developments and trends in israeli exports · exports of aerospace industry, a highly concentrated...

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Developments and Trends In Israeli Exports

Full Year 2018 | summary report

Written by the Economic Unit | Israel Export Institute

March 2019

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Contents

Summary of 2018 in Exports | Findings ............................................................ 3

Trends in Israeli exports | Exports of goods and services ..................................... 5

Exports of Goods | by Sectors ............................................................................... 7

Exports of other industries |................................................................................. 10

Exports by Geographic Regions | ........................................................................ 11

Asia ...................................................................................................................... 12

European Union .................................................................................................. 12

United States ....................................................................................................... 13

Latin America ...................................................................................................... 13

Sub-Sahara Africa ............................................................................................... 13

Developments and Changes in Israel's Main Export Destinations | .................... 16

Trends in exports to top destinations .................................................................. 18

United States ....................................................................................................... 23

China ................................................................................................................... 24

Britain.................................................................................................................. 27

The Netherlands .................................................................................................. 29

Turkey .................................................................................................................. 30

Germany .............................................................................................................. 32

France ................................................................................................................. 33

India .................................................................................................................... 33

Brazil ................................................................................................................... 35

Japan ................................................................................................................... 36

Exports of Services | ............................................................................................ 41

Hi-Tech Exports | analysis by industry and services ........................................... 46

Forecast for 2019 | ............................................................................................... 48

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Developments and Trends in Israeli Exports

Summary of 2018 in Exports | Findings

7% increase in exports of goods and services in 2018; amounted to USD 111 billion;

➢ Exports of goods and services rose by 7% in dollar terms, to USD 110.6 billion. The

increase in exports was mainly attributable to accelerated growth in services

exports in general, and high-tech services in particular – in line with the trend of the

last few years.

➢ Exports of Hi-Tech services fueled the overall export growth in services – hitting a

record USD 50 billion in 2018 its weight in total Israeli exports reached an all-time-

high (45% of total exports).

➢ The bulk of Hi-Tech exports are attributed to services: approx. USD 29 billion that

represent 57% of total Hi-Tech exports. Exports of industrial Hi-Tech (equipment and

products) totaled USD 22 billion – 43% of total Hi-Tech exports.

➢ Exports of goods has grown for the second consecutive year rising 3% to USD 60.6

billion, following a continued decline in previous years. Growth was recorded almost

across the board: while electronic components and chemicals recorded the highest

growth rate, exports of pharmaceuticals and aircraft fell sharply.

➢ As we predicted in our previous export reviews - in 2018 there was a substantial

recovery in exports of electronic components, having a positive impact on exports

to Asia, which also soared compared to 2017 levels.

➢ Exports to Asia recorded a sharp increase; exports to the European Union and the

United Stated fell slightly - mainly due to the decline in pharmaceutical exports.

➢ The forecast for 2019: a 5% increase in dollar terms to exports of USD 116 billion;

should global trade and export projections materialize, Israeli exports are predicted

to hit USD 120 billion by 2020.

4

Trends in Israeli exports | Exports of goods and services

Exports continue its accelerated growth. After increasing 8% in dollar terms to USD 103 billion in

2017, Israeli exports continued its rapid growth rate. During 2018 exports of goods and services

rose by a further 7% in dollar terms, hitting an impressive USD 111 billion.

The upward trend in Israeli exports over the last few years show is primarily attributable to the

accelerated growth in exports of the services sector, which rose by 12% in dollar terms to a record

level of USD 50 billion. This positive trend is fuelled by the sharp and continued growth in Hi-Tech

services, alongside a handsome recovery in exports of tourism and transportation services.

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70B$

Data analysis: Economic Unit, IEICI

A sharp growth in services exports; Gradual recovery in goods

Israeli exports of goods and services(USD, billion) | 1980 - 2018

Services Goods

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Export of goods also contributed to the overall upward trend with a 3% increase to a total of USD

60.6 billion in 2018. The growth in the exports of goods was witnessed by most industrial sectors,

with an emphasis on electronic components and chemicals. This was somewhat offset by

pharmaceutical and aircraft exports, which recorded sharp double-digit decreases from their levels

in 2017.

In line with the sharp increase

in Israel's services exports

over the last few years, its

weight in total exports rose to

the highest rate ever recorded

and as of year-end 2018

accounts for 45% of total

exports. At the same time, the

weight of goods exports fell to

55% only.

Exports of goods to Asia

recorded an impressive

recovery. Total exports to the

Asian continent in 2018 grew

by 21% to USD 10 billion. The

growth is mainly attributable

to the sharp increase in

exports of electronic

components. The steep

decline in pharmaceutical

exports during 2018 had a

negative impact on exports to

Israel's two leading trade partners: exports to the United States fell by 3% to a total of USD 11

billion, while exports to the European Union fell by 3% to a total of USD 15.5 billion.

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Over the last decade:

A sharp and continued increase in the weight of the services sector

Israeli exports of goods and services(USD, billion) | 1980 - 2018

Goods Services

6

Exports of Goods | by Sectors (excluding exports to the Palestinian Authority and trade adjustments)

➢ Exports of goods (excl. adjustments and exports to the Palestinian Authority)

amounted to USD 54.3 billion in 2018, up 2.2% in dollar terms compared to 2017.

➢ Exports of goods excluding diamonds amounted to USD 47.5 billion, up 2.5% from

2017.

➢ Industrial exports, which accounts for 86% of total goods exports, rose 2.7% from

2017, to USD 46.3 billion.

➢ Exports of diamonds in 2018 totaled USD 6.8 billion, virtually unchanged from export

volumes in 2017 (12% of total goods exports).

➢ Agricultural exports fell 6.5% to USD 1.1 billion (2% of total goods exports)

45.2 43.6 45.1 46.3

7.2 7.4 6.7 6.81.2 1.2 1.2 1.1

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2015 2016 2017 2018

B$


Breakdown of Goods exports by sectors | 2015-2018billions of USD

Industrial export Diamonds export Agricultural export

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An analysis of export trends in the industrial sector points to the significant impact of

pharmaceuticals, electronic components, chemicals and aircraft ("the dominant export

industries") on total exports – these industries were characterized by high volatility during 2018.

For example, pharmaceutical exports which grew by 9% in 2017 (to a record volume of USD 7.5

billion), fell sharply in 2018 by more than 22% to USD 5.9 billion – the lowest export volume in the

last decade. Exports of electronic components, which fell by 19% in 2017 (mainly as a result of

upgrading the production lines in Intel's plants) soared 20% in 2018 to USD 3.9 billion1. Exports of

chemicals which rose by 13% in 2017, recorded an impressive 15% growth in 2018 to USD 8.9

billion.


1 With regard to exports of electronic components it is noted that in line with the nature of production activities in the

sector, sometimes the valuation of exports as part of the calculation of foreign trade data differs from the value of export revenues recorded in the balance-of-payments current account – this was the case in 2015 when foreign trade data included an exceptionally high value of component exports. Accordingly, in 2018 component export revenues based on foreign trade data may be higher than the export revenues recorded in the balance-of-payments.

1.5

4.1

3.3 3.4 3.

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4.8

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Electronic component exports:back to growth

(billions of USD)

5.0

4.7

6.6

7.3

6.8

6.3 6

.5 6.8 6.9

7.5

5.9

Pharmaceutical exports:the lowest volume over the last 10 years

(billions of USD)

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Exports of aerospace industry, a highly concentrated and dominant industry, which is subject to

volatility due to the nature of transactions and sales contracts signed by aircraft manufacturers, fell

sharply by 27% in 2018 to USD 2.35 billion, after soaring 18% in 2017 (to a record USD 3.2 billion).

