Foreign Direct Investment (FDI) in Israel dropped precipitously between 2013 and 2014, according to the 25th World Investment Report, released by the United Nations Conference on Trade and Development (UNCTAD).
The drop from $11.8b to $6.4b — a staggering 46 percent — brought Israel to its lowest level of FDI since 2010. The decrease was significantly larger than the general 16% drop in global FDI that year, and the 28% drop in FDI to developing countries.
The cause of the worrisome statistic was a matter of speculation. Some factors pointed to by analysts were local and transient, some not.
“We believe that what led to the drop in investment in Israel are Operation Protective Edge and the boycotts Israel is facing,” Dr. Roni Manos of the College of Management and one of the authors of the report’s summary told Ynet.
She also cited cited a drop in market activity. “In the past there were large transactions such as Waze and ISCAR Metalworking that boosted investment, but over the past year there were not enough such deals.”
Globally, the U.N. report said, the decline in FDI could be traced to the “fragility of the global economy, policy uncertainty for investors and elevated geopolitical risks.”
FDI is considered a crucial element for increasing productivity and output. Israel’s productivity is notoriously low, and is often cited as a factor behind high levels of poverty and inequality.
“With the increase in the labor force participation rate likely to level off and unemployment already at record lows, future employment growth will likely slow to the rate of working age population—some 1 1/2 percent,” the International Monetary Fund wrote in its annual Article IV consultation Wednesday. “If productivity does not pick up, GDP growth will slow accordingly.”
The report also found that cross-border mergers and acquisitions in Israel fell from $3.3b in 2013 to 2.3b in 2014, though that figure is higher than most in the last several years. Globally, cross-border M&A transactions grew from nearly 28%, from $312b to $399b. A PWC survey earlier this year, however, had different results, finding that Israeli exits in 2014 amounted to some $5 billion.
The U.N. report did, however, note a dramatic increase in Israel’s stock of FDI over the years, which grew from $4.5b in 1990 to $20.4b in 2000 and $98.7b in 2014.