MFA: Strategic opportunities for foreign exporters
There is no doubt that the Israeli economy has gone through the most serious crisis since the beginning of its existence in the past year. The restrictions adopted in connection with the coronavirus pandemic caused a slowdown in economic activity on the domestic market, which led to a significant deterioration of almost all economic indicators. In addition, the country faced this unprecedented economic crisis under a provisional budget, which further complicated the whole situation. The fact that the Israeli economy entered it in good shape was therefore key to combating the economic consequences of the pandemic.
The economy grew by an average of 3.3% per year over the past five years, unemployment and public debt were almost at their historic lows at the beginning of last year. These and other factors, such as a resilient high-tech sector or a significant increase in private consumption in the third quarter, contributed to slowing the decline of the Israeli economy last year. The first quarter of 2021 was marked by a vaccination campaign, the positive effect of which allowed the country to enter the second quarter of this year with an economy almost completely free from restrictive measures.
As part of four different economic support packages, the Israeli government announced in 2020 the allocation of funds to support the economy in the total amount of approx. 190 billion shekels (1,292 billion CZK), i.e. 13.8% of GDP. A total of 138 billion shekels (938 billion CZK) was to be used in 2020, the remaining budget will be used this year (e.g. unemployment support was extended until July 2021).
According to information from the Israeli Ministry of Finance, 86% of the government’s economic assistance budget was used last year. The financial injections were aimed at funding healthcare, unemployment and unpaid leave support, grants for the self-employed, business liquidity support, corporate loan guarantees, temporary real estate tax exemptions and measures to encourage post-crisis growth through public investment.
Civil aviation industry
According to allcountrylist, the closure of Israeli skies due to the coronavirus pandemic has increased demand for private flights. Both businessmen and casual travelers are interested in traveling but encounter a lack of aircraft and companies to provide these services. There are now roughly 60 foreign registered private jets in Israel and only 10 Israeli ones. But demand is growing precisely in the time of the coronavirus. According to data from Israel’s Civil Aviation Authority, there was a 72% increase in early 2021.
Commercial flights to many destinations have been canceled and private flights are now in extreme demand. As Israel is one of the countries where it is relatively easy to fly, there has recently been a demand for small ultralight aircraft (ultralights). Compared to other countries where ultralights are restricted to specific flight paths and altitudes, Israeli pilots can fly and land with relative freedom. Apart from certain flight routes that are reserved for the Israeli Air Force, there are no special restrictions. It flies at relatively low altitudes.
The new trend also presents interesting opportunities for Czech companies operating in these fields. The crisis surrounding the coronavirus has affected the airline industry worldwide. Czech companies could now benefit from it, especially in Israel. The Czech Republic has the advantage of tradition, flexibility and still lower production costs. Given the wide range of products and services offered by the Czech aviation industry, Israel is a very interesting market. It is not just about the planes themselves. The construction of potential new airports and hangars represents a significant opportunity for Czech manufacturers of modern airport technologies, including radars, security systems, voice recording devices and lighting.
Transport industry and infrastructure
Due to the non-existence of significant steel plants in Israel, the market is significantly import-oriented. The same applies to the supply of means of transport (except passenger cars, e.g. locomotives, wagons, trams, buses) and related components (rails, signaling equipment). It is not very likely that Czech companies could win entire tenders, that is more the domain of domestic entities, especially when it comes to construction work.
However, they can participate in subcontracts such as tunnel digging (in Israel, in principle, there is no company that can manage larger projects of this type), the supply of rails, new trains, etc. In 2018, we applied for a tender for the supply of trams to Jerusalem as a vehicle supplier for a consortium of companies together with an Israeli, Greek and American company. In the meantime, the first of the eight Tel Aviv-Jerusalem light rail lines was completed and put into operation in 2019.
As part of the package to support the economy after the covid-19 pandemic, Israel plans to promote and plan infrastructure projects, especially in the transport sector. The following projects will be involved: the establishment of 10 integrated transport centers in the central part of the country, a new tram line (Blue line) in Jerusalem, the connection of the Upper Galilee and the Jordan Valley with the national water network, the construction of a gas pipeline to increase the export of natural gas to Egypt, investments in drainage infrastructure to prevent flooding, acceleration of the railway electrification project, etc.