In line with the registered order backlog and Company's reports, we predict that during 2019,

aerospace industry exports will pick up again.

Total exports by these dominant industries which, as stated, are extremely volatile and

concentrated fell by a cumulative 3.5% compared to 2017, to USD 21 billion – 44% of total exports

(compared with 47% in 2017)2.

Exports growth rate | quarterly by dominant industries and other industries rates of changes year-over-year


2 Goods excluding diamonds

-7.3%

0.9%

-6.5%

-2.5%

-0.6%

-3.5%

3.9%5.6%

-0.5%

4.8%8.3%

2.1% 1.2%

-1.7%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Export of Goods

Chemicals, Pharmaceuticals, Aircrafts & Electronic components (=G4)

Export of Goods - Exc. G4

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Exports of other industries

Exports of other industries saw a clear upward trend, with a growth rate recorded almost across the

board. Aggregate exports by these industries – accounting for 56% of total exports – rose by 8% in

2018 to a total of USD 26.5 billion.

An increase was recorded by the following key industries: exports of machinery and equipment

(which includes printing, robotics, irrigation and food machineries) rose by 7% from 2017 to USD

6.3 billion, exports of rubber and plastic equipment and products rose by 5% to USD 2.3 billion,

exports of oil refineries soared 65% to USD 1.4 billion, exports of food and beverages increased by

11% to USD 1.2 billion and exports of electric equipment (which includes equipment and systems

in the fields of alternative energy, electricity and electronics) totalled USD 1.1 billion, unchanged

from 2017. Additional salient increases were recorded by exports of textile and apparel (rose 3%

to USD 870 million), exports of metals (rose 10% to USD 690 million) and exports of wood, paper

and printing products (rose 3% to USD 480 million).

Exports of industrial sectors| 2018 versus 2017 In billions of USD


7.87.2

5.9

7.5

3.2 3.2

2.2

1.5

0.8 1.0 1.10.8 0.6 0.6 0.5

8.9

7.9

6.35.9

3.9

2.4 2.3

1.61.4 1.2 1.2

0.9 0.7 0.5 0.5

2017 2018

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Exports by Geographic Regions |

(Goods excl. diamonds and excl. exports to the Palestinian Authority and trade adjustments)

An analysis of export trends by trading regions points to recovery and growth in the volume of

goods exported from Israel to Asia and Latin America. In contrast, exports to the US and EU

countries recorded a slight decrease from 2017 levels, while export to Africa Sub-Saharan countries

continues to decline, in line with the global trend.

Bear in mind that the development of exports by geographic regions is tightly linked to industry-

level developments. For example, the positive trend recorded in 2018 in the exports of chemicals

and electronic components fuelled the growth in exports to high-demand regions, especially to Asia

and Latin American. At the same time, the sharp decline in pharmaceutical exports from Israel

pulled down exports to the US and EU countries.

Asia

As we anticipated in the IEI's summary of trends' report for 20173, during 2018 exports to Asia

witnessed an impressive recovery, soaring 21% to a total of USD 10.3 billion. The electronic

components industry had a material impact on exports, in line with the overall trend of exports to

Asia over the past few years. Components exports play a significant role in exports to the region

and accounts for 25% of total goods exports.

The substantial change in exports to China - traditionally Israel's largest export destination in Asia

and as of 2018, the second biggest market for Israeli commodity exports - had the biggest impact

on exports to Asia. In 2018, exports to China rallied 50% to a record level of USD 4.7 billion.

Additional increases were recorded by exports to India (up 23% to USD 1.2 billion), exports to Japan

(up 31% to about one billion dollars) and exports to South Korea (up 9% to about one billion

dollars).

3 "The projected growth in exports of electronic components in 2018 will support an overall recovery in exports to

Asia" – Developments and Trends in Israeli Exports – Summary Report for 2017 – the Economic Unit, IEI

11

The European Union4

Exports to the European Union in 2018 fell by 3% in dollar terms compared to 2017. Bear in mind

that in 2017 exports to EU countries rose by a cumulative rate of 20% to USD 16 billion. The sharp

decline in exports of pharmaceuticals, a dominant export industry which accounts for 25% of total

goods exported to the EU, naturally affected exports to this region. Another sector that experienced

a steep decline in exports was the aerospace industry. These negative effects were offset by the

sharp increase in exports of chemicals, telecom, medical equipment and agricultural produce.

Exports to major designations in the EU included Britain – Israel's biggest export market in Europe

– which fell by 17% during 2018, mostly due to waning pharmaceutical exports. Additional declines

were recorded in exports to The Netherlands (-1%), France (-15%) and Belgium (-15%). On the

other hand, handsome increases were recorded in exports to Germany (+9%), Italy (+7%), Spain

(+6%) and Cyprus (+86%), mainly owing to the sharp growth in exports of chemicals and oil

refineries to these countries.

The United States5

Exports to the US in 2018 amounted to USD 11 billion, slightly below export levels in 2017. This

decline is attributable to the sharp and continued contraction in pharmaceutical exports, which was

offset by a substantial rise in chemical exports. It is noted that these data relate to exports of goods

only (excluding diamonds) – but if the calculation included services, the US' share of Israeli exports

would increase considerably.

Latin America

Exports to Latin American countries in 2018 amounted to USD 2.2 billion, up 12% from export

levels in 2017. The growth in exports was mainly due to the boost in exports to Brazil (up 28% to

USD 1.2 billion), which was fuelled by the rise in exports of chemicals and minerals to the country.

4 For a detailed analysis on exports to EU countries and exports trend for the last few years see the Economic Unit's

page on the IEI's website. 5 A detailed analysis on exports to the US is presented below under "Export Trends to Leading Destinations".

12

Sub-Sahara Africa

Exports to Sub-Sahara African countries fell by 5% in 2018 to USD 725 million. The contraction in

exports is mainly attributable to a sharp decrease in exports to South Africa, which was somewhat

offset by the double-digit increase in exports to Nigeria, mainly owing to the growth in exports of

chemicals and oil refineries.

Exports by Regions| 2018 versus 2017 In billions of USD


15.9

11.2

8.5

4.0

2.81.9

0.81.3

15.5

10.910.3

3.5 3.22.2

0.71.4

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B$

2017 2018

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Developments and Changes in Israel's Main Export Destinations |

Exports to key countries by industries (Exports of goods excl. diamonds)

Exports to Israel's 10 leading destinations in 2018 accounted for 63.5% of total exports, as

compared to 62% in the same period of 2017. Exports to three destinations (the US, Britain and

France) fell in 2018 while 6 of the 10 biggest markets recorded a growth in exports compared to

2017 – with a double-digit growth to 5 destinations (China, Turkey, India, Brazil and Japan). Of the

20 biggest destinations – which account for 79% of total exports (compared to 77.5% in 2017), there

was a decline in exports to 7 destinations (compared to 4 only in 2017), 5 of which saw a double-

digit decline of more than 15%. 11 out of the 20 destination saw a double-digit increase, 7 of which

saw a double-digit growth of more than 20%.

