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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 2021, Israel's investment flow increased by 30% between 2019 and 2020, reaching USD 25 billion in 2020, despite the Covid-19 pandemic. Investments were largely driven by M&A sales in electronics, which increased by 31% to USD 7.3 billion, e.g. NVidia (US) acquired Mellanox for USD 6.9 billion. The stock of FDI was about USD 189 billion in 2020. According to OECD data, FDI flows to Israel amounted to USD 14.8 billion in the first half of 2021. Israel’s main investing partners are the United States and the Netherlands. Most FDI stocks are directed towards manufacturing, information and communication, and financial and insurance activities. Chinese investment in Israel has grown rapidly in recent years, particularly in software, IT services and consumer electronics. Furthermore, the Chinese company Shanghai International Port Group (SIPG) will operate the Haifa Port - Israel's largest port - as of 2021 for 25 years whereas China Harbour Engineering Company won a tender to build a USD 1 billion port at Ashdod.

Israel has a number of assets, which appeal to foreign investors: a strong R&D sector and a high-skilled and multilingual workforce. 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. In the Doing Business 2020 report (latest report), Israel ranks 35th out of 190 economies ranked by the World Bank, up 14 places from the previous year's ranking. Significant progress has been made in particular in paying taxes and obtaining loans.

 
 
Foreign Direct Investment 201820192020
FDI Inward Flow (million USD) 21,51519,04724,758
FDI Stock (million USD) 143,971164,838188,952
Number of Greenfield Investments* 777847
Value of Greenfield Investments (million USD) 7,2691,7501,978

Source: UNCTAD - Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Israel Middle East & North Africa United States Germany
Index of Transaction Transparency* 7.0 6.4 7.0 5.0
Index of Manager’s Responsibility** 9.0 4.8 9.0 5.0
Index of Shareholders’ Power*** 9.0 4.7 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Israel

Strong Points

Israel has many strong advantages for FDI:

  • Israel is the country that invests the most in research and development in the world (4.8% of GDP)
  • Highly skilled workforce, particularly in engineering and high technology
  • Highest R&D investment/GDP in the world (at 4.95%, World Bank)
  • Strong and stable private consumption
  • Rising real wages
  • Strong political stability due, on the one hand, to its stable democratic system and on the other hand to the political and financial support of the United States
  • Israel discovered significant offshore reserves of natural gas, which would enable the country to reduce its energy dependence and create new development opportunities
Weak Points

Main obstacles to the country's economic development:

  • Chronic instability linked to the regional political context. In particular, peace negotiations between Israel and the Palestinians are at a standstill
  • The Israeli state has a very large public debt
  • Labour costs are higher than the region's standards and a relatively high corporate tax are obstacles to investment in Israel
  • Relatively small internal market
Government Measures to Motivate or Restrict FDI
Foreign investment is encouraged in Israel by the recently revised Investment Promotion Act. The recent amendment to this law adds a tax incentive program.
The government in place is also seeking to provide the necessary support to entrepreneurs and the entrepreneurial ecosystem: many start-ups are emerging in Israel, particularly in information and communication technologies (ICT).
The Law for the Encouragement of Capital Investments provides assistance in the form of grants and tax breaks to companies classified as “Priority Enterprise”
For further information consult the Invest in Israel website, which provides guidance on Israeli laws, regulation, taxes, incentives, and costs, and facilitation of business connections.

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Investment Opportunities

The Key Sectors of the National Economy
Value added sectors: high-tech, aeronautics, electronics, telecommunications, information, biotechnologies, etc. 
Security: biometry, surveillance and protection. Resources: treatment of raw water and desalination of water.
Furthermore, Israel is ranked 1st for medical device patents and 2nd for medical device solutions per capita.
High Potential Sectors
Chemical industry, agro-technologies, semi-conductor industry, communication, environment, biotechnologies, security, natural gas.
Privatization Programmes
The Government Companies Authority (GCA) is the administrative agency for state-owned companies in charge of supervision, privatization, and implementation of structural changes. In January 2020, the Israeli privatization committee approved plans to sell the Port of Haifa (Israel’s largest shipping hub), as well as up to 40% of the government’s shares in Israel Post.
Tenders, Projects and Public Procurement
Ministry of Economy and Industry, Mandatory Tenders Regulations
Tenders Info, Tenders in Israel
DgMarket, Tenders Worldwide
 

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors
Electricity.
In the case of designated monopolies, defined as entities that supply more than 50% of the market, the government controls prices. For further information consult the website of the Israel Competition Authority.
Sectors in Decline
Agriculture
 

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