"We lost the previous fab to Ireland, a fab which will employ 4,500 workers. I strongly hope that we'll be able to bring the next fab to Israel, but competition is tough and many countries are competing for investment," said Intel Corporation (Nasdaq: INTC) SVP and Intel Israel president Mooly Eden, at the "Globes" Bar Economics project yesterday.
Eden added, "The loss from not building the new fab in Israel is not just the loss of jobs, but a huge loss in tax revenues which would have reached the Israeli public each year."
As for Israel's place in the world, Eden said, "When there are problems with the Israeli economy, multinationals don’t care. Why? Because we market to the entire world, to China, to India. It doesn’t matter what happens in Israel, Intel will continue to make billions of dollars a year."
Eden talked extensively about the media attacks on the large tax breaks of large companies like Intel Israel, Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), and Israel Chemicals Ltd. (TASE: ICL), and tried to present a comprehensive picture, which takes into account the powerful influences multinationals have on the Israeli economy. "Intel provides 8,500 jobs in Israel," he said, "These are productive, innovative, high-paying jobs. You should also add the effect of indirect employment by service providers, from software writers to catering and transport services, which create another 25,000 jobs. Intel Israel's exports totaled $4.6 billion in 2012.
"I've read in the press that Teva received astronomical tax breaks and that they should be reduced. But the reports assume that if Teva didn’t get these tax breaks it and other multinationals would continue to operate in Israel and export the same quantities. This is mistaken.
"Gentlemen, in such a case, Teva would simply export its work to Ireland. In the case of Intel, too, all our competitors get tax breaks. You have to look at things from a business perspective. I have no problem with criticism, but criticism should aim to be constructive, not destructive."
As for incentives to attract multinationals to Israel, Eden said, "Israel's labor isn't especially good, in contrast to what we think. The economy is small, the security situation doesn’t help us, the geopolitical situation is complicated, and I haven’t even mentioned Israel's image in the world. You have to work hard to bring people here.
"People forget that, multinationals' headquarters don’t have people with Zionist values. They're businesspeople, whose decisions about where to establish their next office are motivated by business calculations, and Israel is just another dot on the map for them, and to tell the truth, a pretty tiny dot."
Eden added, "To create incentives for investing in Israel, especially huge investments like Intel's, Israel must be better than average attractive. You should remember that we're talking about a multinational, and one of a multinational's calculations about where to make new investment is taxes.
"If Israel wants to continue to attract new foreign investment, build new enterprises, and create jobs in the periphery, it must encourage companies to invest here, and this can be done through tax breaks and grants. If it pays for Intel or Teva to build production lines in other countries, such as Ireland, that's what will happen.
"The Israeli public doesn’t really understand what high-tech companies do, and how they contribute to the economy. Israelis' culture of kvetch is simply phenomenal. It's a terrible culture," says Eden. "We have a tendency to crown kings and then stone them, in politics too. There is God and we worship him, but then we stone him. There's no middle path. We must balance the public debate."
$10.5 billion invested in Israel
"Israel's industrial exports total $46 billion. High-tech exports account for $21.5 billion of the total, of which Intel Israel exports $4.6 billion - 20% of Israel's high-tech exports. Each new investment by Intel creates local jobs, increases exports, and tax revenues, which means that Israel ultimately gains from all of Intel's investments," said Eden.
Responding to the claim that Intel's domination of exports is evidence of over-concentration in the economy, Eden said, "The newspapers say there is too much concentration, so what is the solution? To make it harder for Intel, and reduce its share of the pie? No, the solution is to increase the share of other companies in the industry. I'm in favor. Let us found more companies, let's attract other companies, some of them competitors of Intel, to Israel. There will be wonderful competition. I'll help bring the companies, and then I'll fight them with all my strength. To simply write that there is concentration is infuriating, because the writer knows that it's populism.
"Intel employs 8,500 people. This is a big number which grows every year. The state's tax revenues from Intel employees are six times the average individual income tax in Israel. But they don’t write about that," said Eden. "More than 12,000 people have left Intel to go into the economy, founding hundreds of companies and start-ups. (Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX) chairman and CEO) Eyal Waldman is an example. Some of the people who will not go to Apple will be Intel people. That's OK.
"Exports by Israel's ten biggest companies account for 40% of total exports. This is a shocking figure, and these are the companies that people like to stone, and these big companies are going to get bigger. There's nothing you can do about it; it's a global trend. Is it just or unjust? That isn't the question, because we can't change these processes, certainly not in Israel. Instead, we should create conditions for more Israeli companies to become big companies and support them, for the sake of the Israeli economy. At the same time, alongside the fact that we're strengthening small and mid-sized businesses to become more successful companies, we should continue to bring more Apples, Googles, and Microsofts."
Commenting on Intel's investments in Israel, Eden said, "Intel has invested billions of dollars in fabs in Israel. In 2012, we invested $1.1 billion here. Altogether, we've invested $10.5 billion in building fabs in Israel in the past decade, and how much have we received in grants? $1.3 billion from the state. There are other numbers which should be mentioned: direct and indirect reciprocal procurements from suppliers totaled $737 million in 2012; work with more than 1,000 small and mid-sized suppliers. The press mentions none of this, and it's a shame."
As for Israel's status as the "Start-up Nation", Eden said that drastic changes were needed in the education system to grow a new generation of entrepreneurs and skilled young people who will go on to found new start-ups in the coming decades. "The Israeli start-up nation is the reaping of seeds planted 15-20 years ago; the result of past education and the immigration from Russia," he said. "This in no way assures that we'll be in this position in 15 years. The world is constantly changing, and we must change. If we don't change, we'll have a problem. What doesn’t change, vanishes from the world."
As for current Israeli entrepreneurs, Eden says, "Israelis are now going for the easy start-ups, for Internet ventures. This can also be done in China and India. They'll do it and wipe us off the map. We don’t do chips, we don’t do hardware, or complex technology. Nothing."
The "Bar Economy" is a joint project between "Globes", Bank Leumi (TASE: LUMI), Meitav Investment House Ltd. and DS Apex Holdings Ltd. (TASE:DSAP) to produce unique content focusing on providing the general public with accessible economic information, especially financial education. As part of the project, "Globes" hosts lectures and open discussions at select pubs around the country. The upcoming events will be held in Jerusalem, Haifa, and Beersheva.
Published by Globes [online], Israel business news - www.globes-online.com - on May 28, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013