Israeli Treasury Plan Earmarks $330 Million to Boost Manufacturing

Proposal includes grants for R&D and retraining, promises to ease regulatory burden

Israeli Finance Minister Moshe Kahlon, January 4, 2018.
Meged Gozani

Finance Minister Moshe Kahlon unveiled Thursday a 1.1 billion shekel ($330 million) multiyear program aimed at bringing innovation to Israeli manufacturing and retraining employees while reducing regulatory barriers.

The centerpiece of the program — called Net Industry, echoing Kahlon’s Net Family program to reduce the cost of living and Net Reduction tax cut program — allocates 675 million shekels to promote advancing manufacturing and research and development, through grants to manufacturers and the establishment of research institutes. The focus will be on small- and medium-sized operations.

An additional 365 million shekels will be allocated to retrain manufacturing workers in technology. The bulk of the sum, 200 million shekels, is to go toward reshaping the technical curriculum at educational institutions, a change that is slated to be included in the 2019 Economic Arrangements Bill, supplementary legislation to the state budget.

In addition, 110 million shekels will be spent on reducing regulatory barriers to manufacturing, for example by making it easier to rezone land for industry and launching a “one-stop shop” for regulatory matters.

“The plan ... will help provide the tools for traditional industry to improve human capital and productivity while adopting new technologies,” Finance Ministry Director General Shai Babad, who chaired a government committee that designed the program, told a news conference Thursday.

Net Industry also includes new rules designed to ease the way for bringing in highly skilled manufacturing workers from abroad.

The proposal, which includes both one-time aid and permanent aid that will be included in the regular budget, will be submitted to the cabinet for approval in the coming days, with the goal of inclusion in the 2019 state budget.

Manufacturing employs 10% of Israel’s workers and accounts for about half its exports, but is less competitive globally than Israeli high-tech. Israel’s manufacturing output growth averaged 1.7% in the past three years, well behind overall economic growth of 3.2 %.

One reason for the lagging performance is low levels of R&D spending by old-line industrial companies and excessive red tape. Israel was ranked 53rd out of 189 countries in 2016 for ease of doing business, down from 27 in 2007, according to the World Bank.

“Israeli industry must prepare for the next industrial revolution, both in technological capabilities and in preparing human capital and adapting to the challenges of the coming years,” said Economy and Industry Minister Eli Cohen, whose ministry helped develop the program.

Israel’s industrialists, who took a role in formulating the program, agreed to drop their proposal for accelerated depreciation but got a 150 million shekel government fund that will subsidize small- and medium-sized manufacturers to buy advanced-manufacturing equipment over the next three years.