strategic socioeconomic assessment -...

Strategic Socioeconomic Assessment

2015

2Strategic Socioeconomic Assessment |

Table of Contents

Global Trends 5

Domestic Trends and Characteristics 11

Strategic Issues 20

Human Capital Development and Utilization 21

Productivity and Competitiveness 28

Financial Infrastructure 32

Housing Strategy 36

Regional Economic Development 40

Preparing for Population Aging 44

Digital Israel 48

Back to Table of Contents


Introduction

This booklet presents the highlights of the strategic assessment presented to the 34th Israeli government and approved by it in June 2015. It represents the culmination of a methodical, collaborative, whole-government process of identifying key, long-term, economic and social trends which we face as a country and government.

This process was conducted with the active involvement of senior representatives of government ministries and subordinate ministry units that took part in the Senior Professional Forum for Strategic Planning. Furthermore, this strategic assessment currently drives the coordinated effort of the government in dealing with selected strategic issues.

The aim of this document is to demonstrate that we cannot continue with a 'business as usual' scenario in many social and economic arenas. The Israeli Government is committed to initiating actions and structural changes in order to exploit opportunities and deal with challenges the future holds in store.

I wish to thank the many partners in this endeavor-the Prime Minister, government ministers, the Governor of the Bank of Israel, directors general of government ministries and other partners-for their dedication to this important undertaking. Naturally I also wish to thank employees of the Strategy Division of the National Economic Council; if not for their invested efforts and unflagging commitment, this strategic assessment would never have materialized.

I hope that this booklet will assist policymakers, public employees, and the general public in better understanding the challenges and opportunities we face and encourage concerted and cooperative social and economic action on these important issues.

Sincerely,

Professor Eugene Kandel Head of the National Economic Council Prime Minister's Office

September 2015



The socioeconomic assessment is a shared compass in designing and implementing strategic decisions.

The assessment is made up of two key sections:

�Central trends and characteristics: A mapping of the socioeconomic landscape in Israel and around the globe.

�Strategic issues: An outline of the challenges and opportunities for the Israeli economy in the long-term and key directions for action in coming years.

What is a Socioeconomic Assessment?



Global TrendsThe World After the Crisis | Population Aging | The Information Age

The Rise of Developing Economies | Climate Change



In the aftermath of the 2008 global economic crisis, developed countries are growing at lower rates in comparison with previous decades. Additionally, there has been a dramatic rise in developed countries' public debt while interest rates reached their lowest levels in recorded history. The crisis has generated feelings of uncertainty and lowered trust in the traditional economic system and in its ability to provide high quality of life over time. It is likely that the world might be facing a long period of economic slowdown, including chances of another global crisis in the coming years.

Average annual growth rates of developed countries*

The World After the Crisis

2.7%2.9%

2.6%

1.2%

1975-1984 1985-1994 1995-2004 2005-2014* "Developed countries": U.S., Canada, EU15, Iceland, Norway, Switzerland, Japan, Australia and New Zealand.

Source: World Bank



The aging of the world's population stems from increased life expectancy, retirement of the Baby Boom generation, and lower birth rates.

Aging is expected to slow down global growth rates, increase demand for health and long-term care services, and exert pressures on pension systems. These trends will occur due to the substantial increase in the number of elderly and the decreased ratio between the working age population and the elderly population. This decrease is also expected to enhance global competition for a skilled workforce.

Ratio between population of working age individuals (20-64) and the elderly population (65 and up)

Israel Western Europe

Population Aging

Source: Central Bureau of Statistics, OECD

3.84.3

5.55.55.55.7

3.9 4.2 3.83.3

2.72.1

1980 1990 2000 2010 2020 2030



35%65%

2011

Gradually, but consistently, the world's economic center of gravity is moving eastward from the U.S. and Europe. The developed countries will continue to constitute the leading economic forces in the foreseeable future, but with gradual decline in their relative economic importance.

This process is expected to bring approximately one billion people from developing countries to join the middle class, a trend that will increase demand for resources (water, food, energy, raw materials).

Proportion of GDP out of global GDP

Developing countries Developed countries

The Rise of Developing Economies

Source: OECD

51%49%

2030



5,400

2,550

For the first time since the start of deliberations on climate change, we are witnessing global action, which includes the U.S. and China, to set objectives for reducing greenhouse gas emissions. Such action is expected to lead to significant changes in numerous global industries.

