Reciprocal procurement in Israel by foreign companies totaled $2.5 billion in 2017, $500 million more than in 2016, according to the second report by the Ministry of Economy and Industry's Industrial Cooperation Authority.
230 foreign companies made reciprocal procurement purchases from over 820 Israeli suppliers under the obligation imposed by the Industrial Cooperation Authority as a result of deals with those companies with public agencies.
Companies having agreements with government ministries and companies and other budgeted concerns, such as health funds and companies providing public transportation services, led reciprocal procurement last year.
The report shows that a 50% rise in reciprocal procurement by foreign companies in small and medium-sized industries and industrial companies in outlying areas. 335 foreign companies in small and medium-sized industries made reciprocal procurement purchases in 2017, compared with 201 companies in 2016, and the number of companies in outlying areas that benefited from reciprocal procurement also rose substantially. The Ministry of Economy and Industry said that the volume of these purchases added 12,000 jobs to the Israeli economy.
Industrial Cooperation Authority director general Ziva Eger attributed the increase in reciprocal procurement in the Israeli economy to more extensive enforcement of obligations on the part of foreign companies doing business with public agencies in Israel.
The reciprocal procurement report following controversy in recent weeks concerning a decision by the Ministry of Transport and the Ministry of Finance that the state will not require foreign bus manufacturers used by Israeli public transportation companies to make reciprocal procurement. It was stated that a demand for reciprocal procurement would make purchases of buses more expensive, resulting in higher fees for public transportation. A special inter-ministerial team appointed following the crisis will submit its recommendations to the Minister of Finance and the Minister of Economy and Industry by the end of the October.
The report shows unfulfilled reciprocal procurement obligations undertaken by foreign companies totaled $430 million in 2017, $250 million less than in 2016. The Industrial Cooperation Authority attributed the reduction to stronger enforcement measures by the state with respect to these companies.
27 warning letters were sent to companies that breached their reciprocal procurement undertakings in 2017. Proceedings were begun against five of them, leading to revision of those companies' reciprocal procurement plans in Israel. The Industrial Cooperation Authority instituted advanced proceedings against companies failing to fulfill their obligations in two cases and is conducting proceedings for putting Thyssenkrupp on a blacklist, which is likely to restrict future agreements with other public agencies. Thyssenkrupp is obligated to make reciprocal procurement purchases in Israel amounting to hundreds of millions of euros under the deal for production and sale of Dolphin submarines and warships for the Israeli navy. These deals are also under prolonged and extensive police investigation. Another company against which the Industrial Cooperation Authority instituted advanced enforcement proceedings last year was Spanish company Stadler, a large veteran supplier of Israel Railways.
The Industrial Cooperation Authority's report lists two other companies as being in breach of their reciprocal procurement obligations in 2017: Spanish company Semi, involved in preparing infrastructure for the electric railway, and Chinese company CRTG, which is tunneling on the Greater Tel Aviv metropolitan area light rail Red Line.
In addition to these cases, the Industrial Cooperation Authority also cited Rolls Royce, Dell Corporation, Intel, General Electric, and IBM, which regularly make purchases in the Israeli economy in excess of their obligations under their agreements with public agencies. The figures cited in the report show that for each dollar that the international companies undertake to invest in Israeli industry, they actually invest $2.20. The results has been not less than $26 billion in aggregate reciprocal procurement over the years.
In its report, the Industrial Cooperation Authority cites the potential for building a railway industry in Israel, following the expansion of railway infrastructure dictated by the government in recent years. Tenders for infrastructure construction, purchases of locomotives and carriables, maintenance and operation of heavy and light trains, and others amounting to billions have been published in recent years. In the coming period, the state is likely to publish additional tenders in this field, which the Industrial Cooperation Authority believes will affect the volume of reciprocal procurement in the economy. In view of this trend, the Industrial Cooperation Authority takes note of the potential for Israel companies adapting production lines and technological solutions to facilitate the establishment of a local railway industry.
The report also addresses the expected changes in the coming years in the US military aid agreement, due to elimination of the option of converting a quarter of the aid into shekels for spending on procurement from Israeli industries. In view of this change, the Industrial Cooperation Authority proposed requiring US companies selling weapons to Israel to make reciprocal procurement purchases, even though the money involved is voluntary.
In preparation for the new format for US military aid, the Industrial Cooperation Authority is beefing up its offices in the North America and tightening its connections with the Israeli Ministry of Defense procurement delegation in New York.
"This report illustrates the power of reciprocal procurement and its significance for industry," Eger said today. "It is important to keep it in mind, especially now when we are seeing attempts to eliminate reciprocal procurement in projects amounting to tens of millions of shekels and prevent the transfer of know-how and authority from foreign companies to local industry. When there are growing and escalating trends towards localization in industries throughout global industries, Israel must preserve and strengthen local industry, which faces unique challenges in Israel."
Minister of Economy and Industry Eli Cohen said, "The commitment of the Ministry of Economy and Industry to Israeli industry is clear in the enforcement of reciprocal procurement deals. Israel is our business and we are making sure that each and every commitment is kept for the benefit of Israeli industry in order to create jobs and meet export targets."
Published by Globes [online], Israel business news - www.globes-online.com - on August 14, 2018
© Copyright of Globes Publisher Itonut (1983) Ltd. 2018