Innovation Authority pinpoints Israeli tech industry's failings

Innovation Authority chair Ami Appelbaum, CEO Aharon Aharon, Economy Minister Eli Cohen

In a 100-page survey, the Authority recommends government action to focus the industry on AI and bring its benefits to other sectors.

The Israel Innovation Authority spent NIS 1.7 billion in 2018 on supporting 920 companies and funding 1,480 R&D projects, according to its annual report. Comparable figures for 2017 were not published, making a comparison difficult, but 6% more requests for support were submitted to the Innovation Authority in 2018 than in the preceding year.

NIS 450 million was granted to companies asking for support for their first year, including NIS 400 million for 213 companies in technology incubators and startups. 177 growth companies and mature companies received an aggregate NIS 430 million in R&D grants, an average of NIS 2.4 million per company. NIS 550 million was granted for the life sciences and NIS 400 million for advanced production and Industry 4.0. As recently reported in "Globes," the Innovation Authority reports that it is shifting support from early stage companies to growth stage companies, explaining that this is part of a global trend dictated by investors' preferences.

Included in the Innovation Authority's report is a 100-page survey of the Israeli high-tech industry and its trends, for example, a peak in financing rounds, a decline in the number of startups being founded, and a decline in the number and value of exit. These trends have already appeared in reports by other agencies.

In addition to the figures in the four chapters in the report surveying different segments in the Israeli high-tech and innovation industry, recommendations appear about the potential of the Israeli high-tech industry to exceed its current limitation. These recommendations concern four aspects: the sectoral dimension, in which the personalized medicine segment is emphasized; the geographic dimension, in which innovative economic development in outlying areas is cited; the technological dimension, in which the report calls urgently for a government policy aimed at making Israel a global leader; and the depth aspect, which involves making technology a part of daily life in Israel.

These four aspects were designed to constitute a status report and broad plan of action for the entire high-tech industry in order to provide an overall perspective. Many of the recommendations are in various stages of implementation by the Innovation Authority itself, or by various government ministries, but the report does not always make it clear what is actually being done.

The report also states that changes in the global economy, such the tax reform sponsored by US President Donald Trump, the trade war declared against China, and tighter regulation of technology companies in Europe, will have a significant effect on Israeli high-tech companies, among other things because these companies operate globally, with an emphasis on the US market. The Innovation Authority says that the government is considering how to ease the tax burden on high-tech companies resulting from the reform. "As of the end of 2018, it appears that the relevant players in the innovation sector in Israel are sitting on the fence and making their plans in the light of the global changes," the report states.

Abandon the short term, formulate a national plan

The Innovation Authority's position on artificial intelligence (AI) features a broad and general perspective, with an emphasis on the long-term and the global market. The report reviews government investment in AI development programs in countries around the world, in which China is the leader with $10 billion in government investment designed to make the country a global leader in the field by 2030. Next on the list is South Korea with a $2 billion investment, followed by France with $1.5 billion.

In view of the global competition, the report calls for abandoning the short term and formulating a national plan for achieving a competitive advantage in AI for Israel. "Past successes are liable to lead to the conclusion that the Israeli innovation ecosystem can be counted on to produce innovation in AI, even without any special action by policy-makers. We believe that this passive attitude is a dangerous gamble for Israel's lead in technology," the Innovation Authority warns.

Last June, Prime Minister Benjamin Netanyahu approved the formation of a committee to devise the goals and plan of action for state policy on AI. The committee, headed by Prof. Isaac Ben-Israel and former National Cyber Bureau head Prof. Eviatar Matania, will be composed of 10-15 professional subcommittees subject to the main committee, which will be subject to the steering committee. Each subcommittee will have 5-10 members, making a total of 80 subcommittee members among the best minds in Israel from the government, higher education, the private sector, and the defense establishment. Their assignment is to devise a plan for Israel in the next era - an Israel of AI.

Ben-Israel told "Globes" last August that the committee was designing a policy for integrating AI in all spheres of the economy and industry: technological education and research infrastructure for AI in universities, integration of the technology in conventional industry, and making Israel one of the world's five leading countries in the sector. Ben-Israel also said that the committee would leverage AI technology for development of personalized medicine, fintech, transportation, and industry - four areas that the committee hopes will serve as a model for the rest of the economy.