Climate change is expected to bring about reduced availability of physical resources in extensive regions of the globe, mainly water, land and food resources. At the same time demand for those same resources is expected to increase.

Nevertheless, this is a great opportunity for companies and countries to devise and offer products and services, and supply a viable response to these challenges in areas such as: renewable energy, water, smart transportation and more.

The environmental technologies market and increased resource efficiency – existing situation and forecast for the year 2025 (in billions of Euro)

Energy efficiency Sustainable water management Sustainable production, storage and distribution of electricity Materials efficiency Sustainable transportation Refuse and recycling management

Climate Change

Source: Federal Ministry for the Environment, Germany

Increase of 112% between 2013 and 20252013

2025



The world is in the midst of the greatest technological revolution since the Industrial Revolution. The quantity of existing information is rising sharply as is the ability to process and access it. These changes are altering-and we can expect will continue to alter-the economic, social and political world order.

The technological revolution is expected to transform global markets and industries, affect the future global labor market, and significantly improve quality of life. In the 'new' world, educated and skilled employees who are capable of working in a digital environment and can quickly adjust to technological changes are expected to enjoy a substantial advantage.

Extent of information in the world (in billions of Gigabytes)

The Information Age

Source: IDC, processed by: National Economic Council

2005 2010 2012 2013 2015 2020

8,600

40,000

130



Domestic Trends and CharacteristicsChallenging Geopolitical Environment | Export-led 'Island Economy' | Natural Resources Potential

Centralization | Unique Demographic Characteristics | High Economic Inequality



The security threats Israel faces have significant economic implications, firstly and foremost the security expenditure burden. This burden lowers the level of civilian expenses by the government relative to other developed countries. Moreover, the current geopolitical reality is generating uncertainty, which reduces motivation for investing in the economy. The de-legitimization campaign currently being waged against the country also contributes to economic uncertainties.

Israel's security challenges have also created opportunities. For example it has enabled Israel to develop relative advantages in the hi-tech and cyber technology industries. In many cases, service in the IDF assists in the training of a skilled, creative, and enterprising work force.

Security expenses as percentage of GDP, 2013

Challenging Geopolitical Environment

Source: SIPRI

0.5%

5.8%

4.2%3.8%

2.2%2.2%

1.3%1.3%

DenmarkIreland FranceGermany U.S.Turkey IsraelRussia



Israel's lack of economic relations with most of its neighboring countries, combined with its distant geographic location from its key export and import markets in Europe and the U.S., are turning Israel into an 'Island Economy'. The centrality of foreign trade to Israel's economy underscores the importance of preserving competitiveness in international markets.

Furthermore, the small size of the economy and its relative isolation create obstacles for high-level competition in domestic markets; this constraint affects the cost of living and quality of life. Thus, it is highly important that government policies promote domestic competition in the economy in all areas possible.

Proportion of export to neighboring countries out of total export, 2013

Export-led "Island Economy"

Source: World Bank, processed by: National Economic Council

51%

22%

6%

Austria Singapore Israel



Unlike conventional wisdom in the past, Israel has a significant amount and a wide range of natural resources. Today Israel produces high quantities of potash, phosphates, bromine and natural gas. Moreover, new technological developments have substantially increased the extraction potential for oil shales and petroleum in large quantities. These developments oblige a national strategy for the optimal development of natural resources-for the long term benefit of the country's citizens and quality of life.

In this regard we must ensure a regular supply of energy resources to the economy. The current situation, in which existing natural gas fields are not fully developed, places the country at risk of disruption of the energy supply. The cost of such a scenario to the economy is estimated to be more than half a billion dollars per month.

Estimated value of natural resources (in billions of dollars) based on average prices of commodities, 2014

Natural Resources Potential

Source: Ministry of Finance, Ministry of Energy, World Bank, US

200

8,000***

160

5**

425

* Second-quarter 2015 prices. ** Non oil shale petroleum. *** Potential value from the extraction of petroleum from oil shale is estimated at 7-8 trillion dollars; however the extent of such extraction's technological feasibility and profitability is unclear.

Phosphates*

1,800Bromine

Natural gas

Petroleum*

Potash



Similar to other countries, Israel is experiencing the phenomenon of internal emigration from peripheral regions to the center of the country, particularly among young and educated populations. This phenomenon weakens the periphery and creates a heavy load on infrastructures in the center of the country.

