Israel's defense businesses are voicing concerns about future growth of the strongly export-oriented industry amid fears that defense budget cuts could further curtail local orders and government support of the industry.
"I am worried about the future growth prospects of the industry as defense and research and development budgets continue to be cut down over the past couple of years," said Yossi Ackerman, president of Elbit Systems Ltd and chairman of the Israel Defense Industries Forum at the Israel Defense Industries conference in Herzliya on Monday.
Ackerman added that growth levels of the defense industry dropped to 0.2 percent in 2004, compared with 3.3% in 2002, while global industry levels grew during the same time.
The Israel Manufacturers' Association warned on Sunday that a NIS 1 billion cut in the government's defense budget for shekel-denominated purchases in the local industry would lead to the closure of between 100 to 150 factories and the loss of at least 5,000 jobs mainly in the periphery.
"No hi-tech company has until now managed to create jobs in the periphery apart from us," said Ackerman.
Also speaking at the conference, Shraga Brosh, president of the Association, said the local defense sector's purchases from Israeli industry were the most important public relations engine for promoting export growth in the industry. About 70% of the output of the publicly traded defense companies is channeled towards export. Annual defense exports total about NIS 4b.
Defense products are marketed in the local market to one primary customer - the Ministry of Defense. This fact creates a strong correlation between the defense budget of the State of Israel and the performance of companies in the sector. Since 2003, the proportion of the defense budget (excluding expenditures that are contingent upon revenues) out of total gross domestic product, or GDP, has been on a downward trend, in accordance with the restrictive fiscal policy enacted by the government, reaching 6.8% in 2006.