Brief Guide to Doing Business in Israel
Israel, a Middle Eastern country with a Western European outlook, is a remarkable success story for British exporters. Although the country is about the size of Wales, with a population of 7.8million people, UK exports to this lively market have grown steadily. Bilateral trade is a real success story, reaching a record high of £3.75 billion in 2011 and should reach well over £5 billion by 2015.
Israel is governed by a democratically elected parliament with a traditionally high participation in elections. The head of the state is the President, elected by parliament to serve a 7 year term, however the power lies with the Prime Minister and the cabinet. Over the past 30 years no single party has gained a majority in the 120 seat parliament so Israel has been ruled by a succession of coalitions. Israel has been an associate member of the European Union since 1995 and became a full member of the OECD in 2010.
Israel enjoys a strong entrepreneurial culture which enables new ideas to be nurtured and developed, which has made Israel a true technology powerhouse. Israel can boast a high density of start-ups and many of the major technology companies, such as Google, Microsoft and Motorola, have their R&D centres in Israel. There are many factors contributing to the success of the brand name – Israel Technology. These include co-operation between academia and business through the Technology Transfer Offices of all seven universities, the ability to commercialise to the civilian market from the defence industries, an entrepreneurial start-up spirit coupled with a powerful VC community, and a highly skilled and motivated workforce. Israel’s total number of granted patents positions it in first place world-wide in patents per capita, and number four in the world in the absolute number of patents approved.
The Israeli economy also functions like those in Western Europe, and Israel’s high gross national product of $31,100 per capita exceeds those of several EU Member States. It is a highly developed western orientated market whose business methods are comparable with much of Western Europe.
British companies who dismiss Israel as too small without exploring its potential are overlooking a serious market of solid and regular opportunity. Populations of this size are considered by many businesses as viable markets in which to establish their own representative office overseas. British exporters feel at home and do well in Israel. Company law is based on English law and there are no language barriers; most Israelis are multilingual and English is widely spoken. Israelis are very well disposed towards British business people.
Strengths of the market
Perhaps the main strength of the Israeli market is its entrepreneurship, quick adoption of new technologies, and openness to embracing new ideas. The positive strengths of the market are:
- · Open economy, used to imports, early adopter of new technologies.
- · English widely spoken & accepted as business language.
- · There is a free trade agreement between the EU and Israel
- · Israel’s commercial law is rooted in English Law
- · The Israel business community is familiar with UK business practice
- · Israelis have positive views of the UK (especially in football and the theatre)
- · There is only a 2 hour difference in time zones
- · British Airways and El Al both have twice daily flights with a flight time of 4.5 hours
- · easyJet have recently started a daily flight and Jet2 flies twice weekly to Manchester
- · Israelis are consummate networkers
- · Israel is the UK’s 4th largest market in the Middle East/North Africa region.
Trade between UK and Israel
Israel’s trade can roughly be divided into a third with the European Union, a third with the USA, and a third with the rest of the world, mainly China, India and Russia. However over 50% of Israeli exports today come from the high tech sector whereas 20 years ago Israel was best known as the home of the Jaffa orange.
In addition to the 2011 two way trade of £3.75 billion, a further £1.5bn can be added for services. Links between both countries have always been strong and Britain is seen as natural European trading partner.
2005 2006 2007 2008 2009 2010 2011
(All amounts in £billion)
Trade statistics – Top 10 UK Exports to Israel in 2011
|Machinery and mechanical appliances||201|
|Medical and measuring instruments||58|
|Plastics and plastic products||34|
|Sugar and confectionery||25|
Israel has developed a world-class reputation for technological research and development, particularly in the life sciences, electronics, and software. It is also a major UK market for trading in diamonds.
