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, as highlighted by protracted violence since the ceasefire. Prime Minister Benjamin Netanyahu is also under increased pressure from within its governing coalition, and we cannot preclude the possibility of early elections. Moreover, risks of spill over effects from the civil war in neighbouring Syria remain high.

Major Forecast Changes

  • We have recently revised our 2014 growth forecast to 1.6% from our previous projection of 2.4%, mainly a result of the seven-week conflict with Islamist group Hamas in the Gaza Strip in July and August. Risks to stability will persist as long as a political solution to the Palestinian issue is elusive, and risks of radicalisation in the West Bank will remain...

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Israel Operational Risk Coverage (9)

Israel Operational Risk

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BMI View: Israel boasts a well educated population of working age, which is encouraging for investors as it means a high quality domestic supply of labour is readily available. This is complemented by high urbanisation and good access to healthcare, which boosts the availability of labour and the productivity of the workforce. These considerations are the main drivers behind Israel's high overall score of 68.7 out of 100 in our Labour Market Risk Index, which places the country first out of 18 states in the MENA region. However, high employment costs and influential trade unions increase overall inputs for investors and impede the flexibility with which they may act with regard to their workforce. In addition, ostensibly favourable...

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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 has one of the most mature consumer electronics markets in the region, with smartphones accounting for the vast majority of handset sales , and a strong demand for computer devices wi thin its vibrant startup market and from global IT and CE vendors that have set up research and development centres in the country. Tablet computers gained traction slightly later in Israel than in many other developed markets and we therefore expect them to be the key driver of computers sales over the medium term, before levelling off towards the end of our forecast period in 2018. This trend is further supported by the limited launch of 4G networks in H214, which we expect mobile...

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Defence & Security

Israel Defence & Security

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BMI View:   Israel's domestic and regional security situation remains volatile. BMI thinks that the ceasefire between Israel and Hamas is a short-term solution for temporary peace. However, w e expect a likely resumption of hostilities in the not too distant future. We are currently most concerned about the rising tensions across the West Bank. We also expect the number of Christian draftees into the army to increase without notable impact to the size of the army.

This quarter, BMI explains how divisions exist and divisions are being created by the Israeli government in relation to...

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Food & Drink

Israel Food & Drink

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In May 2010, parliament passed the new Law on Medicinal Products and Medical Devices, which is based on EU legislation. The law was published in the Official Gazette of the Republic of Serbia on May 7 2010. Part IV of the law details the rules that govern medical devices. The following areas are covered:

  • Classification;

  • Registration, including variations, renewals and cancellations;

  • Conditions and licensing in relation to medical device manufacturing;

  • Marketing;

  • Wholesale;

  • Importation;

  • Retail;

  • Clinical trials;

  • Labelling;

  • Quality Standards and Quality Control Methods;

  • Vigilance; and

    ...

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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:   Israel has the most mature IT market in the Middle East and Africa region, and its skilled workforce, vibrant start-up culture and strong government and university engagement in developing cutting edge research has attracted investment from nearly all major global IT firms. However, because of the comparatively high penetration of IT products and services, as well as its small population, Israel's IT market is expected to grow more slowly than most others in the region. Between 2010 and 2014, the IT market was also impacted by sluggish GDP growth, but we expect an improving macroeconomic outlook to support accelerating demand for IT software and services in the latter years of our forecast period to 2018. Given Israel's geopolitical location and the uptick in violence in the region, we expect spending on cyber security to be a key driver of growth in Israel's IT market, chiming with...

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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: Further expansion of life insurance, the relatively rapid growth of health insurance and currency movements should underpin fairly steady growth in premiums in Israel ' s insurance sector.

As of late 2014, the overall environment for Israel's sophisticated insurance sector is broadly the same as it was in late 2013, or 2012. Five large composite groups continue to dominate both major segments. Because of Israel's anti-trust laws and/or the financial problems of present or past strategic shareholders, the ownership situations of some of the majors are uncertain. Volume growth in much of the non-life segment is low. In many sub-sectors of the non-life segment, competition is forcing prices downwards. Collectively, the insurers are good at controlling claims and other costs. Meanwhile, at least some of the leaders have achieved strong growth...

