Panel, Conference Presentation
Time to Build: Accelerating & De-risking Israel's Economic Growth, Recovery | Global Conference 2025
- Panel Context & Mission: The session, "Time to Build," focuses on accelerating and de-risking Israel's economic recovery post-October 7, organized by the Milken Innovation Center's Financial Innovations Lab in Jerusalem.
- Workforce Metrics: Israel's high-tech sector employs 10–12% of the workforce but generates 20% of GDP and 70% of exports; the sector is the third largest global tech hub after Silicon Valley and New York.
- War Impact Statistics: Two percent of Israel's population was displaced (approx. equivalent to losing California, Illinois, and Texas combined), and 16% of the land area in the Western Negev and North was heavily affected or depopulated.
- Government Budget Allocation: The Israeli government initially allocated $3 billion for rebuilding, specifically targeting the Western Negev and northern communities, with a pivot toward the National Recovery Administration (Menhelet Kuma).
- Capital Market Resilience (Sefi Zinger): Despite the April 14, 2024, Iranian missile attack, the Tel Aviv Stock Exchange (TASE) ended the day with "green screens," defying predictions of a market collapse; in 2024, Israel's stock market outperformed the S&P 500 during its worst war in 30–40 years compared to the US's best year.
- Market Characterization: The Israeli market demonstrated high resilience and calculated behavior, with no dramatic redemptions in retail mutual funds during periods of extreme geopolitical tension.
- Foreign Investment Dependency Risk: 70–80% of Israeli tech funding comes from foreign (primarily US) investors, creating a single point of failure that regulators aim to mitigate through domestic capital mobilization.
- Regulatory Initiatives (Tilly):
- Yozma 2: A new regulatory effort designed to funnel tens of billions of dollars of Israeli institutional capital into the local venture ecosystem.
- Angel Law: New tax incentives and deferrals created for angels, local corporations, and foreign banks providing loans to Israeli startups.
- Technology & AI Strategy: The sector is pivoting to include AI, cyber (7% of companies but 36% of VC investments), and defense, aiming to diversify talent beyond the current 10–12% participation to include underserved periphery populations.
- Blended Finance Model (Ogun Social Bank):
- A $52 million recapitalization via impact investors and private credit.
- Uses a "first-loss" tranche structure where philanthropy covers initial risks, allowing the government's $33 million contribution to create an investment-grade credit structure.
- This structure enables private market investors to access non-investment-grade social/environmental projects (e.g., small business loans, solar energy) with market-rate returns.
- Housing & Re-home Initiative: A holistic financial structure proposed by Dr. Shoshan Haran to address mortgage crises for war-displaced residents, widows, and orphans, aiming to fund 30% of loan costs through a layered capital approach.
- Economic Indicators (Eugene):
- Unemployment rate remains low at 2.7%.
- Budget deficit is comparable to the US, with low inflation.
- Tel Aviv Stock Exchange showed 20% sell-down in 2024 with only a 2% discount to market value, attracting 12 new foreign institutions (e.g., Bill Ackman).
- Valuation Gap: Israeli equities are currently underpriced by 15–20% in the short term due to security risks, a gap expected to close post-war; the security risk premium is noted as uncorrelated with global markets, potentially improving portfolio diversification.
- Productivity & Inclusion Goals: The strategy emphasizes integrating peripheral populations (Orthodox, Bedouin, Israeli Arabs) into the labor and capital markets to lift overall national productivity (currently 20th in OECD) and reduce reliance on the tech "core."
- Energy Security Projects: Recovery efforts include building 100% renewable energy zones in the Western Negev, virtual power plants in kibbutzim, and energy-neutral wastewater facilities to ensure infrastructure self-sufficiency.
- Investment Call to Action: US Jewish community foundations and university endowments currently have single-digit exposure to Israel, representing a significant untapped capital source for impact investing and sustainable finance.
- Forward-Looking Outlook: The panel identifies a generational opportunity to leverage AI and diverse tech applications to rebuild the economy, arguing that a "revitalization nation" approach blending public, private, and philanthropic capital is necessary to accelerate growth beyond standard budget allocations.