"It's not right that Israeli high tech is foreign owned"

Zvi Marom  / Photo: Eyal Izhar, Globes

BATM CEO Zvi Marom warns about Israel's high tech future, while the sector is mainly foreign owned, and says the vaccination won't beat Covid-19.

BATM Advanced Communications Ltd. (LSE: BVC) CEO Zvi Marom is ending six years as chairman of the Israeli High-Tech Association. This position, along with his company’s areas of expertise - which includes infectious diseases and testing equipment for infectious diseases - as well as his close relationship with Prime Minister Benjamin Netanyahu, have put him close to the decision-making centers of power during the Covid-19 crisis. But he provides a harsh assessment of Israel's handling of the Covid-19 pandemic and also warns about the precariousness of Israel's high tech future, while most of the sector remains under foreign ownership.

When Netanyahu retired from political life following the 1999 elections, he was hired by Marom. "When he came to BATM, he was an international expert on the war on terror. When he left BATM, he had become an international economics expert, and became Minister of Finance." Marom told "Globes" in an interview three years ago.

This year, Netanyahu hired Marom. "I made all of our knowhow available to the Israeli government and the prime minister. The fact that the Ministry of Health challenged me and lost - because I insisted that we should wear masks, produce quantities of testing reagents, and increase significantly the number of tests performed whereas, at that time, the Ministry of Health’s approach was the opposite - made them dislike me and there are still some who bear a grudge."

Bringing in the private sector

In an interview to mark the end of his two consecutive terms as chairman of the Israeli High-Tech Association, which operates under the auspices of the Manufacturers Association of Israel, Marom explains why both Israel’s high-tech sector and the country’s Covid-19 campaign suffer the same malaise: a lack of satisfactory cooperation between the public and private sectors, and no long-term planning.

Marom will be replaced by Marian Cohen, President of Mer Group. Cohen (64), is a major in the IDF 8200 unit reserves, who built his career at Mer.

Marom said, "Coronavirus won’t disappear, just as the flu doesn’t go away, so the economy must be structured to make it possible to live with it. This matter is not being handled well, due to a lack of cooperation between the public and private sectors - there’s no clear strategic plan, everything is motivated by minute-to-minute decisions. The relevant organizations are not functioning. They’re fighting with one another, and don’t know how to work with the private sector. Add to that the political stalemate we’re in - it doesn’t bode well for Israel’s citizens."

What is your main diagnosis regarding how Israel has dealt with the crisis?

"We won’t be done with the coronavirus when the vaccines arrive. There will be a vaccine, but the coronavirus will remain. We need to organize economic activity for this thing. There’s flu vaccines and then there’s the flu, only the coronavirus is more contagious.

What exactly do you propose to do?

"I know countries where there is close cooperation between the government sector and the private sector. The government sector perceives itself as a regulator, ensures that the private sector knows what the long-term plans are, and operates transparently by issuing tenders.

"In Israel, the Ministry of Health acted as a regulator, then as an operator and is now trying to be a manufacturer, and it does none of these things very successfully. The people nominated to head the Covid-19 operation resigned when they didn’t get respect or recognition. Yet, the government officials still don’t understand, and keep on acting like that. The State of Israel is considered the Startup Nation but if we’re really the Clerked-up Nation, then we’re lost."

Where is Netanyahu in all this business?

"He understands things quickly and has international connections, but is this crisis being managed well? The answer is no."

The question is whether the government is at all capable of making long-term decisions, when the budget is being held hostage by Netanyahu's trials.

"It's terrible. There has never been such a thing in the history of Israel, and it is rocking our foundations. It’s scandalous. We have reached a point where the system is paralyzing itself, because two sides have no agreement on anything. But in the end, the one who’s responsible is the prime minister."

The $ 10 billion threshold

Marom was very involved in Israel's decision to invest in promoting quantum technologies - the new generation of computers, communication technologies and sensors. About two years ago, after championing the next computer revolution ("I hassled Netanyahu till he couldn’t take it anymore"), the prime minister announced a significant budget for the matter. But in the absence of a state budget, plans have not yet advanced as expected. The relevant committees established to outline the policy have already completed their work, and academia, startups and the defense industries have already made impressive developments in the field.

