The Ministry of Finance and Ministry of the Economy believe that the understandings on the basis of which Intel Corporation (Nasdaq: INTC) plans to upgrade its fab in Kiryat Gat by 2017 will greatly improve the chances of further investment in Israel by the company. On Wednesday, Intel announced that it will submit to the Investments Promotions Center an investment plan to upgrade the fab to become the most advanced in the world to produce with 10-nanometer technology. The estimated investment by Intel is $6 billion (about NIS 20 billion), in exchange for a government grant of 5-8% of the investment, or NIS 1.4 billion.
In addition to the grant, in unofficial negotiations with Intel Israel CEO Maxine Fassberg and president Mooly Eden over the past year, the state promised that the company would keep its reduced corporate tax rate of just 5%.
The Investments Promotions Center will discuss Intel's investment plan, which will include a timetable, costs, types of upgrades, and other details. It will discuss the size of the grant to Intel and set job targets for the company.
Intel Israel has 9,800 employees, and the government expects it hire 1,000 new employees as part of fab upgrade. Intel will also be required to make reciprocal procurements. It made $847 million in reciprocal procurements in 2013, 90% of which were from small and mid-sized businesses; the company's reciprocal procurements have totaled $5.8 billion since 2006.
Although Intel's announcement was ambiguous and disclosed few details, the deal seems to be closed. "We offered what we could so that Intel would come to the Investments Promotion Center," Ministry of the Economy director general Amit Land told "Globes". "Intel would not have submitted a plan if it knew that we could not live with it. This investment will increase the chances that Intel will make its subsequent investment in Israel."
The Ministry of Finance and Ministry of the Economy avidly pursued Intel in the unofficial negotiations in an effort to ensure that the company's huge investment would be made in Israel. Lang says that agreements in principle have not yet been reached on the grants to Intel in exchange for the investment.
The National Economic Council has carried out a thorough study on the value of Intel's involvement in the Israeli economy. According to Lang, the study found that the investment boosted Israel's exports by $2 billion a year. "The study strongly supports this step and points to the indirect effects to the economy. There are no words to describe the effects of such a huge investment. This is a welcome event for the Israeli economy," he says.
During Intel's previous investments, other voices called on the government to reassess its policy of extending huge grants to the company. Former top Ministry of the Economy officials said at the time that, in exchange for the huge grants that the company was seeking, it was necessary to demand from Intel to make repeated investments in Israel to encourage other multinationals, including big pharma companies, to set up shop here. At the same time, these officials said that, in the case of Intel, Israel was putting all its eggs into one basket.
"This was populism," says Lang. "Chief Scientist grants under our programs yield far more results, and many more enterprises receive grants from the Investments Center. Intel explicitly does not swallow the entire budget, and it would be fantastic if another company of this size would come here and invest so much. Besides exports and jobs, and the huge significance of a $6 billion investment in the Israeli economy, this step will brand Israel as a global technology spearhead. We must not miss this opportunity, which is why we are so pleased."
Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2014
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