Foreign Direct Investment

Israel has a liberal investment system and most activities are open to both private national and foreign investors, ranking the country 12th among the top 20 host countries. According to UNCTAD's World Investment Report 2022, Israel's investment flow increased by 22% in 2021, reaching USD 29.6 billion. In the same year, the stock of FDI stood at USD 235.6 billion, around 48.9% of the country’s GDP. Most of the FDIs to Israel are directed towards manufacturing (especially for electronics equipment, like computers), information and communication, professional, scientific and technical activities, and financial and insurance activities. In terms of countries, the United States and the Netherlands are the main partners (U.S. firms account for nearly two-thirds of the more than 300 research and development centers established by multinational companies in the country). Furthermore, Chinese investment in Israel has grown rapidly in recent years, particularly in software, IT services and consumer electronics. According to OECD data, FDI flows to Israel amounted to USD 11.6 billion in the first half of 2022, down by 24.1% from the level recorded in the same period one year earlier (USD 15.3 billion).

Israel has a number of assets appealing to foreign investors, including a high-skilled and multilingual workforce and a strong R&D sector (at 5.44% of GDP it has the world's highest R&D intensity, over twice the OECD average of 2.26% - World Bank), advanced procedures and industrial technologies, governmental incentives and grants to foreign investors, a lean bureaucracy and a diversified economy. The hi-tech sector, especially start-ups, has attracted a great deal of foreign investment. However, the country's geopolitical environment is particularly unstable because of tensions with the Palestinian territories and support for American policy by Israel (albeit improvements have been achieved in diplomatic and commercial relations with Arab countries such as the UAE, Morocco, and – to a lesser extent - Saudi Arabia). Moreover, trade barriers and monopolies have contributed significantly to the high cost of living and the lack of competition in key sectors (where an entity supplies more than 50% of the market, the government controls prices). Israel ranks 22nd out of 82 countries in the Economist Business Environment ranking and 25th out of 63 in the 2022 Global Competitiveness Index.