document
TRANSCRIPT
Nature © Macmillan Publishers Ltd 1998
8
[JERUSALEM] The Israeli government is com-ing under increasing pressure from execu-tives of high-technology companies to domore to promote the growth of their sector ofindustry, and to provide greater support forresearch.
Some of these companies, which play akey role in Israel’s economy, are warning thatthey may be forced to transfer their researchactivities abroad unless they receive moregovernment support. They say it will becheaper to do the work in the United States.
The Knesset, Israel’s parliament, is stillconsidering budget legislation for 1999, butthe outlines of the research and developmentbudget are already fairly clear. Despite addi-tional funding, at US$407 million the budgetfalls nearly $200 million short of what theOffice of the Chief Scientist says is necessaryto fund all worthy projects.
Growth vital to the economyLarge companies will be especially hard-hit,says Benny Sofer, deputy to the Chief Scien-tist. To channel more funds to smaller, newerfirms, the finance ministry has set a cap ongrants to large companies. Sofer fears thatthe larger firms will reduce their research anddevelopment (R&D) activities as a result.
High-technology products made up 62per cent of Israel’s industrial exports in 1997— up from 51 per cent less than ten years pre-viously — and were valued at $9.2 billion. Arecent, unpublished survey is said to havefound that the software industry aloneachieved exports worth $1 billion in 1997.
Ephie Segal, chief economist in the Officeof the Chief Scientist in the Ministry of Com-merce and Industry, says that, given Israel’ssmall size, the continued growth of high-technology industries — including electron-ics, software, pharmaceuticals, biotechnolo-gy and aerospace — is vital to the economy.
But he also points out that the future suc-cess of such industries depends on currentinvestment in R&D. Israel’s investment inR&D of 2.2 per cent of gross domestic prod-uct (in 1995) puts it comfortably among theleading industrialized nations. But the ChiefScientist’s office and industry ministerNatan Scharansky have been pushing for anincrease in government R&D funds.
Shuky Abramovich, head of the econom-ics division of the Electronics and Software
Branch of the Manufacturers’ Association,says industry needs another $210 million tobe invested in R&D. “At present, only 55 percent of requests for grants are approved, andthe demand is growing because industry —especially start-up companies — depends onthese funds,” says Abramovich. “But wedon’t see any long-term solution to thisproblem.”
According to Abramovich, one tempo-rary solution being considered by the indus-try ministry is for large companies to beoffered the opportunity to pay off in advance— and at a discount — royalties owed to theR&D fund from profits earned from prod-ucts made with the help of governmentgrants. These funds would be funnelled backinto R&D grants during the coming year.
Marketing and staffing problemsThe ministry has also asked for governmentfunds to support the industry’s marketingactivities. Many companies with good ideashave failed to market their products abroad,eventually either failing or being bought byforeign companies which often transfer pro-duction and marketing overseas.
Scharansky has been lobbying PrimeMinister Binyamin Netanyahu for greaterassistance, pointing to the companies’ threatto move research activities abroad. Althoughdifferent high-tech companies have varyingneeds, most agree that the tax structure creates disincentives for the developmentand marketing of high-tech products.
There is also a broad consensus that the
country’s technical infrastructure — such astelephone lines and charges — is not mod-ernizing quickly enough. And industry saysthe government is not investing enough intechnical and scientific education.
Other concerns are more sector-specific.The largest high-tech sector, electronics andsoftware, suffers from a lack of skilled staff.According to the Manufacturers’ Associa-tion, the industry is likely to face a shortage of10,000 engineers over the next five years.Although this reflects a global shortage inthese fields, it also threatens to eliminate oneof Israel’s competitive advantages.
“Until five years ago, manpower was rela-tively cheap here and Israeli entrepreneurscould take off,” says Yoel Raban, an econo-mist at Tel Aviv University who has worked asa consultant for the Industrialists’ Associa-tion. “But high manpower costs are now aproblem for start-up companies.”
In response to such concerns, the higher-education system recently announced plansto double the number of Israelis holdingdegrees in electrical and computer engineer-ing and computer science over the next fiveyears. But industry says this is not enough.
“We’re facing a bottleneck and I’m notsure that there is a lot we can do about it in theshort run. We seem to have reached thelimit,” says Raban, adding that it may be nec-essary to import professionals from coun-tries such as India.
Segal advocates bringing in engineersfrom the Far East, as is done in the UnitedStates. But that would require a major shift inIsraeli culture. Until now, universities andindustries searching for overseas talent haveusually focused on Jewish candidates.
According to Abramovich, the authori-ties are likely to rectify some of the disincen-tives for high-tech companies in the taxstructure. Changes could include making iteasier to give employees stock options, andnot requiring the immediate payment of taxwhen companies merge or split.
In contrast to electronics, biotechnology,the second most important high-technologysector, has a glut of trained professionals. Butit lacks investment funds. This problem washighlighted by a survey prepared this year bythe Interdisciplinary Center for Technologi-cal Analysis and Forecasting at Tel Aviv Uni-versity (see Nature 392, 117; 1998).
Biotechnology had sales of $336 millionin 1997 and employed 1,259 scientists andengineers. But promised government moneyto encourage investment has not material-ized, to the disappointment of industry.
Israel’s high-tech leaders are also worriedabout the effect of the economic crisis in theFar East. According to the daily newspaperHa’aretz, Israeli high-tech companies haveraised nearly $3 billion on Wall Street sincethe start of 1995, along with another $1 bil-lion in the past two years by venture-capitalfunds in New York.
news analysis
NATURE | VOL 396 | 17 DECEMBER 1998 | www.nature.com 611
Israeli industry asksfor boost to R&DHaim Watzman
High-technology industry makes up most of Israel’s industrial exports. Butleading companies, worried by the government’s failure to invest inresearch and development, are threatening to take this work abroad.
In demand: companies face a ‘bottleneck’ in thesupply of trained electrical engineers.
TE
KN
ION