1. Investment Climate in Israel Ministry of Industry, Trade & Labor Foreign Trade Administration Investment Promotion Center August, 2004

2. 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. Foreign Trade Administration - Investment Promotion Center 3 Main Indicators 1999-2003 Inflation (%) Unemployment (%) Imports ($ billions) Exports ($ billions) GDP ($ billions) GDP/Cap ($) 2000 200120022003 0.0 1.4 6.5-1.9 8.8 9.310.310.7 35.2 30.932.633.7 28.3 27.425.827.9 110.1 109.5102.7109.1 17,581 17,18015,46816,312

4. Foreign Trade Administration - Investment Promotion Center 4 From Citrus to Software- An Economy Transformed

5. Foreign Trade Administration - Investment Promotion Center 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. Foreign Trade Administration - Investment Promotion Center 6 Jaffa Oranges vs Software Source:Dept. Economic & Planning Admin., Ministry Industry, Trade and Labor

7. Foreign Trade Administration - Investment Promotion Center 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. Foreign Trade Administration - Investment Promotion Center 8 High-Tech Exports Source: Economic & Planning Admin., Min. of Industry, Trade & Labor 2003 *

9. Foreign Trade Administration - Investment Promotion Center 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 $500 m per year

10. Foreign Trade Administration - Investment Promotion Center 10 Where does Israel excel? Biotechnology Encryption and data security Software Electronics Agrotechnology Telecommunications Medical equipment Optics Internet Computer aided education

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

12. Foreign Trade Administration - Investment Promotion Center 12 Foreign Investment & Venture Capital

13. Foreign Trade Administration - Investment Promotion Center 13 Foreign Investment in Israel Source:Bank of Israel

14. Foreign Trade Administration - Investment Promotion Center 14 Sources of Foreign Investment -2002 Source: Israel Venture Association, March 2003

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

16. Foreign Trade Administration - Investment Promotion Center 16 Major Acquisitions of Israeli companies 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. Foreign Trade Administration - Investment Promotion Center 17 Israel in the global investment market Over 100 Israeli companies are traded on the Nasdaq Over 30 Israeli companies traded on European exchanges 21 Israeli companies dual-listed on the Tel Aviv Stock Exchange and Nasdaq

18. Foreign Trade Administration - Investment Promotion Center 18 Israeli Venture Capital 1991 - one venture capital fund in Israel Today - over 60 with $1.5 billion available for new investments

19. Foreign Trade Administration - Investment Promotion Center 19 High-tech Capital Raised 1995-2002 Source: Israel Venture Association, March 2003

20. Foreign Trade Administration - Investment Promotion Center 20 VC Investments (by quarter) Source: IVC Online

21. Foreign Trade Administration - Investment Promotion Center 21 VC Investments in Israel & Europe Source: Price Waterhouse Cooper, May 2003

22. Foreign Trade Administration - Investment Promotion Center 22 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

23. Foreign Trade Administration - Investment Promotion Center 23 VC Investments by Sector - 2003 Source:Israel Venture Assoc. January, 2004

24. Foreign Trade Administration - Investment Promotion Center 24 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

25. Foreign Trade Administration - Investment Promotion Center 25 American Companies Invested in Israel- Some Examples Microsoft Pratt & Whitney AOL Time Warner Intel IBM Boeing Enterprises Cisco Systems GE 3Com Hewlett Packard Merrill Lynch Motorola Sun Microsystems

26. Foreign Trade Administration - Investment Promotion Center 26 European Companies Invested in Israel Some Examples Siemens DaimlerChrysler Volvo Cable & Wireless Baan Volkswagen Deutsche Telekom L ’ Oreal British Telecom Danone Ares Sereno Unilever

27. Foreign Trade Administration - Investment Promotion Center 27 Asian Companies Invested in Israel - Some Examples Samsung Electronics Daewoo Nomura Hutchison Telecomm. Nissho Iwai LG Group Sony Toyo Ink Hyundai Acer Computers Sumitomo Trading Fuji Honda

28. Foreign Trade Administration - Investment Promotion Center 28 Israel - a High-Tech Powerhouse Excellent Human Resources Dynamic Infrastructure

