Israel tops the Organization of Economic Cooperation and Development (OECD) list in terms of civilian R&D expenditure as a proportion of GDP, which rose by 7.2% in 2007 compared to 3.3% in 2006. Israel spent $8.36 billion on civilian R&D expenditure in 2007, which is 4.7% of the GDP where the OECD average was 1.7% of GDP. The biggest R&D spenders are high-tech and life sciences companies including biotechnology companies. These firms are doling out more each year, spending 13% more in 2007 than the previous year.
Israel has always been known for things as diverse as battles for peace and tourist hotspots. But what is not very well known is that Israel has a penchant for scientific innovation, and due to its military focus, the country has also had to rely on cutting-edge technologies. With this, Israel has become one of the biggest players in the Research and Development (R&D) sector, especially in lifesciences, software and pharmaceuticals.
Over the past few decades, Israel’s economy has restructured itself considerably, moving from traditional industries like agriculture, textile and mineral exports to high-tech services. Indeed, a major share of the Israeli economy hinges on the high-tech industry, generating an estimated 15% of the country’s GDP. Today, one in ten Israelis work in this sector.
The world has benefited from this shift. We can thank Israel for its contributions to firewalls and other internet security software, and its invention of the ICQ, the first real internet messaging application, among other things.
Much of these contributions can be attributed to one of Israel's greatest resources - human capital. The country boasts an astounding 24% of the civilian labor force with more than 16 years of schooling. It is estimated that Israel’s population has one of the world’s highest number of engineers and scientists – 135 per 10,000 in the population compared to about 85 in the U.S. R&D in the country is primarily conducted in seven major universities and public and government research institutes, with about 35% of all civilian research activities focused on biotechnology and life sciences. What’s more, Israel has the highest number of scientific publications per capita in the world, with the majority related to biology and its sub-fields.
In the 1990s, pharmaceuticals and medical devices became a rising division of the high-tech sector, growing with the wave of immigration of skilled scientists and engineers from countries of the former Soviet Union. This think tank gave rise to companies at the forefront of cutting-edge technologies, producing innovations such as the first ingestible medical device capable of imaging the intestinal tract. It is not surprising then that Israel ranks first globally for holding the highest number of granted patents per capita for medical devices. The country is also home to one of the top ten pharmaceutical companies in the world, a leader in generic drugs.
There are more than 175 biotechnology companies in Israel with the highest share of R&D investment in agro-food applications in the world at 14%. The number of companies in this sector has been increasing by 17% per year, and Israel alongside Denmark is one of the 12 nations with the largest number of biotech companies in the world.
Israel’s government has been a lifeline for Israel’s R&D and high-tech sector since the 1980s. It provides critical grants and loans required as seed funds for select Israeli R&D companies. The share for life sciences has steadily grown over the years from just 14% in 2000 to 30% in 2007. The total R&D grants extended by the government for life science ventures in 2007 were $95.26 million, with 41% allotted for medical devices, up from $92.31 million in 2006.
R&D in Israel is so highly valued that the country exports its services to companies overseas. In 2005, the export of R&D services amounted to US$1.4 billion, and between 2003 and 2005 this number increased at an average annual dollar rate of 21%. In 2006, high-tech products accounted for 48% or $11 billion of Israel's total exports. Today, for a tiny country of seven million people with few or no natural resources, Israel has become a David among the Goliaths in innovation.