The recommendation in the Innovation Authority reports are strikingly the same as the measures that the committee is beginning to take. The report calls for a policy aimed at strengthening AI research infrastructure in higher education, fostering the human capital pyramid needed in the sphere, developing R&D infrastructure for both higher education and industry, and installing AI in all economic sectors. All this without the Innovation Authority's report making the slightest mention of the committee.

However, Innovation Authority chief strategy officer Uri Gabai, one of the report's authors, told "Globes," "This insight was reached by the government 18 months ago, and we are gradually feeding it to the decision makers. The committee's main subject is AI, and it is already working on the government level. We regard it as a significant step towards creating a vision and a national strategy for AI in Israel. This report aims to support these actions."

"Globes": Why isn't there a technological and smart economy here?

Gabai: "Everyone in Israel is aware of the clash between advanced technological development, and the way that government ministries are run and the slow adoption of innovative technologies in daily life in the country. Low productivity in Israel is also due to the failure to adopt technologies in enterprises and at production sites, among other things."

It is now the Innovation Authority's turn to express its position. Its new report warns that the success of Israeli high tech is not being translated into economic growth in Israel, and that "Israelis are more exposed than previously to standards in the developed countries, and are demanding that trains arrive on time, regular delivery of postal packages, relief of traffic congestion, and other essential basic services. Israel must become a technological and smart economy that leads in both technological development and its adoption."

This is not an easy task. In order to move it forward, the Innovation Authority began carrying out pilot projects (running-in sites) over the past year and promoting regulatory changes in various areas of technology in order to encourage startups to develop new technologies and try out their effectiveness at government ministries and government companies. The Innovation Authority presents the budget for the plan in its report - NIS 70 million for 60 companies in digital health, environmental protection, energy, smart transportation, cyber defense, agritech, and at government companies.

The report states that the Innovation Authority will cooperate with the World Economic Forum, and will join the Center for the 4th Industrial Revolution (C4IR), whose goal is to design better ways of promoting regulation for innovation. The Innovation Authority will be a mediator between local and foreign regulators for the promotion of future technologies.

Adoption centers in outlying areas

With respect to innovation-oriented economic development in outlying areas, the reports presents figures reflecting the fact that the innovation industry in Israel is confined to the central region, especially Tel Aviv. The data show that over 60% of all high-tech jobs in Israel are located in the Tel Aviv and central districts, and 77% of startups operate there.

In order for the outlying areas to benefit too from high-paying jobs and economic development, the Innovation Authority has formulated a plan designed to help the outlying areas to benefit from the advantages of high tech, and to help high tech develop and benefit from the advantages of the outlying areas, given the shortage of skilled personnel in the sector and the need to expand to additional fields of activity. The Innovation Authority will introduce a track over the coming year for encouraging the establishment and expansion of high-tech companies in the outlying areas.

Another track is the entrepreneurship incubators track in the outlying areas, which will be operating during the year. The Innovation Center will help finance the incubators' regular operations, together with franchise holders selected in tenders, who will operate the incubators. These incubators are designed to foster the founding of local startups by local entrepreneurs. These two plans emphasize an association with regional anchors, such as academic institutions and centers of industry, food, and agriculture.

Failure in transmitting academic knowledge to industry

In medicine, the report focused on the potential of personalized medicine based on AI, genetics, and continuous information gathering. Personalized medicine can improve medicine and lower medical costs, which are becoming unsustainable, and increase the output of drug companies in terms of the ratio of investment to the number of approved new drugs.

The reports states that Israel, which to date has not taken advantage of its capabilities in research and medicine to gain an advantage in the global drug development industry, is in an excellent position to dominate this market with a combination of an advanced medical system, vast information already gathered about patients, big data capabilities, and government willingness to support the trend. In medical research, a failure was diagnosed in transmitting academic knowledge to industrial concerns. The Innovation Authority says that industrial concerns should be involved in academic activity at an earlier stage. The report also states that funding large-scale clinical trials is a Waterloo for Israeli drug development companies, and that the use of genomic information and big data systems to accumulate knowledge can help reduce costs and shorten these trials, thereby helping drug companies.

Published by Globes, Israel business news - en.globes.co.il - on January 14, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Innovation Authority chair Ami Appelbaum, CEO Aharon Aharon, Economy Minister Eli Cohen
Innovation Authority chair Ami Appelbaum, CEO Aharon Aharon, Economy Minister Eli Cohen
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