Economy (2002)
GDP: $103 billion (2002).
Annual growth rate: - (negative 1%).
Per capita GDP (2002): $15,770 (at market exchange rate).
Natural resources: Copper, phosphate, bromide, potash, clay, sand, sulfur, bitumen, manganese.
Agriculture: Products--citrus and other fruits, vegetables, beef, dairy, and poultry products.
Industry: Types--high-technology projects--including aviation, communications, computer-aided design and manufactures, medical electronics--wood and paper products, potash and phosphates, processed foods, chemicals, diamond cutting and polishing, metal products.
Trade: Exports--$25.8 billion (2002). Exports include polished diamonds, electronic communication, medical and scientific equipment, chemicals and chemical products, electronic components and computers, machinery and equipment, transpot equipment, rubber, plastics, and textiles. Imports (excluding defense imports)--$32.6 billion (2002): raw materials, diamonds, energy ships and airplanes, machinery, equipment, land transportation equipment for investment, and consumer goods. Major partners--U.S., UK, Germany Imports: U.S., Germany, Italy
1Including Jerusalem
2Israel proclaimed Jerusalem as its capital in 1950. The United States, like nearly all other countries, maintains its embassy in Tel Aviv.
Economy of Israel
Israel has a diversified, technologically advanced economy with substantial but decreasing government ownership and a strong high-tech sector. The major industrial sectors include high-technology electronic and biomedical equipment, metal products, processed foods, chemicals, and transport equipment. Israel possesses a substantial service sector and is one of the world's centers for diamond cutting and polishing. It also is a world leader in software development and prior to the violence which began in September 2000 was a major tourist destination.
Israel's strong commitment to economic development and its talented work force led to economic growth rates during the nation's first two decades that frequently exceeded 10% annually. The years after the 1973 Yom Kippur War were a lost decade economically, as growth stalled and inflation reached triple-digit levels. The successful economic stabilization plan implemented in 1985 and the subsequent introduction of market-oriented structural reforms reinvigorated the economy and paved the way for rapid growth in the 1990s.
A wave of Jewish immigration beginning in 1989, predominantly from the countries of the former U.S.S.R., brought nearly a million new citizens to Israel. These new immigrants, many of them highly educated, now constitute some 13% of Israel's 6.7 million inhabitants. Their successful absorption into Israeli society and its labor force forms a remarkable chapter in Israeli history. The skills brought by the new immigrants and their added demand as consumers gave the Israeli economy a strong upward push and in the 1990’s, they played a key role in the ongoing development of Israel's high-tech sector.
During the 1990s, progress in the Middle East peace process, beginning with the Madrid Conference of 1991, helped to reduce Israel's economic isolation from its neighbors and opened up new markets to Israeli exporters farther afield. The peace process stimulated an unprecedented inflow of foreign investment in Israel, and provided a substantial boost to economic growth in the region over the last decade. The onset of the Intifada beginning at the end of September of 2000, together with the downturn in the high-tech sector and Nasdaq crisis, together with the slowdown of the global economy, and particularly the U.S. economy, have all significantly affected the Israeli economy during the past three years.
Israeli companies, particularly in the high-tech area, have in the past enjoyed considerable success raising money on Wall Street and other world financial markets; Israel ranks second to Canada among foreign countries in the number of its companies listed on U.S. stock exchanges. Israel’s tech market is very developed, and in spite of the pause in the industry’s growth, the high-tech sector is likely to be the major driver of the Israeli economy. Almost half of Israel’s exports are high tech. Most leading players, including Intel, IBM, and Cisco have a presence in Israel, and it is worth noting that even during the downturn in the macroeconomic situation in Israel these large players as well as others did not withdraw from the Israeli market.
Growth was an exceptional 6.2% in 2000, due in part to a number of one-time high tech acquisitions and investments. This exceptional year was followed by two years of negative growth of –0.9% and –1%, respectively, in 2001 and 2002. As a result of the security situation, and associated downturn in the economy, there has been a significant rise in unemployment and wage erosion. This led to a decline in private consumption in 2002 and forecast decline in 2003 as well. This was the first time that there has been negative private consumption since the early 1980’s. The assessment is that the economy will stabilize and grow minimally in 2003. The change in the geopolitical situation as a result of the successful completion of the War in Iraq, combined with the potential for some progress in the political situation, as well as the approval of a GOI economic recovery plan, and approval of US loan guarantees are likely to have positive effects on the economy.
The United States is Israel's largest trading partner. In 2002, two-way trade totaled some $19.4 billion, and Israel had a $5.4 billion trade surplus with the U.S. The principal U.S. exports to Israel include civilian aircraft parts, telecommunications equipment, semiconductors, civilian aircraft, electrical apparatus, and computer accessories. Israel's chief exports to the U.S. include diamonds, pharmaceutical preparations, telecommunications equipment, medicinal equipment, electrical apparatus, and cotton apparel. The two countries signed a free trade agreement (FTA) in 1985 that progressively eliminated tariffs on most goods traded between the two countries over the following 10 years. An agricultural trade accord signed in November 1996 addressed the remaining goods not covered in the FTA but has not entirely erased barriers to trade in the agricultural sector. Israel also has trade and cooperation agreements in place with the European Union, Canada, Mexico, and other countries.
Best prospect industry sectors in Israel for U.S. exporters are electricity and gas equipment, defense equipment, medical instruments and disposable products, industrial chemicals, telecommunication equipment, electronic components, building materials/construction industries (DIY and infrastructure), safety and security equipment and services, non-prescription drugs, travel and tourism services, and computer software.