The changes and fluctuations recorded in the major export industries in 2018 painted the picture

of Israeli exports. For example, exports of pharmaceuticals had a negative impact on overall exports

to the US and European countries. On the other hand, the increase in exports of electronic

components contributed to the sharp growth in exports to various destinations in Asia – the same

applies to chemical exports, which largely contributed to the sharp growth in exports to Turkey and

additional Mediterranean countries – where chemicals constitute a significant component of

imports.


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Israel's Top Export Destinations | 2018 Exports of goods excluding diamonds, original data, change in % y-o-y, in billions of USD

Rating in

2018 Country

2018 Exports

($B) % change 2017 rating

Change in

rating

1 USA 10.9 -3% 1 (-)

2 China 4.7 47% 3 +1

3 Britain 4.0 -17% 2 -1

4 Netherlands 2.3 0% 4 (-)

5 Turkey 1.9 34% 7 +2

6 Germany 1.8 9% 6 (-)

7 France 1.4 -15% 5 -2

8 India 1.16 23% 8 (-)

9 Brazil 1.16 28% 9 (-)

10 Japan 1.00 31% 15 +5

11 S. Korea 0.97 9% 11 (-)

12 Italy 0.94 7% 12 (-)

13 Spain 0.86 6% 13 (-)

14 Belgium 0.76 -15% 10 -4

15 Cyprus 0.75 86% 20 +5


U.S 23.0%

China 9.8%

U.K 8.4%

Netherlands 4.8%

Turkey 4.0%

Germany 3.7%

France 2.9%

India 2.4%

Brazil 2.4%

Japan 2.1%

S. Korea 2.0% Italy

2.0%

Spain 1.8% Belgium

1.6%

Cyprus 1.6%

R.O.W 27.5%

16

Trends in exports to top destinations The US is Israel's biggest and most important export market. Over the last few years, average

exports (goods only, excluding diamonds and services) amounted to USD 11.3 billion annually –

which is equal to aggregate exports to the UK, China, the Netherlands and Turkey (the four leading

export destinations, after the US).

A long-term analysis of exports

to the US in the last two decades

points to two major trends:

during the first decade, between

the dot.com crisis to the global

credit crunch, there was a sharp

increase in exports to the US,

mainly between 2002 and 2008.

During these years, exports grew

by a cumulative 100% and posted

an annual average 12% growth.

Over the last decade, however, from 2008, the year of the global financial crisis and until now,

exports to the US have been stagnant. In fact, during the last 10 years, exports remained on an

average level of USD 11.2 billion.

From 2008 until 2018, exports

declined by a cumulative 6% and

by 0.6% annually – despite a 14%

increase in commodity exports.

As a result of the downward

trend, the weight of the US in

total exports has gradually

declined. Despite the rapid

growth in exports to the US in the

period 2002-2008, its weight in

total exports remained

unchanged at 29% on average.

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Export to U.S | In billion of USDGoods, exc. diamonds (b$)

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35%

Export to U.S | % Share of ExportGoods, exc. diamonds (b$)

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In the last 10 years, there was a clear decline in the US’ share of Israeli exports which, at year-

end 2018, was 23% only. The analysis of exports by components and over time provides an

explanation to the negative changes and developments in exports to the US over the last decade

– which were substantially affected by the high volatility of the exports of key industries:

electronic components, chemicals and most of all – pharmaceuticals. Their impact and centrality

in overall exports is naturally reflected (not only but especially) in exports to a major market like

the US - and explains the changes in exports during the reported period. The sharp increase in

exports to the US in the first decade was driven by accelerated exports of pharmaceuticals and

electronic components. The rapid growth in demand and in commodity prices also contributed to

the rapid growth in revenues from overseas sales of chemicals and minerals.

Accordingly, the developments and

fluctuations in exports of the

dominant industries during the last

decade (2008-2018), had a

substantial impact on exports to the

country. The continued decline in

pharmaceuticals export shipments

to the US had a material and crucial

impact (as shown by this graphs).

In the period 2008-2018

pharmaceutical exports to the US

was sliced by 50% from USD 3.8

billion in 2008 to USD 1.9 billion only

in 2018. This contraction explains

the downward trend in exports to

the US over the past decade: net of

pharmaceuticals the picture is

reversed and sales to the US have in

fact increased. During the reported period, exports to the US grew by a cumulative 18% from USD

7.8 billion in 2008 to USD 9.2 billion in 2018.

3.8 3.

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Export of pharmaceuticals

Export to U.S - Exc. Pharmaceuticals

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An overview of export trends in the last few years points to 3 features in the breakdown of Israeli

exports by top export destinations: a continued decline in exports to the US, a sharp increase in

exports to Asia (which has been highly volatile in recent years) and stability in exports to EU

countries6.

6 Bear in mind that these are exports of goods only (excl. diamonds). If we include services in the calculation, the US

has a much larger weight in Israeli exports.

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

B$


Export to U.S by Sectors | 2008-2018in Billions of USD

Pharmaceuticals Chemicals & Oil refineries Electronic components

Machinery equipment Medical equipment Rubber & Plastic products

Telecommunication equipment Metals Electronic & optical equipment

Computer & Printing equipment Electric Machinery Textiles

Other

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Based on the average data of the last few years7, the US' weight in exports fell to 24% (from 31% in

2002). The weight of Asia has increased to an average 21% of exports (compared to 14% in that

year) whereas the weight of EU countries remained high and stable at an average 23% of total

exports.

Geographic Regions' Share of Israeli Exports | Goods, excluding diamonds


Exports to China, which grew at an accelerated rate during the last 10 years, is the main

contributory factor to the rising weight of Asia in total exports – in 2018 this trend was supported

by a sharp double-digit growth in exports to other countries in Asia, such as India (+23%), Japan

(+31%) and South Korea (+9%).

There is no doubt that the expansion in exports to China this year is exceptional and attributable to

exports of electronic components; however the growth in exports to China has been recorded by

7 Annual average for the period 2015-2018

32.5%32.2%

23.0%

30.8%

21.6%

14.2%

USA European Union Asia

20

all export sectors, and that its share and significance in Israeli exports has been rising steadily

from one year to the next. In 2018, China was the second biggest destination for Israeli exports

worldwide.

The decline in US' share in overall exports and the rise in the weight of other markets point to the

trend of the last few years: exports are more geographically decentralized. The calculation of

exports to different destinations as a percentage of total exports to the US is clearly indicative of

this trend: exports to China, for example, which accounted for 8.7% only of exports to the US in

2007, grew steadily over the years and as of year-end 2018 accounted for 43%. Exports to the UK,

which accounted for 16.3% of Israeli exports to the US in 2007, grew dramatically to 37% in 2018.

So did exports to the Netherlands and Turkey, which current represent 21% and 17% of exports to

the US, respectively, compared to 16% and 12% a decade ago.

Keep in mind that while exports are more decentralized geographically – they remain highly

centralized from an industrial point of view.


0%

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201820172016201520142013201220112010200920082007

Export to leadind destinations compare to the US % Share of export to US (US=100%), 2007-2018

China U.K Netherlands Turkey Germany

France Japan India Italy

21

Developments in Israel's Top Export Destinations

United States8

In 2018 exports to the US totalled USD 10.9 billion – down 3% from 2017. We should re-emphasize

the crucial role of pharmaceuticals in the changes and fluctuations in Israeli exports to the US.

Exports of pharmaceuticals, which accounts for 25% of total goods exported to the US9, fell sharply

by 25% from USD 2.5 billion to USD 1.9 billion in 2018. Pharmaceuticals represent a dominant and

concentrated industrial export to the US (and overall in Israeli exports), and are also highly volatile.