Despite initial concerns about supply chain failures, the high-tech sector has proven to be highly resistant to the Covid-19 crisis. Although some companies initially sent workers on unpaid leave, fairly soon afterwards, the news went back to reporting about capital raising and manpower shortages. This year, the volume of high-tech fundraising in Israel is expected to cross the $10 billion threshold for the first time.

This was a great year for high tech.

"It’s all well and good, but who owns most of the Israeli high-tech industry? Foreign entities. In terms of risk management, it’s not right that most of Israel's high-tech industry is foreign-owned. The outcome is that their profits don’t trickle down to the whole population.

"Take the microchip industry for example. Our main risk is that we’re solely dependent on Intel. Although Intel's revenues are higher than those of its competitors - AMD, Nvidia, and Apple combined - it has a crisis of innovation. In Finland, they worked hard to have alternatives in case Nokia fell. And it did fall. And Finland's economy was hit badly."

"If Intel falters, the chip industry in Israel and everything related to it will get weaker, too - revenue will be lower, there’ll be fewer professional opportunities, the entire manufacturing industry will be harmed. An entire industry has been built around Intel, like Applied Materials, and others. So, if the giant starts to waver, that damages everyone. The house won’t collapse entirely, but there will be damage. Therefore, we as a country need to see if we haven’t put too many eggs in one basket. I’m in favor of building a strong local industry, and that’s something that hasn’t been a priority for our government for a long time."

Anapurna and Habana Labs are Israeli-born. True, they’ve been sold to Amazon and Intel, but they’ve stayed here. Apple is about to open a huge development center here.

"Yes, but it's not ours. The determining factor is where management sits, and who makes the decisions. If it sits in Israel and makes the decisions in Israel - it's an Israeli company. If the management sits in the US, with a decent-sized branch in Israel - it’s an American company.

"If what we do is provide quality manpower to companies whose major profits are made outside Israel, it’s not the same as when you have a factory owned by local entrepreneurs who pay taxes here, and also gives you real technological power. I look at things from the perspective of our population, not high-tech. They always say that Israel invests a lot in R&D. That’s not true. The ones investing in R&D are the multinationals. "

Looking for talent, not price

When I spoke to the CEO of a Taiwan-based microchip company on a visit to Israel, he said: "Just focus on what you’re good at."

"We need to do what we’re good at, but it should be ours. We must establish a series of Israeli-owned technology companies and factories with a turnover of $ 200-400 million a year, and keep them here."

Building an Israeli industry isn’t something you do overnight. Isn't it better to start with fairer taxation?

"A large company has to pay taxes to the government. It’s a matter of principle. The slippery international taxation game, where tax experts and advisers divert things to the point where companies don’t pay tax, is wrong."

You know the old adage that if you tax them, they won’t come. Or they’ll leave.

"I know it, and it's not true. But Israel doesn’t think in terms of systems. Not every bright idea is worthwhile. Germany is a technological powerhouse no less than Israel. They work more slowly than we do, because they do things more thoroughly. So, don’t they levy taxes on giant corporations? Those companies go where the talent is, they’re not looking for cut-rate prices. Saying that companies won’t come here because labor will be more expensive is an urban legend. That’s not to say, by the way, that tax breaks shouldn’t be granted at all."

To what extent does the prime minister care about these issues?

"The truth is that we’re already gotten used to working without the government. I was able to convince the high-tech industry that we have a responsibility that extends beyond our shareholders and employees."

You just returned from a trip to the UAE. Should we expect a wave of investments from there?

"It will be a few more years before a real operation will get underway; we have to better understand their needs. Also, even with all the glad tidings [of the Abraham Accords], the English, French and Americans are already there. So, we have to look to see where are gaps that need to be filled. The notion that the Emirates invest huge sums in startups misses the mark."

Published by Globes, Israel business news - en.globes.co.il - on December 21, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Zvi Marom  / Photo: Eyal Izhar, Globes
Zvi Marom / Photo: Eyal Izhar, Globes
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