How Tel Aviv’s Tech Sector is Navigating the War

The important tech industry accounts for 18% of Israel’s gross domestic product, about half the country’s exports and 30% of tax revenue and in 2022, the Israeli high-tech sector accounted for 48.3% of Israel’s total exports, amounting to $71 billion, making its prosperity fundamental to Israel’s economy. There are now 500 multinationals operating in Israel – mainly research and development centers after buying Israeli start-ups – from Intel to IBM, Apple, Microsoft, Google and Facebook.

Schools have been ordered to close, once-bustling streets in Tel Aviv, the center of business, have virtually emptied and many businesses remain shut. Some are closed for security reasons, but many simply cannot operate because their employees have been called up to military service.

The war’s most immediate impact on tech firms has indeed come through the workforce. Israel has called up more than 300,000 military reservists to fight in the war, most of them working and studying in Israel, though some would have returned abroad.

The non-profit organisation promoting the Israeli  tech sector, Start-up Nation Central (SNC) estimates that about 10% of tech employees in Israel have been drafted, with the number climbing as high as 30% in some companies.

Nasdaq-listed a company headquartered in Tel Aviv that develops project management software, said about 6% of its workforce around the world had been called up. Tech companies themselves have also supported to the war effort, setting aside their beef with the government over planned judicial reformsto procure vital equipment for soldiers, locate missing individuals and offer expertise in areas such as AI and cyber security.

Start-ups need cash. “Over the next couple of weeks it’s going to be tough, especially for people like us who are raising money,” said Jon Medved, the CEO of OurCrowd, a major global venture investing platform based in Israel. “The big challenge for a startup economy is making sure that the money keeps flowing because the vast majority of these startups are not profitable… they need ongoing investment,”

While venture capital (VC) funding for Israeli startups has fallen over the past two years — in line with global trends — the country remains one of the leading destinations for tech investment. In 2021, Israeli startups raised a record-breaking $27 billion of VC investments — more than in the previous three years combined, according to the Israel Innovation Authority, a government agency.

Intel was planning to spend $25 billion on a new factory in the southern city of Kiryat Gat some 42 km (26 miles) from Gaza.
Due to open in 2027, the largest-ever international investment in the country that could employ thousands of people and would add to its chip plants and design centers there.

While in the short-term there are expected to be challenges for Tel Aviv’s tech sector, in the longer term, the tech and AI sector, where Israel has been a leader, could see increased investment because of the industries’ close tie-in with military spending.

(Source: CNN / Reuters)

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