Economic Demographics
Population: 9.3 million (2021)
GDP per capita: US$ 43,603 (2019)
Unemployment rate: 3.8% of labor force (2019)
Israel foreign direct investment in the U.S.: US$ 36.6 billion (2019)
U.S. foreign direct investment in Israel: US$ 28.5 billion (2019)
In 2019, Israel’s real Gross Domestic Product (GDP) increased by 3.4% since 2018. Nominal GDP Per Capita increased from $41,721 in 2018 to $43,603 in 2019. Meanwhile, the inflation rate in 2019 remained at 0.8%, as it was in 2018. Israel’s unemployment rate decreased from 4.0% in 2018 to 3.8% in 2019.
Market Overview
Despite facing long-standing geo-political challenges, Israel attracts foreign investments and ventures from U.S. companies through the country’s culture for innovation. Meanwhile, Israel’s export-focused high-tech industries also support the country’s economic strength. The Israeli market continues to engage U.S. manufacturers for domestically compatible high-end equipment.
Market Opportunities
Water Despite Israel’s location in a water-scarce region, where neighboring countries regularly struggle with water scarcity, Israel has an abundant supply of water due to the country’s extensive desalination facilities. The region’s water shortage has prompted entrepreneurial and innovative developments in Israel’s field of water and agriculture. Over the past several decades, Israel has optimized its water resources and developed a prosperous environmental sector, similar to the achievements of water-rich countries. Israel has made remarkable achievements in the water sector, including: desalination facilities that supply more than 70% of Israel’s water consumption; sewage drainage facilities that collect and treat most of Israel’s wastewater where 90% of wastewater is reused making Israel a world leader in reclamation rates; and the development of a strong water technology industry.
Nevertheless, due to the combined effects of prolonged periods of drought, dwindling natural water resources, rapid population growth, and other geo-political challenges, Israel seeks to maintain its capacity to remain self-sufficient. In June 2018, the Israeli government approved a strategic plan responding to the prolonged drought period that lasted from 2013 to 2018. The plan is valued at approximately $4 billion over 7 years, of which at least $1 billion will be open to international tenders. According to a subsequent government resolution dated February 2019, Mekorot (Israel’s government-owned water utility company) is required to significantly increase its investment in the development of the Israeli water infrastructure. The following are key components of Israel’s plans for the water sector, which present viable opportunities for U.S. exporters:
Desalination: Connecting to the national water conduit system: Turnkey projects for drilling of shallow and deep-water wells:
U.S. exporters can also find viable opportunities related to the construction of pump stations and reservoirs, remediation of groundwater, installation of water pipes, and projects in digital transformation. Areas of opportunities for U.S. exporters may include exporting advanced sensors, command and control systems, and new SCADA systems.
Waste Management & Recycling In contrast to Israel’s robust water systems, Israel’s waste treatment and recycling industry is largely underdeveloped, with approximately 80% of its waste sent to landfills and 20% to recycling in 2020. Israel has a relatively high growth rate of waste, averaging 2.6% annually and forecasts show that 7.5 tons of waste will be produced annually by 2030. This growth is expected to worsen existing environmental hazards such as pollution and greenhouse gas emissions. To address these concerns, the Ministry of Environmental Protection (MOEP) announced a strategic plan to transform Israel’s waste treatment industry in 2021. The plan declared a goal to transition Israel’s resource-consuming linear economy into a circular economy that strives for minimum waste production and maximum resource efficiency by 2050.
MOEP short-term goals for 2030 are to recycle 54% of the waste, compared to today’s 20% today, create the necessary infrastructure at sorting facilities that will process 100% of waste, and reduce landfill disposal to 20%, from today’s 80% today.
To meet these ambitious goals for 2030, the MOEP anticipated the need for approximately seven to ten new sorting facilities to handle dry, recyclable waste, which constitutes about 39% of total waste, in addition to the two facilities already operating today, and the six facilities that are intended to begin operating in 2021. The unrecyclable dry waste material will be transferred to energy recovery facilities when possible, or otherwise sent to landfills. Lastly, the MOEP plans to process organic waste, which constitutes 43% of total waste, in biological treatment facilities, where it will undergo further sorting and then sent to composting and anaerobic digestion systems.
