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Israel Continues to Attract Foreign Investment Despite Political Instability

by Michal Kazin

While Israel’s political climate has not been stable due to both internal and external conflicts since the country’s formation in 1948, Israel’s economy has remained strong and proved flexible and adaptable through several global economic crises. Israel has seen unprecedented growth in the past ten years, with GDP increasing by 70 percent. Despite having little to no trade with its immediate neighbors, Israel has expanded its global reach tremendously in the past two decades – opening avenues for exports in Africa and India, as well as throughout Europe and South America. 

Israel is considered a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in foreign companies and investors. A number of leading multinational companies, including Intel, Dell and Merck Group, have established research and development (R&D) centers in Israel. Further, Israeli firms represent the second-largest source of foreign listings on the NASDAQ, and its technology index continues to be one of the best performing in the world.

The Israeli government seeks to provide supportive conditions for companies looking to invest in Israel, through laws that encourage capital and industrial R&D investment, with U.S. firms accounting for nearly two-thirds of the foreign investment R&D development centers throughout the country. Incentives and benefits for foreign direct investors include grants and other tax-related benefits, and the government has taken further steps to remove trade barriers and encourage capital investment.

Israel’s growing economy, though, has been overshadowed by its bruising politics. Following elections on April 9, 2019, Prime Minister Benjamin Netanyahu – seeking his 5th term – was unable to form a government and as a result, new elections have been called for September 17, 2019, which will be the country’s second in six months.  Personality politics continue to mire Israeli politics, as Netanyahu was unable to bring Avigdor Lieberman, his former Defense Minister and oftentimes political rival, into a coalition to form a government. Liberman, who despite officially quitting Netanyahu’s Likud party in 1997, has been in and out of governments serving alongside Netanyahu ever since. He most recently served as Defense Minister but quit in late 2018 over Netanyahu’s policies in the Gaza Strip.

Despite being seen as a political magician, Netanyahu is under the shadow of potential bribe and corruption indictments in three criminal cases. In February 2019, the Israeli Attorney General announced a draft indictment against Netanyahu for bribery, fraud and breach of trust. This case is expected to play out for months, as Netanyahu is first entitled to a hearing before an indictment is filed, which will begin in early October 2019. These charges are playing a central role in the elections and will continue to be used by the opposition Blue & White party, who has been calling for a change in leadership. Even if Netanyahu wins the elections in September, he will face difficulty convincing coalition partners to join his government with corruption charges hanging over his head.

Netanyahu’s political obituary has been written many times in the past, and there stands a chance that he could pull off another surprise victory and surpass David Ben-Gurion as Israel’s longest serving prime minister. However, Netanyahu’s main rival, the Blue & White party, does not offer a substantive policy difference, and if it is chosen to lead the next government, little is expected to change in Israel’s economic policies and for Israeli companies, which received an all time high of USD 3,7190.50 million in foreign direct investment in the third quarter of 2018.

Following the announcement of a new election, Standard & Poor’s reaffirmed Israel’s credit rating and expects Israel’s economy to expand by 3.2 percent in 2019, and that the Israeli economy will “continue to benefit from the country’s strong labor market buyout corporate investment activity, particularly in the tech sector.” Whether Netanyahu or his rivals emerge victorious, the next prime minister will inherit a growing economy that will continue to remain an attractive place for foreign investors.


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