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Medical Devices

Israel Medical Devices

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BMI 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, in...

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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 the country is now advancing major gas export plans. Expansions at the Tamar field will lead exports from 2016, while start up at the Leviathan field will significantly boost production from 2018.

...
Headline Forecasts (Israel 2012-2018)
2012 2013 2014f 2015f

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Petrochemicals

Israel Petrochemicals

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BMI View:   Increasing exports underpin our relatively bullish medium-term outlook that will support growth in the petrochemicals industry and overcome a weak patch seen in 2014, according to BMI 's latest Israel Petrochemicals Report .

In the first seven months of 2014, Israeli rubber and plastic production declined 1.5% year-on-year (y-o-y) with improvements in performance seen in Q1 cancelled out in following months. Petroleum and chemical products output also declined 3.0% over the period, although the rate of decline has moderated in recent months.

The declines were in line with reduced economic performance that was significantly influenced by the government's conflict with Hamas. BMI estimates GDP growth of 2.5% in 2014. On the upside, slow growth...

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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:   The Israeli retail market is weathering the effects of the conflict in Gaza well. Although conflict is sure to have a dampening effect on the economy, BMI forecasts strong growth in Israel for 2015, and the drivers underlying the real estate market, such as Israel's world class technology industry and relatively robust institutions, remain strong.

Israel is a location where people are accustomed to risk and the effects of political conflict and violence. Clashes that are within the range of what has come to be 'normal', although they may dampen economic activity in the short run, are unlikely to derail economic growth in the medium term. As such BMI sees Israeli economic growth accelerating over the next several years, increasing each year after 2014's weak 2.5% growth to peak around 4.4% growth in 2019.

For...

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Retail

Israel Retail

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BMI View: The seven-week conflict in the Gaza Strip in summer 2014 will have result ed in a significant drop in consumer spending, business activity and tourism in Q314. However, we expect this to be temporary as we believe the ceasefire agreed between Israeli and Palestinian delegates on August 26 will hold over the next few quarters, and growth in the economy will accelerate in Q414. We forecast a rise in household spending across all Israeli retail subsectors over the next few years, boosted by a growing and highly urbanised population, as well as increasing levels of disposable income. We expect particularly strong growth in personal care and communications.

...

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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

  • 2015 port of Haifa total tonnage throughput to grow by 3.2%, and to average growth of 3.8% to 2019.

  • 2015 box handling at Haifa will expand by 5.2% to 1.20mn twenty-foot equivalent units (TEUs). Positive growth...

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Telecommunications

Israel Telecommunications

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BMI Industry View

BMI View : The Israeli government's decision to force incumbent operator Bezeq to open wholesale access to its wireline infrastructure will catalyse investment and growth in the country's broadband sector. This will create much needed growth opportunities for mobile operators and ensure the telecoms market can keep up with the demands of Israel's vibrant IT market.

Key Data

  • Mobile subscriptions declined by 0.3% y-o-y in the 12 months to June 2014. This was a total net subscription loss of 28,000.

  • The rate of decline of the market share weighted average ARPU accelerated in H114, with a decline of 6.1% compared to a decline of 4.7% in FY13.

  • The fixed telephony and fixed broadband...

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Water

Israel Water

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BMI View : This quarter we have substantially upgraded and expanded our water forecasts due to the release of new historical data and the addition of new indicators. We now provide forecasts for extraction by source (ground, surface, river and desalination) along with treated wastewater. Overall, we view the Israeli water sector as offering limited opportunities for services and utilities companies, but substantial potential for water infrastructure companies. In particular, we anticipate significant long-term development of the wastewater collection, treatment and redistribution infrastructure.

Israel will require USD53.7bn in funding to develop water infrastructure projects over the next 40 years. The sum is in line with the Israeli Water Authority Council's development plan. Infrastructure projects will focus on desalination, with the Israeli government aiming to reach 750 cubic...

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