These exports are considerably affected by Teva's production and export activities. We expect this

downward trend to continue in 2019, with negative implications on Israeli exports to the US.

As stated, excluding pharmaceuticals exports to the US have increased, indicative of the overall

trend in the exports of major industries. Export of chemicals rose sharply by 22% to USD 1.3 billion

and exports of machinery and equipment increased by 10% to USD 940 million. Exports of medical

equipment to the US have increased for the third consecutive year. In 2018 exports of medical

equipment rose by 2% from 2017 and by 37% since 2015, from USD 560 million in 2015 to USD 770

million in 2018.

Additional industries that recorded an increase in

exports were rubber and plastic (rose by 11% to

USD 670 million), telecom equipment (rose by 4%

to USD 605 million), metal products (increased by

3% to USD 555 million) electronic and optical

equipment10 (increased by 12% to USD 510

million), computer and printing systems (rose by

7% to USD 445 million) and food and beverages,

which grew by 25% to USD 315 million.

In contrast to the general positive trend, exports

of electronic components fell by 20% to USD 860

million.

8 For details on export trends to the US, see above. 9 Goods, excluding diamonds, based on the average data in the period 2015-2018 10 Among others, includes advances equipment for measurement and control of production processes – mainly for

the electronics industry.

538 564

534 564 559

691

755 767

2011 2012 2013 2014 2015 2016 2017 2018

Exports of medical equipment to the US

2011-2018 (M$)

22

China

In 2017, exports to China remained unchanged, despite the contraction in exports of electronic

components and the general downward trend in exports to Asian markets. In 2018, the growth in

exports of electronic components was unusually high - and was the main contributory factor to

the sharp increase in exports to China compared to 2017, up about 50% to a record USD 4.7

billion. In comparison, exports to China in the whole of 2017 totalled USD 3.2 billion. An increase

was also recorded by other major export industries, for the second consecutive year since 2017.

In line with the strong favourable trend, China's share of total exports to Asia continued to grow

and at year-end 2018 hit a record 46% of total goods exported to Asia (compared to 37.5% in 2017,

32% in 2016 and 27.5% in 2015). As the data shows, China's weight over the last 10 years rose

sharply compared to India's share of exports to Asia, which is gradually decreasing.

It is noted that exports to China as a percentage of total exports is consistent with its rising weight

in regional exports: from 2.4% in 2007 to 7% in 2017 and a record weight of 11.3% in mid-2018.

Countries' Share of Exports to Asia | 2007-2018


16.3%

45.7%

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20%

25%

30%

35%

40%

45%

50%

China

India

Japan

S. Korea

Hong Kong

23

As stated, the sharp growth in the exports of electronic components had a significant impact on

total exports to China in 2018. During the reported period, exports of electronic components soared

by 80% to USD 2.6 billion – which is an unusually high figure11. Electronic components are Israel's

main industrial exports to China and its weight in total exports is 56%. The changes and fluctuations

in these exports are affected by the business activity of several companies 12.

Trends in exports to China |2011-2018

Exports of electronic components grew at an accelerated pace, but so have other industrial exports

Data analysis: Economic Unit, IEICI 11 In comparison, exports of electronic component to China exceeded total exports to Germany, the Netherlands or

Turkey (which are among the five biggest export destinations). 12 Global Intel holds assembly and testing facilities in several locations in Asia (mainly in China, Vietnam and Malaysia)

to where the chips manufactured in the company’s plants in Israel are sent.

0.8

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1.4

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2011 2012 2013 2014 2015 2016 2017 2018

Export of Electronic components (b$) Export to china - Exc. Electronic comp. (b$)

24

Another major industry exporting to China is Industrial control and measurement instruments,

which consists of equipment for controlling production process in the electronics industry. This is

an important sector in Israeli exports to China and has been growing rapidly in the past few years.

In 2018, exports of control and measurement instruments posted a 64% increase and totalled USD

450 million – 10% of total exports, after growing by 28% in 2017 to USD 275 million. Overall, in the

period 2015-2018, these exports grew by a cumulative 240%, representing an average annual 50%

growth rate.

Consistent with the upward trend in exports of the chemicals industry (for the reasons listed

above), in 2018 chemicals exports to China grew by 10% from 2017 and totaled USD 350 million

(7.5% of total exports to China). Exports of medical instruments, another major industry, grew by

18% from 2017 and totaled USD 280 million, 6% of total exports to China in the reported period.

Other sectors also saw a favorable trend, almost across the board, in comparison to 2017: exports

of minerals increased by 21% to USD 230 million, exports of machinery and equipment.

rose 10% to USD 215million,

exports of metals and metal

products increased by 12% to

USD 130 million, exports of

food and beverages rose by

20% to USD 60 million and

exports of rubber and plastic

products grew by 33% to USD

60 million. In contrast, exports

of telecommunication

equipment fell by 5% to USD

70 million and exports of

engines and electric

equipment declined by 7% to

USD 55 million.


-

50

100

150

200

250

300

350

400

450

500

Export to China by industries | Excl.

electronic components (in millions of USD)

2017 2018

25

Britain

In 2018, exports to Britain, Israel's largest market in Europe and its third destination globally, fell

by 17% from its levels in 2017 and totaled USD 4 billion.

Consistent with the trend of exports to the UK over the past few years, in 2018 the volatility in

exports is almost entirely attributable to pharmaceuticals. This industry has become a crucial

component in exports to the UK and as of year-end 2017 accounts for 70% (!) of total exports to

the country. As with the US, exports to the UK are affected by the dominance of the pharmaceutical

industry, which is mainly driven by Teva’s operations in the British Isle, a key market for the

company by reports. The sharp and rapid increase in pharmaceutical exports to the UK over the

past few years has established Britain as Israel’s second largest export market globally (until 2018)

and its biggest export destination among European countries.

Trends in exports to Britain | 2007-2018


0.2 0.1 0.1

0.9

1.81.9

2.12.2

2.5 2.5

3.7

2.8

1.5 1.5

1.1 1.11.3 1.3 1.2 1.3 1.2

1.3 1.3 1.2

10% 9% 11% 43% 57% 59% 64% 64% 68% 65% 74% 69%0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

B$

Export of Pharmaceuticals to the UK Export to the UK - Exc. Pharmaceuticals

% Share of Pharmaceuticals

26

As the graph shows, exports to Britain in 2018 saw a general downward trend – primarily due to

exports of pharmaceuticals, which fell by 23% to USD 2.8 billion (60% of total exports to Britain).

However, unlike export trends to the US, pharmaceuticals were not the only factor that pulled

down export volume to the UK. Exports of the majority of industries that sell to the UK contracted

during the year, as follows:

In 2018, exports of rubber and plastics fell by 6% to its previous-year level of USD 145 million,

agricultural exports declined by 8% to USD 95 million, exports of metal products declined by 8% to

USD 95 million. Additional, steeper declined were recoded by exports of telecommunication

equipment, which fell by 20% to USD 66 million, exports of aircraft, down 15% to USD 45 million,

and exports of industrial control and measurement instruments which decreased by 40% to USD

35 million.

Exports of chemical and oil refineries, which account for 10% of total exports, grew by 13% to USD

390 million, exports of machinery and equipment rose 25% to USD 60 million, exports of textile

and apparel rose 7% to USD 60 million and exports of food and beverages increased by 26% to USD

50 million.

