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An emerging country only 20 years ago, Israel has become a regional economic power. Between 2005 and 2008, its GDP rose from 158 to 201 billion dollars, registering an annual growth of around 5%. The Global Competitiveness Report 2008-2009 issued by the World Economic Forum ranks the country 23rd out of 134 countries. In 2008, agriculture accounted for only 2.6% of GDP, against 32.4% for industry and 65% for services. While services contributed up to 77% of GDP in 2004, the sector now tends to lose momentum in favour of industry. Outward-oriented and very technology advanced, Israel has won an international reputation in areas such as telecommunications, computer sciences, chemistry, life sciences, water technologies, etc.

The boom in high technology was enabled by the structural reforms and significant investments in R&D conducted over the past 2 decades. Israel is the country that spends the most on R&D in the world (4.7% of GDP in 2009). With 135 scientists per 100 000 workers, it ranks2nd in the 2008 report on global competitiveness published by IMD for the availability of scientists and engineers. It was also ranked 3rd by the World Economic Forum (WEF) for the quality of its scientific research institutes the same year. After Silicon Valley, it is the country with the highest concentration of technology companies, which are estimated to be 4 000. A large number are start-ups, the development of which was facilitated by a large domestic market for venture capital (2nd in the world according to the IMD 2007-2008 report). The dynamics of innovation not only stimulates entrepreneurship but also promotes patenting. The government policy encouraging the transfer of knowledge from academia to industry greatly contributed to this good performance. According to the Economist Intelligence Unit, Israel was the 9th most innovative country (over 82) in 2008 and should reach the 8th position by 2013. Despite global crisis, Israeli innovation is still driven by a constant inflow of foreign investment, which reached 10 billion dollars in 2008. This great attractiveness stems from significant efforts by the government to create a business-friendly environment. In the Doing Business 2009 report, Israel ranks 30thfor the ease of doing business and 7th for the protection of investors.

For the first time since its establishment, Israel has embarked on developing a long-term vision and a national strategy. Defined in consultation with the industry and research worlds, the plan presented to the Prime Minister by the U.S.-Israel Science and Technology Foundation (USISTF) provides guidance to position Israel among the 15 largest global economies by 2028. To achieve this goal, it stresses the importance of scientific and technological excellence, training, capacity for innovation and entrepreneurship. Relations between Israel and the United States are deemed strategic. In 2008, the Prime Minister proposed the plan to the government who welcomed it. Along with the process of adoption and implementation of the plan, USISTF plans to promote investment and collaboration opportunities that will strengthen the already close ties between Israel and the United States.

Besides, in 2009, the Government launched a 7-year plan to control the credit crisis and support the Israeli economy. Once final approval is obtained, 5 measures will be applied: continuous reduction of income and corporation tax until 2016; establishment of a negative income tax for low income earners; increase in the financial support provided to SMEs and lines of credit secured by the State especially for banking, exporting business and high-tech industries; structural reforms of land, electricity and ports and development of infrastructure in tourism sectors, transport, water and energy. To carry out these actions, the Knesset passed a biennial budget of 316 billion shekels (82 billion dollars) in 2009 and 321 billion shekels in 2010.

Historically open, the Israeli economy ranked 4th in the 2008 IMD report for its attitude vis-à-vis globalisation. Strong supporter of the multilateral trading system, the country signed numerous free trade agreements (United States, European Union, Canada, Turkey, Mexico, Brazil, Argentina, Uruguay, Paraguay, Jordan). This strategy is driven by the country’s strong dependence vis-à-vis foreign trade. In 2008, merchandise exports reached nearly 56.6 billion dollars, against 38.6 billion in 2005, whereas imports reached 64.3 billion, against 44.9 billion in 2005. The country mainly exports manufacturing goods, particularly in the area of high and medium technologies, while it imports raw materials and consumer goods. Representing 12.3% of imports and 32.5% of exports, the United States is the leading supplier and customer of Israel and it has been an historical political and financial supporter of the State of Israel. Despite the worrying economic situation facing the U.S. giant, this partnership is still considered as highly strategic.

In Israel’s very liberal investment scheme most activities are open to private capital. Among the last ones, the postal sector will be fully liberalised by the end of 2009. Investment is not subject to licensing or registration, except in the case of foreign investors entitled to receive certain benefits. Israel encourages investment by providing a wide range of incentives that favour foreign investment enterprises. These enterprises are encouraged to set up in the various technoparks in the country. In the free zones, they enjoy significant tax cuts. To promote the development of life sciences, the Mayor of Jerusalem plans to make his city a special economic zone, in which many benefits are to be granted to high tech and biotech industries. To manage FDI projects, the country set up 2 counters: the Investment Authority, under the trusteeship of the Ministry of Finance, assists investors notably for the installation stage; and the Investment Promotion Centre (Invest in Israel), under the trusteeship of Ministry of Industry, Trade and Labour, which is the body that labels, approves and supports projects.

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