Israel is today an industrialized country with most of its manufacturing, including many traditional fields, based on intensive and sophisticated research & development and hi-tech processes, tools, and machinery. This is the outcome of very rapid and intensive development.
Today’s dynamic, widely diversified industrial sector was developed from small workshops, originally established since the end of the 19th century to manufacture farm implements and process agricultural products. Two incentives brought about the initial transformation of these workshops into more modern factories – the immigration of entrepreneurs and experienced engineers from Germany in the 1930s and the increasing demand for industrial products during World War II (1939-45) as the Allied forces in the region required various commodities, especially clothing and canned foods, and the region needed products that could not be imported from Europe because of the war.
Until the 1970s, traditional industries – such as food processing, textiles and fashion, furniture, fertilizers, pesticides, pharmaceuticals, chemicals, rubber, plastic, and metal products – provided most of the country’s industrial output. In that period most resources were directed toward developing agriculture, food production and processing, laying infrastructure, and providing quick employment of many unskilled immigrants.
The next phase of industrialization concentrated on developing and manufacturing arms needed for the defense of the country. It was accelerated because of arms embargoes that endangered the nascent state. The vast investment in aviation and armament industries created new technologies that became the base for Israel’s unique hi-tech industries, such as medical devices, electronics, computer software and hardware, telecommunications, etc. In the 1980s, Israelis who worked in the Silicon Valley returned to Israel, opening development centers of multinational companies such as Intel, Microsoft, IBM, and others. In the 1990s a highly skilled immigration of scientists, engineers, technicians, and medical workers from the former Soviet Union enabled the upgrading of Israel’s industry to its current level of sophistication, with its array of export products.
Due to its lack of natural resources and raw materials, Israel’s one advantage is its highly qualified labor force, scientific institutes, and R&D centers. Today Israeli industry concentrates mostly on manufacturing products with high added value, by developing products based on Israel’s own scientific creativity and technological innovation.
Unlike most developed economies, in which the number of persons employed in industry remained stable or diminished during the early 1990s, their number in Israel continues to grow, with more than 25 percent of the industrial workforce employed in hi-tech manufacturing.
In the past two decades, industrial output has made international-level strides in the fields of medical electronics, agro-technology, telecommunications, fine chemicals, computer hardware and software, as well as diamond cutting and polishing. In 2008, the manufacturing industry employed 384,000 persons (among them, the rate of those with higher education was second only to that of the work forces of the US and Holland). There were 11,000 industrial plants that produced an output of over $58 billion – more than half of which was exported.
The fastest growth rates (averaging 8 percent annually in recent years) are to be found in the hi-tech sectors. These sectors are skill and capital intensive and require sophisticated production techniques, as well as considerable investment in research and development, on which 4.9 percent of Israel’s GDP is spent – the highest among OECD countries. The quality of this R&D in Israel is ranked, according to U.N. experts, among the first 10 in the world. A successful contribution to all these is due to academic research institutes, which provide much of the basic R&D, and venture capital.
The significance of hi-tech industries’ growth may be illustrated by their having accounted for only 37 percent of the industrial product in 1965, a rate that grew to 58 percent in 1985 and around 70 percent in 2006.
Almost 80% of hi-tech products are exported, while the more traditional, low-tech firms export only close to 40 percent of their product. Hi-tech exports quadrupled from $3 billion in 1991 to $12.3 billion in 2000 and to $29 billion in 2006 (plus another $5.9 billion of hi-tech services exported). In 2009, the product of ICT (information and communications technology, a major part of hi-tech industry) amounted to $19 billion. Contributing 17.3 percent of the business sector GDP, it employed 204,000 persons, and its exports were close to $16 billion. Over 90 percent of the public budgets for R&D ($7 billion in 2006) are allocated to hi-tech industries, much of which is channeled via joint venture capital funds.
In recent years, the government has been collecting fair dividends on its shares in these funds, over and above repayment of loans granted to successful start-up companies. In addition to the six binational foundations mentioned earlier, Israel has agreements for joint funding of R&D projects with the US, Canada, Italy, Belgium, Austria, France, Sweden, Germany, Holland, Ireland, Portugal, Spain, Hong Kong, India, Turkey and China.
The age of information technology (the Internet, electronic commerce, etc.) placed Israel’s economy, and particularly its hi-tech industries, in the forefront of world development in these fields. A number of internationally recognized Israeli companies have been bought by top business conglomerates in multi-billion dollar transactions. The number of new start-ups is very high due to the extraordinary innovative talent in Israel, coupled with the availability of highly skilled manpower. The growing presence of Israeli firms on Wall Street and the European stock exchanges is yet another manifestation of the respect with which Israel’s hi-tech industry is regarded.
Israel has one of the most advanced economies in the world. Israel’s economy is characterized by high standards of living, high technology, and modern infrastructure. Below are the biggest industries in Israel that are responsible for its advanced economy.
Israel’s technology sector is growing faster than any other industry in the country. Science and technology are the country’s most highly developed and industrialized sector, making it a significant part of the economy. According to Ministry of Foreign Affairs, high-tech industries are growing at an average of 8% per years and about 5% of the country’s GDP is spent on these industries, the highest among all the OECD countries. In 2016, about 70% of the country’s industrial products were derived from high-tech industries.
While the high-tech industry often gets international recognition for its contribution to Israel’s economy and the number of start-ups, the manufacturing industry is also robust and contributes greatly to the country’s economy. The country has a well-developed manufacturing industry with large production capacity. Israel has a high-tech and well-developed chemical industry mainly located in the Ramat Hovav and near the Dead Sea.
Israeli diamond industry is an important part of the manufacturing sector. The country is one of the leading centers for diamond cutting and polishing in the world, with the industry accounting for 23.2% of all export products. Cut diamonds were Israel’s biggest export product in 2016 and accounted for 12% of the world’s production. The US is the largest market for the Israeli diamond, accounting for 36% followed by Hong Kong at 28% and Belgium at 8%.
Agriculture is one of the highly developed industries in Israel and a major source of export products. Israel is a leader in agricultural technologies and one of the major exporters of fresh produce. The fact that most of the country is desert and unconducive for agriculture has not hindered the country from carrying out the activity on a large scale. Agriculture accounts for about 2.5% of the total GDP and 3.6% of the export. Also, Israel was able to produce 95% of its food requirement in 2008 despite only 3.7% of the total labor force working on the farm.
The tourism industry is one of the major sources of foreign revenues for Israel, attracting over 3 million visitors in 2017. The growth of this industry is not showing any sign of slowing down. The tourism industry employs about 200,000 people or about 6% of the workforce. Israel has numerous historical and religious sites, beaches, and museums that have played a key role in the growth of the tourism industry.
Israel’s developed transportation system plays a critical role in its economic success. The country has invested in this sector over the years and continues to do so with the aim of increasing its capacity to handle the growing population. There are three deep-water ports in Israel, one in the Red Sea and two in the Mediterranean Sea. The ports provide access to the Atlantic and the Indian Ocean. Air transport has facilitated the export of high-value goods from all the other sectors of the economy and also aided in the growth of the high-tech sector. The highly developed highway system enables people to move freely and efficiently.