Look behind Israel’s bonkers policy. Its economy is flourishing.

By Sydney Barrett Last updated Oct 12, 2022

As even the most advanced economies collapse under this century’s highest rates of inflation, anemic growth and depreciating currencies, Israel appears irretrievably dysfunctional as voters prepare to elect their fifth government in less than four years. Not a day goes by without reports of clashes in the West Bank, the recurring threat of Hamas rockets being fired from Gaza and the threat of a nuclear showdown with Iran.

Israel’s constant headlines mask a greater reality, namely that the Middle Eastern nation of nine million is an economic juggernaut. It has the fastest growth and one of the lowest rates of inflation and unemployment. Additionally, the shekel is the best-performing currency in the world among the 31 actively traded currencies and the only one to have appreciated against the dollar over the past decade.

Unlike all 34 developed economies, Israel is poised to achieve gross domestic product growth of 5.2% in 2022, 3.5% in 2023 and 3.5% in 2024, according to more than a dozen forecasts compiled by Bloomberg. With an unemployment rate of 3.5% and inflation of 4.3% (about half the annualized rate for the US and European Union), Israel is proving to be a benchmark not only for stability but also for innovation.

If anything has changed in the last 10 years, it is that corporate Israel has become more diverse. None of the 630 Israel-based companies account for more than 10% of the market value. Technology has become the #1 industry, including 107 companies accounting for nearly 25% of the market. In 2012, Teva Pharmaceutical Industries dominated the index with a 24% weighting, followed by agricultural and chemical producer ICL Group with 10%. Today, healthcare and supplies make up 11.2%, up from 43.1%, according to data compiled by Bloomberg.

From auto parts and medical device solutions to food, water and climate change, Israeli-made technology is transforming the world’s greatest industries. This innovation hub includes Mobileye Global Inc., the creator of vision-based driver assistance systems for 50 automakers, or 70% of the world market. Mobileye recently filed with the US Securities and Exchange Commission for an initial public offering, valuing the Intel Inc. unit at up to $30 billion. Also, there is Nanox Imaging Ltd., which provides government, hospitals and clinics with cloud-based image analysis, online diagnosis and billing services while developing a 3D medical imaging device; Innoviz Technologies Ltd., maker of lidar (light detection ranging) sensors and perception software for autonomous driving; and Redefine Meat Ltd., the owner-managed animal-free food manufacturer that uses proprietary 3D printing and digital meat modeling to reproduce the look, texture and flavor of whole muscle meat.

The people behind these companies are typically not afraid of failure because they create solutions to problems that have not been defined. When Amnon Shashua, a professor at the Hebrew University of Jerusalem, founded Mobileye in 1999, he was already thinking about advanced driver assistance systems (ADAS), which initially met with skepticism. “The industry turned us off,” he said in a September interview at the company’s Jerusalem headquarters. “We developed it and won in the value market.”

Mobileye, which was acquired by Intel in 2017 after an IPO three years earlier, outperformed the 75 members of the Solactive Autonomous & Electric Vehicles Index with revenue up 43% in 2021 and revenue gains of 30% in 2022 (expected to be 23% next year). ), making it the #1 growth spot among Intel units, according to estimates by 13 analysts compiled by Bloomberg. The projections are supported by Mobileye’s growing market share and its unique applications.

Half of all new cars last year, or 40 million vehicles, were ADAS-equipped, and Mobileye shipped 28 million, or 70%, Shashua said. The company was able to increase its market share in part because Mobileye “is the only company that has created a high-resolution map of the entire world, which we have called REM, or Road Experience Management,” enabling the deployment of autonomous vehicles in new places almost instantaneously , said he said.

Nanox was also plagued by doubts about a company that would reach two-thirds of the world’s population – from Africa to South America to nursing homes in the US – without direct access to medical imaging. Since the 2020 IPO, shares have lost more than 50% of their value. But since mid-March, Nanox has outperformed global peers, up 32%. Analyst forecasts compiled by Bloomberg project a total return (earnings plus appreciation) of 219% over the next 12 months, more than any of the top 10 medical imaging companies.

“We’re trying to move the world from predictive medicine to preventative medicine,” said Erez Meltzer, 65, who became Nanox’s chief executive officer in January. “You can’t be there if you’re not afraid of your own failure,” he said. “And sometimes it’s like developing a cure for a disease that doesn’t exist.”

Innoviz, the auto parts maker headquartered east of Tel Aviv and listed on the Nasdaq stock exchange last year, reported sales increases of 144% in the first quarter and 78% in the second, dwarfing earnings from the 48 members of Bloomberg Intelligence Global Auto Parts -Index. The company’s not-so-secret ingredient is lidar technology, which enables reliable navigation in changing environments. Japan Post announced in July that it would be digitizing roads with Innoviz lidar for digital maps. A month later, Volkswagen AG ordered $4 billion worth of lidar from Innoviz, and analysts at Goldman Sachs Group Inc., Cantor Fitzgerald LP and Berenberg predict that Innoviz’s sales will grow by an average of 288% in 2023 and in the will increase by 374% in 2024.

“Anything that’s robotic needs a lidar,” Oren Buskila, Innoviz’s chief research and development officer and co-founder, said in a July interview. “We chose the auto market because that’s where we’re going to see the most growth for lidars,” he said. In 10 years, most new cars will have lidar, Buskila added. “The auto industry can change if we move to true self-driving cars that not only autonomously brake, but actually take responsibility for driving from the driver and let them sleep, work on their laptop or read a book or whatever.”

At a point where climate change is an existential threat to all, sustainability is increasingly dominating the agenda of Israeli companies. That’s especially true for 2018 startup Redefine Meat, which created the first 3D-printed plant-based steak. “If you single out one industry that is doing harm to this planet, meat is the biggest,” said co-founder and CEO Eshchar Ben-Shitrit during an interview at the company’s Ness Ziona headquarters in July. “We believe that within the next 20 years there will be a big meat company that is very similar to JBS or Tyson Foods that doesn’t need animals, and we believe that we have a good chance of being that company.” Products by Redefine Meat are available in more than 500 restaurants, butcher shops in Israel, Berlin, Amsterdam and London.

Polarized politics has not prevented successive short-lived governments from focusing on sustainability as a priority. “The most promising sectors in terms of climate innovation are those related to alternative proteins, so Redefine Meat is one of them,” Yuval Laster, the ministry’s deputy head of environmental protection for strategy and policy, said in Jerusalem last month. “Water technology, food technology and agricultural technology are all part of what we see as climate innovation,” including “already more than 600 startups in Israel.”

Even if the past is prologue and the next government fails for lack of consensus, the economy shows no signs of faltering. “Climate and innovation are bipartisan in Israel,” Laster said.

Look behind Israel’s bonkers policy. Its economy is flourishing.

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Look behind Israel’s bonkers policy. Its economy is flourishing.

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