In a scenario of 'business as usual', i.e. given the current trends of emigration and existing patterns of construction, land reserved for construction in central Israel will be fully exploited within a short time. Furthermore, the overflow of traffic on roads can be expected to reach the point of a general traffic failure.

Extent of change in population aged 15-29 during the decade 2004-2013

Centralization

Source: Central Bureau of Statistics

*Center - includes Tel Aviv and Central districts as well as Ashkelon and Hadera sub-districts.

-7% -7% -6%

10%

-10%Northern

districtCenter*Haifa

sub-districtBeer-Sheva sub-district

Jerusalem district



Israel is characterized by unique demographics. The economic and social characteristics of two major population groups, the Haredim (ultraorthodox Jews) and Arabs are different from the rest of the population. Due to their high fertility rates, the proportion of Arabs and Haredim in the general population is expected to grow significantly in coming decades. Such significant changes in the fabric of the population are expected to substantially influence Israel's society and economy. Without creating an economy in which everyone participates, Israel's economy will be hard-pressed to function over time.

Number of people between the ages of 25-29 (in thousands)

Haredim Arabs Non-Haredi Jews and others

Unique Demographic Characteristics


405

11153 82

127

159202

353 375

2009 2019 2029



Israel is characterized by inequality rates that are relatively high compared to the developed world. This is due, among other factors, to its unique demographic characteristics. The key reasons for such inequality stem from gaps in participation rates in the labor market, which include: gaps in the extent of job positions and accessibility to employment; gaps in education and work productivity (expressed in salary levels per hour worked); gaps in asset ownership; and higher fertility rates among poor populations.

Israel's birthrates, unlike most of the developed world, rise as income falls, a statistic that explains approximately half of the inequality gaps between Israel and the OECD. In recent years there has been considerable improvement in participation rates in the labor market. However, the substantial effect of the quality of employment and salary levels on the level of inequality in Israel remains.

Average monthly income – men, 2012 Average monthly income – women, 2012

Economic Inequality in Israel

Source: Central Bureau of Statistics, processed by: National Economic Council

Non-Haredi Jews and others

Non-Haredi Jews and others

13,100

9,450

6,950

Arabs ArabsHaredim Haredim

8,200

5,3005,250



A 'business as usual' continuation of the above-described demographic and economic trends is expected to lead to a substantial rise in the deficit and the burden on taxpayers. This is expected to be accompanied by a decline in the quality of public services, whose share of public expenditure is already low for a developed country. A continuation of this trend is expected to stimulate a reaction of the financial markets: the lowering of Israel's credit rating by international credit rating agencies and a rapid rise in interest rates on government debt paid by Israel. In such a scenario taxes will need to be raised and public expenditures cut back.

In order to avoid such a situation, the Israeli government must initiate - as soon as possible - strategic-structural policies for tackling these anticipated repercussions caused by the above described trends. Several initiatives from past years are already in-process and improvements can be seen, however there is still a long way to go.

Forecast of developments: government expenditures against 'business as usual'*

Incomes Expenses

The Implications of a 'Business as Usual' Scenario

Source: Chief Economist Department, Ministry of Finance

43%3%

9.5% = Deficit of approx. NIS 100 billion per year

47%

40%

37.5%

2014 2020 2030 2040 2050*Assuming that employment rates remain fixed for each age group, gender and sector.



In order to deal with this complex reality, the Israeli government must adopt a strategic perspective and incorporate flexibility in all systems. Doing so will make it possible to respond to changes and improve the government's abilities and speed of execution. Israel's government must strive to create systems similar in their methods of action to the 'Iron Dome' system, which is capable of dealing with threats and future opportunities in a smart and swift manner.

Additionally, it is essential to promote a discourse that supports partnership between all entities in the economy, in the interest of enabling rapid adjustments of the labor market and the remaining systems.

The Response

Photo: Israel Defense Forces - https://www.flickr.com/photos/idfonline/5615747708

https://www.flickr.com/photos/idfonline/5615747708



Strategic IssuesHuman Capital Development and Utilization | Productivity and Competitiveness

Financial Infrastructure | Digital Israel | Preparing for Population Aging | Housing Strategy

Regional Economic Development



Human Capital Development and Utilization



Rapid technological developments are expected to fundamentally change the labor market. However, there is significant uncertainty as to the character and scope of such changes.

