OECD SME and Entrepreneurship Outlook 2019

Chapter 24. Israel

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Figure 24.1. Structure and performance of the SME sector in Israel

Notes: Chart A, Data cover 05-82 of ISIC Rev.4. Employment data refer to employees; Charts C, D. Data for Israel exclude information for non-employer enterprises.

Sources: A, C, D. OECD Structural and Demographic Business Statistics Database 2018. (http://dx.doi.org/10.1787/sdbs-data-en) Source: B. For creations (employer enterprise births), OECD Structural and Demographic Business Statistics 2018; for bankruptcies, Financing SMEs and Entrepreneurs 2018: An OECD Scoreboard. Source: E. OECD Structural and Demographic Business Statistics 2018, Employer Business Demography dataset.

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SME business conditions and access to strategic resources

Institutional and regulatory framework

Israel’s business environment suffers from high levels of bureaucracy, and there is room to lower regulatory burdens. Regulatory Impact Assessments are mandatory since 2016, and the government has committed to cutting the regulatory burden on businesses by 25% by 2019. The impact of new laws on competition is now assessed as well. In addition, a new law aims to simplify the cumbersome licensing and permit system by making it more difficult for municipalities to add local requirements on top of national ones. Israel has also engaged several land-use planning reforms to streamline construction procedures and address housing market congestion.

Market conditions

In Israel the lack of competition and high non-tariff barriers in many sectors, notably electricity and food, push prices up. The government plans to increase domestic market exposure to imports via the Internet and bring regulation for imports in line with most OECD countries. Moreover, with a view to leveraging the large public procurement market, the Israeli government has taken steps for streamlining and standardising tender procedures, encouraging staff professionalisation and centralising e-procurement. The 2017 Morality of Payments to Suppliers Law fixes the maximum period within which payments to suppliers can be made and increases transparency in payments.

Infrastructure

Israel has invested heavily in R&D and ICT but the country still suffers from an infrastructure deficit, especially in public transport and clean energy. The 2017-2018 Budget introduced tax incentives to foster investments in the gas network and the adaptation of business premises to this energy source. Several public transport projects are also underway. A high-speed rail link was opened between Jerusalem and Tel Aviv in 2018. The government plans to finance the construction of a light inter-city rail system between 2019 and 2023 for a total cost of NIS 60 billion (4.9% of GDP), in part through public-private partnerships. The same budget will serve to improve bus transport in Tel Aviv.

Access to finance

Venture capital investment in Israel hit an all-time high in 2017 (USD 5.2 billion), which goes almost entirely to the high-tech software and Internet industries. Alternative sources are on the rise as other industries seek financing, and a new market for peer-to-peer (P2P) loans has been growing. Debt credit conditions are more constrained: 95% of bank credit to SMEs is provided by five major banking groups. The government has adopted a series of measures for enhancing competition in the banking industry and lowering SME financing costs. A Credit Data Law (2016) improves data accessibility with a new central database. A 2017 Law raises competition in credit card markets, and a state-guaranteed SME fund was set up in 2016 to expand credits available. A 2017 Law regulates P2P lending, and the same year Israel enacted crowd-financing regulations for R&D firms and SMEs.

Access to skills

There is a wide dispersion of skills in Israel in terms of adult competencies, with weak outcomes among Arab and Ultra-Orthodox communities. Deficiencies in the education and the vocational education and training system create labour mismatches. There are also signs of skills shortages in the high-tech industry. In 2016, the government introduced a pilot apprenticeship programme and increased expenditure on job training programmes to strengthen participation. The National Programme for Increasing Skilled High-Tech Workforce (2017) plans both long-term efforts (e.g. by raising graduate cohorts in high-tech professions by 40%) and short-term actions to optimise the existing potential (e.g. by developing Coding Bootcamps).

Access to innovation assets

Israel has achieved a remarkable performance in the high-tech sector, but performance has weakened since 2010, mainly due to skills shortages. The new Israel Innovation Authority (2016) brings together science and industry policy agenda to foster innovation diffusion, close the innovation gap among non-high-tech SMEs, modernise traditional industries and help firms grow. The tax regime for high-tech companies changed in 2016, with a reduced CIT rate on intellectual property income. A new e-commerce programme was also set up in 2017 to encourage SMEs to open digital shops.

The full country profile is available at https://doi.org/10.1787/34907e9c-en

References

Kuczera, M., T. Bastianić and S. Field (2018), Apprenticeship and Vocational Education and Training in Israel, OECD Reviews of Vocational Education and Training, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264302051-en.

OECD (2018), OECD Economic Surveys: Israel 2018, OECD Publishing, Paris, http://dx.doi.org/10.1787/eco_surveys-isr-2018-en.

OECD (2016), SME and Entrepreneurship Policy in Israel 2016, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264262324-en.