U.S. exporters can find opportunities in supplying waste treatment/sorting technology and expertise, in addition to providing investment, construction, and equipment for new facilities.
Environmental Infrastructure Projects The current scope of infrastructure investment in Israel is lower than comparable countries around the world. To address this gap, the Israeli government is currently planning large scale infrastructure projects across almost all industries, and publishes the Infrastructure for Growth workplan annually. The workplan is a national infrastructure strategy consolidating all projects valued at more than 100 million shekels (approx. $30 million) that are either in progress, budgeted or approved by the government. The workplan included 207 projects, valued at $56 billion in total, across various industries including numerous projects in the environmental sector in 2019.
Research & Development U.S.-Israeli joint research and development, and cooperation in the Environmental Technologies sector is growing, particularly in CleanTech and Water. The U.S.-Israel Binational Industrial Research and Development Foundation (BIRD Foundation ), funded by both governments, provides a good platform for joint U.S.-Israel commercial research and development in this industry and publishes new calls for proposals annually.
Market Entry & Trade Barriers
Since signing the U.S.-Israel Free Trade Agreement (FTA) in 1985, nearly all non-agricultural trade tariffs have been eliminated. The U.S. is Israel’s single largest trading partner, and Israel is the second largest trading partner for the U.S. in the Middle East. The Israeli market is highly receptive to U.S. products and services.
Israel is a small market and mature in many sectors, including the Environmental Technologies industry. Consequently, U.S. companies will face significant local and international competition. Additionally, Israel’s strong commercial ties with Europe have led Israel to adopt European Union (EU) technical standards instead of international standards in some industries. This has created obstacles both for U.S. companies that have been doing business in Israel for many years, and for new-to-market companies.
While there are substantial opportunities related to large infrastructure projects in the Environmental Technologies sector, many of these projects are based on a public–private partnership (PPP) funding method. It is often challenging for U.S. partners to allocate the initial capital required for this type of projects.
Israel’s “Preference for Israeli Products” regulation stipulates that a 15% preference be awarded to Israeli manufacturers for certain items exempted by the WTO GPA and for products with 35% Israeli content and with a value not exceeding $500,000. Israeli manufacturers in “National Priority Zones” receive an additional advantage ranging from 5 to15 percent.
“Mandatory Industrial Cooperation” requirements are an integral part of each international tender document valued at $5 million or more. The regulation requires foreign companies to enter into offset agreements. These agreements are administered, negotiated and monitored by the Industrial Cooperation Authority (ICA), a division of the Israel Ministry of Economy and Industry.
Israel’s value-added tax (VAT) rate is 17% and it is charged on almost all services and products sold in Israel (except fresh fruits and vegetables). VAT is recovered by the importer upon resale of the goods and is ultimately paid by the consumer.
Finance
U.S. companies will find that Israel does not suffer from lack of capital or trade financing. There are no unusual rules or regulations concerning export financing. Loans at market interest rates are available from commercial banks to finance the manufacture of exports including the import of raw materials and components for export products. Loans vary depending upon the raw material requirements, cost of conversion and collection timeframe.
The EXIM Bank offers project financing and other financial services in Israel. EXIM Bank provides a variety of financial programs ranging from medium and long-term guarantees, insurance programs, working capital guarantee to project finance. EXIM Bank has most of the leading Israeli banks as correspondents and may supplement private sources of export financing with medium and long-term loans.
Contact Us
Naama Altman
Naama Myers-Altman serves as a Commercial Specialist at the U.S. Commercial Service in Israel, covering several industries including: Environmental Technologies, Energy, Automotive and Agribusiness. In this capacity, Naama is responsible for facilitating the marketing of U.S. products and services in Israel by providing business matchmaking services, market intelligence and trade promotion assistance, creating market entry strategies, and carrying out advocacy on behalf of U.S. clients. Email Naama Altman.
