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Technology Not Bombs

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When you hear the word "Israel" what do you think? Whatever your views, political, social, or religious, you're likely to have an opinion. If you're a newshound something militaristic may spring to mind: the army or ongoing peace talks; if you're a politico then you might be thinking of the politics of Benjamin Netanyahu, President Peres and the Israeli coalition. If you've a traveller then you might conjure up the white expanse of the Tel-Aviv coastline, a night-club swarming with beach-hot bodies, the orange groves of Jaffa or the ancient city of Jerusalem.

But are you thinking technology and innovation? The old adage goes that "no news is good news" and the media focus on the Middle East remains firmly anchored on geopolitical tensions. The point of this article is not to change the way you think about the peace process or broader political issues, but rather seeks to provide an alternative spotlight on Israel, one that accentuates technology, not bombs.

The emphasis on technology is particularly relevant following the UK's White Paper on economic growth published in March 2011, "encouraging a stronger partnership between British and Israeli companies to exploit the potential synergies between Israel's high levels of innovation and British strengths in design, business growth and finance". Israel is the only country mentioned by name in the paper, a clear indicator that the UK is following Israel's lead, investing in innovation as a means of driving the economy forward.

Israel is the UK's largest individual trading partner in the Near East and North Africa, with bilateral trade topping £2.83 billion in 2010, a 31% improvement on the previous year. Over 300 Israeli companies have set up in the UK, from defence manufacturers such as Elbit, to mining companies like ICL Fertilisers, and pharmaceuticals like Teva.
Israel's economy continues to grow 5% a year. Largely unaffected by the global financial crisis due to conservative banking regulation and some prudent management and economic strategy by Bank of Israel Governor Professor Stanley Fischer, the economy continues to grow, seemingly regardless of conflicts on or across its borders.

But what's most impressive about Israel's economy is the creation in less than a decade of a world-class high-tech economy. As New York Times columnist Thomas Friedman puts it, Israel has moved from underwear to software in five years. It has built its new economy on top-rate universities, astute government and a culture that rewards success and innovation. Since the country's founding Israelis are keenly aware that the future is always in question. Every moment has its strategic importance. As Mark Gerson, an American entrepreneur who has invested in Israeli start-ups puts it, "When an Israeli man wants to date a woman, he asks her out that night. When an Israeli entrepreneur has a business idea, he will start it that week".

In addition to boasting the highest density of start-ups in the world, more Israeli companies are listed on the NASDAQ exchange than companies from the whole of Europe. In 2008, per capita, venture capital investments in Israel were 2.5 times greater than in the United States and more than 30 times greater than in Europe. Comparing absolute numbers, Israel, with a population of 7.7 million people attracted close to $2 billion in venture capital, as much as the UK's 61 million population received. Israel also has more engineers per head, and sees more scientific articles published per head, than any other country in the world.

Many key players in the Middle East peace process are keen to harness Israel's innovation for political good. Speaking at a recent UK Israel Business breakfast jointly organised with the Palestine Britain Business Council, The Portland Trust and The Office of The Quartet, former Prime Minister Tony Blair and Apax founder Sir Ronald Cohen outlined their vision of shared peace for the Middle East.

The discussion focussed on how mutual economic development is a vital precursor to peace. "Security tests" in Gaza are crucial, argued Blair, but have to go hand in hand with genuine trade between Israel, the Palestinian Territories and the global economy. Peace must be based on supporting, "the process of state building from the bottom up. There is a role for business. The private sector on both sides is trying to work together even if politicians sometimes are not." Sir Ronald was keen to point out that the possibilities for future growth and business are enormous, as Palestine's GDP has been growing by 12% per year. For too long, however, "economics has been used as a weapon...Instead, it is vital that a shift in the role of economics towards being a means of peace takes place".

Investors are turning to Israel in ever greater numbers. Many technology companies, including Google, Microsoft and Intel have chosen to have their major research and development (R and D) centres there. Warren Buffett, the legendarily risk-averse investor broke his decades-long record of not buying any foreign company with the purchase of Iscar, the machine-tool company he purchased for $4.5 billion.

For investors looking to capitalise on a developed market with the yields of an emerging one, Israel is the place to be. The general feeling is "If it's good enough for Google, it's good enough for us". In the business world we have a fierce hope that where there is innovation, peace and prosperity will follow.