Silicon Wadi: Inside Israel’s Rapidly Expanding Tech Sector
Mark DiPietro
Technology Section Editor
We are in an age of technological innovation dominance. For the past several years, the Tech Sector has been the center of the business world. Whether that is the development of social media sites like Facebook, Twitter, or Tik Tok, or the development of more ambitious endeavors like Artificial Intelligence or Virtual Reality. Technological progress consistently makes news, as well as revenues.
When we think of the centers for this technological advancement, stereotypically a place like Silicon Valley or Boston in the US, London in the UK, or Beijing in China comes to mind. But, perhaps a market that goes underrated as a technological hub, though rapidly expanding in its influence, is Israel. Their development is spearheaded by a region cleverly named Silicon Wadi.
Despite significant political conflicts ongoing and a relatively small geographic area and global sphere of influence, Israel is consistently growing their tech market. In 2021 alone, the tech sector raised $27 billion in funding, as a wave of large venture capital funds channeled money into innovative companies. In addition to this private equity, tech giants like Intel, Microsoft, Google, and Amazon are all turning their eyes and wallets to Israel as they seek new talent to stay competitive.
There are several reasons for this renewed fascination with Israel. The country has a strong education system that places a significant emphasis on science and technology. This has led to a large pool of highly skilled workers, including many engineers and software developers, who are attracted to the opportunities in the tech industry. Additionally, to a more general point, Israel also has a culture that values innovation, risk-taking, and entrepreneurship, which has helped to foster a thriving startup ecosystem.
These factors have convinced companies to pump the country with capital. For example, Microsoft has set up a massive development center in Herzliya Pituah and plans to open up a branch in Jerusalem. But the tech firms are not only aimed at the big cities and normal players in the tech world. There is a concerted effort to expand the already rich talent pool in Israel by shooting for a more inclusive workforce. The government of Israel is partnering with Google by planning to invest $25 million by 2027 into training and increased skill opportunities for marginalized groups living outside of the main tech hubs. Foreign Minister Yair Lapid stated that he aims to surpass the benchmark of 1 million Israelis working in hi-tech in the coming years. To meet this goal, motivating women, Arabs, and Haredi Jews to enter into the fold is crucial.
However, the investments have slowed slightly as we move into 2023 and looming recession fears grip the world’s economies. With numbers coming in for fiscal year 2022, it appears that the new investment into the country slumped 43%, totaling only $15.5 billion. While this is worrying as a total we saw that the main driver of this was indeed macroeconomic factors predicted near the tail end of the year since spending in the first half of 2022 mirrored that of 2021. Despite this, some are predicting that the previous valuations that were made in 2022 were perhaps over evaluated and the sector may be too hot for its own good. Layoffs from companies as large as Intel Israel, Israel’s largest private sector employer, to smaller companies like SodaStream have also lead to a general retraction.
This was punctuated by growing concerns over the democratic stability of the government of Israel. A new overhaul planned by the administration of Prime Minister Benjamin Netanyahu plans to curtail the power of the Israeli Supreme Court to choose new judges and cancel laws approved by parliament. This rose alarm bells for business leaders as they viewed this as a possible threat to the current relatively free democracy in place. While the plan was paused due to public opposition, Netanyahu seems pretty confident that the tech sector will remain strong. He said in an April 30th statement that entrepreneurs that “go with the herd” and leave Israel will lose money, suggesting that “the smart money will come into Israel in even greater numbers.”
Despite the recent slowdown and concerns, Israel still seems to have immutable characteristics that will make it a competitive market for technological advancement. Their education system and culture allows for companies to continue to take advantage of the already rich history of the Israeli tech sector. With growing external pressures on the giants of tech companies, look for their efforts to remain fixed in Israel in the future. Furthermore, look out for new companies to invest in that come out of the healthy startup space present in the country.
Contact Mark at markdipietro04@gmail.com