Gaza war jeopardises Israel's high-tech growth

The ongoing war in Gaza is significantly impacting Israel's economic stability, particularly affecting the high-tech sector, a crucial component of the country's growth.

The tech industry is facing severe financial losses and disruption in global partnerships, Caliber.Az reports per Turkish media.

Layoffs have surged in the tech sector, with companies dismissing around 200 employees weekly in June alone. Over the past four months, estimates suggest that 25 per cent to 50 per cent of tech firms have reduced their workforce by 5-10 per cent. Local startups, once central to Israel’s innovation, are also struggling due to the ongoing judicial overhaul and the Gaza conflict.

Investment in Israeli tech companies has dropped from $15 billion in 2022 to roughly $7 billion in 2023, and venture capital raised domestically has plummeted by 70%, with active investors decreasing by 20 per cent this year.

The situation stabilized temporarily when 360,000 reservists were mobilized, with the Defence Ministry covering their salaries, which halted further layoffs. However, as these reservists return to civilian life, companies are once again considering job cuts in a shrinking market. Moran Chamsi from Amplefields Investments notes that employees are now facing stagnant salaries and challenging working conditions.

The conflict has prompted some companies and entrepreneurs to relocate abroad. Tali Shem Tov, CEO of several tech firms, reported that development centers and companies are moving overseas. Intel has postponed its $25 billion factory project, Samsung Next is closing its Tel Aviv operations, and Google’s Verily will shut down its R&D center in Israel by mid-2024.

The tech sector is also experiencing a "brain drain," with entrepreneurs and talent leaving Israel. Eden Shochat of Aleph venture capital warns that this could damage Israel’s capabilities in fields like AI and lead to a decline in technological collaborations.

The broader economic impact is severe, with Israel's GDP contraction worse than expected due to the war. Forecasts suggest that 2024 growth rates could be among the lowest on record. Around 60,000 Israeli businesses are at risk of closing by the end of the year, with 46,000 already shut down.

Many of these closures affect small businesses, exacerbated by high interest rates, logistical issues, and a lack of government support.

The labor market has also been hit hard by the absence of over 150,000 Palestinian workers from the West Bank, further straining businesses that relied on this workforce.