1. Investment Climate in Israel June, 2005 State of Israel Ministry of Industry, Trade & Labor - Foreign Trade Administration Investment Promotion Center

2. Contents 1.From Citrus to Software - An Economy Transformed 2.Foreign Investment & Venture Capital 3.Israel - a High-Tech Powerhouse

3. Main Indicators Inflation (%) Unemployment (%) Imports ($ billion) Exports ($ billion) GDP ($ billions) GDP/Cap ($) 2005F 1 - 3 9.1* 45.8 43.1 121 17.7 2001 1.4 9.3 33.3 29.0 109.5 17,180 2002 6.5 10.5 33.1 29.3 102.7 15,468 2003 -1.9 10.9 34.2 31.8 109.1 16,312 2004 1.2 10.0 41.1 38.5 117.2 17,200 * May 2005

4. From Citrus to Software – An Economy Transformed

5. From Citrus to Software - An Economy Transformed  Until the 1980s, the Israeli economy was mainly focused on traditional industries  Since the 1980’s, the economy has been transformed by a high-tech explosion  In the 1960s, agriculture represented 70% of Israeli exports  Today, agriculture comprises only 3%

6. Jaffa Oranges vs. Software Source: Dept. Economic & Planning Admin., Ministry Industry, Trade and Labor Exports ($ millions)

7. High-tech Exports  During 2003, hi-tech exports comprised 36% of Israel’s industrial exports  2003: Hi-tech exports - $9 billion  Over the last ten years, hi-tech exports have tripled Source: Association of Electronics & Information Industries (Israel) - 2003

8. High-Tech Exports Source: Economic & Planning Admin., Min. of Industry, Trade & Labor 2003 *

9. Case Study: The Software Industry  Sales of Israeli software have increased by over 700%, over the last 10 years  Professional manpower has increased 250%  Local sales amount to over $900 m per year

10. Where does Israel excel?  Biotechnology  Data security  Software  Semiconductors  Agrotechnology  Safety & Security  Telecommunications  Medical equipment  Optics  Internet technologies  Computer aided education

11. Excellence Y. Hasson – Senior Vice President Nokia Venture Partners (London) September 2003 “ ” There are few places like Israel where one can find leading technologies in almost every field.

12. Foreign Investment & Venture Capital

13. Investment climate in Israel Foreign Direct Investment in Israel Source: Bank of IsraelNot including traded securities Millions USD

14. Sources of Foreign Investment - 2003 Source: Israel Venture Association, March 2003

15. Happy Investors Julien Nguyen, Managing Partner, Applied Materials Ventures September 2003 Outside the US, we invest in only one other country. That’s Israel. “ ”

16. Major Acquisitions of Israeli companies  Perrigo bought Agis for $900 million  Intel bought DSP Communications for $1.6 billion  Lucent bought Chromatis for $4.5 billion  Marvell bought Galileo for $2.7 billion  Marvell bought Radlan for $195 million  Broadcom bought VisionTech for $1 billion  HP bought Indigo for $629 million  Veritas bought Precise software for $609 million  Guidant bought X-Technologies for $160miliion

17. Recent trends and developments Recent M&A TechnologyAcquirerSumTimeIsraeli Company semiconductors fabless Agere Systems $150M02/2005Modem-Art healthcare Johnson & Johnson $80M05/2005Impulse Dynamics softwareUGS Corp$228M04/2005Tecnomatix Voiceover Internet Juniper Networks $68M03/2005Kagoor biopharmaceutical Ferring Holding SA $80M03/2005Savient Medical equipmentKodak$51M03/2005OREX Radiography CommunicationAlcatel~$50M03/2005Native Networks processors for digital display devices Intel$100M03/2005Oplus Technologies semiconductors fablessBroadcom~$85M05/2005Siliquent

18. Recent trends and developments Recent M&A TechnologyAcquirerSumTimeIsraeli Company PharmaceuticalPerrigo$900M11/2004Agis Speech ApplicationsScansoft$100M11/2004 ART Technologies & Phonetic Systems Traffic ManagementCISCO$200M8/2004P-CUBE Wireless infrastructureINTEL$40M3/2004ENVARA Chips for Mobile-device applications ZORAN$54M6/2004EMBLAZE Enterprise softwareCISCO$100M6/2004 ACTONA TECHNOLOGIES Content management software SAP$10M7/2004A2I Web securityWATCHFIRE$45M7/2004SANCTUME

