Investment Climate in Israel

1
Investment Climate in Israel
State of Israel Ministry of Industry, Trade
Labor - Foreign Trade Administration Investment
Promotion Center
June, 2005
2
Contents

• From Citrus to Software - An Economy Transformed
• Foreign Investment Venture Capital
• Israel - a High-Tech Powerhouse

3
Main Indicators
2005F
2001
2002
2003
2004
Inflation ()
1 - 3
1.4
6.5
-1.9
1.2
Unemployment ()
9.1
9.3
10.5
10.9
10.0
Imports ( billion)
45.8
33.3
33.1
34.2
41.1
Exports ( billion)
43.1
29.0
29.3
31.8
38.5
GDP ( billions)
121
109.5
102.7
109.1
117.2
GDP/Cap ()
17.7
17,180
15,468
16,312
17,200
May 2005
4
From Citrus to Software An Economy Transformed
5
From Citrus to Software - An Economy Transformed

• Until the 1980s, the Israeli economy was mainly
  focused on traditional industries
• Since the 1980s, the economy has been
  transformed by a high-tech explosion
• In the 1960s, agriculture represented 70 of
  Israeli exports
• Today, agriculture comprises only 3

6
Jaffa Oranges vs. Software
Exports ( millions)
Source Dept. Economic Planning Admin.,
Ministry Industry, Trade and Labor
7
High-tech Exports

• During 2003, hi-tech exports comprised 36 of
  Israels industrial exports
• 2003 Hi-tech exports - 9 billion
• Over the last ten years, hi-tech exports have
  tripled

Source Association of Electronics Information
Industries (Israel) - 2003
8
High-Tech Exports

Source Economic Planning Admin., Min. of
Industry, Trade Labor 2003
9
Case Study The Software Industry

• Sales of Israeli software have increased by over
  700, over the last 10 years
• Professional manpower has increased 250
• Local sales amount to over 900 m per year

10
Where does Israel excel?

• Biotechnology
• Data security
• Software
• Semiconductors
• Agrotechnology
• Safety Security

• Telecommunications
• Medical equipment
• Optics
• Internet technologies
• Computer aided education

11
Excellence

There are few places like Israel where one can
find leading technologies in almost every field.

Y. Hasson Senior Vice President Nokia Venture
Partners (London) September 2003
12
Foreign Investment Venture Capital
13
Investment climate in Israel Foreign Direct
Investment in Israel
Millions USD
Source Bank of Israel
Not including traded securities
14
Sources of Foreign Investment - 2003
Source Israel Venture Association , March 2003
15
Happy Investors

Outside the US, we invest in only one other
country. Thats Israel.

Julien Nguyen, Managing Partner, Applied
Materials Ventures September 2003
16
Major Acquisitions of Israeli companies

• Perrigo bought Agis for 900 million
• Intel bought DSP Communications for 1.6 billion
• Lucent bought Chromatis for 4.5 billion
• Marvell bought Galileo for 2.7 billion
• Marvell bought Radlan for 195 million
• Broadcom bought VisionTech for 1 billion
• HP bought Indigo for 629 million
• Veritas bought Precise software for 609 million
• Guidant bought X-Technologies for 160miliion

17
Recent trends and developments Recent MA
Technology
Acquirer
Sum
Time
Israeli Company
healthcare
Johnson Johnson
80M
05/2005
Impulse Dynamics
semiconductors fabless
Broadcom
85M
05/2005
Siliquent
software
UGS Corp
228M
04/2005
Tecnomatix
Voiceover Internet
Juniper Networks
68M
03/2005
Kagoor
biopharmaceutical
Ferring Holding SA
80M
03/2005
Savient
Medical equipment
Kodak
51M
03/2005
OREX Radiography
Communication
Alcatel
50M
03/2005
Native Networks
processors for digital display devices
Intel
100M
03/2005
Oplus Technologies
semiconductors fabless
Agere Systems
150M
02/2005
Modem-Art
18
Recent trends and developments Recent MA
Technology
Acquirer
Sum
Time
Israeli Company
Pharmaceutical
Perrigo
900M
11/2004
Agis
Speech Applications
Scansoft
100M
11/2004
ART Technologies Phonetic Systems
Traffic Management
CISCO
200M
8/2004
P-CUBE
Wireless infrastructure
INTEL
40M
3/2004
ENVARA
Chips for Mobile-device applications
ZORAN
54M
6/2004
EMBLAZE
Enterprise software
CISCO
100M
6/2004
ACTONA TECHNOLOGIES
Content management software
SAP
10M
7/2004
A2I
Web security
WATCHFIRE
45M
7/2004
SANCTUME
19
Israel in the global investment market

