Our comprehensive assessment of Israel's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Israel, as well as the latest industry developments that could impact Israel's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Israel before your competitors.

Country Risk

Israel Country Risk

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Core Views

  • Political risks remain elevated despite a Egypt-brokered truce between Israel and Islamist group Hamas on August 26, which will result in the end of the Israeli military 'Operation Protective Edge' in the Gaza Strip. Moreover, spill over effects from the civil war in neighbouring Syria remain high.

Major Forecast Changes

  •  We have revised down our 2014 real GDP growth forecast for Israel to 2.5%, from 3.2% previously due to the recent conflict with Hamas. We project the economy expanding by 3.6% in 2015 - the result of low base effects and accelerating export growth.

Key Risks To Outlook

  • House prices in Israel have risen rapidly in recent years, raising concerns that a bubble has formed in the property market....

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Israel Operational Risk Coverage (9)

Israel Operational Risk

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BMI View: Israel presents some of the lowest operational risks to businesses in the Middle East and North Africa (MENA) region. The country offers attractive foreign investment incentives, an educated workforce, and a transparent market-oriented economy, making it one of the most attractive destinations for investment regionally. This is despite some pertinent risks, which include persistent security threats, a highly regulated trade environment and a costly labour force.

Israel's many disputes with countries and organisations in the region make it an attractive target for interstate violence and terrorist activity. The ongoing conflict between Israel and Hamas - the Islamist organisation in charge of the Gaza Strip - and potential for a flare-up of lingering tensions with Lebanese militant group Hizbullah are the two major risks at present. We also highlight the possible risk created by high...

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Israel Crime & Security

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Israel scores 41.5 overall in the BMI Crime and Security Risk Index. Although, Israel outperforms in the Criminal Risks rating component, the risk posed by interstate and terrorist threats are high, as the country is surrounded by, or in close proximity to historically hostile states that have backed terrorist groups in Israel.

Violent crime is a problem in Israel, as it incurs the highest assault rates in the region and one of the highest rates for sexual offences. However, the murder rate is quite low in Israel compared to other types of crime.

Organised crime and associated gangland violence are becoming major issues for the police force and gangs are active in drug trafficking, due to the rise in demand for illicit substances. Gangs are currently engaged in a turf war in many parts of the country and car bombs and gunfire in public spaces are becoming increasingly common.

Kidnappings are...

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Israel Labour Market

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Israel boasts a large and well educated population of working age, which is underlined by its regional outperformance in our Labour Market Risks Index. This is encouraging for investors as it means a high quality domestic supply of labour is readily available. However, high wage and severance costs, extensive employee entitlements and a complex regulatory environment serve to increase the overall costs for investors and impede the flexibility of the workforce. That said, Israel scores 69.4 out of 100 in our Labour Market Risks Index, surpassing all its regional counterparts and placing 17 th out of 170 countries.

Israel benefits from a sizeable and well educated labour force which is highlighted in its regional outperforming score of 75.5 out of 100 for Availability of Labour. The score is boosted by a high life expectancy of 82 years and an impressive population growth rate of 1.9% to 8.1mn people in 2013. In addition, the...

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Israel Logistics

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Israel's supply chain benefits from a well developed and connected transport network, timely trade procedures and governance, and a strong growth look. The key risks to the network involve an overreliance on road transport and the underdeveloped port sector. An increase in road traffic is forecast for the medium term which will put extra pressure on the transport network, thereby increasing congestion and possibly reducing quality if investment is not increased. This could negatively impact the logistics sector as it increases costs and transport time. Israel outperforms almost all of its 18 regional neighbours in the BMI Logistics Risks Index. A score of 63.9 out of 100 places it behind United Arab Emirates only.

Israel's rail network offers good links between most urban areas and airports and ports, benefitting the connectivity of the country's logistics sector. A growth in rail freight and investment is boosting...