Workers and companies that are unable to adapt themselves will experience difficulties. The Israeli government, which has a central role in developing and training the labor force of the future, needs to impart basic skills needed for 21st century employment to its citizens, with an emphasis on learning abilities and conceptual flexibility.

The Government Has a Central Role in the Development of Human Capital

Education system K-12

Early childhood

Army and civic service

Post secondary education system

Employment policy

The future of jobs

?



Due to the considerable rise in the proportion of Haredim and Arabs in the Israeli population, there is an acute need for education and training systems that will enable all children to acquire the tools necessary for succeeding in tomorrow's labor market.

Rate of eligibility for matriculations according to population groups, 2014

Significant Gaps in Rates of Eligibility for Matriculations Among Populations

Source: Ministry of Education

9%

45%

71%

Haredim Non-Haredi JewsArabs



83%

70%70%

46%

27%

12%

In comparison with developed countries, graduates of non-academic post secondary education in Israel do not receive the tools needed for integrating into quality positions in the labor market. Furthermore, the higher education system is not succeeding in supplying a comprehensive response to the needs of the economy, which is expressed in a shortage of engineers for the hi-tech industry.

Return to post-secondary education

Wages of graduates of higher education and non-academic post-secondary education vs. wages of high school graduates

Academic higher education

Non-academic post-secondary education

Low Return on Non-Academic Post-Secondary Education

Source: OECD

Israel GermanyOECD average



To Which of the Labor Markets Does Israel Seek to Resemble?

Northern EuropeFocus on the worker within the whole economy

Southern EuropeFocus on the worker's current workplace

Israel must choose the appropriate market structure and labor relations for dealing with the challenges of the 21st century. International experience indicates that a policy focused on cultivating workers and imparting skills accompanied by flexibility of the labor market (Northern European policy) is preferable, in all parameters, to a policy focused on protecting permanent workplaces (Southern European policy).



�Advance the imparting of 21st century skills: In light of the challenges in the labor market, renewed thinking about the methods of teaching and learning in Israel is required. There is no longer room for teaching only subjects that can be tested. Required skills include: flexibility, ability to work as part of a team, technological literacy, persuasive ability, creativity and more.

�Systemic synchronization: Coordination between education and training systems must be improved while at the same time better-matching the extent and nature of training to the needs of the labor market. To this end it is necessary to allow mutual accreditation, increase cooperation between training organizations and employers, and encourage lifelong learning.

Directions for Action

�Promote skills and quality employment for women, Arabs, Haredim and Ethiopian-Israelis: In Israel there is very sizeable variance in skill levels among different population groups; this generates significant gaps in work productivity and the ability to earn one's living with dignity. In order to fully exploit the potential of these population groups it is necessary to develop tailored programs for each group while removing existing barriers to employment and professional advancement.

�Upgrade vocational and technological training: More than 50% of young people in Israel do not achieve higher education. It is essential to assure that the quality of training they are receiving-in technological colleges, vocational training programs, and other systems-will enable them to enjoy quality employment with horizons for professional development, and supply a sufficient response to the needs of industry and of the economy.



�National program for improving education in the Arab sector: The education system plays a key role in the development of human capital and integrating all citizens into the Israeli economy. In Arab education, the primary issues in need of attention include: deepening knowledge of the Hebrew language, early childhood formal education attendance as well as informal education, cultivating a positive school climate, training teachers and principals, career counseling, and more.

�Treat the shortage of a skilled workforce in the economy: The Israeli hi-tech industry is in need of thousands of skilled workers per year, particularly in the computer and engineering professions. However, the formal and higher education systems are not presently supplying a satisfactory response to this need. In order to provide an adequate response to the existing shortage it is necessary to significantly increase the number of young people with the skills required in this industry.

�Promotion of Active Labor Policy Global trends are underscoring the importance of a labor market focused on strengthening the working individual rather than preserving his position. To this end, it is necessary to take action to enhance administrative flexibility, advance an active policy of lifelong learning and training of employees, and extend a 'safety net' for employees discharged from their places of work.

Directions for Action – Continued



Productivity and Competitiveness



5651

4237

3330

Rising rates of participation in employment in recent years have contributed considerably to an increase in GDP. Notwithstanding, the entry of unskilled workers into the labor market has exacerbated gaps in average productivity of the Israeli worker as compared with workers in developed countries. This problem especially touches upon domestic industries and services that are not subject to significant competition.

