Standard & Poor's interviewed three of Israel's business leaders: Benjamin (Benny) Gaon, CEO of Koor Industries, Dan Propper, CEO of Osem Group and Itzhak Shrem, CEO of Dovrat Shrem. Their views on investment opportunities in Israel are presented here.
Dan Propper
CEO, Osem Group
President, The Manufacturers' Association of Israel
Chairman, The Federation of the Israeli Economic Organizations
What advantages does Israel offer a foreign investor?
"Israel has unique properties for investors. While it has the growth rate found in developing countries, it also has a well-developed infrastructure - communications, transportation, human - not found in emerging markets. Many multinational firms have taken steps to gain a foothold in Israel and have plans to use Israel as a basis for high-tech industries using the highly developed human resources that Israel offers. Israel is a most attractive base because of this established infrastructure and western operating methods."
The economic situation today is far different than it was in earlier years. New export markets have opened up to Israel. The largest and most lucrative of these lie in Southeast Asia--countries such as India, China and Japan and the republics of the former USSR. Our export focus is on technology and, therefore, we do not have to be unduly concerned about raw materials to supply our products.
"Israel is a country that has the potential to return to 6.5% annual economic growth. While 1997 will see considerably less rapid growth, around 3%, the potential is there to expand, at least at a 6.5% annual rate in the years from 1998 to 2000. The high-technology sector will lead this growth as it has in recent years."
Which industries should foreign investors be looking at?
"We of course know the outstanding accomplishments in the high-technology area, particularly software, communications, biotech and medical technology. But in my view there will also be excellent opportunities among the companies being privatized by the government. These opportunities start with the banks that are being privatized and extend to several other segments of industry where the government companies are leaders in their respective fields.
"The tourism industry is another area with superb prospects. Israel has all the ingredients of a tourist paradise - sun, beaches, a plethora of wondrous historical and religious sites and an excellent location, just a few hours from most European population centers. All that is lacking is a complete peace with Israel's neighbors which would serve to instill a feeling of security in tourists. This will come in time.
"Chemicals and fertilizers also have strong potential. The Dead Sea may be devoid of life, but its enormous mineral resources should provide the impetus for long-term growth in these and related industries."
Investment incentives were recently reduced somewhat. Is this likely to dissuade foreign investors from coming to Israel?
"Yes, there is definitely a correlation between the rate of investment and incentives offered. Israel is in competition with other countries to attract investment, and investors compare all the benefits and negatives before going into a country. For some, it may tip the scales away from Israel, but I believe that the reduction will be soon corrected."
How do you view the long-range future?
"My vision for the future is that Israel will work closely with its immediate and regional Arab neighbors in order to not just survive in an increasingly competitive environment, but to thrive. If you look at how the world is developing, several large and powerful economic blocs are in existence and others are forming. In order to succeed against strong blocs, Israel and its Arab neighbors must unite. Their economies are not competing, but rather they are complementary. Israel will contribute technological know-how with Arab states supplying manpower and natural resources. Cooperation can go a long way and be extremely productive. This close cooperation is obviously not around the corner. I would estimate a 10 to 20 year horizon before all the countries in the region will enjoy the fruits of such a relationship."
Where should the government focus its resources in the future?
"The Manufacturers Association recently issued a paper in which we specified key areas where our resources must be invested to maintain above-average growth in the years and decades ahead. These areas include the development of infrastructure, promotion of industrial exports, research & development and education. Investment in these areas should be financed by a boost in the Value Added Tax by 1% and a decrease in government service employment. "