Israel 'Dangerously Reliant on Handful of Exports'

Export Institute chief says government must do more to help small firms.

Israel is dangerously reliant on just 10 companies for close to half of its exports − and one reason why is that smaller companies don’t get enough help from the government to develop markets overseas, Ofer Sachs, the director of the quasi-governmental Export Institute, said in an interview with TheMarker.

Israel’s 10 biggest exporters are accounting for a growing proportion of total exports. In 2007, exports by the G-10 companies comprised 36.4% of total exports; by 2012, they made up 47.7%, according to Export Institute figures. In the first quarter, exports by all the others contracted 5% from a year earlier while total exports increased 4% to $11.5 billion. That was thanks to a 14% jump in overseas sales by the G-10 to $5.75 billion.

A study by the institute found that all the export growth for the period was due to the G-10 companies; without them, export growth would have been nil. “The findings testify to the difficulties facing the great majority of the economy’s exporters − to  increase sales abroad and to be competitive internationally,” said Sachs. “These  data are worrying and demand that the government take steps.”

The G-10 list comprises the U.S. semiconductor maker Intel, defense electronics company Elbit Systems, Oil Refineries Ltd., Teva Pharmaceuticals, machine tool maker Iscar, Israel Chemicals Ltd., agrochemicals company Makhteshim Agan, Paz Oil, Israel Aerospace and HP Indigo, a maker of digital printers.

The Bank of Israel has warned that being dependent on a very small number of exporters could endanger the economy. That is because a worsening business environment for one or two companies could reverberate throughout the economy, which derives close to half its growth from the export sector.

Sacks said the Office of the Chief Scientist, the Economy Ministry unit that aids industrial research and development, must get more resources to enable companies to leverage the innovations they create.

“There has to be some congruence between research in R&D and the development of opportunities to advance in international markets,” said Sachs. “I’ve seen it more than once mainly with small companies, which have developed a fantastic product, that have completed a long development process, and have failed completely,” he said. “It’s because we haven’t given them the tools.”

These tools don’t exist. The government spends about NIS 1.3 billion annually on industrial R&D while assistance for exporters amounts to just NIS 100 million.

“Unfortunately, we have been hit hard by budget cuts,” sid Sachs. “The 2013 budget for the Export Institute dropped to NIS 40 million, compared with NIS 55 million in 2012. Of that NIS 40 million, NIS 25 million is the core budget, with the rest made up of one-time supplements.

Israel underspends on export promotion, according to a World Bank survey of 88 export bodies around the world conducted together with the University of Geneva and the Boston Consulting Group. It found that the average budget for export-promotion bodies was equal to 0.11% of merchandise and service exports. Based on that average, Israel should be spending NIS 300 million to NIS 600 million a year on advancing its exports, said Sachs.

Bloomberg