Productivity per hour worked (dollars) – international comparison, adjusted according to PPP (purchasing power parities)

Europe OECD average Israel

Labor Productivity in Israel Is Low Relative to Developed Countries

Source: OECD

4945

38

2005 2010 2014



1.6

2.2

1.1

2.2

Regulation in Israel is burdensome on business activity and does not necessarily encourage competition in a suitable manner. Furthermore, Israel's situation relative to OECD countries is deteriorating. In recent years the government has begun to take action on this issue. It is essential to continue easing the bureaucratic load, encouraging competition, and reinforcing a secure business environment that promotes innovation and entrepreneurship.

OECD Product Market Regulation indicator

The lower the score, the more the regulatory system encourages competition and entrepreneurship.

OECD average Mexico Israel

Significant Regulatory Burden on Businesses in Israel

Source: OECD

1.92.1

2008 2013



�Increase productivity in traditional industries, domestic services, and small and medium sized businesses: Productivity gaps between the various economic sectors in Israel can be explained partly by the large differences in their adaption of advanced technologies and working methods. It is necessary to advance policies and regulation that encourage the adaption of such tools.

�Reduce bureaucracy and enhance regulatory efficiency: The ability of businesses to successfully compete in global markets depends on the local business environment and, particularly, the ease of doing business. It is necessary to promote competition in the economy by encouraging the entry of competitors into uncompetitive industries; reduce regulation for small and medium sized businesses; and incentivize companies to establish and expand activity in Israel.

�Encourage the growth of large technological companies: The Israeli hi-tech industry is characterized by a focus on research & development, which provides Israel with a relative advantage on a global level, but also reduces the extent of this industry's influence on the economy. The growth of Israeli companies and their transformation to large ones will increase the quantity of workers and beneficiaries of the industry, while establishing world leadership in new domains.


�Encourage the entry of multinational companies: The entry of large multinational companies into significant activity in Israel, including not only in R&D but also production and administration, will have the power to generate numerous and diverse job positions in industry. Moreover, this will generate a spillover of administrative knowhow of the type that is not sufficiently present in the local hi-tech industry.

�Diversify Israel's target markets: Despite the fact that Europe and the U.S. will continue to be key trading partners with Israel in the foreseeable future, one cannot ignore the great importance of opening up new markets to Israeli companies, including the markets of China, India and Japan along with other emerging markets in Latin America and Africa.

�Develop additional areas for export: Israel is known for its ICT hi-tech industry, but there are additional fields in which Israel excels, and global demand in those areas is expected to grow significantly in coming decades. These fields include agriculture, water, energy, health systems and more.



Financial Infrastructure



A substantial change in the financial system is expected in the coming decade, with the transition of the center of gravity from banks to institutional investors. Within a few years institutional investors will be managing assets 50% larger than that of the banks. This dramatic change obliges the government to examine and improve the set of incentives offered to financial institutions for the sake of funneling investments for the benefit of savers, and improve the response to financing needs in different sectors of the economy.

Forecast of asset growth of financial institutions (billions of New Israeli Shekels)

Pension assets Risk assets in banks

The Mix of Financing Sources Is Undergoing Substantial Change

Source: Bank of Israel, Capital Market, Insurance, and Savings Department at the Ministry of Finance

1,6101,120

780

1,140

1,010

900

2012 2016 2020

8-11%

2-4%



Small and medium sized businesses as well as the public face substantial difficulties in gaining access to credit offered by institutional investors. Such a situation negatively impacts on growth, competition and the flexibility of the financial system. Furthermore, in the absence of investment by domestic investors, the hi-tech industry is funded almost exclusively by foreign investors.

Difficulty of Access to Funding in Specific Sectors of the Economy

Banks

Shortage of information

StartupsThe government Large businesses The public Small and medium sized businesses

Institutional investors Foreign investors



�Improve access to credit for additional players Small and medium size businesses, households, and additional players suffer from inaccessibility to credit under competitive conditions. In order to improve credit access, tools for strengthening competition in this area are needed, e.g., a newly-established credit information system, public funds for small and medium sized businesses, and more.

�Capital market reform, especially in the stock market: Recent years have witnessed a downward trend in stock market activity, the most significant channel for providing access to credit sources and capital for the business sector. It is necessary to advance reforms that upgrade and improve accessibility to the capital market as a source for growing the business sector.