The expansion of the existing airport in Haifa or the Alenby Terminal border crossing between Israel and Jordan is also planned. These projects could represent opportunities for Czech companies to participate in the post-crisis economic recovery of Israel.
The energy industry is one of the fastest growing in Israel. Israel now has more natural gas than it can use. The capacity of the Tamar deposit, which has been mined since 2013, can meet 98% of domestic demand. The start of natural gas extraction from the Tamar deposit was mainly reflected in the production of electricity. At the beginning of 2020, mining was started from the significantly larger Leviathan deposit, the output of which will be primarily intended for export.
While in 2010 steam-gas power plants provided the production of 40% of power electricity in Israel, in 2018 it was already 70%. The Israeli government predicts that by 2030 the share of natural gas in electricity production will increase to 80%. The government plan also envisages increasing the share of renewable sources in the energy mix to 17%. The dominance of the state-owned power company Israel Electric Corporation in terms of production will gradually decline, opening up space for other private manufacturers and investors.
For the above reasons, the energy sector is one of the most promising in terms of investment and business opportunities. These are mainly production and distribution/distribution parts, transformers, storage and backup systems, equipment for generating electricity (turbines, boilers, cooling towers), equipment and technologies for extraction, storage, processing and transportation of natural gas, construction and supply of equipment and components (pipes, fittings, compressors). Prospective investments will be made in distribution technologies, gas processing equipment (CNG, possibly liquefaction) or gas storage. Due to the growing share of renewable sources (especially photovoltaic), the same will apply to the electrical distribution network.
Israel ranks among the countries with the largest share of R&D investments in relation to GDP in the world – annually it invests around 4.8% of its GDP in civilian R&D, with almost 85% of these investments coming from the private sector. Israel is also nicknamed the “Start-up Nation”, as there are around 6,400 active start-ups in various stages of development (Seed, A round, B round, C round) operating in the country, and it is home to 375 development centers of multinational corporations, including giants such as Intel or PayPal and operates on 490 private Venture Capital funds.
Most investments are flowing into the ICT & Software development sector, within which the share of investments is increasing, especially in start-ups that focus on the field of cyber security, artificial intelligence, so-called big data analysis, the Internet of Things (IoT) and fin-tech tools. The number of start-ups in the segments of Industry 4.0, artificial intelligence, virtual reality and block-chain technologies is increasing. Among other sectors, the field of natural sciences is also developing, especially in the segment of e-health and analyzes of large volumes of health data (including in connection with covid-19). The number of companies in the field of so-called smart mobility is also growing rapidly.
There is also an opportunity for Czech companies in the field of applied research. The Technology Agency of the Czech Republic, in cooperation with the Israel Innovation Authority, announces every year (usually in May) from 2018 a public competition for the submission of joint projects within the international cooperation program DELTA. The program enables Czech and Israeli companies to submit joint project applications in applied research.
Israel is one of the largest exporters of defense and security technology in the world. For Czech manufacturers, cooperation with the Israeli arms industry is both a great challenge and an opportunity, especially for technologies with high added value. In addition to currently implemented subcontracting, there is another possibility of cooperation in third markets, where one or the other party, for various reasons, finds it more difficult to establish themselves.
At the same time, Israel is among the largest importers of military equipment. Israel’s defense spending is over USD 20 billion per year, of which USD billion (about 16%) is direct support from the United States under the FMF program and another USD 500 million is provided for missile defense development. Direct support is mainly used for strategic purchases of high-end military equipment from the USA.
However, the export potential for Czech producers exists even without taking into account these imports, which are basically tied to one country. If it is possible to implement the contracted deliveries, among the main export items of military equipment from the Czech Republic to Israel will be mainly trucks, imaging reconnaissance equipment, large-caliber and small-caliber weapons and cartridges. Cyber defense technologies and specialized software also have a perspective.
Czech arms companies also have the opportunity to establish strategic partnerships with Israeli entities, both in the development of new complex defense systems and in the above-mentioned access to third markets where one of the parties has a stronger position. Cooperation with top Israeli companies often takes Czech companies to a higher technological level and thus strengthens their international competitiveness. In the future, significant potential can also be seen in the area of know-how transfer in cooperation projects on common markets.
Embassy of the Czech Republic in Tel Aviv
e-mail: [email protected]