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Israel Trade & Investment

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Israel faces some major trade and investment risks for investors despite the organisation of its market economy and open attitude to foreign investment. The major risks to trade are posed by relatively high tax rates and timely bureaucratic procedures. However, the government offers attractive financial incentives in certain industries. In addition, stable institutions and low levels of corruption act to partially mitigate these risks. Israel's average performance is underlined by its score of 58.4 out of 100 overall in the Trade and Investment Risk Index, placing it just inside the top five regionally after the UAE, Qatar, Bahrain and Oman, and 54th out of 170 countries worldwide.

Israel is a relatively open country for economic activity due to its market-oriented economy and generous government incentives for foreign investment. Israel scores 55.6 out of 100 for Economic Openness, placing it sixth in the region. Israel is a particularly...

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Israel Industry Coverage (18)

Autos

Israel Autos

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BMI holds a cautiously optimistic stance on the outlook for Israeli new vehicle sales as we enter 2014. The past year has been fairly positive for new passenger car sales, which were up by 4% as of end-October 2013 (most recent data available as this report was being compiled), at 184,305 units, according to figures from the Israeli Vehicle Importers Association (IVIA).

This headline figure was made up of 150,364 passenger cars, 20,689 sport utility vehicles (SUVs), 10,019 vans and 3,233 pick-ups. Separately, truck sales (over 3.5 tonnes) totalled 7,292 units over the 10-month period, with bus sales standing at 1,857 units over the first nine months of the year. This makes for a total of 193,454 new vehicles sold over the first 10 months of 2013. On current trends, this would imply total new vehicle sales of 231,820 units in 2013, an increase of around 8% y-o-y. Across 2013, a stronger economic backdrop and somewhat...

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Commercial Banking

Israel Commercial Banking

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...
Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Israel Consumer Electronics

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BMI View: Israel is   one of the most developed consumer electronics markets in the Middle East,   with the launch of 4G networks supporting rising demand for smartphone s   and tablets in 2014 . In addition, Israel continues to attract considerable investment from global IT and consumer electronics firms owing to its vibrant start-up market, skilled workforce and high government spending on defense and intelligence services . However, the implementation of government austerity ...

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Defence & Security

Israel Defence & Security

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BMI View:   Israel's domestic and regional security situation remains volatile. The civil war in nearby Syria continues to worsen. There is still the possibility of confrontation with Iran and it is unclear if pro-peace centrists will be able to influence the government's hawkish stance on the Israeli-Palestinian conflict. 

As of late May 2014 it was reported that Israel's defence budget funding was suffering severe problems, with the country's defence ministry ordering the suspension of a number of research and development projects and warning that other programmes could face major reductions or cancellations as a result of funding reductions. The suspension came following a procurement slowdown which has been in place since January 2014 which has reduced by half the number of new systems being procured by the Israeli MoD annually. The slowdown is thought to only...

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Food & Drink

Israel Food & Drink

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BMI Industry View

Stimulated by the strong domestic food production industry and high per capita incomes, as well as by the expansion of modern retailing, household expenditure in Israel has grown in recent years. However, private consumption is set to slow over the coming year, with austerity measures hitting private and government consumption. Increasing unemployment levels and a fairly mature food retail market with relatively high spending on food and drink present further obstacles for significant growth opportunities.

Headline Industry Data (local currency)

  • Per capita food consumption growth (y-o-y) in 2013: +2.34%; CAGR to 2017: +3.01%

  • Alcoholic drinks value sales growth (y-o-y) in 2013: +0.64%; CAGR to 2017: +1.02%

  • Soft drinks values sales growth (y-o-y) in 2013...

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Freight Transport

Israel Freight Transport

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There is a mixed outlook for Israel's freight transport sector in 2014. Although we forecast moderate growth in the rail and air freight sectors - which follows three years of declining volumes in the air freight sector - the two major Israeli ports of Ashdod and Haifa look set to see their throughput decline. This view is predicated on the back of disappointing H1 data and the risks to their business through industrial action by workers protesting about the development of two new privately operated ports adjacent to the existing facilities. Further to the risk posed by business developments, the volatile situation in Gaza offers serious risk to our macroeconomic forecasts for the country, and so also to our freight transport projections.