The Netherlands

Total exports to the Netherlands in 2018 came to USD 2.3 billion, almost unchanged from its levels

in 2017. Like many countries in the region, exports to the Netherlands were affected by the

fluctuations in the dominant industries: pharmaceuticals and chemicals, which together account

for 42% of total exports to the country13. Exports of chemicals and oil refineries, which account for

23% of total exports to the Netherlands, fell by 2% to USD 515 million (in contrast to the overall

upward trend in this industry during the reported period).

Exports of pharmaceuticals continued the downward trend of the last few years (-16%, -12% and -

15% in 2015, 2016 and 2017, respectively). In 2018, pharmaceutical exports contracted by a further

30% to USD 270 million – half of its volume in 2015. Exports of machinery and equipment, also a

dominant industry in exports to the Netherlands which account for 19% of total exports, fell slightly

by 2% to USD 440 million.

13 Based on average data in the years 2015-2018

27

In line with the general trend in exports to EU countries, 2018 saw a mixed trend in industrial

exports to the Netherlands: exports of medical equipment rose by 12% to USD 170 million, exports

of foods and beverages soared by 40% to USD 95 million exports and exports of rubber and plastic

products increased by 2% to USD 80 million. On the other hand, exports of mineral products fell by

20% to USD 55 million while exports of office machinery and computer systems fell by 9% to USD

60 million.

Agricultural exports (USD 170 million in 2018), exports of telecommunication equipment (USD 80

million) and exports of textile and apparel (USD 50 million) remained unchanged from their level

in 2017.

Bear in mind that the Netherlands, which is a central intersection in global trade, often serves as a

gateway for many export shipments which are not necessarily sold in the Netherland markets, but

rather transported to other European countries14.

Turkey

The rally in exports to Turkey, which began in 2017 accelerated during 2018. Industrial exports to

Turkey in 2018 rose sharply by 34% to USD 1.9 billion – a 4-year high.

The positive trend was mainly attributable to the sharp growth recorded by chemicals and oil

refineries – the main industrial exports to Turkey. However, the upward trend was visible across

the board, even if we exclude this dominant industry from overall exports.

The most dominant industry in Israel's exports to Turkey is chemicals and oil refineries. The steep

decline in exports to Turkey over the last few years was naturally part of the downward trend in

the exports of this industry. Accordingly, the rise seen in 2017 and in the first half of 2018 in exports

of chemicals and refineries accounts for the growth in total exports to Turkey – a key target market.

14 Many Israeli companies have parent companies, subsidiaries or affiliates in the Netherlands, and the country

constitutes a gateway for Israeli companies to other European countries and to certain countries outside Europe.

28


As stated, the main component in Israeli exports to Turkey is chemicals and oil refineries. The sharp

decrease in exports to Turkey since 2014 is mainly attributable to the contraction in revenues from

this industry – primarily due to the steep decline in energy prices (although during this period

refining margins increased which boosted the overall profitability of this industry).

Owing to the recovery in energy prices over the last few years, revenues from overseas sales of

chemical and oil distillate increased and contributed to the growth in Israeli exports to Turkey –

which is the main target market for this industry. In 2018, exports of chemical and oil refineries

increased by 4% and totaled USD 1.4 billion – 74% of total exports to Turkey.

As stated, in 2018, major industrial exports to Turkey recorded sharp double-digit growth rates:

exports of engines and electrical equipment soared 46% to USD 120 million, exports of metals rose

74% to USD 55 million, exports of machinery and equipment rose by 20% to USD 35 million, exports

of mineral products rose by 44% to USD 100 million, exports of machinery and equipment rose by

21% to USD 65 million, agricultural exports increased by 25% to USD 20 million, and exports of

industrial control and measurement instruments increased by 40% to USD 20 million.

1,290

882

2,0362,238

1,260

833982

1,406

545 521 472 505 423 452 442 499

70% 63% 81% 82% 75% 65% 69% 74%0

500

1,000

1,500

2,000

2,500

2011 2012 2013 2014 2015 2016 2017 2018

M$

Trends in exports to Turkey | 2007-2018

Export of Chemicals & Oil refineries

Export to Turkey - Exc. Chemicals & Oil refineries

% Share of Chemicals & Oil refineries

29

Germany

In 2018 exports to Germany rose by 9% to USD 1.8 billion – this is the third consecutive year of

growth in exports to Germany, to their highest level in the last 7 years. Germany is the 6th biggest

market for Israeli exports globally and the third in Europe15. Exports to Germany are highly diverse,

with no single dominant industry or company that has a marked impact on exports to the country.

An analysis of exports to Germany by industrial sectors points to an upward trend across key export

industries: exports of machinery and equipment, which accounts for 13% of total exports16, grew

by 13% to USD 235 million, exports of chemicals and oil refineries rose 4% from 2017 to USD 205

million (13% of total exports).

Exports of rubber and plastics

increased by 8% to USD 160

million and exports of metal

products rose by 14% to USD 150

million – two major export

industries, each representing 9%

of total exports.

Likewise, exports of electronic

components grew by 24% to USD

120 million, exports of

telecommunication equipment

rose sharply by 50% to USD 100

million and exports of medical

equipment increased by 11% to

USD 90 million.

In contrast to the general trend in

exports to Germany but in line with trend in the industry, exports of pharmaceuticals fell by 7%

from 2017 to USD 100 million.

15 Since Holland is a passageway for goods to other destinations around the world and that goods exported from Israel

to Holland are not intended solely for this market, some consider Germany as the second most important exports market in Europe.

16 Based on average data for the years 2014-2018

1.4

1.7

1.9

1.61.7

1.6

1.41.5

1.6

1.8

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Export to Germany | third consecutive year of growth ;highest level in 7 years

(in billions of USD)

30

France

In 2018 exports to France fell by 15% from their level in 2017 and amounted to USD 1.4 billion. The

unusual decrease in exports to France is mainly attributable to the aerospace industry, following

the completion of large-scale transaction which was recorded in 201717.

Excluding the aerospace industry, in 2018 industrial exports to France overall posted a slight 3%

growth compared to 2017.

Israel mainly exports metal products, chemicals and agricultural produce to France, which

together account for half of total exports to the country. In 2018, these industries recorded a

mixed trend: exports of metal products increased by 12% to USD 380 million, exports of chemicals

remained unchanged from its level in 2017 and totaled USD 215 million while exports of agricultural

produce fell by 24% to USD 125 million.

An upward trend was also recorded by the following industries: exports of machinery and

equipment rose by 22% to USD 125 million, exports of food and beverages rose by 30% to USD 75

million, exports of medical equipment grew by 12% to USD 65 million, and exports of electronic

components increased by 40% to USD 30 million.

India

In the last few years, there has been a continued downturn in exports to India. This trend peaked

in 2017 with a further 18% decline in exports to USD 950 million, to their lowest level since 2007.

During 2018, Israeli exports to India enjoyed a significant recovery. Following a 23% increase from

2017 to USD 1.16 billion, these exports returned to their average level in the last few years

(average exports in the period 2015-2017 was USD 1.14 billion), albeit 7% below their average

over the last decade.

17 The aerospace industry is highly concentrated and subject to volatility due to the nature of transactions and sale

contracts signed by companies in this sector.

31

Exports to India | 2007-2018 (goods excl. diamonds)


Exports to India are highly volatile, as a result of their composition as well as the type of products

and commodities sold to India. For example, Israeli exports are largely impacted by the volume of

defense-related transactions, global commodity prices (mainly fertilizers and chemicals for

agriculture) and domestic demand, which sometimes fluctuates from one year to the next, due to

government subsidies.

