The 1948-2008 series of Arab-Israeli wars, coupled with Palestinian terrorism, have been bumps on the path of unprecedented Israeli economic growth: From a $1.2 billion GDP in 1948 to a $170 billion GDP in 2007! From a labor and land-intensive import-based economy, which is vulnerable to security and political uncertainty, to an increasingly know-how intensive export-driven economy, which is less vulnerable to wars and terrorism.
Sixty years ago, Israel was labeled as an economy-deprived country. In 2008, the “London Economist” claims that “Israel has an economy with the power to astonish…[featuring] most NASDAQ-listed companies, other than Canada and the US.” Israel has been recently admitted to the OECD – the exclusive club of the leading global economies – the shekel has joined thirteen other top-traded currencies, and Israel’s credit rating has been upgraded by Moody’s, Standard & Poor and Fitch.
During the last four years, Israel’s economy has grown 5% annually, compared with a 2.7% annual growth for the OECD countries. Despite the draining 2006 war in Lebanon, the costly 2005 “Disengagement” from Gaza, the unprecedented Palestinian terrorism and prolonged political uncertainty, Israel’s economic fundamentals have been vigorous: minimal budget deficit (1%), low inflation (2.8%) and interest (5%) rates, surplus of trade balance ($4 billion) and balance of payment ($5 billion) and high foreign exchange reserves ($28 billion).
400 global (mostly US) companies have established plants and research & development centers in Israel. They express confidence in the long-term viability of Israel’s economy, notwithstanding the failing peace process and the exacerbation of Palestinian terrorism. For instance, most of Intel’s chips and microprocessors have been developed by Intel-Israel. Hence, Intel constructs its sixth ($4.5 billion) Israeli plant, which will boost the 2007 $1.5 billion export by Intel-Israel.
IBM has just acquired its third Israeli company in 2008 and Microsoft concludes its seventh Israeli acquisition in recent years. HP, Texas Instruments, GE-Medical, Motorola, Cisco, EMC, AOL, Google, Marvelle, Kodak, AT&T, Xerox, Phillips, SAP, Siemens and more giants have followed suit. They have realized that in order to play in the top high tech league, they must set foot in Israel, thus gaining access to Israel’s unique breakthrough technologies. They leverage Israel’s competitive edge: generating groundbreaking technologies. 140 per 10,000 Israelis are engaged in research & development, ahead of the US and Japan with 85 and 70 per 10,000 respectively. As a result, Israel is second only to the US in the absolute number of start-ups, but leads the world in the number of start-ups per capita.
Overseas investment in Israel’s high tech exceeds any single European country and surpasses France and Germany combined. Total overseas investment in Israel reached $23.4 billion in 2006, compared with $10.5 billion in 2005, $9.1 billion in 2004 and $5.1 billion in 2003. In addition to warren Buffet, who made his highest overseas investment in Israel ($4 billion), overseas investors include leading investment banks, such as Goldman Sachs, J.P. Morgan and Morgan Stanley, prestigious venture capital funds, such as Sequoia, Greylock and Benchmark, prime insurance companies such as Mass Mutual, AIG and Marsh McLennen and state employees pension funds such as California, Illinois, New York and Oregon.
According to Morgan Stanley, “Israel’s economy is robust, able to withstand geo-political constraints and global slowdown, featuring a strong shekel, low interest rate, reduced inflation and budget deficit, a trade surplus and surge in overseas investment.”
Israel’s 60 year impressive economic track record constitutes a proof that – when it comes to the impact on sophisticated economies – the performance of Wall Street supersedes the terrorism of Gaza Strip.