Headline Industry Data

  • 2014 air freight growth is forecast at 1.4% following a decline of 3.0% in 2013; we project average growth of 1.8% per annum...

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Information Technology

Israel Information Technology

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BMI View:   Although Israel's small and mature IT market is expect ed to grow more slowly than most other s in MEA, its combination of a skilled workforce, rich start-up culture and university engagement in cutting-edge research has attracted the investment of nearly all major global IT vendors. We forecast IT spending to rise by 3.5% to ILS23.4bn in 2014, with the software and services segments outperforming hardware sales . IT spending is projected to continue growing throughout our five-year forecast period to 2018, accelerating in the later years as Israel's economy...

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Infrastructure

Israel Infrastructure

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BMI View: In line with the latest official data, we have downgraded our construction industry growth forecast for Israel in 2013 from 6.2% to 2.4%. This is underpinned by a contraction of 3.2% in the construction industry in Q113 and a decline of 6.3% in gross fixed capital formation (GFCF) in H113. However, we are more optimistic about the country's prospects over the medium term , as we anticipate construction industry growth of 3.1% in 2014 , with growth then expected to average 4.2% between 2015 and 2019. We see fixed investment returning to positive territory in 2014...

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Insurance

Israel Insurance

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BMI View: The main themes and trends within Israel's insurance sector have remained unchanged for several years. As is the case in South Africa and Taiwan, a peculiar geopolitical and financial history has resulted in the domination of the sector by a small number of diversified financial services organisations, whose interests generally go beyond insurance. These organisations are, in world terms, sophisticated and large. However, they do not constitute a cosy oligopoly: the normal situation includes downwards pressure on prices and margins, competition by way of product innovation and development of new distribution channels and attention of antitrust regulators. The market is emphatically open to foreign competition. However, the strengths of the entrenched local players are such that few foreign insurers see the market as offering an attractive opportunity.

The demographics of Israel are...

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Medical Devices

Israel Medical Devices

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Espicom Industry View: One of the most attractive markets for multinational s in the region, Israel's medical device market is valued at US$1,0 77 .4mn in 2013, equal to US$1 39 per capita. Strong trade relations with the USA facilitate medical device imports and exports, while Israel is also a very dynamic market in terms of medical device start-ups. The market is exp ected to expand at a CAGR of 9.5 % during the forecast period, whic h should see it reach US$1,692.8 mn, or US$ 205 per capita, by 2018.

Headline Industry Forecasts

  • Israel's medical device market,...

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Oil & Gas

Israel Oil & Gas

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BMI View:   Gas production from the Tamar field has made Israel self-sufficient in natural gas supplies, and an expansion project will support demand while the Leviathan project lags .   W e forecast the Leviathan field to come on   stream in 2018 , though are yet to price in potential large-volume exports expected from the field .

Headline Forecasts (Israel 2012-2018)
  ...

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Petrochemicals

Israel Petrochemicals

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Increasing exports underpin our relatively bullish medium-term outlook that will support growth in the petrochemicals industry, according to BMI's latest Israel Petrochemicals Report. However, the domestic economy will remain in a soft patch.

In the first four months of 2014, Israeli rubber and plastic production grew 0.7% year-on-year (y-o-y), marking a turnaround from the 0.4% drop posted in 2013. However, petroleum and chemical products output declined 5.7% y-o-y in the January-April period. External market performance was positive with chemical exports up 1.5% y-o-y to ILS7.4bn and plastic and rubber up 2.8% y-o-y to ILS11.2bn.

  • Private consumption will expand slowly over the coming quarters, and we forecast real growth in the segment of 3.1% and 3.5% in 2014 and 2015, respectively. According to the CBS, consumer spending dropped at a 2.0% annual rate in the first three months of...

