Israel needs to invest more in research and development to grow the technology sector

Israel’s technology industry is a pearl in the crown of the economy, responsible for the huge growth over the past decade and the reputation of a high-tech country. However, according to a recent report from Israel’s Innovation Office (IIA), it has serious problems, such as a lack of diversity and an acute shortage of talent, which could seriously hamper its competitiveness in the coming years. .

These challenges, combined with a lack of public investment in research and development and growing disparities between the technology sector and more traditional sectors, could return Israel to the world stage in the coming decades, the 2022 State of High Technology said.

“We are an integral part of the global ecosystem, and we are very well positioned and competitive,” said Sagi Dagan, vice president of growth at IIA, in The times of Israel during a telephone briefing before publishing the report.

Receive our free daily edition by email so you don’t miss out on any of the best news Free registration!

“However, we are seeing a decline in infrastructure [nécessaire] in the future of high technology. We must make the right decisions for the future and manage these risks. »

Dagan said Israel needs to think about what its technological ecosystem will look like in 2030-2040. “We see threats,” he explained, “such as low public investment in R&D as a percentage of GDP and cuts in resources allocated to industry and academia to support destructive research.” Public investment tends to go to projects considered “high risk” in areas such as food, science, agriculture, transport, energy and space, to ensure long-term security and growth where private funding may be lacking.

Competing technology ecosystems such as Paris, Berlin, Singapore and Boston are receiving more support, Dagan said.

View of the Tel Aviv Stock Exchange, November 29, 2020 (Miriam Ulster / Flash90)

“Over the years, public investment in research and development in emerging segments has been steadily declining as a percentage of GDP. The growth of Israel’s high-tech industry in the face of global competition is threatened by significantly lower public investment compared to other countries, “the authors of the IIA report wrote on Wednesday.

Figures provide food for thought. The share of the Israeli government in investment in research and development is the lowest among any OECD country: in 2019 it was 9.6% (for which the latest data are available), well below the average of 23.8%, according to the IIA report. By comparison, South Korea’s share of R&D investment was just over 20%, Sweden’s 24%, France’s over 31%, the United Kingdom’s 27% and the United States 20%.

Meanwhile, Israel leads the OECD in terms of research and development spending as a percentage of GDP – 5.4% in 2019, which is twice the OECD average (2.7%). According to the report, in Korea 4.8%, Sweden 3.5%, France 2.4%, the UK 1.7% and the United States also with 3.5%.

In addition, Israel’s position in the Global Innovation Index (GII) has deteriorated in recent years, dropping to 15th place in 2021 from 10th in 2019.

Dagan said the government needed to answer this important question: “Are we conducting long-term risk analysis and placing public investment in the best position?” »

The size of the ecosystem has grown significantly over the past decade to become a much larger industry, but the distribution of public funds has not been adjusted accordingly, Dagan suggests.

In the last two years, since the beginning of the COVID-19 pandemic, two important processes have taken place, he explains. First, the Israeli technology industry has seen huge investments – in 2021, Israeli companies raised more than $ 25 billion, exceeding $ 10 billion in 2020, which is a previous record. Second, the risk to the sector has increased accordingly.

SentinelOne at the closing of the New York Stock Exchange on June 30, 2021 to celebrate its first public offering. On this occasion, Tomt Weingarten, co-founder and CEO of SentinelOne, at the center with a raised hand, is joined by John Tuttle, Vice President and Chief Commercial Officer of NYSE, second right. (NYSE)

“There has been a lot of investment, and it is a matter of pride; 25% of the income tax falls on technology, half of our exports are technology. Israel is a small country, we don’t have many natural resources, we have some gas and some phosphates from the Dead Sea. Our natural resource is our brain, our knowledge, which we use for high technology, ”explains Dagan.

At the same time, “the risks have increased, and we have no alternative, we must invest in these areas,” he said. “The technology sector saved the economy during the pandemic, what if the technology sector was not so strong? »

At risk, Dagan and others point to issues such as lack of diversity and inclusion in the technology sector, where the share of Arab and ultra-Orthodox workers has not risen to 4.7% and human resources outside central Israel are only about 33%.

“High technology retains its homogeneity as a Jewish industry” and a male-dominated industry, according to the report. “Less than 20% of employees are Arabs, most of them are non-Orthodox men, women make up less than a third of all employees in the industry, and ultra-Orthodox men and women make up only 3%. »

The lack of diversity is also due to a deep lack of technological talent, and the ideal candidate has experience in engineering and development, just from the elite intelligence units of the Israeli army.

Illustration: Ultra-Orthodox Jewish women work on computers in their office at Comax software in Holon, near Tel Aviv, April 17, 2016. (Photo by AFP / Menachem Kahan)

According to the AII report for 2021, which tracks “human capital”, Israel has about 13,000 vacancies. The next report is expected to be published in the coming weeks.

Another area full of problems is cooperation between universities and industry, as only 15% of them are Israeli companies. According to the study, only the American multinational corporations Microsoft and IBM will concentrate half of the cooperation.

“More partnerships between technology companies and emerging universities will also give companies access to a source of quality workforce with deep knowledge. This will allow them to expand their capabilities and continue to be innovative and competitive in the global market, “the report said.

These challenges can be addressed by supporting the public by prioritizing education, funding for universities and university initiatives, and investing in the research and development sector.

“All the challenges are interconnected, we have to act on several fronts,” Dagan explains.

More positively, according to the IIA report, Israel’s technology industry represents about 362,000 workers, or 10.4% of Israel’s workforce. The growth rate of high-tech workers in 2021 was eight times higher than the rest of the economy.

(For comparison, according to Eurostat, the share of high-tech workers in Ireland was 9.2%, in Sweden 5.7%, Germany 5.3%, the Netherlands 4.3% and the UK 5.5%.)

Computer science is the most popular bachelor’s degree in Israeli universities, and the number of students studying in this subject, in part or in full, has increased to about 10.8% of all bachelor’s students.

According to the report, as of 2021, about 40% of male students and 13% of undergraduate students are studying subjects such as civil engineering or mechanical engineering, which are considered the royal path to a career in the technology sector.

As the technology industry received record funding in 2021, mainly for enterprise software, cybersecurity and fintech, the market value of Israeli technology companies on the Nasdaq has fallen by almost 10% in recent months.

The value of Israeli technology companies Tel Aviv 35 also fell by 9.5%, the report said, explaining that these trends reflect the decline in private investment in Israel and the United States during the first quarter of 2022 compared to the same period last year. .

Economists and experts have warned of a possible market correction in 2022, after 2021, when Israeli technology became a difficult year.

IIA Director General Dror Bean added that the overall success of Israel’s high-tech sector “makes less visible the challenges we may face in the future.”

“The report shows that the industry’s prosperity is threatened by over-concentration of the industry, both geographically and demographically. In addition, due to relatively low public investment in destructive R&D, the risk is higher than in competing countries, “he said in a statement.

Dr Ami Appelbaum, President of the IIA, warned in a statement that “Israel cannot sit in the middle and expect that without long-term investment in high technology, the main sector of the export economy will continue to dominate the world stage.