The economy of Israel is technologically advanced by global standards. As of 2015, Israel ranks in the top 20 nations in the world on the UN's Human Development Index, which places it in the category of "Very Highly Developed"—the highest ranked in the Middle East, allowing the country to enjoy a high standard of living rivaling other Western countries such as Austria, France and Finland.
The major economic sectors include high-technology and industrial manufacturing; the Israeli diamond industry is one of the world's centers for diamond cutting and polishing. Relatively poor in natural resources, Israel depends on imports of petroleum, raw materials, wheat, motor vehicles, uncut diamonds and production inputs, though the country's nearly total reliance on energy imports may change with recent discoveries of large natural gas reserves off its coast on the one hand and the leading role of the Israeli solar energy industry on the other.
Israel's quality university education and the establishment of a highly motivated and educated populace is largely responsible for ushering in the country's high technology boom and rapid economic development. With its strong educational infrastructure and high quality incubation system for new cutting edge ideas has allowed the country to create a high concentration of high-tech companies across the country backed by a strong venture capital industry. Its central high technology hub "Silicon Wadi" is considered second in importance only to its Californian counterpart. Numerous Israeli companies have been acquired by global corporations for their reliable and quality corporate personnel. The country was the destination for Berkshire Hathaway's first investment outside the United States when it purchased ISCAR Metalworking, and the first research and development centers outside the United States for companies including Intel, Microsoft, and Apple.
The economic dynamism of Israel has attracted attention from international business leaders such as Microsoft founder Bill Gates, investor Warren Buffett, real estate developer and U.S. President Donald Trump and telecommunications giant Carlos Slim. Each entrepreneur has praised Israel's economy and invested heavily across numerous Israeli industries beyond their traditional business activities and investments back in their home nations. Israel is also a major tourist destination, with 3.54 million foreign tourists visiting it in 2013.
After statehood, Israel faced a deep economic crisis. As well as having to recover from the devastating effects of the 1948 Arab–Israeli War, it also had to absorb hundreds of thousands of Jewish refugees from Europe and the Arab world. Israel was financially overwhelmed and faced a deep economic crisis, which led to a policy of austerity from 1949 to 1959. Unemployment was high, and foreign currency reserves were scarce.
In 1952, Israel and West Germany signed an agreement stipulating that West Germany was to pay Israel for the persecution of Jews during the Holocaust, and compensate for Jewish property stolen by the Nazis. Over the next 14 years, West Germany paid Israel 3 billion marks (equivalent to USD$111.5bn in modern currency). The reparations became a decisive part of Israel's income, comprising as high as 87.5% of Israel's income in 1956. In 1950, the Israeli government launched Israel Bonds for American and Canadian Jews to buy. In 1951, the final results of the bonds program exceeded $52 million. Additionally, many American Jews made private donations to Israel, which in 1956 were thought to amount to $100 million a year. In 1957, bond sales amounted to 35% of Israel's special development budget. Later in the century Israel became significantly reliant on economic aid from the United States, a country which also became Israel's most important source of political support internationally.
The proceeds from these sources was invested in industrial and agricultural development projects, which allowed Israel to become economically self-sufficient. Among the projects made possible by the aid was the Hadera power plant, the Dead Sea Works, the National Water Carrier, port development in Haifa, Ashdod, and Eilat, desalination plants, and national infrastructure projects.
After statehood, priority was given to establishing industries in areas slated for development, among them Lachish, Ashkelon, the Negev and Galilee. The expansion of Israel's textile industry was a consequence of the development of cotton growing as a profitable agricultural branch. By the late 1960s, textiles were one of the largest industrial branches in Israel, second only to the foodstuff industry. Textiles constituted about 12% of industrial exports, becoming the second-largest export branch after polished diamonds In the 1990s, cheap East Asian labor decreased the profitability of the sector. Much of the work was subcontracted to 400 Israeli Arab sewing shops. As these closed down, Israeli firms, among them Delta, Polgat, Argeman and Kitan, began doing their sewing work in Jordan and Egypt, usually under the QIZ arrangement. In the early 2000s, Israeli companies had 30 plants in Jordan. Israeli exports reached $370 million a year, supplying such retailers and designers as Marks & Spencer, The Gap, Victoria's Secret, Walmart, Sears, Ralph Lauren, Calvin Klein, and Donna Karan.