Consistent with the recovery in Israeli exports to India, in 2018 there was an across-the-board

increase in the majority of industries exporting to India, some of which posted a double-digit

growth: exports of telecommunications equipment increased by 27% to USD 265 million; exports

of chemicals rose by 33% to USD 165 million; exports of minerals rose by 9% to USD 160 million;

exports of control, measurement and navigation instruments soared 185% to USD 140 million;

exports of metals and metal products rose by 20% to USD 85 million while exports of computer

systems and equipment soared 60% in 2018 to USD 25 million.

13.6%

11.1% 11.3%

2.0% 2.0% 2.4%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0%

5%

10%

15%

20%

25%

Exp

ort

in b

illio

ns

of

USD

% S

har

e in

Exp

ort

to

Asi

a

Export to India (in B$)

% India's Share of total export to the World

% India's Share of total export to Asia

32

Brazil

Exports to Brazil, Israel's biggest export destinations in Latin America and one of its most

important markets globally, amounted to USD 1.16 billion in 2018, up by an impressive 28% from

2017. Exports to Brazil continued to peak up, further to a sharp 21% increase in 2017 (to USD 900

million).

The growth in exports to Brazil over the last few years is attributable to the remarkable increase in

imports of minerals and chemicals, the two biggest exports from Israel to Brazil, which together

account for 70% of total exports. Exports of chemicals (which represents close to half of exports to

Brazil) totaled USD 525 million in 2018, up 45% from its level in 2017. Makhteshim-Agan, which

holds production facilities in Brazil, has considerable impact on revenues from chemical exports to

the country.

In 2018, exports of minerals (mainly potash), another major industry (accounts for 25% of total

exports) posted an 18% rise from 2017, and totaled USD 325 million. Similar to the trends in exports

to China and India, most of the changes in mineral exports are due to ICL's business activities in

Brazil.

In addition to these industries, an overall upward trend was recorded in exports to Brazil: exports

of metals rose 32% to USD 60 million, exports of rubber and plastic products rose 23% to USD 45

million, exports of machinery and equipment increased by 24% to USD 45 million, exports of textile

products increased by 31% to USD 35 million and exports of telecommunication equipments rose

by 11% to USD 30 million.

Bear in mind that Brazil – the strongest economy in Latin America and Israel's main export market

in the region – is recovering from a severe economic and political crisis, during which inflation

soared and the local currency recorded a sharp depreciation. This, together with the economic

slowdown, significantly hurt Brazilian demand for imported commodities.

Over the next few years Brazil's economy is expected to grow by 2.5% (further to a 1.2% growth in

2018). Overall in 2018, Brazilian imports grew by 7.5% while in 2019, amid slowing inflation and

growing demand for foreign goods, imports are expected to post a real growth rate of 6.5%.

33

Japan

In 2011, Japan's demand for Israeli commodities began to decline, reflected in both a decrease in

export volumes and a decrease in exports to Japan as a percentage of total exports to Asia (as

detailed below). This trend was curbed and after two consecutive years of contraction, exports to

Japan in 2017 rose by 9% to a record USD 765 million. In 2018, the positive trend continued and

even accelerated – total exports to the country soared by 30% to USD 1 billion – the highest level

recorded since the end of the 1990s.

For illustration purposes, exports to Japan in the first half of 2018 totaled USD 615 million – higher

than the export volume recorded in the whole of 2010.

Exports to Japan | 2007-2018 (goods excl. diamonds)


7.2%

9.7%

1.4%2.1%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0%

2%

4%

6%

8%

10%

12%

Exp

ort

in b

illio

ns

of

USD

% S

har

e in

Exp

ort

to

Asi

a

Export to Japan (in B$)

% Japan's Share of total export to the World

% Japan's Share of total export to Asia

34

Japan is currently Israel's third biggest export market in Asia. As of 2007, there has been a decline

in exports to Japan as a percentage of total exports to the continent, dropping from 12.6% in 2007

down to 6.4% only in 2015. However, over the last few years, as exports to Japan began to pick up,

there was a commensurate increase in its share of total exports to Asia.

In the last few years Israeli exports to Japan began to pick up, expressed in the continued rise in

Israeli exports to Japan as a percentage of total exports to Asia. As mid-2018, exports to Japan

accounted for 11% of total exports to Asia – almost twice its weight in 2015. Accordingly, Japan's

share in total exports grew by approx. 1% - from 1.6% in 2015 to 2.5% in the first half of 2018.

Israel main exports to

Japan include metal

products, control,

measurement and

navigation instruments18,

chemical products, medical

instruments and foodstuff

– together these account

for more than 70% of total

exports to Japan.

The sharp increase in

exports to Japan in 2018

was recorded across the

board in every major export

industry, which posted a double-digit growth compared with exports volumes in 2017. Exports of

metal products grew by 60% to USD 205 million; exports of industrial control and measurement

instruments (which mainly consists of equipment for production process control in the electronics

industry) grew by 40% to USD 160 million; exports of chemicals increased by 20% compared to

2017 and totaled USD 130 million; exports of medical instruments rose by 10% to USD 110 million

and exports of food and beverages grew by 20% to USD 80 million.

18 This sector is part of the semiconductor industry, and affected by the changing demand for semiconductors. Most of

the companies in this industry develop, produce and sell control and processing equipment and systems for the global semiconductor industry.

0%

5%

10%

15%

20%

25%

Exports to Asia| share of leading destinations in

total exports (excl. China)

India Japan S. Korea Hong Kong

35

Despite the sharp growth in exports to Japan and the impressive upward trend witnessed across

export industries – bear in mind that Israeli exports to Japan are still below their levels in the

past. Average annual exports in the years 2010-2018 was USD 810 million19 – 11% below average

annual exports in the 1990s, which amounted to USD 915 million. In the second half of the 1990s,

Israeli exports to Japan averaged more than USD 1 billion annually. However, in comparison with

the average exports in the period 2000-2009, which stood at USD 750 million, there has been an

increase in the volume of exports to Japan over the past 8 years.

Israel-Japan Trade | imports are growing and exports are picking up

Imports and exports incl. diamonds in billion of dollars, 1990-2018


19 Including export of diamonds, although diamond exports to Japan are relatively negligible

(2,500)

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000

1,500

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Export of Goods Import of Goods Trade Balance

36

Annual growth rate in exports to leading destinations | 2018 vs. 2017, USD million

Top export markets;

% of annual growth in 2018/2017 vs. % of annual growth 2017/2016


USA

China

U.K

Netherlands TurkeyGermany

France

India

Brazil

Japan

S.Korea

Italy

Spain

Belgium

Canada

Russia

Greece

Hong Kong

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-30% -20% -10% 0% 10% 20% 30% 40% 50%

%A

nn

ual

Ch

ange

16

/17

%Annual Change 17/18

37

The contribution in US dollar terms of growth in exports to leading destinations | 2018 vs. 2017, USD million

Top export markets;

% of change in exports in USD million


-900-800-700-600-500-400-300-200-100 0 100 200 300 400 500 600 700 800 9001,0001,1001,2001,3001,4001,500

China

Turkey

Cyprus

Brazil

Japan

India

Germany

Canada

S. Korea

Italy

Spain

Greece

Netherlands

Hong Kong

Russia

Belgium

Taiwan

France

U.K

U.S

38

Exports of Services

In line with the overall trend of the past few years, 2018 saw the continued accelerated growth

in exports of services. Considering the accelerated growth of this sector and especially given the

slowdown in goods exports, this sector continued to be the main driver of expansion in Israeli

exports while contributing to the positive trade balance.

