Israel Turns 70: Where Next for the ‘Start-Up Nation’?

In preparing for this month’s blog – on Israel – I have asked Chemi Peres, a highly respected Israeli leader and entrepreneur, who co-founded Pitango Venture Capital, to give me his view and the thread for the analysis that follows. I was introduced to Chemi by Ambassador Yael Ravia-Zadok, when she was serving her country in Cyprus, building bridges of trust and collaboration between our two countries.

Chemi and I share a legacy left by our fathers. Shimon Peres, Chemi’s father – Nobel Peace Prize laureate, President of Israel, a statesman and an innovator – championed peace and collaboration. In Chemi’s words, his father was defined by the ‘ingenuity of a visionary driven by optimism and inspired by hope’.  

My late father, Constantinos Kittis, also served his country and his people, with an honourable commitment to the wider good in both the public and private sectors. He was Minister of Commerce and Industry, Minister of Finance, founder of the European Movement in Cyprus, a regional leader of multinational businesses, a visionary, optimist, innovator and champion of good governance – but more importantly, he was a rare honest man with a high level of emotional intelligence. 

What binds Israel, my father and myself together is the fact that my father passed away seven years ago, very ill, at Haddasah hospital outside Jerusalem.

It is through different encounters with friends and collaborators in business, in the region and in our neighbourhood that I know of Israel’s different facets and potential. My strong belief is that if Israel can unleash its brain power, its commitment and trade collaboration towards its own region and Europe, rather than solely nurturing its links to the US and New York’s capital markets, it can achieve greatness and peace.  

Chemi says, ‘Israel is the first innovation nation ever founded and continues to grow on the notion that greatness arises from our brain power, and not from the wealth of our land. We invest in companies which contribute to a better world, and never focus on our own needs, but rather the global community. We look for great entrepreneurs who try to make an impact on our world.’

Illustration by Costas Mantzalos

Israel Turns 70: Where Next for the ‘Start-Up Nation’?

Israel recently celebrated its 70th anniversary, a landmark moment that prompted debate and discussion within the country and around the world about its past, present and future and its neighbours.

On one thing, everyone agrees: Israel’s economic development story has been phenomenal. In its early days, there was little infrastructure, food was rationed and the country flirted with financial collapse. Today, it is a high-tech hub, with more Nasdaq-listed companies than any nation other than the US.[1]This ‘start-up nation’ has produced world-leading companies from Waze to WeWork, and has firms and entrepreneurs working on everything from big data to agriculture, water and even laboratory-grown meat. Israeli-invented technologies in daily use around the world include USB flash drives and the Intel PC processor.[2]

There is no single reason for Israel’s innovation success. Partly, geopolitics played a role. Germany’s Holocaust reparations and US aid both made a significant fiscal contribution in the country’s early years and its Unit 8200, a high-tech spy agency, is where many entrepreneurs meet and later form companies (it has been described as Israel’s equivalent of ‘Harvard, Princeton and Yale’[3]). Its international population has also helped. Many Jews arriving in Israel in the early years brought knowledge of subjects such as agriculture, which helped make dry land bloom (they also planted trees in more temperate northern Israel, draining the water and eliminating malaria-carrying mosquitoes). Because all Jewish people can claim citizenship in Israel, today it has a diverse makeup, from Ukrainians to Ethiopians. They come for many reasons, including escaping hardship at home, and bring with them different networks, cultures and skills. 

Policy choices, especially in education, have also been critical. Data collated and visualised by the MGI shows Israel having the highest percentage of Bachelor degree-educated men and women, at 33 per cent (my home country of Cyprus, at 25 per cent, comes second). These two are also, with Malta, the MGI’s top nations ranked by government expenditure as a percentage of GDP, at 5.7 per cent (Israel), 6.1 per cent (Cyprus) and 7.8 per cent (Malta). Israel’s business environment is pro-innovation: the cost of business start-up procedures, at 3.2 per cent of GNI per capita, is among the lowest of the MGI countries – compare it to 30 per cent in Libya and 42 per cent in Lebanon at the other end. 

Yet while Israel deserves plaudits for these achievements, its conflict with the Palestinian territories is a deep-rooted problem for the country and region. In other newsletters, I have written about the loss that conflict and closed borders brings, as with Morocco and Algeria. Israel is highly isolated, sustaining a ‘cold peace’ with Jordan and Egypt, while with the Palestinians, relations are at rock-bottom, as evidenced by the recent flare-up of violence in Gaza. Israeli companies and innovations have seen benefits around the world: the country’s water-technology sector, pushing forward innovations such as drip irrigation, is worth $2 billion and exports grew by almost 200 per cent in the 3 years up to 2017,[4] while Israel-born solar energy and agriculture companies and ideas can be found from sub-Saharan Africa to Spain.[5],[6] A thaw or end to the conflict would help those in Gaza, the West Bank and beyond to benefit from Israel’s achievements, and it would be better for Israel, which spends so much of its time and resources on its military rather than channelling them into commercial innovation. 

Foreign investors and donors have tried to kindle growth in the Palestinian territories. This March marked the first privately financed energy project in more than a decade – a $12 million rooftop solar photovoltaic plant, supported by the IFC, MIGA, IBRD and the government of Canada. Mercy Corps, in partnership with Google, is connecting tech-savvy Palestinians with training and opportunities to tap the global digital market. But these can go only so far. The MGI shows that business start-up costs in the Palestinian territories, at 45 per cent of GNI per capita, are the highest in the region – a reflection of how difficult the business environment is under a state of permanent conflict, as well as highlighting the low income levels of the population. In many other indicators, too, the MGI shows that the Palestinian territories fare among the worst; second-bottom (above Morocco) in GDP per capita, third bottom (above Syria and Lebanon) in the number of children out of school, and with the third-highest female mortality rate after Egypt and Libya. These are all signs of the toll taken by conflict, and by poor governance. Resolving what is now one of the world’s longest-running wars is all that will address these depressing statistics and help the Palestinians and Israelis become partners one day.

Cleopatra Kitti was in conversation with Adam Green

[1] https://www.bloomberg.com/view/articles/2018-04-19/independence-day-israel-s-first-70-years-surprised-the-world
[2] https://qz.com/1152285/israels-foray-into-africa-is-driven-by-economic-interests-as-much-as-geopolitics/
[3] https://www.ft.com/content/69f150da-25b8-11e5-bd83-71cb60e8f08c
[4] http://blogs.worldbank.org/water/israel-how-meeting-water-challenges-spurred-dynamic-export-industry
[5] https://qz.com/1152285/israels-foray-into-africa-is-driven-by-economic-interests-as-much-as-geopolitics/
[6] https://www.israel21c.org/10-ways-israels-water-expertise-is-helping-the-world/