29. Foreign Trade Administration - Investment Promotion Center 29 Natural Resources Israel has always been able to turn to it ’ s only significant natural resource: Human Capital

30. Foreign Trade Administration - Investment Promotion Center 30 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 135 engineers per 10,000 employees

31. Foreign Trade Administration - Investment Promotion Center 31 Scientists & Technicians per 10,000 Workers

32. Foreign Trade Administration - Investment Promotion Center 32 Excellent Human Resources II Well established and strong academic infrastructure An outstanding entrepreneurial spirit Success stories breed success. Everyone wants to be an ICQ

33. Foreign Trade Administration - Investment Promotion Center 33 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

34. Foreign Trade Administration - Investment Promotion Center 34 Entrepreneurship Common Not Common Source: IMD World Competitiveness Yearbook, 2002

35. Foreign Trade Administration - Investment Promotion Center 35 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

36. Foreign Trade Administration - Investment Promotion Center 36 IMD World Report 2002 Country Rank  1st2 nd 3 rd Quality of basic researchUnited States FinlandIsrael Legal environment for technology development and application FinlandIsraelSingapore Quality of university educationIsraelFinlandIreland Number of outstanding engineersIndiaSlovakiaIsrael University-industry collaborationFinlandIsraelUnited States Technological tie-ups between companiesFinlandSwedenIsrael Source: IMD World Competitiveness Yearbook- 2002 Edition,

37. Foreign Trade Administration - Investment Promotion Center 37 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

38. Foreign Trade Administration - Investment Promotion Center 38 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

39. Foreign Trade Administration - Investment Promotion Center 39 International Patents Israel ranked 13 th in the world in registration of patents in 2002 Israel ranked 4 th in the world on a per capita basis A 500% increase from 209 in 1985 to 1,046 in 2002 Source: CHI-USA June 2003

40. Foreign Trade Administration - Investment Promotion Center 40 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

41. Foreign Trade Administration - Investment Promotion Center 41 Government Support Competitive government assistance for R&D projects Tax holidays for up to 10 years for foreign investors

42. Foreign Trade Administration - Investment Promotion Center 42 Supportive Business Environment Worldwide taxation and customs treaties Protection of trademarks, patents and intellectual property of all kinds Comprehensive legal protection of foreign companies

43. Foreign Trade Administration - Investment Promotion Center 43 Government Reforms Liberalization of foreign currency Deregulation of foreign trade Privatization of government companies

44. Foreign Trade Administration - Investment Promotion Center 44 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

45. Foreign Trade Administration - Investment Promotion Center 45 Trade Agreements Membership in world organizations: GATT (since 1962), WTO (since 1995) and an active part in OECD Israel has free trade agreements with: US EU EFTA Canada Turkey Hungary Poland Slovenia Mexico Bulgaria Romania Slovakia Czech Republic

46. Foreign Trade Administration - Investment Promotion Center 46 Bi-National Research Israel has bilateral R&D agreements with: Belgium Germany Italy Sweden India Finland France Holland Portugal China Taiwan Ireland Spain Hong Kong

47. Foreign Trade Administration - Investment Promotion Center 47 European Union 6 th Framework Agreement An active participant in the European Union ’ s R & D Framework program since 1996 Israel continues to be active in the 6 th Framework Agreement that began in November 2002

48. Foreign Trade Administration - Investment Promotion Center 48 Technological Incubator Projects 23 technological incubators operate 200 projects operate currently 735 projects have left the incubators in the last decade 54% have received further private investment

49. Foreign Trade Administration - Investment Promotion Center 49 So, Why Do Business in Israel? Outstanding human resources Modern infrastructure Supportive business environment Cutting edge technology and scientific breakthroughs

50. Foreign Trade Administration - Investment Promotion Center 50 “ If you liked investing in Israel in the late 1990’s, you’ve got to love it today –Same talent. Same opportunity. Better prices.” Stanley Gold, CEO Shamrock Holdings Director of Walt Disney Company, July 2002

51. 51 State of Israel Ministry of Industry, Trade & Labor Foreign Trade Administration Investment Promotion Center 5 Bank Israel St., Kiryat Ben-Gurion Jerusalem, Israel www.moital.gov.il infoipc@moital.gov.il@moital.gov.il