Start Up Nation - Where is Israel exporting to, and what?
By Ramy Rachmiel | 04.01.2022 | Translated by Yishai Gelb
Israel has been experiencing rather rapid economic growth, from a GDP of $27,715 in 2009 to $43,592 in 2019. That is a 43% growth in just ten years. Israel is not a predominately export-based economy but rather a balance between a local market and foreign investments. At the same time, exports, especially services, are an essential component of Israel’s economic growth.
My Name is Yishai Gelb From The Geo Report, and this article, which was written and prepared by Ramy Rachmiel, will cover Israel’s exports.
2019 was a record year for Israeli export totaling $114 billion with an annual growth of 6.5%. However, between the years 2018-2019, the growth was only 5% due to the decrease in the exports of diamonds. The diamond industry was important in Israel’s early years; however, the industry has been losing its importance in recent years. If in 2016, diamond exports consisted of 8% of total exports, then in 2019, that number plummeted down to just 4%. One of the causes is the fluctuation of the global markets, mainly the demand for diamonds in the USA, China, Hong Kong, and the change in supply from India and other countries. In 2018, Israel exported $6.82 billion worth of diamonds, while in 2019, Israel exported just $4.97 billion worth of diamonds. Another major cause for the decrease in the diamond share of the exports is the rise in chemical, electronics, and mainly high-tech exports, steadily rising over the past decade.
To get a good look at Israeli exports, we will dive into some numbers. Putting aside the export of diamonds, Israeli exports of goods in 2019 stood at $54.2 billion compared to $48.2 billion in 2016. Between 2018 and 2019, the export of goods rose 4.2% instead of an 11% rise in the exports of services. In 2019, Israel’s main exports were chemicals which consisted for 30% of total exports, and electronics were responsible for 28% of Israeli exports. Both industries are the most dominant in Israeli exports. Most of those exports are to the European Union due to the relatively close distance between Israeli ports and EU ports and the high purchasing power in the EU. For example, Britain’s GDP in 2019 was $43,000, which is high enough to consume higher-end products in contrast to regions like East Asia and Africa. Therefore, the success of Israeli chemical and electronics exports depends on the purchasing power of the countries importing Israeli goods and the needs of the importing countries. For example, most of the Israeli exports to Britain are Chemicals and medicine, while most Israeli exports to India are medical equipment.
The EU and North America exports have been relatively stable, which stood at around $12 annually. However, the exports to China have risen 400% in the past decade, even with the 3% decreed in 2018 due to the escalating trade war between the USA and China.
When looking at who is responsible for most of the exporting, the picture isn’t pretty. Just 49 companies in Israel are responsible for over 60% of all exports, which demonstrates the dominance that a small number of corporations have on the market. The majority of those 49 companies are based in the center of Israel and on the Coastal Plains of the Mediterranean, which teaches us where most economic activity occurs. So naturally, exporting corporations are stationed close to transportation hubs, which is on the coast in Israel’s case. Most of Israel’s population lives in the coastal plains, which explains why most firms are located there.
Moving on to Israel’s fastest-growing industry overall; the service-based business. If in 2016 services consisted of 41.3% of exports, then in 2019, that number jumped to 48.4%. Such a jump is significant, especially in the programs-based services, R&D, consulting, and telecommunications. It is essential to consider the relative ease of starting an internet-based company compared to building a factory. Israel, deficient in natural resources or rivers for easy cargo transport, can do a lot better in industries that don’t require natural resources or good transportation routes. Therefore, internet-based companies, or in other words – high-tech, are a natural fit for Israel’s geographical situation.
The total amount of services exports grew 17.5% per year from 2015 from $39 billion to $55.4 billion, which means that most of Israel’s growth in exports came from services. The services industry, software, website building, storage, and cyber security grew at the fastest rate from $16.5 billion in 2013 to $28.8 billion in 2018. In addition, R&D and scientific development rose from $4 billion in 2015 to $9 billion in 2019.
From all this data, we can come to several conclusions. First, Israel is better off developing its service-based economy, especially in software development and high-tech overall, by helping expand computer-based education fields and increasing the number of programmers in the country. The rationale is that it is a lot less expensive to start a high-tech company than a traditional company in manufacturing. Second, increasing the exports to the EU and North America is more stable than exporting to the far east, particularly China. Third, as the tension between the USA and China continues to rise, Israel will decrease its exports to China or the Far East, predominantly service-based exports. Mainly because most of Israel’s exports are directed to consumers and not governments, as opposed to other government-focused industries like energy and natural resources.
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