supports exceptional R&D projects, awarded 17MN Euros to 34 Israeli companies and researchers. The total received by Israeli companies and academic researchers, from the FP7 amounts to 290MN Euros (Globes, May 3).

4.  Canada's Enablence has acquired Israel's Teledata for $50MN (Globes, April 16).  Google made its 1st Israeli acquisition - LabPixies for $25MN (April 28).