�Establish a Financial Stability Committee Currently, approximately one-half of financial assets are under the supervision of the Capital Market, Insurance, and Savings Department at the Ministry of Finance, and one-half under the supervision of the Banking Supervisor. Hence improved coordination between the different financial regulators is essential in order to assure stability and durability of the financial system in the face of both internal and external shocks.



Housing Strategy



Together with solving the current housing crisis, it is necessary to develop a long-term plan in order to prevent the next crisis. Housing needs are expected to rise in coming years by approximately 30%; consequently, there must be a dramatic increase in the extent of planning & construction of apartments beyond existing levels. Furthermore, it is necessary to create a strategic inventory of plans that can be released to the market within short time frames – in the eventuality of a sudden increase in housing needs (such as a significant wave of immigration).

Development of demand for apartments (in thousands, annual average)

Increased Housing Needs in Coming Decades

Source: Central Bureau of Statistics, processed by: The National Economic Council

45 45

55

65

2001-2005 2011-2015 2021-2025 2031-2035



The Apartment Production Process in Israel Takes 12-13 Years

Source: Bank of Israel

The protracted time required for planning and construction of apartments, which stands at approximately 12-13 years on average, limits the government's ability to take effective action in the housing market in tune with changing demands.

This causes a significant increase in construction costs due to uncertainty and the need for funding. In other countries the time frame is considerably shorter. One of the reasons for the protracted time in Israel is the lack of incentives designed to shorten the apartment production process for key players in this area, such as local authorities and planning committees.

6Preparation and approval of plan in the District

Committee for Planning and Construction

1.5Development

plan

3Construction permit

2.5-2Construction

0.5Tender



�Formulate a strategic housing plan with set objectives: In order to address future housing needs while preserving a suitable level of prices over time, a long-term plan is needed for defining the scope of activity required in different stages of the apartment production chain. This is particularly important for the required extent of planning & marketing in accordance with predicted housing needs.

�Build a strategic stock and adjustment mechanism: The existence of a significant stock of planned apartments, which may be released to the market within short time frames, would make it possible to retain high flexibility in the face of changing demand as well as suitable prices - by increasing supply in regions where there is rising demand.

�Shorten production time for apartments: The length of time for producing an apartment must be shortened substantially in order to increase the market's ability to respond to changes and boost certainty among developers. This can be done by: focusing on the planning and authorization stages, employing tools of measurement, and incentivizing swift response times for bodies such as planning committees.


�Change the incentive structure for local authorities Nowadays, the expenditures of local authorities in supplying services to new residents exceed their revenues; accordingly, they have a built-in preference for constructing employment zones rather than residential zones. The incentive structure must be changed so that authorities will have a financial incentive to encourage housing construction.

�Massive urban renewal plan Due to the lack of available land in high-demand regions and the advantages of judiciously renewing and condensing cities, broad scale urban renewal is required- founded on generating certainty in planning as well as short timetables for the consideration of developers and home-owners.



Regional Economic Development



Over the past decade we have witnessed the phenomenon of 'centralization'. Numerous educated young people are relocating from the north and south to the center of the country. This is due to the limited possibilities for quality employment as well as lower quality of public services in comparison to the center. In recent years, the Israeli government has taken proactive steps to reverse this trend and is investing tens of billions of shekels in developing the periphery, specifically with the focus of strengthening the Negev.

Gross monthly salary per worker (New Israeli Shekels), according to district/sub-district, 2012

Low Income from Work in the Periphery


*Center – Includes Central and Tel Aviv districts

6,550

8,80010,050

7,700 7,350

North Haifa Center* SouthJerusalem



The government needs to develop a coherent regional approach that amplifies the relative advantages of peripheral regions and encourages the development of quality employment and complementary public services. This entire effort should leverage the attraction and influence of regional metropolises as quotidian centers: places to which people travel in order to work, partake of culture, health services and more. In light of the socioeconomic situation of the northern region and metropolitan Haifa, a focused government effort must be advanced in this region.

Rate of workers who travel up to 60 km. to their place of work*

Metropolises as Levers of Regional Economic Development

Source: Central Bureau of Statistics, Google Maps, Bureau of Transportation US

*The importance of regional metropolises such as Jerusalem, Beer-Sheva and Haifa isparticularly essential in the area of employment, because in Israel (just as it is worldwide), the decisive majority of residents work close to their place of residence.

