High-Tech: The Engine That Was

High-tech is no longer the economic growth engine it once was, according to a report issued by Israel’s Ministry of Finance on Sunday.

“In the years following the last global crisis (in 2008), there was a significant slowdown in the sector, and it ceased being the growth engine of the economy,” the report stated.

“Since 2010, the rate of growth of the sector is only half the overall rate of growth in the economy, and the sector stopped growing as a proportion of total exports. The most major challenge facing the sector is the supply of skilled human resources due to the relative size of Israel’s high-tech sector (compared with other developing fields).”

A major cause of the stagnation is the lack of a skilled workforce. “The stagnation in employment figures in recent years raises question marks about the future of the sector. The rapid growth of salaries in the high-tech sector backs up the assessment that the stagnation in employment reflects limitations on the supply side, in other words a lack of skilled manpower. In recent years, there has been rapid growth in salaries compared with the U.S., which is harming the attractiveness of expanding operations in Israel for foreign companies.”

The Ministry of Finance blamed the manpower shortage on the failure of the educational system to produce the needed pool of talent. It cited a fall in the number of computer science graduates, versus a rise in the number of graduates in other disciplines. The survey notes that this trend is typical of the entire OECD but is more marked in Israel.

The authors of the report predicted a rough future too:

“The fall in capital markets in the past few months is likely to hit activities in the sector, which are traditionally linked to the Nasdaq index (with a delay of a quarter). The importance of tracking developments in the sector stems from the findings of economic literature, which says that operations in the venture capital fund sector have a major contribution to innovation, growth and high productivity.”

“The erosion of Israel’s status in the innovation sector is also seen in other international indices. For example, in the past two years, Israel has fallen to 22 in the WIPO innovation index and to 11 in the Bloomberg innovation index.”

There are 283,000 salaried employees in Israel’s high-tech sector, accounting for 12 percent of the overall salaried workforce. High-tech contributes 9 percent of Israel’s GDP and contributes 40 percent of the nation’s exports.