|By: IVC Research Center, Neal Sandler|
|Israeli high-tech exports hit a record high in 2017 on the heels of a boom in service exports. An Israel Export Institute analysis found that, for the first time ever, service exports overtook industrial high-tech exports, accounting for 51% of the total of $46.5 billion last year. High-tech exports represented over 45% of the $102 billion in total exports of goods and services in 2017. That is up from just over 38% of all exports in 2014. But there may be clouds on the horizon. The real change is the makeup of what Israel is selling abroad. The analysis by the Israel Export Institute further noted that computing services and software make up the largest segment of high-tech service exports and they rose by nearly 15% last year to just under $15 billion. They have grown by over 40% since 2014, making it Israel’s fastest growing export sector. It now accounts for 29% of all high-tech exports.
The computing services and software segment is made up of a huge range of companies, from established industry leaders like Checkpoint, Amdocs and Wix to hundreds of startups. It also includes a $2.5 billion contribution of some 300 R&D facilities of foreign companies like Google, Apple, Facebook, IBM, and others. That double-digit growth more than offset the paltry 1.2% increase last year in industrial high-tech exports. That type of growth in the service sector has been going on for many years and has changed the face of Israel’s high-tech industry.
Industrial high-tech exports, which used to account for 60% or more, have declined in significance. The slower growth was the result of a huge drop in the export of electronic components by 18.8% to $3.2 billion. One company, Intel is responsible for nearly the entire segment. This segment is expected to rebound this year and in 2019 with the introduction of a new generation of semiconductors at Intel plants in Israel. The other sector that witnessed negative growth was computer, electronic, and optical equipment. Until about a decade ago this segment was responsible for the largest slice of high-tech exports, but computing services and software have long since overtaken it. Most experts agree that the trend will continue.
A recent IVC analysis found that Israel’s high-tech sector is largely immune from the geo-political ups and downs of the Israel-Palestinian conflict and other conflicts in the Middle East. But that is not the case with global economic developments. The dot.com collapse in 2000–2001, the global economic recession that began in late 2008, and other global events underscore the vulnerability of the local high-tech sector. On March 28th, Bank of Israel Governor Karnit Flug issued her annual report noting that the Israeli economy is facing the danger of a global slowdown in the rapid growth of high-tech services and growing competition in this key sector from Eastern European countries and India.