The “Al-Aqsa Flood” operation – launched by the Palestinian resistance on October 7 – dealt a particularly severe blow to the Israeli technology sector, which is one of the most important economic sectors, in which 6,000 companies operate, and the industry constitutes 18% of the gross domestic product, and about half The country’s exports, and 30% of tax revenues.
Israel is called “the country of startups,” as its per capita share of emerging technology companies exceeds any other country in the world, and it witnesses significant investments in research and development from major American companies, including Microsoft, Apple, Google, and… NVIDIA and others, and these companies are already feeling the effects resulting from the aggression launched by the occupation against the Gaza Strip.
To indicate the strength of this sector in supporting the Israeli economy, it is enough to know that the technology industry succeeded in sparing the Israeli economy from the effects of the worst economic crises that occurred in the world, including the Great Recession between 2008 and 2009.
Likewise, Israel faced the Corona pandemic in a similar way. While almost all countries in the world were affected by the epidemic, Israel recovered more quickly thanks to the strength of its technology industry.
But the situation is different now with the continuation of the Israeli aggression on the Gaza Strip, as the technology sector was severely affected, and more than 80% of Israeli advanced technology companies reported that they were affected by the war.
This vital sector has received painful blows that threaten its prosperity from several angles. The most important of them are:
workforce
The most immediate repercussions of the war on technology companies were in the workforce, as Israel mobilized more than 300,000 reserve soldiers to participate in the war, and the Israeli company “SNC” estimates that about 10% of technology employees were recruited, with the number rising to 30% in some cases. Companies, according to Forbes in a report.
According to a report published by the Emerging Nation Policy Institute, 70% of Israeli technology companies reported damage to their operations; Because a large portion of their employees were called up for military service.
Israel is one of the few countries outside East Asia where advanced chips are manufactured, including their development and planning, and the most prominent company in the field of semiconductors is Intel, which has been operating in Israel for nearly 50 years, and employs about 12,800 people in 5 locations. President in the country.
The Nvidia development center, which manufactures chips for artificial intelligence systems, is located in the Yokneam settlement, an hour’s drive from the northern border with Lebanon. Google has already opened its own chip development center in Israel, and Amazon employs more than 1,500 people in the country. The country.
According to Nvidia’s statement, about 12% of its 3,300 employees were summoned to military service, according to the Israeli Yedioth Ahronoth website.
Cancellation or delay of investments
In 2021, Israeli startups raised $27 billion according to the Israel Innovation Authority (a government agency), and in light of the current war, the big challenge is the continued flow of investments in Israeli technology companies.
Here we find a direct impact of the war, as more than 40% of technology companies had investment agreements that were delayed or cancelled, and only 10% were able to hold meetings with investors.
John Medved, CEO of OurCrowd, a major global venture investment platform based in Israel, told Reuters, “The big challenge facing the startup economy is to ensure that the money continues to flow, because the vast majority of these startups are not profitable, and therefore “It needs continuous investment.” “This is not a particularly easy time to get investment,” he added.
To confront these challenges, the Israeli Innovation Authority, which is responsible for directing technology policies in the country, announced the allocation of 100 million shekels ($26.7 million) in the form of grants and aid to provide about 100 startup companies suffering from financial distress, to confront the challenges imposed by the Israeli war on Gaza.
The CEO of the Israeli Innovation Authority, Dror Ben, said, “The high-tech sector, which has faced a decline in the volume of investment during the past 18 months, is also affected by the current crisis… and this impact appears most evident in startups that urgently need financing.” Especially during a challenging period, where it is difficult to raise new financing rounds.” According to what was reported by the Times of Israel newspaper.
Before the war actually broke out, Israeli technology companies suffered a sharp decline in investments of up to 70%, which was exacerbated by the global economic slowdown and the controversial judicial reform introduced by the Israeli government earlier this year. The war came to make matters worse, which is This prompted the Israeli Innovation Authority to intervene.
Exports and tax revenues
The technology industry represents 30% of Israel’s tax revenues, making its prosperity crucial to the Israeli economy. But in light of the aggression, business stops or slows down, which greatly affects the exports of these companies, as well as the taxes they pay to the state treasury.
According to the Emerging Nation Policy Institute report, a large percentage of companies are at risk of closure, delays in production and delivery of orders, or inability to meet investors and meet their requirements.
In a survey conducted by the institute that included 507 advanced Israeli technology companies, more than 70% of these companies reported postponing or canceling their important orders and projects.
These companies also confirmed their inability to conduct the laboratory experiments necessary to develop their projects, in addition to the existence of difficulties in exporting and importing from abroad. About two-thirds of these companies also reported technical and operational problems related to the war situation.
All of this directly affects the tax revenues that the treasury in Tel Aviv receives from the activity of this pivotal sector of the Israeli economy.