As we estimated in our previous report, in 2018 exports of services rose by 12%, to an all-time-

high volume of USD 50 billion20. This increase is mainly attributable to exports of Hi-Tech services

(further to the trend of the last few years), and to the continued recovery in exports of tourism

services.

The services sector currently accounts

for 45% of total Israeli exports – it

highest level ever. It is noted that the

accelerated increase in services exports

in 2018 followed several years of

growth: in 2017 these exports rose by

13% after growing by 7% in 2016

(compared to more moderate growth

rates of 3% and 2% in 2015 and 2014,

respectively).

The accelerated growth in services

exports over the last few years was the

main contributor to Israel's positive

balance of payments. However, the

rapid increase in goods imports21 has

widened the trade account deficit which

in 2018 amounted to USD 16.5 billion.

While the stable growth in services exports has led to a services account surplus of USD 19.2 billion,

the trade balance surplus contracted by 53% to USD 2.7 billion (compared to a surplus of USD 5.9

billion in 2017 and USD 9.6 billion in 2015).

20 As published in December 2017 21 In 2018 there was a 12% growth in goods imports, up to USD 77 billion. This is mainly attributable to the rise in energy

prices and exceptionally large imports of vehicles and machineries for the manufacture of electronic components.

-20

-15

-10

-5

0

5

10

15

20

2018201720162015

in B

illio

ns

of

USD

Goods Trade Balance Services Trade Balance

39

The trade balance and the current account surplus | 2014-2018 Seasonality-adjusted data, in USD million

The balance-of-service surplus has grown but so has the deficit in goods | Seasonality-adjusted data, in USD million

Data: balance of payments, CBS; processing and analysis: IEI economic unit

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

X-XIIVII-IXIV-VII-IIIX-XIIVII-IXIV-VII-IIIX-XIIVII-IXIV-VII-IIIX-XIIVII-IXIV-VII-IIIX-XIIVII-IXIV-VII-III

20182017201620152014

Trade Balance (Goods&Services) Current Balance (Total)

-6,000

-4,000

-2,000

-

2,000

4,000

6,000

X-XIIVII-IXIV-VII-IIIX-XIIVII-IXIV-VII-IIIX-XIIVII-IXIV-VII-IIIX-XIIVII-IXIV-VII-IIIX-XIIVII-IXIV-VII-III

20182017201620152014

Goods Trade Balance Services Trade Balance Trade Balance (Goods&Services)

40

As stated, the growth in the services industry's exports is mainly attributable to the exports of

Hi-Tech services, in line with the trend of the past few years. Total sales of hi-tech services in 2018

amounted to USD 29 billion – up 18 % from their record level in 2017. The Hi-Tech sector currently

accounts for 58% of revenues from services exports – compared to 55% of total services exports in

2017 and 47% of in 2014.

This trend is also indicative of the rising importance and contribution of the software and

computer services sector as Israel's leading export industry. In 2018 the accelerated growth of

these exports continued, with an 18% increase to a record USD 17.6 billion – after growing 15% in

2017 to a record USD 15 billion.

Exports of Hi-Tech Services 2013-2018| Breakdown by types of service, USD billion


8.910.8 11.5 12.7

15.017.6

3.3

4.04.0

4.1

4.9

5.8

2.4

0.50.5

1.7

1.7

2.3

1.42.2

2.4

2.4

2.5

2.7

0.57

0.510.54

0.47

0.48

0.48

-

5

10

15

20

25

30

2013 2014 2015 2016 2017 2018

B$

Telecom services Services for hi-tech industry

Services from start-up companies R&D services

Computer and Software services

41

The same favorable trend was recorded by other Hi-Tech services sectors: exports of R&D services22

grew by 18% to USD 5.8 billion and total exports of services to the Hi-Tech industry amounted to

USD 2.7 billion, up 7% from 2017. Exports attributed to the sale of start-up companies23 were

estimated at USD 2.3 billion in 2018 – up 37% from 2017. Exports of telecom services remained

unchanged at USD 475 million.

Exports of Services 2013-2018| Hi-Tech and other sectors

in billions of USD


22 Consists of scientific research & development services only, including technological incubators and start-up

companies. Excluding software R&D centers which is classified under "exports of computer and software services". 23 According to the CBS, sales of Israeli start-ups to foreign residents are recorded as export of services in the balance

of payments if the sale includes the transfer abroad of intangible assets.

18.5 18.9 18.6 18.0 20.2 21.3

16.4 16.9 18.3 21.5

24.528.8

0

10

20

30

40

50

60

2013 2014 2015 2016 2017 2018

Rest of Services sectors Export of Hi-tech Services

42

Hi-Tech Exports | analysis by industry and services

A summary of exports data by Hi-Tech sectors (industry and services) shows that Israeli Hi-Tech

exports grew by 7% in 2018 to a total of USD 50.5 billion – the highest Hi-Tech export level ever

recorded, and they currently account for 46% of total Israeli exports.

As shown in the previous chapter ("exports of services"), the trend witnessed over the last few

years, of an accelerated growth in exports of Hi-Tech services, has become a significant engine

driving the growth of the Hi-Tech sector in general and Israeli exports in particular.

Exports of Hi-Tech services primarily include computer and support services (IT, information

integration, outsourcing, etc.), sale of software, sale of software licensing, sale of patents and

knowhow, sale of start-ups' knowhow and services and R&D services to global companies.

As stated, total exports of Hi-Tech services in 2018 amounted to USD 29 billion – up 18% from

2017. Exports of computer and software services, which also include R&D services to global

companies operating in Israel, rose 18% to USD 17.6 billion.

In contrast, exports of industrial Hi-Tech (equipment and products) fell by 5% in 2018 to USD 21.7

billion. It is noted that pharmaceutical exports, which fell by 22% from 2017, had a material impact,

as did exports of aircraft, which plummeted by 27%. On the other hand, exports electronic

components rose sharply by 20%, exports of medical equipment increased by 8% and exports of

computer equipment, electronic and optical instruments grew by 10%.

Israeli Hi-Tech exports | by sectors, 2015-2018 (USD billion)

- 5.0 10.0 15.0 20.0

Computing services & Software

Computing, Electronic & Optical equipment

Pharmaceutical products

R&D Services (exc.start-up companies)

Electronical components

Services for the Hi-tech Industry

Aircraft

Exports of services from start-up companies

Medical & Surgical equipment

Telecommunications Services


2015 2016 2017 2018

43

The rising weight and significance of Hi-Tech service sectors has peaked during the last few years

and today Israel is exporting more Hi-Tech services. In 2017, exports of Hi-Tech services outpaced

those of industrial Hi-Tech, reaching 51.8% of total Hi-Tech exports (USD 24.5 billion), compared to

48.2% for industrial Hi-Tech (USD 22.8 billion). This trend has accelerated in 2018: exports of Hi-

Tech services amounted to USD 29 billion in 2018 (57% of total Hi-Tech exports) compared to USD

22 billion for industrial Hi-Tech (43%).

