The Israeli start-up nation is taking on a new role: driving force of the country’s economy, it will also have to act as an airbag. As the war with Hamas enters its ninth week, Israel’s economic outlook is darkening. Sectors such as tourism, construction and agriculture are running out of fuel, household demand is at half-mast and the war costs the country 270 million dollars every day, underlines the Xerfi Institute. “The Israeli economy will not escape recession at the end of 2023, beginning of 2024,” writes Alexandre Mirlicourtois, director of economic and forecasting in a decryption published on November 30.
In this gloomy landscape, Israeli tech is resisting. Since October 7, it has recorded 29 fundraising totaling nearly a billion dollars, tip a review of Start-Up Nation Central. On November 21, an important announcement for the country took place: the start of commissioning of the Israel-1 supercomputer built by Nvidia. A launch carried out two months in advance. Finally, note the large-scale acquisitions by the Californian firm Palo Alto Networks of two young Israeli startups: Talon Cyber Security for $625 million and Dig Security for $350 million.
Due to its age pyramid, the tech world is nevertheless one of the most affected by the mobilization of reservists. At least 15% of the “start-up nation” workforce has been called up. “Companies have had to reprioritize certain projects and distribute them differently by relying more on their international teams,” observes Avi Hasson, CEO of Start-Up Nation Central and former chief scientist of the country’s Ministry of Economy and Finance .
The digital sector nevertheless benefits from its historical singularity: the domestic market is so small that the teeming ecosystem of start-ups that has grown there has long been geared towards foreign customers, particularly the United States. The request has therefore not been initiated. “Most Israeli tech companies operate in the software field,” recalls the boss of Start-Up Nation Central. They therefore do not have sensitive supplies to secure, nor a complex logistics circuit to manage. Finally, the beating heart of this sector is located in Tel Aviv, in the center of the country. “An area which is not disturbed by the conflict”, specifies Avi Hasson.
Ukraine has already shown how the digital economy can withstand shocks during times of war. During the first six months of 2022, Ukrainian software professionals achieved the feat of increasing their exports by 23% compared to the previous year. But if Israeli tech communicates so ardently about its resilience – “Israeli start-up deliver. No matter what”, insists its latest campaign – it is because the stakes are high.
The sector represents more than 18% of the country’s GDP, and around half of its exports. The government is therefore watching it like milk on fire. If foreign investment takes a nosedive, the impact will be felt immediately. Especially since the political tensions surrounding Benjamin Netanyahu’s judicial reform project had already created turmoil in the ecosystem. In the first quarter of 2023, investments in start-ups had fallen by 70% compared to the previous year, pointed out the Israeli Innovation Authority. Last April, she also highlighted that the ratio of new start-ups registered abroad rather than on national territory was higher than usual: between 50 and 80%, compared to 20% last year.