In its first two decades of existence, Israel's strong commitment to development led to economic growth rates that exceeded 10% annually. Between 1950 and 1963, the expenditure among wage-earner's families rose 97% in real terms. Between 1955 and 1966, per capita consumption rose by 221%. The years after the 1973 Yom Kippur War were a lost decade economically, as growth stalled, inflation soared and government expenditures rose significantly. Also worthy of mention is the 1983 Bank stock crisis. By 1984, the economic situation became almost catastrophic with inflation reaching an annual rate close to 450% and projected to reach over 1000% by the end of the following year. However, the successful economic stabilization plan implemented in 1985 and the subsequent introduction of market-oriented structural reforms reinvigorated the economy and paved the way for its rapid growth in the 1990s and became a model for other countries facing similar economic crises
High technology
Science and technology in Israel is one of the country's most highly developed and industrialized sectors. The percentage of Israelis engaged in scientific and technological inquiry, and the amount spent on research and development (R&D) in relation to gross domestic product (GDP), is amongst the highest in the world. Israel ranks fourth in the world in scientific activity, as measured by the number of scientific publications per million citizens. Israel's percentage of the total number of scientific articles published worldwide is almost 10 times higher than its percentage of the world's population. Despite its small population relative to other industrialized nations around the world, Israel has the highest number of scientists and technicians per capita in the world with 140 scientists and technicians per 10,000 employees. In comparison, the same is 85 per 10,000 in the United States and 83 per 10,000 in Japan.
Israeli scientists have contributed to the advancement of the natural sciences, agricultural sciences, computer sciences, electronics, genetics, medicine, optics, solar energy and various fields of engineering. Israel is home to major players in the high-tech industry and has one of the world's technologically most literate populations.In 1998, Tel Aviv was named by Newsweek as one of the ten technologically most influential cities in the world. In 2012, the city was also named one of the best places for high-tech startup companies, placed second behind its California counterpart. In 2013, Tel Aviv repeated the feat where the American newspaper, Boston Globe ranked Tel Aviv as the second best city for business start-ups, after Silicon Valley Israel has the largest number of startup companies globally, second only to the United States and remains one of the largest centers in the world for technology start-up enterprises. 200 start-ups are created annually and more than 2500 start-up companies are operating throughout the country.
Agriculture
2.8% of the country's GDP is derived from agriculture. Of a total labor force of 2.7 million, 2.6% are employed in agricultural production while 6.3% in services for agriculture. While Israel imports substantial quantities of grain (approximately 80% of local consumption), it is largely self-sufficient in other agricultural products and food stuffs. For centuries, farmers of the region have grown varieties of citrus fruits, such as grapefruit, oranges and lemons. Citrus fruits are still Israel's major agricultural export. In addition, Israel is one of the world's leading greenhouse-food-exporting countries. The country exports more than $1.3 billion worth of agricultural products every year, including farm produce as well as $1.2 billion worth of agricultural inputs and technology.
Financial services
Israel has over 100 active funds operating throughout the country with $10 billion under management. In 2004, international foreign funds from various nations around the world committed over 50% of the total dollars invested exemplifying the country's strong and sound reputation as an internationally sought after foreign investment by many countries. Israel's venture capital sector has rapidly developed from the early 1990s, and has about 70 active venture capital funds (VC), of which 14 international VCs have Israeli offices. Israel's thriving venture-capital and business-incubator industry played an important role in the booming high-tech sector. In 2008, venture capital investment in Israel, rose 19 percent to $1.9 billion.
Between 1991 and 2000, Israel's annual venture-capital outlays, nearly all private, rose nearly 60-fold, from $58 million to $3.3 billion; companies launched by Israeli venture funds rose from 100 to 800; and Israel's information-technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. Israel led the world in the share of its growth attributable to high-tech ventures: 70 percent."
