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Israel’s strong technology sector, particularly ICT, is a key driver of the economy. The global financial crisis only briefly slowed its growth and the recent discovery of natural gas fields has boosted GDP. However, the country’s technology- driven growth has not been sufficiently inclusive; poverty and inequality have risen and the country is going through a period of fiscal consolidation. Given the pressures on public budgets and the consequent adjustments in public spending on STI, greater competition in the business sector could help make innovation more inclusive. Israeli STI policy follows a bottom-up approach with specific policies in various areas rather than an overall national strategy that guides STI policy orientations.

Hot Issues

Hot Issues are major national STI policy priorities, as self-reported by countries in their responses to the OECD STIO 2014 policy questionnaire.

Encouraging innovation in firms and supporting entrepreneurship and SMEs

Israel’s STI ecosystem relies both on foreign multinationals (Panel 2), and large corporate R&D investors (Panel 1e) as well as on start-ups (Panel 1h). BERD as a share of GDP is the second highest in the OECD area (Panel 1d), and venture capital (VC) as a share of GDP tops the OECD ranking (Panel 1h). Although seed funding declined during the global economic crisis, the newYoung Companies programme helps firms up to three years old to raise private investment by supporting them with early funding and signalling business potential. However, the Ease of Entrepreneurship Index (Panel 1j) is at the bottom of OECD countries and shows a need for significant improvement in various aspects of the regulatory framework for business.

Reforming and improving public research system (including university research)

In spite of its modest public R&D expenditure, Israel hosts a number of world-class universities and produces high-impact publications (Panel 1a, b, c). The six-year Higher Education Plan was introduced in 2011 with USD 1.9 billion (NIS 7.5 billion) to promote academic excellence and upgrade research and teaching infrastructures. Universities’ budgets have been increased, with a 30% rise in the budget of the Council for Higher Education; they have also become more competitive, with the doubling of the Israel Science Foundation’s (ISF) competitive grants and an increased share of block funding allocated on performance criteria. Long-term funding has also been strengthened through larger block grants about USD 186 million (NIS 750 million). The most important initiative has been the creation of 16 centres of excellence (I-core) financed with USD 114 million (NIS 450 million) to advance cutting-edge academic research and offer an attractive research environment.

Addressing challenges of STI globalisation and increasing international cooperation

As a small country, Israel depends on exports and international openness, but research and innovation need to be better integrated in global networks, as illustrated by international co-patenting data (Panel 1r). Israel has made international co-operation a policy priority. Competitive grants have been offered to support strategic R&D collaboration and encourage high-technology exports to emerging markets. The share of GERD financed from abroad increased from 28% to 47% over 2007-11. Israel received USD 798 million (NIS 3.2 billion) from the EU Seventh Framework Programme (FP7) of which almost two-thirds went to universities. By the end of 2010, FP7 funding of USD 302 million (NIS 1.2 billion) was almost on par with ISF funding of USD 252 million (NIS 1.0 billion). Israel has just finalised its participation in EU Horizon 2020.

Innovation to contribute to sustainable/green growth

Inclusive innovation is one of the main challenges of Israel’s STI policy. The government seeks to link the rest of the economy better to the high-technology growth engine, thereby enhancing the sustainability of growth. Because Israel faces challenges relating to water scarcity and security, several policy initiatives promote oil independence and water technologies. The Fuel Choice initiative intends to make Israel a centre of knowledge and industrial best practices in fuel alternatives for transport, and USD 25 million (NIS 100 million) are provided annually for the next decade to finance R&D, demonstrators, international prizes and awareness seminars. The Master Water Management Plan makes policy recommendations on water management systems and tariffs. In the search for new markets, Israel launched the Grand Challenges Israel programme in 2014 to encourage innovation to solve global health and food security challenges in the developing world. USD 3 million (NIS 12 million) were allocated in the form of grants to increase innovation-related exports to emerging and low-income markets.

Country Charts

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Selected Highlights

STI policy governance

Maintaining STI leadership in the current fiscal context requires better co-ordination of government agencies and policy evaluation. The lack of a formal platform for all key players to exchange ideas on innovation strategies has been identified as a possible barrier to co-ordination. Such a platform is under development in order to involve STI policy shapers and implementers. There is also an on-going debate about the need for a more top-down strategy. Evaluation of STI policy has received particular attention. The new Strategy and Economic Research Unit (SERU) and a comprehensive evaluation methodology have supported the institutionalisation of evaluation, with a more impact-oriented approach. Major entrepreneurial programmes (e.g. Tnufa, the technological incubator and seed company programmes) have been evaluated recently with a view to assessing their impact on the innovation ecosystem. National reports and STI policy documents have also underlined the need to establish and develop an information system by means of innovation surveys and a database to support policy making.

Innovation in firms

Israel has the world’s second most R&D-intensive business sector; firms spend 3.3% of GDP on R&D (Panel 1d). Competitive grants and tax incentives are the two main policy instruments in support of business R&D. The budget of the Office of the Chief Scientist (OCS), the main government agency for industrial R&D support, has been reduced significantly since the early 2000s and is likely to remain unchanged in the coming years. The OCS dedicates 85% of its USD 374 million (NIS 1.5 billion) to SMEs. Public support remains industry – and technology – neutral.

ICT and Internet infrastructures

Although the Internet and ICT infrastructures are modestly developed (Panel 1l, m), owing to the digital gap in Israeli society, Israel has an RTA in ICT as measured by patent applications which has continued over the past decade (Panel 3). The Cyber-Security initiative is a recent policy initiative to advance the development and adoption of secure technologies. A national cyber-security incubator based on a public-private partnership has been established and a National Cyber-Security Centre of Excellence has been created with the United States under a bilateral R&D co-operation agreement.

Technology transfers and commercialisation

Links between industry and science are relatively well developed and universities and PRIs patent their research results actively (Panel 1o, p). The OCS Magnet programme has supported knowledge transfer since 1994 through grants for new pre-competitive research consortia. The Magneton programme promotes industry-science co-operation that already exists for up to a 24-month period and the Nofar programme aims to advance applied research in bio- and nano-technology and its transfer to industry.

Clusters and regional policies

The Fuel Choices Initiative (formerly the Oil Substitutes Initiative) and the Cyber Security initiative are Israel’s main smart specialisation programmes. The Fuel Choices Initiative includes a one-stop shop for firms, a VC-backed programme and assistance in establishing pilot facilities in petroleum substitutes. It has USD 380 million (NIS 1.5 billion) for 2011-20. The Cyber Security initiative comprises of a few dedicated funds to encourage R&D in the field, summing to USD 50 million (NIS 180 million) for 2012-14. The initiative encourages the development of human capital in the cyber security field and is engaged in linking relevant military know-how to the industry.

Skills for innovation

The shortage of professional manpower will be a major obstacle for the Israeli STI system in the coming years, as the demand for engineers and technical professionals begins to outpace supply. Although adult educational attainment is high, youth do not perform very well in science by international standards and the rate of doctoral graduates in science and engineering is relatively modest (Panel 1t, v, w). The Higher Education Plan (2011-15) aims to improve the quality and competitiveness of the higher education system. About 1 600 new researchers will be hired in universities to replace retiring senior researchers, resulting in a net gain of about 850 academic staff over the next six years. This new policy also aims to increase participation in tertiary education, in particular by encouraging minorities to study at universities.