93%96%96%Tel AvivHaifa

10544Nazareth

13643Karmiel

11425Akko

13762Tiberias

Tel AvivBeer-Sheva

14344Arad

14843Dimona

14825Yerucham

Israel Great Britain U.S.



�Formulate a holistic plan for developing the north: In order to promote regional development, a multi-dimensional policy is needed which will include the development of infrastructures, quality employment, public services and more. In addition, a designated plan for the northern region and metropolitan Haifa is required in order to bring about a change in the direction of current trends. All this must be done with consideration for the region's demographic and topographic characteristics while advancing solutions for the eastern Galilee, which is situated a great distance from metropolitan Haifa.

�Strengthen the capabilities of local government, particularly the weaker local authorities: Local government plays a central role in the implementation of a regional development policy. In the periphery in particular there is a high concentration of local authorities that need to be strengthened in terms of their administrative and execution abilities so as to effectively advance regional development.


�Strengthen metropolitan cooperation in areas of regional development, spatial planning, and transportation: The administrative dispersal of local authorities within a large and contiguous metropolitan space is not optimal. It is necessary to institutionalize processes of metropolitan cooperation in planning and implementation in different metropolises, from both a physical aspect (such as spatial planning and transportation) and an economic and administrative aspect.

�Reduce dependency on private vehicles in metropolises: The rise in kilometers traveled coupled with demographic transition to cities, with their heavy congestion and activity, demands appropriate planning. In order to reduce traffic overflow, a transition to public transportation and alternative options must be advanced. Examples of such a transition include bicycles and walking, and different transportation solutions facilitated by the use of modern and available technologies.



Preparing for Population Aging



The number of elderly in Israel is expected to rise from approximately 900,000 in 2014 to some 1.6 million in 2034. This trend produces several significant challenges for the government, primarily the need to adapt and enhance the efficiency of public services to meet the needs of the older population while responding to the anticipated rise in public expenditure.

Effect of aging on public expenditure in the domains of health, long-term care, and old age pensions (% of GDP).

Gap of 1.7% corresponds to the addition of approximately NIS 20 billion (current value) per year.

Expected Rise in Public Expenditure

Source: Chief Economist Department, Ministry of Finance

10.7%

12.4%

20292009



6263.5

64.8

Older people employment rates in Israel are relatively high compared to the rest of the world. Nevertheless, the government must act, similarly to other developed countries, to fully exploit the capabilities of older people in the labor market. In this regard, it is necessary to adjust retirement age to rising life expectancy.

Evolution of average mandatory retirement age in OECD countries

Men Women

Significant Difference in the Retirement Age of Men and Women in Israel

Source: OECD

6765 65.2

Israel 2015 OECD 2012 OECD 2030**Updated forecast as of 2012. In some countries a further increase in retirement age was decided upon in recent years.



�Attend to the actuarial deficit of the National Insurance Institute: The National Insurance Institute suffers from a significant operational deficit that is expected to rise in coming decades. However, the main threat to the Institute's strength is the lack of a long-term perspective in relevant decision-making processes. In order to deal with these failures, revenues must be adjusted to long-term liabilities, with the incorporation of automatic balancing mechanisms and other tools.

�Preparedness of the pension system: In the past decade there has been a considerable rise in the extent of pension savers and of average pension savings. However, a response is needed for population groups not currently saving for pension. Additionally, an examination of the sustainability and flexibility of the pension system over time and in periods of crisis and lower returns is required.

�Gradual adjustments of the retirement age: The pension and national insurance system is not sustainable unless the retirement age is adjusted to the rise in life expectancy. For this reason it is essential to gradually increase the retirement age, mainly for women, and link retirement age to life expectancy; this together with advancing policy measures for integrating the elderly in the labor market.

�Integrate the elderly population in employment and the community: The economy, society and the individual would benefit considerably from the integration of the elderly in employment and in the community. Tools for advancing such a policy include, among others, increasing flexibility of hiring practices, removing negative incentives for employment, and promoting a conceptual shift in this area.

�Adjustment of the long-term care and health systems: The aging of the population is expected to bring about increased demand for public services, especially the health and long-term care systems. Therefore processes of early planning and preparedness are needed for these systems, mainly in areas such as workforce training and investment in infrastructures.