19. Israel in the global investment market  Over 70 Israeli companies are traded on the Nasdaq (the biggest outside N. America)  Over 30 Israeli companies traded on European exchanges  21 Israeli companies dual-listed on the Tel Aviv Stock Exchange and Nasdaq

20. Venture Capital  Investments by venture capital funds constitute an added value above financial contributions - in management, world market familiarity, strategic guidance and economic credibility.  Capital raised by Israeli VCs Surges to $724m in 2004  Capital available for investment now at $1 billion  $1.5 billion projected to be raised by VCs in 2005 Source: IVC Research Center (2004)

21. High-tech Capital Raised 1995-2003 Source: Israel Venture Association, March 2003

22. Source: IVC Online VC Investments (by quarter)

23. VC Investments in Israel & Europe Source: Price Waterhouse Cooper, May 2003

24. Good Things – Small Packages Israel is a small country with a tiny population, and yet it has many significant high-tech success stories. “ ” Sven Lingjaerarde – Co-Founder & General Partner Vision Capital – September 2003

25. VC Investments by Sector - 2003 Source:Israel Venture Assoc. January, 2004

26. Multinationals  Microsoft built their first R&D facility outside the US in Israel  Cisco built their only R&D facility outside the US in Israel  Motorola’s Israel facility is the company’s largest development center worldwide.  IBM chose Israel for its first VC investment outside of the US  Sequoia Capital (Israel) is the company’s first VC fund to be set up outside of Silicon Valley

27. Foreign Companies Invested in Israel- Some Examples US Microsoft Pratt & Whitney AOL Time Warner Intel IBM Boeing Enterprises Cisco Systems GE Lucent 3Com Hewlett Packard Merrill Lynch Motorola Sun Microsystems Europe Philips Alcatel Siemens DaimlerChrysler Volvo Cable & Wireless Baan Volkswagen Deutsche Telecom L’Oreal British Telecom Danone Ares Sereno Unilever Asia Samsung Electronics Daewoo Nomura Hutchison Telecomm. LG Group Sony Toyo Ink Hyundai Acer Computers Sumitomo Trading Fuji Honda

28. Israel a High-Tech Powerhouse Excellent Human Resources Dynamic Infrastructure

29. Excellent Human Resources  Highly educated workforce  A multilingual population with cultural, historic and business ties to almost every other nation  Over 1 million highly educated immigrants from the former Soviet Union since 1989  275 engineers per 10,000 employees

30. Scientists & Technicians per 10,000 Workers

31. Excellent Human Resources II  Well established and strong academic infrastructure  An outstanding entrepreneurial spirit  Success stories breed success. Everyone wants to be an ICQ

32. Excellent Human Resources III Highly trained graduates of the Israel Defense Forces have turned cutting edge defense technology into civilian applications. Israel leads in encryption software, a by-product of it’s military industry, as are so many technologies in which it excels. “Forbes” June 2002 “ ”

33. Entrepreneurship Source: IMD World Competitiveness Yearbook, 2002

34. World Economic Forum 2002-3  Technology Index Rank 7/ 82  Innovation Sub Index 6/82  Networked Readiness Index: 12/80  Environment Component Index: 5/80  Readiness Component Index 8/80  Microeconomic Competitiveness: 18/80 Source: World Economic Forum, Global Competitiveness Report; 2002-03

35. The OECD International Investment Declaration  In 2002 Israel adhered to the OECD Declaration on International Investment and Multinational Enterprises, and to the OECD Guidelines for Multinational Enterprises.  The declaration and guidelines create a framework of good practices principles for the operation of enterprises and Member States with regard to international investment.

