Israel’s hi-tech sector, which employs about 10% of Israel’s total workforce, is responsible for 15% of the Gross Domestic Product, 25% of the total income tax paid, 43% of exports and 40% of the value of companies listed on the Tel Aviv 35 Index, according to the 2021 Innovation Report published Wednesday by the Israel Innovation Authority.
However, the report focused on several worrying trends. Over the past five years, the number of new start-ups established annually in Israel fell from 1,400 in 2014 to 850 in 2019, and it is estimated that just 520 new start-ups were established in 2020, the report said.
There has also been a sharp decline in the establishment of multinational development centers in Israel, from 46 in 2016 to four in 2020. In addition, the share of the state budget invested in innovation has fallen sharply from 1% in the early 2000s to less than 0.5% today, less than other world-leading countries.
One in every four students in Israel is studying for a bachelor’s degree in technological fields, including engineering or computer science. That seems positive for the sector, as companies report as many as 13,000 unfilled job vacancies, but the report expressed concern that it may lead to a glut of entry-level employees in the future. By 2030, more than 20,000 to 25,000 employees with limited or no experience are expected to join the hi-tech sector each year, but only 45% of companies recruit junior employees, the report said.
Surprisingly, contrary to the youthful image of the hi-tech sector, the average age of tech workers is now higher than that of the general workforce. The average age of hi-tech employees in 2019 was 40.1, compared with 39.6 for the rest of the economy.
Although the hi-tech sector demonstrated high levels of resilience during the coronavirus pandemic, it was not immune to its effects. Unemployment in the sector peaked at 14%, seven times more than pre-pandemic. As of April 2021, the unemployment rate in the hi-tech sector was 8.2%. Most of the unemployed hi-tech staff was junior employees with salaries below NIS 15,000, relatively low for the sector. The average salary in the sector was NIS 25,300 as of 2020.
The number of investments exceeding $100 million has increased almost sevenfold in the last five years – from three investments in 2015 to 20 in 2020. In the first quarter of 2021 alone, there were 20 investments of over $100m. Meanwhile, Israeli companies did a record 31 initial public offerings in 2020, 50% more than in 2019, primarily on the Tel Aviv and US stock exchanges.
“The maturing of the Israeli hi-tech sector – as reflected, among other things, by the wave of listings by Israeli growth companies – is a positive sign for the economy,” said Dr. Ami Applebaum, chairman of the Israel Innovation Authority.
“The recent global economic and health crises highlighted, above all, the challenges the hi-tech sector is facing, as well as the unparalleled and unprecedented importance of the sector’s contribution to Israel’s economy.”