Israel's thriving venture capital industry has played an important role in the booming high-tech sector, the financial crisis of 2007–08 also affected the availability of venture capital locally. In 2009, there were 63 mergers and acquisitions in the Israeli market worth a total of $2.54 billion; 7% below 2008 levels ($2.74 billion), when 82 Israeli companies were merged or acquired, and 33% lower than 2007 proceeds ($3.79 billion) when 87 Israeli companies were merged or acquired. Numerous Israeli high tech companies have been acquired by global corporations for its reliable and quality corporate personnel. In addition to venture capital funds, many of the world's leading investment banks, pension funds, and insurance companies have a strong presence in Israel to financially back Israeli high-tech firms and benefit from its burgeoning high tech sector. These companies include Goldman Sachs, Bear Stearns, Deutsche Bank, JP Morgan, Credit Swiss First Boston, Merrill Lynch, CalPERS, Ontario Teachers Pension Plan, and AIG.
Israel also has a small but fast growing hedge fund industry. Within the last five years between 2007 and 2012, the number of active hedge funds have doubled to 60 while the total asset values that the funds control have quadrupled since 2006. Israel based hedge funds have registered an increase of 162% since 2006 and currently manage a total of $2 billion (NIS 8 billion) as well as employing about 300 people. The ever-growing hedge fund industry in Israel is also attracting a myriad of investors from around the world, particularly from the United States.
Energy.
Historically, Israel relied on external imports for meeting most of its energy needs, spending an amount equivalent to over 5% of its GDP per year in 2009 on imports of energy products. The transportation sector relies mainly on gasoline and diesel fuel, while the majority of electricity production is generated using imported coal. As of 2013, Israel was importing about 100 mln barrels of oil per year. The country possesses negligible reserves of crude oil but does have abundant domestic natural gas resources which were discovered in large quantities starting in 2009, after many decades of previously unsuccessful exploration.
Natural Gas
Until the early 2000s, natural gas use in Israel was minimal. In the late 1990s, the government of Israel decided to encourage the usage of natural gas because of environmental, cost, and resource diversification reasons. At the time however, there were no domestic sources of natural gas and the expectation was that gas would be supplied from overseas in the form of LNG and by a future pipeline from Egypt (which eventually became the Arish–Ashkelon pipeline). Plans were made for the Israel Electric Corporation to construct several gas-driven power plants, for erecting a national gas distribution grid, and for an LNG import terminal. Soon thereafter, gas began to be located within Israeli territory, first in modest amounts and a decade later in very large quantities located in deep water off the Israeli coastline. This has greatly intensified the utilization of natural gas within the Israeli economy, especially in the electrical generation and industrial sectors, with consumption growing from an annual average of 9,900,000 m3 (350×106 cu ft) between 2000 and 2002 to 3.7×109 m3 (129×109 cu ft) in 2010.
Solar.
Solar power in Israel and the Israeli solar energy industry has a history that dates to the founding of the country. In the 1950s, Levi Yissar developed a solar water heater to help assuage an energy shortage in the new country. By 1967 around one in twenty households heated their water with the sun and 50,000 solar heaters had been sold. With the 1970s oil crisis, Harry Zvi Tabor, the father of Israel's solar industry, developed the prototype solar water heater that is now used in over 90% of Israeli homes.Israeli engineers are on the cutting edge of solar energy technology,and its solar companies work on projects around the world.
Industrial Manufacturing
Israel has a well-developed chemical industry with many of its products aimed at the export market. Most of the chemical plants are located in Ramat Hovav, the Haifa Bay area and near the Dead Sea. Israel Chemicals is one of largest fertilizer and chemical companies in Israel and its subsidiary, the Dead Sea Works in Sdom is the world's fourth largest producer and supplier of potash products. The company also produces other products such as magnesium chloride, industrial salts, de-icers, bath salts, table salt, and raw materials for the cosmetic industry. One of the country's largest employers is Israel Aerospace Industries which produces mainly aviation and defense products. Another large employer is Teva Pharmaceutical Industries, one of the world's largest pharmaceutical companies, employing 40,000 people as of 2011. It specializes in generic and proprietary pharmaceuticals and active pharmaceutical ingredients. It is the largest generic drug manufacturer in the world and one of the 15 largest pharmaceutical companies worldwide.
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