Israel Start Up Nation: Economic and Societal Overview

Israel has a population of approximately 7.59 million as of 2010 and a land mass roughly the size of the US state of New Jersey.  Jews make up about three-quarters of the population while Arabs account for 20% of the inhabitants.  While Judaism is the largest religious group in Israel, Islam and Christianity are also significant influences within the country.  Almost one-third of the population was born outside of Israel and the country has experienced significant waves of immigration from areas within the former Soviet Union (estimated to be as many as one million new residents since 1989).  In fact, Israel was actually placed in the Latin European societal cluster by the GLOBE researchers along with France, Italy, Portugal, Spain and French-speaking Switzerland, a decision that was based on the belief that Jews who had migrated to Eastern Europe from Southern Europe centuries ago to escape religious prosecution were largely responsible for founding Israel and had retained their social and business ties with the Latin European region.  All in all Israelis include former residents of over 100 countries which explains the cultural diversity of the country and appetite for newspapers and magazines published in wide array of languages including Hebrew, Arabic, English, French, Polish, Yiddish, Russian, Hungarian, and German.  Israelis are highly educated—education is compulsory from age 6 to 16 and is free up to age 18—with a literacy rate of about 97%, and enjoy a life expectancy of just over 80 years.  Music and art also play a big role in Israeli society and there is extensive interest in, and support for, symphonies and orchestras, ballet and dance companies, repertory companies, museums and art galleries.

Israel has a diversified, technologically advanced economy with substantial but decreasing government ownership and a strong high technology sector.  Israel has forged a global reputation for innovation and has achieved notable success on a number of high technology projects in areas such as aviation, communications, computer-aided design and manufactures, medical electronics and fiber optics.  Metal products, processed foods and chemicals also play an important role in the Israeli economy and the Israel has proven to be a world leader in software development.  It is expected that technology will continue to be a driving force in Israel economic growth in years to come.  Israeli exports to major partners such as the US, Germany, Hong Kong and the UK include polished diamonds, electronic communication, medical and scientific equipment, chemicals and chemical products, electronic components and computers, machinery and equipment, transport equipment, rubber, plastics, and textiles.  Significant natural resources in Israel include copper, phosphate, bromide, potash, clay, sand, sulfur, bitumen and manganese.  The consensus among expert observers is that the physical infrastructure for business activities in Israel is good and that new and growing firms, as well as established businesses, are well supported with respect to access to roads, communications, electrical power, water and the like.

During the 1950s and 1960s, after Israel’s creation and independence, the country enjoyed rapid and impressive economic development and growth rates that often exceeded 10% annually.  The 1973 Yom Kippur War severely disrupted the economic path of the country and the ensuing ten years included frequent periods of stagnation and triple-digit inflation.  An economic stabilization plan was successfully implemented in 1985 and was followed by the introduction of market-oriented structural reforms.  The economy received an unexpected infusion of additional resources—nearly one million immigrants from the former Soviet bloc—beginning in 1989 and into the 1990s.  A number of these new residents were highly educated and brought the skills needed for ongoing development of Israel’s high technology sector.  In addition, as consumers they contributed to the strengthening and expansion of Israel’s domestic market. The byproduct of all of these changes was a resurgence of the Israeli economy that led to rapid growth in the 1990s.

Israel’s agricultural sector focuses on citrus and other fruits, vegetables, beef, dairy products and poultry.  The strongest Israeli industrial sectors include high-technology projects (including aviation, communications, computer-aided design and manufactures, medical electronics, fiber optics), wood and paper products, potash and phosphates, food, beverages, tobacco, caustic soda, cement, construction, plastics, chemical products, diamond cutting and polishing, metal products, textiles, and footwear.  Sectors and activities with the high percentage of members of the Israel workforce, estimated to be just over three million as of 2009, include manufacturing (16.2%); business activities (13.4%); education (12.7%); health, welfare and social services (10.7%); and transport, storage and communication (6.5%).  At that time it was anticipated that Israel’s high technology sector would remain a major driver of the Israeli economy in the years to come.  High technology products were a large contributor (45%) to Israeli exports and transfer of technology and know-how with major innovators from around the world was facilitated by the presence of companies such as Intel, Motorola, IBM, and Cisco in Israel.  The US has long been a dominant trading partner of Israel—the countries have been trading under a free trade agreement since 1985—and the principal goods exported from the US to Israel have included civilian aircraft parts, telecommunications equipment, semiconductors, civilian aircraft, electrical apparatus and computer accessories.  In turn, Israel’s chief exports to the US have included diamonds, pharmaceutical preparations, telecommunications equipment, medicinal equipment, electrical apparatus and cotton apparel.

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