The Corona crisis is giving its signals in a variety of industries in Israel and around the world. Besides the panic in the capital markets, a drop in revenues and profits of companies in the field of tourism, leisure and aviation, multinational and local companies in many other fields, including in the technology sector, are feeling the impact of the global epidemic very well. Economists estimate that the extent of the losses to the Israeli economy alone are particularly significant, To the point of increasing the deficit by an additional 4% to the existing deficit, as happened in past crises. To illustrate, the estimate is for damages of billions every month just because of the decision to isolate those returning from abroad. This is in addition to huge damages due to the damage to the production and export of goods and services from Israel and in particular to the development, production and export of high tech products and technological services. And the hand is tilted.
The innovative high-tech industry leads the Israeli economy economically and technologically. At the same time, it does not reach its full potential to comprehensively influence a wider population of Israelis in non-technological industries. In view of the current crisis and in light of aspects of increasing international competitiveness in taxation and regulation, diversification of investment sources, training of skilled personnel, and fiscal and monetary policy, the economy needs a comprehensive national innovation program that voluntarily offers to expand the assimilation of technological applications to all sectors of the economy. A fundamental change is needed in order to allow the entire Israeli economy and not only the high-tech industry to be technology-biased, so that the technological developments and capabilities that exist in the high-tech industry will spread to all sectors of the economy, for example in the field of biomedicine, personalized medicine, renewable energy, innovation in the field of chemistry, gas, teaching technologies and more.
Making the Israeli economy technology-oriented in all its productive sectors will allow the entrepreneurial and technological climate to continue to strengthen in Israel and include many populations that will benefit from its fruits, apart from the high-tech industry itself. Such a change will help the Israeli economy go through the crisis in a better way and emerge from it stronger and more competitive.
Recently, a report by the chief economist of the Ministry of Finance was published indicating the too close dependence between the investments in the Israeli high-tech industry and the strength of the American market and its growth. This is in a way that poses a risk of market failure. The large number of start-up companies and the amount of mature technology companies operating in the local high-tech industry in the State of Israel, the scope of investments and the nature of the investors, along with many other aspects, create a unique ecosystem that allows the industry to continue to develop for the time being. But never resilience. And especially in times of crisis.
The damages of the ongoing Corona crisis and the recently published data emphasize the growing need to lead the local high-tech industry in an integrative way in a long-term strategic plan and to allow it to operate and strengthen, in view of the changes and characteristics of the local and global market.
Risk of over-reliance on American investments
According to the Ministry of Finance's report, there is an almost perfect correlation "between the growth of the Nasdaq and the total volume of investments in Israel". And therefore there is a risk of exposure in Israel of the high-tech industry, especially in the event of a global financial crisis, and in particular in the event of a crisis or low growth in the American market. This is because the American capital market is a very significant factor in the threshold of investments in the industry in Israel. In 2018, over a third of the total investors in the Israeli high-tech industry were American venture capital investors. This rate is even higher than the rate of Israeli investors in hi-tech in the country which amounts to only 30%, and with investment volumes lower than this rate.
Alongside this, the Central Bureau of Statistics publishes data regarding start-up companies and mature companies in Israel until 2018. According to the data base on start-up companies in Israel of the CBS in collaboration with the National Council for Research and Development in the Ministry of Science, they indicate a decrease in the number of start-up companies in Israel at a rate of 6%.
These two indicators - a relatively low percentage of Israeli investors and a decrease in the number of start-up companies in Israel - describe a trend that requires a strategic change that gives Israel advantages in terms of innovation in relation to the global market, the expansion of technological applications to a variety of industries and the diversification of financial infrastructures.
A decrease in the number of startup companies in Israel.
The data shows that in 2018, approximately 4,300 start-up companies operated in Israel, a number of companies that represents a decrease of 6% compared to 2017. 2011. The data also shows that in 2018, a decrease was observed in the opening and closing balance of the start-up companies, following the decrease that began in 2016. This After an average annual increase of 4% in 2015-2011. In the years 2018-2011, about 5,300 start-up companies were opened in Israel. 2,387 of them (45%) were closed or suspended their activities until 2018.
The high-tech industry is responsible for a significant share of the productivity of the Israeli market and is a significant growth engine. The data shows that in 2018 there were approximately 29 salaried jobs in start-up companies, an average annual increase of 7% in 2018-2011. And how much does an employee earn in these companies? The average monthly salary for a salaried position in the start-up companies in 2018 was close to NIS 21,000, a salary that represents an increase of 4% compared to 2017, and 2 times the average monthly salary for a salaried position in the economy as a whole.
The crisis is an opportunity for immediate change, whatever the political leadership. From my extensive experience in the field of high tech, as an innovation and technology consultant for mature and start-up companies, with business and legal support in the field of patents and intellectual property, as an entrepreneur and as a person in a role in projects in diverse fields, I am convinced that there is effectiveness in many activities of the state as a facilitator that voluntarily facilitates the benefit of all participants as an extensive and uninterrupted activity of the entrepreneurial and technological climate. Therefore, a revision and a five-year plan in the field is required that will help instill the spirit of the entrepreneurship and innovation industry to more layers of the population, to additional industries and to wider audiences and to diversify the sources of investment in the field, the types of investments and methods of financing and the nature of the industries in which the investment is made, outside of the limited sector of software and hardware companies.
The data indicates that over 70 percent of the start-up companies in Israel and about 80% of the jobs of employees in this industry are found in Tel Aviv itself or in the district and that about two-thirds of the jobs are related to activities in software-based fields such as medical information, Internet, mobile phone applications, security, communication applications, E-commerce and advertising.
Especially now, as mentioned, it is of great importance to expand the circles of employment, entrepreneurship and technological innovation beyond the state of Tel Aviv and to assist, within the framework of the existing activities of governmental, public and private organizations, non-technological businesses to adopt creative solutions and use technological tools in order to allow them accelerated economic development, a competitive advantage, Improving services and marketing, developing new products and services and more.
Adv. Levi Sigman Lavi Sigman serves as a lecturer, researcher and expert consultant for innovation and business development for companies. Levi Sigman He has a practical and academic background in the field of business-organizational consulting and organizational psychology and law. Lavi has experience in the field of entrepreneurship in the fields of technology in ventures in the Internet, software, chemistry and ecology and in fields such as financial technologies (fintech), biomedicine and bioinformatics.