Accordingly, there has

been a sharp increase in

revenues from exports of

Hi-Tech services, as

compared to continued

stagnation for exports of

industrial Hi-Tech. As of

2013, exports of Hi-Tech

services almost doubled,

recording a cumulative

increase of 80% and an

average annual growth

rate of more than 12%. In

contrast, during the same

period exports of Hi-Tech equipment and products grew by a cumulative rate of 4% only – an

average annual growth rate of less than 1%.

15%

10%

3%

6%

16%4%1%

30%

10%4%

Pharmaceutical products

Electronical components

Medical & Surgical equipment

Aircraft

Computing, Electronic & Optical equipment

Services for the Hi-tech Industry

Telecommunications Services

Computing services & Software

R&D Services (exc.start-up companies)

Exports of services from start-up companies

21.1 21.7

16.4

28.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2013 2014 2015 2016 2017 2018

in B

illio

n o

f U

SD

Trends in Hi-tech Export from Israel | 2013-2018

Hi-tech industries Exports

High - technology Services

44

Forecast for 2019

The revised economic output growth, recently been published by leading international financial

institutions, show that global economic activity is expected to slow down somewhat in the next

few years. The growth projections have been revised downward amid the expansion of

protectionist policy and the aggravating trade wars (despite ongoing negotiations). These

restrictive factors are compounded by concerns over the impending Brexit and the uncertainty

about possible implications on the regions' economies, the slowing economic activity of leading

Euro countries (mainly Germany and Italy) as well as the projected decline in China's economic

growth.

As a result, the International Monetary Fund (IMF) is expecting global economic growth to

continue slowing for the second consecutive year to 3.5% in 2019– below the average 3.75%

economic growth in the years 2017-2018 and similar to the average rate recorded in 2014-2015

(3.5%).

Source: World Economic Outlook, Jan 2019 (IMF)

2.1%2.3%

1.7%

2.4% 2.3%

2.0%

1.7%

4.7%

4.3% 4.4%

4.7% 4.6% 4.5%

4.9%

3.6% 3.5%3.3%

3.8% 3.7%3.5% 3.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2014 2015 2016 2017 2018 2019* 2020*

Global growth forecast 2014-2020| IMF

Advanced economies Emerging market and developing economies World

45

Global trade growth has also been revised downward. After expanding by 5.3% in 2017, global

trade slowed to 4% in 2018. According to the IMF, global trade in 2019-2020 will remain at 4%.

The growth in imports by developed countries, which account for more than 60% of Israeli exports,

slowed to 2.7% in 2016, but then picked up to 4.3% in 2017. In 2018, imports grew by 3.2% and

according to the IMF, in 2019 demand by developed countries will rise to 3.5% and slow back to

3.3% in 2020.

In 2011, the growth in imports by developing countries began to shrink, hitting a low point of 0.3%

only in 2015 and 1.8% in 2016. In 2017 and 2018, demand for imports picked up considerably with

a growth rate of 7.1% and 5.4%, respectively. The outlook for 2019-2020 estimates an average

annual growth rate of 4.8% - 5% in 2019, and 5.2% in 2020.

4.7%

4.2%

5.4%

4.0%

3.5%

4.8%

World Trade Volume Advanced Economies Emerging Markets

Source: IMF, Data analysis: Economic Unit, IEICI

World trade | growth estimates for 2019 revised downward

Apr-18 Jul-18 Oct-18 Jan-19

46

World trade growth & forecast 2014-2020| IMF

Source: IMF, Data analysis: Economic Unit, IEICI

The export growth forecast model | 2019

The IEI's model takes into account, based on the outlook of leading research firms – the change

in the weighted imports of Israel's major target markets. This provides a reliable estimate of the

direction to which commodity exports will move in the near future. Our model clearly shows the

steep decline in the aggregate weighted imports of these countries over the past few years and the

corresponding stagnation in commodity exports, which aggravated in 2015. In 2016, the model

pointed to a slight recovery and a more moderate decline while for 2017-2018 it predicted the

sharp rise in demand for imports, consistently with the growth in global trade and in Israeli exports.

For 2019, the model projects a continued growth in demand, albeit at a slower pace than that

recorded over the last two years. In 2020, the growth rate will moderate further.

3.4%

2.7%

2.2%

5.3%

4.0% 4.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2014 2015 2016 2017 2018 2019*

% Import Growth - Advanced Economies

% Import Growth - Emerging Markets and Developing Economies

% World Trade Growth

47

Growth in demand by major export market | 2014-2020

Our estimates regarding the implications of trade wars on Israeli exports remain unchanged. As

we predicted for 2018, at this point the consequences on Israeli exports are not likely to be

negative – this estimation applies to 2019 as well.

The services sector in general and Hi-Tech services in particular, will continue to be a significant

component in Israeli exports - although their growth rate will slow in comparison with recent

years. Goods exports will continue to grow at a relatively moderate pace, in line with the trend

in 2018. The electronic components and aerospace industries will have a favorable impact on

exports while the slowing growth in chemical exports and the decline in pharmaceutical exports

will have the opposite effect.

A further deceleration in the dollar vis-à-vis the shekel, especially in view of the predicted

increase in the current account surplus, will have an adverse impact on export growth.

Weighing the exports of goods and services, we predict that in 2019 Israeli exports grow by 5% in

dollar terms - to a total of USD 116 billion. Assuming these forecasts and the IMF's projections

for an increase in global trade materialize, we estimate that in 2020 Israeli exports will cross the

USD 120 billion threshold.

2%

-6%

-1%

7%8%

4%3%

-15%

-10%

-5%

0%

5%

10%

2014 2015 2016 2017 2018 2019* 2020*

48

Source: Forecast of the Economic Unit, IEICI

94.0 95.6

103.4

110.6

116.1

70

75

80

85

90

95

100

105

110

115

120

2015 2016 2017 2018 2019*

B$

Exports of Goods and Services | *2015-2019

in billions of USD

-6.4%

1.7%

8.1%7.0%

5.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2015 2016 2017 2018 2019*

Exports of Goods and Services | *2015-2019

% Annual change

49

For further information please contact:

Itay Zehorai

Head of Economic Unit

Israel Export Institute

Tel: 03-5142803, email: [email protected]

Shauli Katznelson

Deputy Director General for Economics & Professional Services

Israel Export Institute

Tel: 03-5142961, email: [email protected]

mailto:[email protected]

mailto:[email protected]

50

Exports based on Foreign Trade Data, the Balance of Payments and

National Accounting: Differences and Adjustments

Export figures based on foreign trade data (deriving from export records) do not include

various adjustments in the calculation of goods and services exports in the balance-of-

payment:

Most of the adjustments in exports arise from the following:

1. Sales are recorded based on the work-in-progress in large plants: these plants carry

out large-scale projects, while a partial execution of the projects is recognized as a

sale that can be recorded in the company’s books. The entry in the balance-of-

payments is based on the reports of companies that use this method, while the

amounts reported by customs for such exports are deducted from foreign trade

data.

2. International trade in goods sold overseas, where such goods do not enter or exit

the country: pursuant to the new international guidelines for entry in the balance-

of-payment, these transactions are recorded as exports of goods (in 2010 such

transactions were recorded in the balance-of-services), where the purchase of

goods overseas or the cost of production overseas by subcontractors are recorded

as negative exports, and the sale of goods overseas to the end customer is recorded

as a positive export. The summary of the two transactions will be recorded as net

exports of goods.

3. Exports to the Palestinian Authority: these exports are recorded based on VAT

invoices rather than customs documents and are therefore not included in foreign

trade data.

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