Overseas Market Profiles - Israel

An Expert's View about Business Environment in Israel

Posted on: 30 Jun 2012

Recent Developments
•Israel’s economy grew 4.8% in 2011. The IMF expects the Israeli economy to slow down to 2.7% and 3.8% in 2012 and 2013 respectively.
•After the sharp decline in 2009, exports and imports of Israel have shown a strong rebound with double-digit growth. In 2011, exports gained 12% while imports rose 24%.
•With a small population and limited geographical area, the government encourages Israeli companies to develop high-tech industries for the international market to achieve economic growth. Information and communication technology (ICT), homeland security, aircraft, electronics, and environmental technologies are areas which Israel excels.
•Israel is Hong Kong’s second largest export market in the Middle East after the UAE. In 2011, Hong Kong’s total exports to Israel surged by 49%, with pearls and precious stones items accounting for 73% of exports to the country.

Current Economic Situation

Israel is considered one of the most advanced countries in the Middle East in economic and industrial development. In the past two decades, the Israeli economy has changed radically, moving away from agricultural and low-tech industries to become a high-tech powerhouse. In 2011, the economy posted a 4.8% growth, followed by a 3.3% year-on-year (YoY) growth in the first quarter of 2012. However, the IMF expects the Israeli economy to slow to 2.7% and 3.8% in 2012 and 2013 respectively.

Many high-tech companies have opened up branches as well as research and development centres in Israel, such as Intel and Microsoft. Other high-tech corporations such as IBM, Cisco Systems and Motorola have set up facilities in the country as well. Israel is a global leader in water conservation and geo-thermal energy, and its development of cutting-edge technologies in software, communications and life science have evoked comparisons with the US’ Silicon Valley.

The diamond industry is another important sector of Israel’s economy. The country has one of the world’s largest diamond exchanges in volume terms, situated in Ramat Gan on the border of Tel Aviv. Diamond, under the product category of precious stones and semi-precious stones, is also the largest trade between Israel and Hong Kong. As a result of the international economic downturn in 2009, global luxury consumption was badly hampered and Israel’s exports of diamonds and other precious and semi-precious stones, accounting for some 20% of exports, dropped 38.5% to US$9,881 million. With global luxury consumption rebounding after 2009, exports of diamonds and other precious and semi-precious stones surged 45% and 18% in 2010 and 2011 respectively.

In 2011, Israel’s exports gained 12% to US$62 billion while imports rose 24% to US$72 billion. As exports account for some 40% of the country’s GDP, external demand remains a vital determinant of its economic growth. While the US and Europe absorb some 60% of Israeli exports, the sluggish economy in these markets will lead to a weaker performance of Israel’s external sector.

Consumer price remained unchanged YoY in May 2012, and the unemployment rate stood at 6.7% in April 2012. After raising policy interest rates by a cumulative 275 basis points to 3.25% since September 2009, the Bank of Israel, the country’s central bank, started embarking on monetary expansion in September 2011, cutting the rates to 2.5% as at end-May 2012.

Trade Policy

Most goods can be freely imported into Israel, though licences are required for defence-related items. When applying for an import licence, the importer must either be a resident of Israel, a corporation registered in Israel, or a non-profit organisation registered in Israel.

Israel's import tariffs are classified under the Harmonised System codes (HS). Ad valorem duties are imposed on imports transaction value (declared by importers). On top of custom duties, a value-added tax (VAT) of 16% is applied to almost all imported and domestically produced goods and services. For imports, VAT is levied based on the CIF value plus custom duties.

Israel maintains strict regulations on product labelling and country of origin marking. All imports into Israel must bear a label showing the country of origin, the name and address of the manufacturer, the name and address of the Israeli importer and the contents, weight and volume in metric units. All labels must be in Hebrew. English language may be added and the printed letters are not larger than those in Hebrew.

Under the US-Israel Free Trade Area Implementation Act (IFTA ACT), products from Qualifying Industrial Zones (QIZs), which encompass border areas between Israel and Jordan and areas between Israel and Egypt, where no less than 35% of the contents are QIZs-produced (including a minimum of 8-10.5% Israeli inputs), are eligible to receive duty-free treatment when entering the US.

In pursuit of higher export growth, the Israeli government has been active in negotiating FTAs internationally. Israel has signed FTAs with a number of countries and regional bodies, including: the US, the European Free Trade Association (EFTA), Jordan (Agreement on Trade and Economic Cooperation, which includes significant tariff reductions in bilateral trade), Turkey, Canada, Mexico, Romania, Bulgaria, and the European Union (EU - both parties signed an Association Agreement which includes tariff-free treatment for industrial goods and most agricultural products). In March 2010, Israel signed an FTA with MERCOSUR countries. The Israeli government is also pursuing an FTA with India.

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Posted: 30 June 2012

See more from Business Environment in Israel

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Doing Business in Israel   By U.S. Commercial Service Israel
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