Doing Business in Israel- Business Environment

Israel has a technologically advanced market economy. Cut diamonds, high-technology equipment and pharmaceuticals are among the leading exports of the country. Its major imports include crude oil, grains and raw materials. Israeli GDP CAGR is 3.06% between 2012 and 2018, led by private consumption growth.

The global financial crisis of 2008-09 spurred a brief recession in Israel, but the country entered the crisis with solid fundamentals, following years of prudent fiscal policy and a resilient banking sector. In 2010, Israel

formally acceded to the OECD. Israel’s economy also has weathered the Arab Spring due to strong trade ties outside the Middle East, which have insulated the economy from spillover effects.

The economy has recovered better than most advanced economies of similar size, but slowing demand (both domestically and internationally) and a strong Shekel have reduced forecasts of Israel’s GDP growth for the next decade to a 3% level.

Natural gas fields discovered off Israel’s coast have brightened Israel’s energy security outlook. The Tamar and Leviathan fields were some of the world’s largest offshore natural gas finds this past decade. The Leviathan field (605 BCM) begain its operation on December 31, 2019.

Israel’s economy is flourishing; the unemployment rate is only 3.4% (Full employment), the average annual salary is approximately US$ 37,700.

Israel’s High-tech industry has raised over US$2.2 billion (with 142 deals) during the first three months of 2019, as opposed to US$1.6 billion in 2018. This capital raise uptrend is driven and supported by the Government, via vocational training programs, grants, and other subsidies. Thus, the Government spends a significant 4.5% of its GDP on R&D, which is one of the highest in the world.

Labor Market

The early foundations of Israel’s economy were formed on a socialistic base: for the first decades of its existence, the Government of Israel was dominated by parties with social or socialist overtones. Israeli society has adopted these foundations, including a well-developed system of labor laws aimed at protecting the rights of workers, both during their employment and after retiring.

The Israeli employee is entitled to at least 12 days of annual vacation, and this number increases with seniority at the workplace. The employee is also entitled to payment during sick leave. The number of days and hours of work during the week are limited by law to 42 hours. Employers are required by law to allocate a fixed portion of the employee salary to a pension fund and national insurance which may be up to 20% of the employee’s salary. Employees are entitled to an advance notice prior to his termination , the period of notice depends on the employee duration and type of employment.  Every Israeli is entitled to comprehensive healthcare within the healthcare organizations, in exchange for health insurance payments that are partly deducted from his salary, while most of the payments are made by his employer.

A number of labor organizations, headed by the New General Labor Federation, unionize workers in many sectors, primarily those in the government sector. Many employees in Israel are entitled to special safeguards in the form of ‘collective agreements’, providing them with a set of social and other benefits.

Israel has a highly educated and innovative workforce. High-school education is routine, and almost every Israeli adult is capable of conducting a conversation in English and possibly in another language besides Hebrew. Dozens of academic institutions provide a large percentage of Israelis with academic education: the rate of Israelis holding undergraduate and graduate academic degrees

is one of the world’s highest, and in certain fields such as medicine, the academic institutions in Israel are unable to supply the vast demand. As a result, many young people acquire education outside of Israel

Population trends

With a 2% population growth rate, Israel’s population, currently estimated at 9.1 million, is set to reach 10 million by the end of 2024, according to Israel’s Central Bureau of Statistics (CBS).

The fertility rate in Israel is the highest in the OECD with 2.96 children per woman, compared to an OECD average of 1.74.Education

Mandatory education is practiced in Israel pursuant to the funding of state law, from the age of 3 to 18. At the age of 6, children  start to study at primary school, then they spend three years at middle school, and the last three years are spent at high schools, in various study tracks to which children are assigned according to their talents. Some vocational high schools continue their training for an additional year, at the end

of which the graduate is awarded a ‘practical engineer’ degree. Following completion of 12 years of studying, students take final examinations. Those who pass them all successfully will be granted a “matriculation certificate”. In 2019, the national rate of eligibility for matriculation certificates has been 69.9%.

Upon graduation most Israelis will begin their mandatory military service, which lasts roughly three years for men and two years for women. Soldiers who are trained as officers or go through highly specialized training, such as aircrew and ship crew, will serve for longer periods of

time, during which the officer gains academic training and usually completes his long service with an undergraduate or a graduate degree.

The rate of Israelis who gain academic education is one of the highest in the world. Israel has six universities and dozens of colleges that are qualified to award academic degrees under state supervision. In recent years, researchers and scientists produced by the Technion Institute of Technology in Haifa, the Hebrew University

in Jerusalem and the Weizmann Institute of Science in Rehovot have made some major breakthroughs in

economics, physics and chemistry. Some of them have received Nobel prizes for their contribution to global society.

These academic institutes produce tens of thousands of graduates in social science and technology fields each year. They also train nearly 4,000 new lawyers and roughly 3,000 accountants per year: an unprecedented rate relative to the size of the population compared to other developed countries.


Language skills

Hebrew is spoken by all sectors of the population, including the Arab population. Arabic and Russian are common mother tongues in the country. Israeli students acquire basic English skills and usually learn an additional, third language. Besides Hebrew, an enormous range of languages are spoken on the Israeli street, as a reflection of Israel diverse population.

Labor costs

Israel’s labor laws as well as the quality of education and training are reflected in the cost of labor in Israel. however, the cost of employment of a skilled worker in Israel is still lower than that of his counterparts in North America or Europe.

In Israel, a minimum wage of about $1,500 per month is applied. Correspondingly, the minimum cost of employment per hour of work is approximately $8, considering the mandatory payments applying to wages in Israel. The cost of employment of a skilled engineer

graduated from computer science and electronics faculties, may reach $50 per hour. The compensation of senior management workers is essentially the same as the compensation paid to equivalent executives in Europe and North America, and some of the senior executives in Israel earn millions of New Israeli Shekels per year.