36. IMD World Report 2004 Country Rank  1st Source: IMD World Competitiveness Yearbook- 2004 ILE-DE-FRANCEFINLANDSWEDENISRAELTotal expenditure on R&D as percentage of GDP ITALYHONG KONGLUXEMBURGISRAELNumber of mobile telephone subscribers per 1000 inhabitants MALAYSIACANADAISRAELDENMARKTotal public expenditure on education as percentage of GDP CHINAMAHARASHTRAISRAELZHEJIANGGDP & energy consumption - Real GDP growth minus energy consumption growth SWITZERLANDSINGAPOREISRAELFINLANDUniversity education meets the needs economy JAPANTAIWANISRAELHONG KONGConsumer price inflation - Average annual rate AUSTRIAISRAELICELANDDENMARKSkilled labor availability BAVARIAISRAELILE-DE-FRANCELUXEMBURGTotal R&D personnel in business per capita, full time work equivalent (FTE) per 1000 people MAHARASHTRAISRAELFINLANDINDIAQualified engineers available in labor market ISRAELU.S.A.HONG KONGZHEJIANGEntrepreneurship of managers ISRAELCANADAFINLANDSINGAPORELegal environment affecting R&D does not restrain business development 4th2nd3rd דוגמאות למסרים לקידום ישראל

37. WEF –Competitiveness Report 2004 – 2005 Country Rank  1st4th2nd3rd SWEDENFINLANDU.S.A.ISRAELTechnological readiness HONG KONGICELANDNORWAYISRAELAvailability of mobile or cellular telephones HONG KONGICELANDDENMARKISRAELBusiness costs of irregular payments (all countries hare the same rank #1) HONG KONGUKISRAELU.S.A.Venture capital availability FINLANDISRAELSWEDENU.S.A.Quality of scientific research institutions JAPANISRAELFINLANDINDIAAvailability of scientists and engineers ISRAELTAIWANJAPANU.S.A.Utility patents דוגמאות למסרים לקידום ישראל WEF – The Global Competitiveness Report 2004 – 2005

38. Innovation Israel is important to our goal because it has historically been a hotbed of new raw technology and scientific developments Matthew I. Growney, Managing Director Motorola Ventures September 2003 ” “

39. Growth Competitiveness Ranking – World Economic Forum 2002-3 20012002 USA 2 1 Singapore 4 4 UK 12 11 Germany 17 14 Israel 24 19 Korea 23 21 France 20 30 China 39 33

40. Patents Number of patents (per 10,000) registered in the U.S. during 2003 Source: BDI - Business Data Israel Israel - An annual increase of 20%

41. Modern Infrastructure  State of the art telecommunications  World renowned research and educational institutions  A highly advanced banking and financial sector  A large volume of high-tech and science based industry

42. Government Support  Competitive government assistance for R&D projects  Tax holidays for up to 10 years for foreign investors  The reform law for the Encouragement of Capital Investment will simplify bureaucratic processes related to the approval of investments through the establishment of a "green lane". In addition a "Strategic Track" will offer multinational companies significant benefits.

43. Supportive Business Environment  Worldwide taxation and customs treaties  Protection of trademarks, patents and intellectual property of all kinds  Comprehensive legal protection of foreign companies

44. Government Reforms  Liberalization of foreign currency  Deregulation of foreign trade  Privatization of government companies

45. Privatization  The privatization process began in 1986 and was accelerated in 1997  During this time 82 companies have ceased to be state owned  2003:National airline El-Al begins privatization  From 1986- 2002 $8.6 billion was raised through privatization

46. Trade Agreements  Membership in world organizations: GATT (since 1962), WTO (since 1995) and an active part in OECD  Israel has free trade agreements with: EU (25)EFTA (4)Romania USMexicoBulgaria CanadaTurkey

47. Joint R&D Foundations  BIRDF – with the U.S.  USISTC – US-Israel Science and Technology Commission  BRITECH - with Britain  CIIRDF – with Canada  KORIL-RDF – with Korea  SIIRD – with Singapore  FRANCE  GERMANY  ITALY  SWEDEN

48. European Union 6th Framework Agreement  An active participant in the European Union’s R&D Framework program since 1996  Israel continues to be active in the 6th Framework Agreement that began in November 2002

49. Technological Incubator Projects 23 200 735 54% technological incubators operate projects operate currently projects have left the incubators in the last decade have received further private investment

50. So, Why Do Business in Israel?  Outstanding human resources  Modern infrastructure  Supportive business environment  Cutting edge technology and scientific breakthroughs

51. State of Israel 5 Bank Israel St., Kiryat Ben-Gurion Jerusalem, Israel www.investinisrael.gov.ilwww.investinisrael.gov.il infoipc@moital.gov.ilinfoipc@moital.gov.il Tel: +972-2-6662607 Fax:+972-2-6662983 Ministry of Industry, Trade & Labor Foreign Trade Administration Investment Promotion Center