FROM PHOENIX, ARIZONA MIDDLE EAST AFFAIRS
Israel’s Hi-Tech Goes Bye Tech
Israel’s Hi-Tech Goes Bye Tech
PHOENIX, Jan. 25 - Since this is the first time we are
bringing you a piece from this new contributor, we would like to introduce
to TiM readers Dr. Sam Vaknin, the
author of this article on shifting sands in Israel’s economy.
Dr. Vaknin, based
in Skopje, Macedonia, is also the author of “Malignant Self Love -
Narcissism Revisited,” and “After the Rain - How the West Lost the
East.” He is a columnist for Central Europe Review, United Press
International (UPI) and eBookWeb, and the editor of mental health and
Central East Europe categories in The Open Directory.
Until recently, he served as the Economic Advisor to the Government
of Macedonia. You can check
out Dr. Vaknin’s web site at: Visit Sam's Web site at http://samvak.tripod.com
Hi, tech--Bye Tech
Vaknin, UPI Business Correspondent
1/25/2002 10:08 AM
Macedonia, Jan. 25 (UPI) -- During the 1990s, the number of Israeli firms
on Nasdaq was the second or third largest (depending on the year) after
American and Canadian ones. Israeli initial public offerings were hot.
Israeli hi-tech was cool. The Internet was conquered by Israeli ingenuity
then the market has matured. Dot-coms bombed. Nasdaq is down 60 percent
even after the post Sept. 11 bounce. Israel's main export markets are in
the throes of a global recession. Israel appears to be suffering from the
Singapore syndrome -- over-dependence on a single sector. High-tech
products constituted 22 percent of Israel's $7.7 billion in exports in
1991 but more than 36 percent of the $18.7 billion it exported nine years
signs are decidedly mixed. In a single week, VocalTec, a voice-over IP
technology developer and manufacturer, reported a year on year drop of 53
percent in revenues in the fourth quarter. Versity, a verification
software company, boasted its first profit on revenues up by 50 percent.
Israel announced that the number of high-tech want ads (a fair proxy for
employment in the high-tech sector and for investment in research and
development) fell by 52 percent in 2001 to 1996 levels. Demand for
high-tech managers and programmers was down by about 64 percent. Manpower
attributed these developments to Sept, 11, global recession, the collapse
in the equity markets and the 15-month-old intifada. Very few foreign
investors bothered to attend Ernst and Young's Journey 2001 October
conference. Even its sponsor, Silicon Bank of California, didn't show up.
are bad news for the recession-hit Israeli economy. High-tech has been a
net contributor of jobs, a generator of small to medium enterprises, a
leader of export growth, and, in short: Israel's economic engine. The
government has already reacted by abolishing the capital gains tax on
foreign venture capital investments in Israeli firms and by tightening
collaboration with other casualties of the global downturn in the
technology markets, notably with India. Israel intends to get involved in
the telecommunications, medical technology, and software production
sectors in India. A ministerial committee recommended that the government
invest $450 million over 5 years in biotechnology projects. It is a sign
of the times that this interventionist suggestion is seriously considered.
with low inflation, the shekel's 10 percent depreciation in the last few
weeks to 4.60 to the dollar, will boost Israeli exports by $1 billion,
said the Israeli Export Institute. Most of this windfall will accrue to
export-orientated high-tech firms. It will boost their competitiveness by
increasing their shekel proceeds when they convert their foreign exchange
revenues and by allowing them to discount their products.
malaise of Israel's hi-tech sector has deeper roots. Israeli firms are
research and development champions -- innovative and daring. But they are
weak when it comes to marketing and sales. Many of them are badly managed,
still run by the entrepreneurs who established them. Israeli addiction to
venture capital and equity financing fostered a strong image of Israel as
a high risk emerging economy based on dot-coms and their
"creative" financing and accounting methods. In many cases,
maverick Israeli startups failed to position themselves as market leaders,
which develop and produce for mature markets.
news is that venture capitalists have invested more than $6 billion in
more than 500 promising products and technologies in Israel, 50 percent of
it in 2000 compared to $1 billion last year).
of 2,500 high-tech firms, at least half are bankrupt or poised to close
their doors. Still, between $1.2 billion and $2 billion are available for
VC investment. Israeli VC funds do not publish return on investment
figures but rumors are that they managed to outperform the American
benchmark of 43 percent per annum. If this is true, they will probably
re-enter the fray.
cushion of selectively available financing may prevent a total meltdown of
the sector. Investments in companies backed by VC in their first round of
financing actually increased by 16 percent in the fourth quarter, though
36 percent of local VC funds made no investment at all. Investment by
foreign sources of financing dominated the fourth quarter scene.
to the Money Tree Survey, conducted by a leading Israeli accountancy firm,
Kesselman & Kesselman PriceWaterHouseCoopers and quoted in Israel's
business daily, "Globes," there is a shift from software,
Internet and the biomedical sciences back to the hitherto discredited
telecommunications, semiconductors, and networking fields. Almost no seed
money is available -- but despite the Internet's fall from grace,
financing of Internet-related ventures remained unchanged compared to the
third quarter, though more than 70 percent down on 2000. The average size
of a typical VC investment is down 50 percent on 2000 -- to $3.6 million.
words: financiers are more careful and more choosy -- not necessarily bad
news, except for "exit speculators."
more money is available for mature, market dominant, high potential, fully
developed products. The dearth of seed capital may adversely affect the
future growth rates of the technology sector in Israel -- but, in the
short to medium term, it is likely to stabilize this mercurial Bedlam.
ace may be the biotechnology sector. Startups are well capitalized and
gradually becoming profitable. About 20 percent of Israel's 160
biotechnology firms made money this year, another 25 percent are expected
to do so next year.
close to $1 billion in sales and less than 4,000 workers - their
value-added and total factor productivity are enormous. According to
Ilanot Batucha, a brokerage firm, there are 300 drugs in phase 3
FDA-mandated clinical trials. If 200 of these are approved -- they will
join more than 100 drugs already approved and selling, no small coup for
Israel's pharmaceutical minions. In 2001, the number of deals declined --
but the average size of the deals increased. Biotechnology may well be
Israel's old-new horizon.
You can also view the original UPI wire story at… http://www.upi.com/view.cfm?StoryID=25012002-093600-9474r
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