• Over 70 Israeli companies are traded on the
  Nasdaq (the biggest outside N. America)
  
• Over 30 Israeli companies traded on European
  exchanges
• 21 Israeli companies dual-listed on the Tel Aviv
  Stock Exchange and Nasdaq

20
Venture Capital

• Investments by venture capital funds constitute
  an added value above financial contributions - in
  management, world market familiarity, strategic
  guidance and economic credibility.
• Capital raised by Israeli VCs Surges to 724m in
  2004
• Capital available for investment now at 1
  billion
• 1.5 billion projected to be raised by VCs in
  2005

Source IVC Research Center (2004)
21
High-tech Capital Raised 1995-2003
Source Israel Venture Association, March 2003
22
VC Investments (by quarter)
Source IVC Online
23
VC Investments in Israel Europe
Source Price Waterhouse Cooper, May 2003
24
Good Things Small Packages

Israel is a small country with a tiny population,
and yet it has many significant high-tech success
stories.

Sven Lingjaerarde Co-Founder General
Partner Vision Capital September 2003
25
VC Investments by Sector - 2003
SourceIsrael Venture Assoc. January, 2004
26
Multinationals

• Microsoft built their first RD facility outside
  the US in Israel
• Cisco built their only RD facility outside the
  US in Israel
• Motorolas Israel facility is the companys
  largest development center worldwide.
• IBM chose Israel for its first VC investment
  outside of the US
• Sequoia Capital (Israel) is the companys first
  VC fund to be set up outside of Silicon Valley

27
Foreign Companies Invested in Israel- Some
Examples
US
Europe
Asia

• Microsoft
• Pratt Whitney
• AOL Time Warner
• Intel
• IBM
• Boeing Enterprises
• Cisco Systems
• GE
• Lucent
• 3Com
• Hewlett Packard
• Merrill Lynch
• Motorola
• Sun Microsystems

• Philips
• Alcatel
• Siemens
• DaimlerChrysler
• Volvo
• Cable Wireless
• Baan
• Volkswagen
• Deutsche Telecom
• LOreal
• British Telecom
• Danone
• Ares Sereno
• Unilever

• Samsung Electronics
• Daewoo
• Nomura
• Hutchison Telecomm.
• LG Group
• Sony
• Toyo Ink
• Hyundai
• Acer Computers
• Sumitomo Trading
• Fuji
• Honda

28
Israel a High-Tech Powerhouse

• Excellent Human Resources Dynamic Infrastructure

29
Excellent Human Resources

• Highly educated workforce
• A multilingual population with cultural, historic
  and business ties to almost every other nation
• Over 1 million highly educated immigrants from
  the former Soviet Union since 1989
• 275 engineers per 10,000 employees

30
Scientists Technicians per 10,000 Workers
31
Excellent Human Resources II

• Well established and strong academic
  infrastructure
• An outstanding entrepreneurial spirit
• Success stories breed success. Everyone wants to
  be an ICQ

32
Excellent Human Resources III

• Highly trained graduates of the Israel Defense
  Forces have turned cutting edge defense
  technology into civilian applications.

Israel leads in encryption software, a by-product
of its military industry, as are so many
technologies in which it excels.