Digital Israel



�Start-Up Nation

�High technological capabilities

�Activity in broadband deployment

�Unique knowledge infrastructures

Despite the Israeli hi-tech industry being at the technological forefront, the advantages of the Information Age have not yet permeated into all parts of society; this is particularly true for the public sector, which still doesn't significantly exploit existing technological capabilities. By incorporating information technologies we can bring about a quantum leap in the government's abilities to operate and supply services to the public, and contribute to growth in the economy.

Does the Shoemaker's Son Go Barefoot?

�Insufficient use of technology in social services

�Low availability of policy-supporting information



The deployment of advanced digital infrastructures throughout the entire country can generate opportunities for citizens' personal and economic development in a variety of domains. The country also needs to act to reduce the 'digital divide' between different population groups, such that it enables equal access to the advantages of the Information Age. This is one of the main ways to reduce opportunity gaps between the center of the country and the periphery.

Internet connection and surfing according to income level, 2012

Surfers Connected but do not surf Not connected

Information Technology as a Lever for Reducing Social Gaps

Source: Google Israel and the College of Management Academic Studies

86%

5% 9%

82%

8% 10%

56%

21% 23%

53%

30%

17%

41% 37%

22%

Much higher than average income

Much lower than average income

Slightly higher than average income

Slightly lower than average income

Average income



�Devise a national digital program Most countries that are at the forefront of supplying digital services have a national digital program that defines and guides government policy in this area. In Israel, too, a program is needed for bringing about a national 'digital quantum leap' in coming years.


�Accelerate the deployment of optic fibers The infrastructure for transferring advanced digital information and services in Israel must possess a significantly greater and better-adapted bandwidth than that which currently exists. In recent years, Israel has advanced the deployment of a national network, however the pace of this effort must be accelerated.



�Digital services for citizens: In today's digital age people expect high quality and highly available services. The government must adapt itself to such expectations by expanding and improving digital services and matching them to the needs of digital consumers.

�Human capital: In order to effect a national 'digital quantum leap' it is essential for the government to have a skilled workforce that possesses the qualifications and knowledge required for leveraging technology to the public's benefit. This need exists in all areas of public activity, i.e., supply of services to the public, advancing policy and more.

Directions for Action – Government's Adaptation to the Information Age

�Procurement: The procurement processes in the government have not yet been adapted to the era of hi-tech companies (startups), ever-advancing technologies, and the demand for a swift response to changing needs. These processes must be updated for the sake of improving their effectiveness.

�Legislation: All across the world, countries are advancing legislative changes in tune with the digital age. This age has far-reaching implications for aspects such as privacy, freedom of information, creating, sharing and saving information, communication between the public and government, and more. In Israel, too, it is necessary to examine possible adjustments to relevant legislation.



�The Strategic Socioeconomic Assessment was presented to the government as part of a comprehensive government strategic process defined in Government Resolution 5208 of November 4, 2012 – on "formalizing and improving the government’s ability to formulate and manage socioeconomic strategy".

�On June 28, 2015, the government passed Resolutions 145-151, adopting the Strategic Assessment and the directions for actions as presented, and the advancement of outline plans deriving from such directions.

�Throughout the current term the government will work to implement the discussed resolutions through work plans and budgets, assisted by designated bodies defined for this purpose.

�Each year the government will be updated on progress in implementing the resolutions and a new strategic assessment will be formulated in preparation for the subsequent government that takes office.

What Next?



The central goal of this Strategic Socioeconomic Assessment is to advance policy that responds to challenges and opportunities that have long-term macro-economic implications for the Israeli economy. This should be done now, while there is still time, in an proactive manner-in order so as to provide a quality response and avoid future crises that will oblige costly and less efficient solutions.

What is needed in order to immediately advance this policy is a broad-scale effort and cooperation of the entire government and between sectors. This undertaking involves extensive and for the most part complex tasks that a single government ministry would struggle to manage.

We hope that this assessment will constitute a basis for discourse and action on the part of entities from all parts of Israeli political spectrum. The breadth of this report and the extended time frame it addresses make it, in essence, rise above party considerations and beyond terms of government. Its implementation over time is the key test of the ability of the Israeli governments to supply a strategic response to the challenges that lie before us.

Summary

IGAA

Israel's Government Advertising Agency

strategic socioeconomic assessment -...

Documents