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Pharmaceuticals & Healthcare

Israel Pharmaceuticals & Healthcare

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BMI View:   Even though Israel's tense domestic and external situation threatens overall market stability, its pharmaceutical industry remains well positioned for marked over-the-counter and non-patented market growth. Favourable factors include high per capita spending on medicines, a market size approaching USD2bn, a high proportion of pensioners and a largely urbanised population. Moreover, Israel's pharmaceutical market is one of the more advanced in the region, well-developed and export-driven. It is also a very attractive prospect for multinationals looking to launch innovative medicines due to a greater need for specialty treatments, thereby capitalising on the country's strong academic research infrastructure. However, the use of the reference pricing mechanism will lead to further price reductions on medicines. Israel's basket of reference...

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Real Estate

Israel Real Estate

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BMI View:   Increasingly fraught Israeli-Palestinian relations are having a negative impact on the country's business environment and the commercial real estate market is no exception. That said, our overall forecast for the sector over the coming months is stability, owing to robust demand and a relatively low supply of new properties during the past few years.

As is certainly the case for many local industries, the main question mark hanging over the Israeli commercial real estate sector is what effect the country's increasing political instability will have on demand, both domestic and international, over the coming weeks and months.

While, from a domestic perspective, we expect the recent Gaza crisis to have a relatively low impact on demand for commercial property space, in August 2014 there were already signs of a worsening outlook for...

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Retail

Israel Retail

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BMI View: We expect a rise in household spending across all Israeli retail subsectors over the next few years, boosted by a growing and highly urbanised population, together with increasing levels of disposable income. We do not expect the fighting in Gaza to be long-lasting, and to result in only a temporary decline in economic activity. We are particularly positive about the future growth prospects for areas such as education, as well as restaurants & hotels; however, we expect the highest proportion of the household budget to be spent on housing & utilities and food & drink throughout our forecast period, with transport spending also taking a substantial share.

The Israeli Retail report provides an extensive and comprehensive forecast of various retail indicators including household spending and headline total spending across each retail subsector, household income and...

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Shipping

Israel Shipping

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BMI View: The Israeli ports sector is undergoing a state of flux, with the major ports set to be expanded with new, privately operated, terminals, which will be able to handle the larger vessels that are becoming the norm on the key Asia-Europe trade route on which Israel stands. However, the se developments face strong opposition from current port workers and unions , which is impacting throughput .

Headline Industry Data

  • 2014 Port of Haifa total tonnage throughput to contract by 7.0%, and to average growth of 1.5% to 2018.

  • 2014 box handling at Haifa will contract by 18.0% to 1.11mn twenty-foot equivalent units (TEUs). Growth projected to return in 2015 and...

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Telecommunications

Israel Telecommunications

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BMI Industry View

BMI View : The increase in competition in Israel's mobile market, following the arrival of new MNOs and MVNOs, and cuts to interconnection rates in 2012 led to a sharp decline in key operational and financial indicators, notably ARPUs and voice revenues, during FY12 and H113. We expect operators to respond to the erosion of their top line financial results by expanding their high value service offerings and migrating existing customers unto postpaid subscriptions. We also expect mobile operators with high-speed fixed infrastructure to perform strongly in terms of revenue and subscriptions growth during our forecast period, though to 2017, by cross-selling mobile, fixed-line and pay-TV services. This strategy has already proved successful for some operators and will be vital for reducing churn amid intense competition in the market....

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Water

Israel Water

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BMI View:   BMI sees further upside risk to our water forecasts for Israel, though small as we have already priced in strong growth in the industry value of the country's water. Israel will require USD53.7bn in funding to develop water infrastructure projects over the next 40 years but drought-led tensions persist in many areas (most notably along the Israel/Lebanon border, the Gaza strip, and the Arab quarters of East Jerusalem) and this could cause difficulties in terms of water scarcity for industrial use and project instability to infrastructure developments.

Israel's dominance in the global water infrastructure and reclamation sectors continues and is highlighted by the ongoing requests for support and consultation from Mekorot and other Israel-based water companies from countries including Peru, India and Australia.

The planned development of...

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