Israel’s High-Tech Sector Defies Crisis Amidst War

Israel is about to enter 2024 on the tail end of one of the worst years in its history. The year 2023 saw the country plunged into a wave of national protests sparked by the proposed judicial reform and engulfed by worldwide inflation. 

To top it off, in October the country entered one of the biggest wars in its history after a surprise attack by Hamas left more than 1,200 people dead, thousands injured and hundreds kidnapped. Many experts predict the war in Gaza will likely continue well into 2024, inevitably affecting the economy. Nevertheless, there is still optimism about how the high-tech ecosystem will fare in the coming year.

“At the moment the curve is pointing downward, but a dip is usually followed by a leap,” said Hagit Sela-Lidor, the international marketing manager at Israel Innovation Authority (IIA).

Coping with crisis:

You don’t need to be a financial expert to understand that a country at war struggles economically. Israel’s high-tech sector, however, has a unique ability to cope with crises. “Israeli high-tech first and foremost represents values of innovation, change and belief that you can be better than the rest,” said Shlomi Kofman, VP and head of the IIA’s International Collaboration Division. 

The IIA is one of the bodies that makes up the unofficial Iron Dome for the country’s economy. It invests in a variety of tech startups, and also seasoned companies, to ensure that Israel remains a major player in the global tech arena even in times of uncertainty. It invests in infrastructure and human capital mostly in the fields of bioconvergence, climate tech, AI and quantum computing. However, it doesn’t demand an immediate return on investment, giving companies breathing room to operate. Leading by example:

“Throughout the years, in all the other wars, the high-tech [sector] always knew how to reorganize itself and leap higher than before,” said Kofman. He notes that for currently serving reserve soldiers whose high-tech business were damaged by the war, rebuilding those businesses afterward will be an essential element in Israel’s ultimate victory. “The human aspect is the cardinal one. We believe it will regenerate this sector,” he noted.

Since the start of the war, the IIA has fast-tracked its investment program, helping many companies, mostly startups, avoid economic collapse. Many private investors also established emergency funds to help startups during the tumultuous period of war. “Our investment is a signal to the private sector to join in. When we take the reins [by offering the initial financial support], it’s easier for a private investor to take the risk and follow suit,” added Sela-Lidor.

Not all doom and gloom:

“It’s important to project to the world that Israeli high-tech will deliver no matter what. When we’ll start seeing the end of the war, we’ll also start seeing signs of the economy picking up again,” noted Kofman.

This sentiment is echoed by Israeli American capital markets expert Jonathan M. Nathan, a partner at the Meitar law firm, which represents some of the world’s largest multinational corporations. “The job of the Israeli government going forward will be creating a sense of finality once the goals [of the war] are accomplished. It should reassure the foreign investing community,” said Jonathan M. Nathan.

Nathan notes that it can take up to one calendar quarter for the economy to pick up again once the official war is over, even if Israel retains a military presence in Gaza afterwards. “Two calendar quarters post-war would be a reasonable period of time to expect the economy, and the high-tech sector specifically, to be back to its pre-war level,” he noted. 

Nathan also expects that with the economic downturn in the United States coming to an end, it’s fair to expect the same will happen in Israel regardless of the war. “Assuming we don’t have any additional inhibiting factors, Israeli companies will have the opportunity to raise capital in the US and participate in the global [economic] expansion. Israeli companies that tend to look externally prosper when there are good economic conditions in the US and elsewhere,” said Nathan.

Healthy before, healthy after:

Nathan adds that high-tech companies that were in good shape heading into the war have a better chance of flourishing once the war begins to subside in intensity. “Companies that were not in such good shape financially [pre-war] may have a more difficult time,” he said, adding that subsidies similar to those offered by the IIA could soften the blow for some,” he added.

And there will be new opportunities as well.

“Depending on how Israel determines to manage Gaza after the war,” Nathan says, there will likely be a need on the market for new security-related technology. 

“High-tech people who are in the reserves will be able to use the knowledge gained from their experience in the war to finetune new solutions and products,” he predicts.

Produced in association with ISRAEL21c