November 27, 2022
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Look Past Israel’s Bonkers Politics. Its Economy Is Thriving.

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As even the most advanced economies buckle under the highest inflation rates this century, anemic growth and depreciating currencies, Israel would appear to be irretrievably dysfunctional with voters preparing to elect their fifth government in less than four years. A day doesn’t pass without reports of clashes in the West Bank, the recurring hazard of Hamas missiles fired from Gaza and the peril of a nuclear showdown with Iran. 

Israel’s perennial headlines obscure a greater reality, which is that the Mideast nation of nine million is an economic juggernaut. It has the fastest growth and one of the lowest rates of inflation and jobless. On top of that, the shekel is the world’s best-performing currency among the 31 that trade actively and the only one that strengthened against the dollar the past decade.

Unlike any of the 34 developed economies, Israel is poised to achieve 5.2% gross domestic product growth in 2022, 3.5% in 2023 and 3.5% in 2024, according to more than a dozen forecasts compiled by Bloomberg. With unemployment at 3.5% and inflation at 4.3% (around half the annualized rate for the US and European Union) Israel is proving to be the benchmark not only for stability, but for innovation as well. 

If anything changed during the past 10 years, it’s that corporate Israel became diverse. None of the 630 companies domiciled in Israel account for more than 10% of the market’s value. Technology has emerged as the No. 1 industry, including 107 companies making up almost 25% of the market. In 2012, Teva Pharmaceutical Industries dominated the index with a weighting of 24%, followed by agricultural and chemicals producer ICL Group at 10%. Today, health care and materials represent 11.2%, down from 43.1%, according to data compiled by Bloomberg.

From auto parts to medical equipment solutions to food, water and climate change, technology made in Israel is transforming the world’s biggest industries. This hub of innovation includes Mobileye Global Inc., the creator of vision-based driver assistance systems for 50 car makers, or 70% of the global market. Mobileye recently filed with the US Securities and Exchange Commission for an initial public offering valuing the Intel Inc. unit at as much as $30 billion. Also, there’s Nanox Imaging Ltd., serving governments, hospitals and clinics with cloud-based image analysis, online diagnosis and billing services while developing a 3D medical imaging device; Innoviz Technologies Ltd., the maker of light detection ranging (Lidar) sensors and perception software for autonomous driving; and Redefine Meat Ltd., the closely-held manufacturer of animal-free food using proprietary 3D printing and meat digital modeling to replicate the appearance, texture and flavor of whole muscle meat.

The people behind these companies characteristically are unafraid to fail because they are designing solutions for problems that haven’t been defined. When Amnon Shashua, a professor at Hebrew University of Jerusalem, founded Mobileye in 1999, he was already thinking about advanced driver assistance systems (ADAS) that initially were met with skepticism. “The industry brushed us off,” he said in a September interview in the company’s Jerusalem headquarters. “We developed it and we won in the value market.”

Mobileye, which was acquired by Intel in 2017 after an IPO three years earlier, outperformed the 75 members of the Solactive Autonomous & Electric Vehicles Index, with a 43% increase in revenue in 2021 and sales gains of 30% in 2022 (projected to be 23% next year), making it No. 1 in growth among Intel units, according to estimates by 13 analysts compiled by Bloomberg. The forecasts are bolstered by Mobileye’s rising share of the market and its unique applications.

Half of all new cars last year, or 40 million vehicles, were equipped with ADAS, and Mobileye supplied 28 million, or 70%, Shashua said. The company has been able to expand its market share in part because Mobileye “is the only company that built an entire world high-definition map we called REM, or Road Experience Management,” enabling deployment of autonomous vehicles in new locations almost instantaneously, he said.

Nanox was also buffeted by doubts about a business conceived to address two-thirds of the world population — from Africa to South America to nursing homes in the US — without direct access to medical imaging. Since its 2020 IPO, the shares lost more than 50% of their value. But since mid-March, Nanox is outperforming global peers by gaining 32%. Analyst forecasts compiled by Bloomberg predict a total return (income plus appreciation) of 219% during the next 12 months, greater than any of the 10 largest medical imaging companies. 

“We are trying to move the world from predictive medicine to preventive medicine,” said Erez Meltzer, 65, who became the chief executive officer of Nanox in January. “You cannot be there unless you don’t have any fear of your own failure,” he said. “And sometimes, it’s like developing a cure for a disease which is nonexistent.”

Innoviz, the auto parts maker headquartered east of Tel Aviv and listed on the Nasdaq stock market last year, reported revenue increases of 144% in the first quarter and 78% in the second, dwarfing the gains posted by the 48 members of the Bloomberg Intelligence Global Auto Parts Index. The company’s not-so-secret sauce is Lidar technology providing reliable navigation in changing environments. Japan Post said in July it will digitize roads using Innoviz Lidar for digital maps. A month later, Volkswagen AG ordered $4 billion of Lidar from Innoviz, and analysts at Goldman Sachs Group Inc., Cantor Fitzgerald LP and Berenberg predict Innoviz revenue will increase 288% in 2023  on average and 374% in 2024.

“Anything that is robotic will need a Lidar,” Oren Buskila, chief research and development officer and co-founder of Innoviz, said in a July interview. “We chose the car market because this is where we’ll see the biggest growth for Lidars,” he said. In 10 years, most new cars will have Lidar, Buskila added. “The car industry can change as we shift to real self-driving cars, not just ones that break autonomously but can actually take the responsibility of driving from the driver and let him go to sleep, or work on his laptop or read a book or whatever.”

At a point when climate change is everyone’s existential threat, sustainability increasingly drives the agenda for corporate Israel. That’s especially true for the 2018 startup Redefine Meat, which created the first 3D printed plant-based steak. “If you single out an industry that is contributing damage of this planet, meat is the biggest one,” co-founder and CEO Eshchar Ben-Shitrit said during a July interview at the company’s Ness Ziona headquarters. “We believe that in the next 20 years, there will be a big meat company very similar to JBS or Tyson Foods that will not need animals and we believe we have a good chance to be this company.” Redefine Meat products are in more than 500 restaurants, butcher shops in Israel, Berlin, Amsterdam and London. 

Polarized politics haven’t prevented successive short-lived governments from focusing on sustainability as a priority. “The most promising sectors in terms of climate innovation are the ones to do with alternative protein, so Redefine Meat is one of them,” Yuval Laster, the Ministry of Environmental Protection’s senior deputy director for strategy and policy, said last month in Jerusalem. “Water tech, food tech, agriculture tech are all part of what we see as climate innovation,” including “more than 600 startups in Israel already.”

So even if past is prologue and the next government fails for lack of consensus, the economy shows no signs sputtering. “Climate and innovation are bipartisan in Israel,” Laster said. 

More from Bloomberg Opinion:

• Some Israelis More Scared of Netanyahu Than Iran: Zev Chafets

• New Israeli-Palestinian Clash Shows Worse to Come: Hussein Ibish

• Arab-Israeli Summit Masks Stalled Diplomacy: Bobby Ghosh

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Matthew A. Winkler, editor in chief emeritus of Bloomberg News, writes about markets.

More stories like this are available on bloomberg.com/opinion



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