Forbes June 2002
33
Entrepreneurship
Source IMD World Competitiveness Yearbook, 2002
34
World Economic Forum 2002-3

• Technology Index Rank 7/ 82
• Innovation Sub Index 6/82
• Networked Readiness Index 12/80
• Environment Component Index 5/80
• Readiness Component Index 8/80
• Microeconomic Competitiveness 18/80

Source World Economic Forum, Global
Competitiveness Report 2002-03
35
The OECD International Investment Declaration

• In 2002 Israel adhered to the OECD Declaration on
  International Investment and Multinational
  Enterprises, and to the OECD Guidelines for
  Multinational Enterprises.
• The declaration and guidelines create a
  framework of good practices principles for the
  operation of enterprises and Member States with
  regard to international investment.

36
IMD World Report 2004
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Country Rank ?
1st
4th
2nd
3rd
Source IMD World Competitiveness Yearbook- 2004
37
WEF Competitiveness Report 2004 2005
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Country Rank ?
1st
4th
2nd
3rd
WEF The Global Competitiveness Report 2004
2005
38
Innovation

Israel is important to our goal because it has
historically been a hotbed of new raw technology
and scientific developments

Matthew I. Growney, Managing Director Motorola
Ventures September 2003
39
Growth Competitiveness Ranking World Economic
Forum 2002-3

• 2001 2002
• USA 2 1
• Singapore 4 4
• UK 12 11
• Germany 17 14
• Israel 24 19
• Korea 23 21
• France 20 30
• China 39 33

40
Patents
Number of patents (per 10,000) registered in the
U.S. during 2003
Israel - An annual increase of 20
Source BDI - Business Data Israel
41
Modern Infrastructure

• State of the art telecommunications
• World renowned research and educational
  institutions
• A highly advanced banking and financial sector
• A large volume of high-tech and science based
  industry

42
Government Support

• Competitive government assistance for RD
  projects
• Tax holidays for up to 10 years for foreign
  investors
• The reform law for the Encouragement of Capital
  Investment will simplify bureaucratic processes
  related to the approval of investments through
  the establishment of a "green lane". In addition
  a "Strategic Track" will offer multinational
  companies significant benefits.

43
Supportive Business Environment

• Worldwide taxation and customs treaties
• Protection of trademarks, patents and
  intellectual property of all kinds
• Comprehensive legal protection of foreign
  companies

44
Government Reforms

• Liberalization of foreign currency
• Deregulation of foreign trade
• Privatization of government companies

45
Privatization

• The privatization process began in 1986 and was
  accelerated in 1997
• During this time 82 companies have ceased to be
  state owned
• 2003National airline El-Al begins privatization
• From 1986- 2002 8.6 billion was raised through
  privatization

46
Trade Agreements

• Membership in world organizations GATT (since
  1962), WTO (since 1995) and an active part in
  OECD
• Israel has free trade agreements with
• EU (25) EFTA (4) Romania
• US Mexico Bulgaria
• Canada Turkey

47
Joint RD Foundations

• BIRDF with the U.S.
• USISTC US-Israel Science and Technology
  Commission
• BRITECH - with Britain
• CIIRDF with Canada
• KORIL-RDF with Korea
• SIIRD with Singapore
• FRANCE
• GERMANY
• ITALY
• SWEDEN

48
European Union 6th Framework Agreement

• An active participant in the European Unions RD
  Framework program since 1996
• Israel continues to be active in the 6th
  Framework Agreement that began in November 2002

49
Technological Incubator Projects
technological incubators operate projects
operate currently projects have left the
incubators in the last decade have received
further private investment

• 23
• 200
• 735
• 54

50
So, Why Do Business in Israel?

• Outstanding human resources
• Modern infrastructure
• Supportive business environment
• Cutting edge technology and scientific
  breakthroughs

51
State of Israel
Ministry of Industry, Trade Labor Foreign Trade
Administration Investment Promotion Center
5 Bank Israel St., Kiryat Ben-Gurion Jerusalem,
Israel www.investinisrael.gov.il
infoipc_at_moital.gov.il Tel [phone]
Fax[phone]