Israel Grants Intel $300 Million in Investment Subsidies

Intel aid pact to see payroll peak in 2017-18, according to documents obtained by TheMarker.

Hagai Frid

Intel’s giant Kiryat Gat semiconductor plant will steadily increase its revenues and payroll between now and 2017-2018, but then begin to pare back both in the succeeding five years, according to the agreement reached with the Israeli government on the company’s $6-billion investment program.

Documents obtained by TheMarker show that under the agreement, in which the government will provide some $300 million in investment subsidies, Intel’s workforce will grow from 3,019 in 2013 to about 4,000 in 2017-18, before falling to 3,420 in 2023 when the agreement expires.

Likewise, Intel Israel sales are expected to increase from about $2.3 billion this year to a peak of $3.724 billion annually in 2017-18, then decline to just $1.6 billion by 2023, the agreement says.

The reason is that the years 2017-18 mark the final years of Intel’s previous investment agreement with the government, dating from 2011, under which the state provided $700 million in grants. The new agreement, reached last month, runs concurrently through 2018 and continues into 2023.

Under the new agreement, Intel undertook to increase its workforce in Kiryat Gat – where it will be making next-generation 10-nanometer chips, against the 22-nanometer chips it now manufactures – over the 2,840 Israelis it committed to employ under the 2011 pact.

In addition, under the $300 million grant Intel will continue to enjoy a preferred corporate tax rate of 5%, less than a fifth the ordinary 26.5% rate paid by most companies.

Government officials have warned that if Israel hadn’t won over Intel with the grant and tax breaks, not only would the company not have created the new jobs, but would have laid off workers starting in 2019. But sources close to Intel told TheMarker that the company doesn’t usually shut down fabrication plants like the one in Kiryat Gat when its obligations to the host government are over, but rather reduces operations in line with market demand.

One way of calculating the price the government is paying for each new job created is to look at the net growth in new jobs after 2014, when both investment agreements are in force. At 1,160 jobs, the grant of 1.077 billion shekels (about $300 million) works out to about 930,000 shekels per job.

Calculated by the number of employees that will be working at the plant when the new agreement alone is in force – some 3,650 people – the aid works out to about 300,000 shekels each.

Either way, that is a large sum per new job created compared with other investment grants for business in the periphery. For example, at the end of 2013, the Economy Ministry’s Investment Center approved 41 million shekels to 11 small and medium-sized plants to create 268 jobs. That worked out to just 153,000 shekels a job.

On the other hand, Intel undertook to pay salaries considerably higher than the national average.

During the peak years of operation, the company will pay an average employer’s cost – wages plus social and fringe benefits – of 21,900 shekels a month for each of more than 2,000 technicians slated to be on its payroll. Some 350 students employed half time at the plant will have a cost of 6,600 shekels a month.

The employer’s cost for another 1,300 engineers and other professionals will average 28,000 shekels a month, while 350 managers will be employed at an average cost of 54,000 shekels, according to the agreement.

The government failed to win a key concession from Intel that it would produce its most advanced products in Israel.

But the government did win a concession aimed at helping the economy of Israel’s southern Negev region. Intel is committed to drawing half of its new workers from the south, and to employ at least 60 new staffers from Bedouin, Circassian, Druze and ultra-Orthodox populations, as well as among single parents and handicapped people.