The economy has weathered well the general economic downturn of the last few years and in fact has shown surprising resilience. When the rest of the world was in negative growth in 2009 the Israeli economy grew by 0.5%. Growth over the last two years was 4.5% in 2010 and 3.6% in 2011 with an anticipated growth of 3.4% in 2012. These figures are well above the OECD average. Therefore Israel’s economy is in a relatively good situation despite the global financial crisis and the slowdown in the US. Both the Bank of Israel and the Ministry of Finance get top marks for their handling of the economy over the past difficult few years. All the leading rating agencies, S&P, Moody’s and Fitch have reaffirmed their A rating for Israel, while maintaining Israel on a “stable” outlook. Israel’s rating reaffirmation in the midst of a difficult global financial situation in which many European countries are being downgraded shows the underlying strength and stability of the Israeli economy.
Israel has now joined the OECD as a full member, another indication of its robust and vigorous economy. Much of this success is due to the high-tech sector which continues to go from strength to strength with growing world-wide respect for Israeli innovation. Companies such as Apple and others have their main R&D centres in Israel, Barclays Capital has recently opened a major centre, and Intel has a major presence in Israel.
Despite the strong underlying economy, the long-term outlook remains heavily dependent on developments in the conflict with the Palestinians and on political and security developments in the wider region.
The population of Israel at the end of 2011 had reached 7,800,000 of whom 80% are Jewish, 15% Muslim, 2.5% Christian, 1.5% Druze and 1% others. The population has been growing steadily over the past few years at an annual rate of 2%. When it was established in 1948 the population was a mere 650,000. Israel is a country which actively encourages immigration and in its early years received a large immigration from many of the Arab countries to the extent that the population had doubled by 1952. Between 1989 and 2000, over 1 million immigrants arrived from Former Soviet Union countries. There are today some 35,000 British immigrants living in Israel.
Israel, or as it is officially called, the State of Israel, is a country in Western Asia located on the eastern shore of the Mediterranean Sea. It borders Lebanon in the north, Syria in the northeast, Jordan in the east, and Egypt on the southwest. Also adjacent are the West Bank to the east and Gaza Strip to the southwest. Israel is the world’s only predominantly Jewish state.
The modern state of Israel has its historical and religious roots in the Biblical Land of Israel, also known as Zion. Following the birth of political Zionism in 1897 and the Balfour Declaration in 1917, the League of Nations granted Great Britain the Mandate for Palestine after World War I, with responsibility for establishing “…such political, administrative and economic conditions as will secure the establishment of the Jewish national home, as laid down in the preamble, and the development of self-governing institutions, and also for safeguarding the civil and religious rights of all the inhabitants of Palestine, irrespective of race and religion…”
In November 1947, the United Nations voted in favour of the partition of Palestine, proposing the creation of a Jewish state, an Arab state and an UN-administered Jerusalem. Partition was acceptedby Zionist leaders but rejected by Arab leaders leading to the 1947–1948 Civil War in Mandatory Palestine. Israel declared independence on 14 May 1948 and neighbouring Arab states attacked the next day. Since then, Israel has fought a series of wars with the Arab states:
1948 First Arab Israel war (War of Independence)
1956 Sinai Campaign
1967 Six Day war
1973 Yom Kippur war
1982 First Lebanon war
2006 Second Lebanon war
Israel has signed peace treaties with Egypt (1979) and Jordan (1994), and has yet to do so with her other two neighbours, Lebanon and Syria. However the main difficulty facing Israel today is to arrive at a suitable peace deal with the Palestinians. The many efforts over the past 20 years to resolve this conflict with the Palestinians have so far only met with limited success with Israel withdrawing from the Gaza Strip in 2005.
Although Jerusalem is the country’s capital, this is not recognised by most UN member countries who maintain their Embassies in Tel Aviv, the main financial and business centre.
The Knesset (parliament) is the mainstay of Israel’s democracy with 120 members elected by proportional representation. This system has led to successive Israeli coalition governments usually consisting of one leading party and several smaller parties. The current Prime Minister Benjamin (Bibi) Netanyahu has been in power since 2009.