One Year into the War, Israeli High-Tech Faces Challenges and Resilience
Despite political turmoil, global crises, and the Iron Swords War, Israel's high-tech sector remains a global leader in investment and employment, yet faces stagnation after a decade of growth
A year after the events of October 7, Israeli high-tech is contending with a complex situation. From a positive perspective, Israeli high-tech has shown strength expressed in a stable level of total investments and continued global leadership in this metric and in high-tech employment stability.
On the other hand, high-tech has undergone several significant crises over the past three years: the global economic downturn that began with the outbreak of the Russia-Ukraine war; an increase in local instability as the result of the political crisis; and the onset of the “Iron Swords” war following the terror attack of October 7. These crises have led to a situation whereby, after a decade of growth in high-tech, there has been no growth in the sector’s central metrics for over two years.
Since the second half of 2022, the total number of employees in high-tech has remained almost unchanged and stands at approx. 400,000. Accordingly, high-tech employees’ relative share of the total number of employees in the Israeli economy has remained steady at 11%. Because high-tech employees contribute significantly to state revenues from income tax, this stagnation may affect state revenues in the years to come – this, during a period in which the state budget is already contending with a deepening deficit, raising the need for growth-stimulating measures.
In 2023, the last year for which data is available that enables an international comparison, the number of high-tech employees in Europe grew by 5%, in the US by 2.8%, and in Israel by 2.6%, close to the population’s natural growth rate. At the same time, it is important to discern the internal trends that characterize the high-tech sector: employment in R&D jobs in high-tech continued to increase in recent years, whereas product and business jobs saw a decline in employment numbers over the same period.
Looking ahead, an examination of the high-tech services companies’ expectations regarding the hiring of employees over the coming year reveals that, as of July 2024, approximately 9 months since the onset of the war, almost a quarter (23%) of the companies expect an increase in their hiring of employees over the coming year. These figures reflect a less pessimistic atmosphere among high-tech services companies in 2024 than that observed in July 2023 when only 10% of the companies expected an increase in the hiring of new employees.
In terms of investment, the total capital raised by technology companies in Israel between October 7 and mid-August 2024 – the period of the war – stands at nearly 9 billion dollars. This sum is similar to the sums raised during parallel periods in recent years, except for the record years of 2020-2022.
A comparison of the total investments in Israeli startups during the war period reveals that the total investments were the world’s third-largest. Specifically, total investments in Israel were higher than in hubs such as Paris, London, and Boston and lower only than those of Silicon Valley and New York. Examining the change in total investments over this period in relation to the parallel period last year reveals that it is similar to the average change in the group of the leading global hubs.
Furthermore, analysis of the data reveals no significant change in the number of venture capital funds active in Israel over the war period, and primarily in the number of foreign funds that constitute two-thirds of the active VC funds in Israel.
Read the full report by the Israel Innovation Authority here