Published on March 8th, 2012 | by JLedger0
Kolot: Investing in Israel
By Mark Seruya ~
In the last two decades, we have witnessed an ever-expanding scope of cooperation between the U.S. and Israel, particularly in the realm of financial and capital investments and strategic business partnerships.
Israel’s flourishing high-tech sector is a prime example. In 1992, the government of Israel launched the Yozma program, jumpstarting the venture capital market in Israel. This initiative led to the establishment of more than 40 funds that together invested more than $14 billion between 1993 and 2008. Investors from the U.S. provided more than 75% of this venture money, and about 10 American venture capital firms have already opened branches in Israel.
I believe this development has invigorated the country, allowing Israel to modernize the local economy and shift its attention to innovative and technology-driven industries. Israel has grown to a thriving $240 billion economy today. It is now ranked among the best Organization of Economic Cooperation and Development (OECD) economies.
Today, innovation serves as the growth engine for Israel’s economy. Rising global superpowers such as China, Brazil and particularly India increasingly trade with Israel.
Dozens of major American corporations, have acquired or invested in Israeli companies. Israel’s high tech industries are responsible for 16% of Israel’s GDP. For global corporations, Israel is a strategic partner on a grand scale, developing the next generation of technologies and products to be marketed around the world.
Israel ranks first in the world for research and development (R&D), and third globally in entrepreneurship. It has the highest number of start-ups outside Silicon Valley. From instant messaging to an ingestible pill-size video camera, from non-invasive cancer therapies to innovative drip irrigation systems that changed the face of global agriculture, Israel is breaking ground in all sorts of industries.
It has the highest number of PhDs per capita in the world, produces the most scientific papers per capita, and files the most patents per capita. Bill Gates explained his decision to invest in Israel: “The quality of education is one of the key factors that makes Israel so unique.”
One giant U.S. chipmaker opened its first design and development center outside the U.S.A. in Haifa in 1974. This division now boasts over 7,000 personnel. Its revenues reached a record high of $3.4 billion in 2009, and it is investing $2.7 billion over two years to produce its next generation of chips.
In telecommunications, Israel is on the forefront, with major breakthroughs in fields such as mobile and cellular communications. Israeli R&D pioneered the world’s first car phone, voicemail technology was developed in Israel, and four young Israelis developed instant messaging.
Currently, Israel is ranked second in the world for venture capital funds (right behind the U.S.), with communications receiving 21 percent of that investment.
Israel’s life sciences sector is also burgeoning. Home to over 900 life science companies, Israel sees 50 to 60 new companies formed each year. Its multinational investors team with local companies to engineer life-changing medical breakthroughs and valuable innovations. Israel is now first in the world for medical device patents per capita and fourth in bio-pharma patents.
The 2011 Nobel Prize in chemistry was awarded to Israeli scientist Daniel Schechtman for his 1982 “eureka” discovery of quasicrystals. Researchers are currently experimenting with quasicrystals in different products such as diesel engines and protective alloys and coatings.
Professor Ada Yonath, a crystallographer at the Weizmann Institute, received the 2009 Nobel Prize in chemistry for charting the structure and function of ribosomes. She was the first woman in 45 years to win the prize for chemistry.
In 2004, Professors Aaron Ciechanover and Avram Hershko of the Technion received the Nobel Prize in chemistry for their discovery of ubiquitin-mediated protein degradation, related to muscular and neurological diseases and immune and inflammatory responses. Their research is leading to breakthroughs in the understanding and treatment of diseases such as cancer, Alzheimer’s, Parkinson’s disease and cystic fibrosis.
With an impressive track record of profit- driven technologies, Israel has been a first choice for leading investors. And, with over 120 Israeli stocks trading on major U.S. stock exchanges, Israel may be worthy of consideration by the small private investor as well.
Mark Seruya is a financial advisor with the Global Wealth Management Division of Morgan Stanley Smith Barney, with offices in Manhattan and Hartford. The information contained in this article is not a solicitation to purchase or sell investments. The views expressed are those of the author and may not reflect the views of Morgan Stanley or its affiliates.
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