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- Jan 2013 -

Israel Economy

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Israel – General Overview

Sources: Israel Central Bureau of Statistics; Bank Israel

Population: 7.7M

Jews: 75% Arabs: 21% Others: 4%

Annual Growth % (2009-2010) 1.8

Annual Growth % (1948-2010) 3.7

GDP per capita, ppp: $31,005

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Israel Economy Growth Rate Exceed the Average Rate of Advanced Economies

Israel Compared to Advanced Economies, Annual Rate of Change, Constant Prices

4.8% 4.9% 5.6% 5.5%

4.0%

0.8%

4.8% 4.7%

3.1% 2.7%

3.1% 2.8%

0.1%

-3.7%

3.1%

1.6%

2004 2005 2006 2007 2008 2009 2010 2011

Israel Advanced Economies

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Growth is Based on Investments in Fixed Assets and Export

Annual Rate of Change, Constant Prices, 2005

6.3%

2.8% 1.4% 1.4% 1.4%

3.3% 2.1% 2.2% 2.2% 2.2%

14.5%

4.4%

-5.8%

13.7%

16.3%

9.2%

6.6%

-12.5%

3.6% 4.8%

2007 2008 2009 2010 2011

Private Consumption Public Consumption Investment in Fixed Assests Exports of Goods and Services

Global Economic Crisis

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Gross Public Debt is Deceasing

As % of GDP

97.4% 93.8%

84.3% 77.8% 77.1% 79.3% 76.3% 74.7%

2004 2005 2006 2007 2008 2009 2010 2011

Global Economic Crisis

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Low Budget Deficit

As % of GDP

3.5%

1.8%

0.9%

0%

2.2%

5.2%

3.7%

0%

2004 2005 2006 2007 2008 2009 2010 2011

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Average Inflation Rate of 2-3%

Rate of Change in Consumer Price Index, Yearly Average

1.3%

2.1%

0.5%

5%

3.3%

2.7%

3.5%

2005 2006 2007 2008 2009 2010 2011

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Unemployment Decrease while Participation Rate Grows

As % of Total Labor Force

57.1%

56.8% 56.8% 56.8% 56.7%

57.2%

57.7% 57.7% 57.5% 57.5%

57.4% 57.4% 7.5%

7.9%

7.6%

7.2% 6.9%

6.6% 6.6% 6.4%

6.0%

5.6% 5.6% 5.4%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

54.0%

54.5%

55.0%

55.5%

56.0%

56.5%

57.0%

57.5%

58.0%

58.5%

59.0% Participation in Labor Force Unemployment Rate

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010 2011

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USA is the Major Trading Partner Followed by China

US $B, Constant Prices, 2005

*Since July 1997 the data on trade with Hong-Kong is added to the data on China Sources: Central Bureau of Statistics

Exports Imports

18.5

6

3.1 2.9 2.3 1.8 1.7 1.3 1.3 1.3

USA

Ch

ina*

Bel

giu

m &

Lu

xem

bu

rg

Ind

ia

UK

Net

her

lan

ds

Ger

man

y

Turk

ey

Fran

ce

Ital

y

6.7 6.1

3.7 3.2 2.4 2.2 2.1 1.8 1.8 1.8

USA

Ch

ina*

Ger

man

y

Swit

zerl

and

Ital

y

UK

Net

her

lan

ds

Ind

ia

Turk

ey

Jap

an

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Pharmaceutical Products $6,612

33%

Equipment for Control & Supervision

$4,237 21%

Electronic Communication

Equipment $3,338

17%

Electronical Components

$3,295 16%

Aircraft $1,733

9%

Office & Computing Equipment

$918 5%

20,128

11,188

11,710

4,833

6,739

3,171

2,101

1,812

2010 2000

Low-Technology Industries

Medium-Low Technology Undustries

Medium-High Technology Industries

High - Technoloy Industries

Israel Growth Is Based on High-Technology Industries

Total Industrial Exports Excluding Diamonds: In 2000 - $21,005M In 2010 - $40,678M

Sources: Israel C.B.S

Hi-Tech. Exports By Branches, 2010

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Innovation and Entrepreneurship Oriented Economy

IMD World Competitiveness Yearbook 2011

Sources: IMD World Competiveness Yearbook 2011

4.27 3.96

3.62 3.45 3.36 3.02 3 2.94 2.82 2.77

Isra

el

Fin

lan

d

Swed

en

Jap

an

Kore

a

Den

mar

k

Swit

zerl

and

Taiw

an

Ge

rman

y

USA

Total Expenditure on R&D (as % of GDP)

8.63 8.61 8.19 8.11 7.89 7.81 7.79

7.46 7.39 7.35

Isra

el

Swit

zerl

and

USA

Ger

man

y

Swed

en

Den

mar

k

Jap

an

Sin

gap

ore

Fin

lan

d

Taiw

an

Scientific Research

8.24 8 7.88 7.6 7.52 7.3 7.24 7.21 7.04 7

USA

Isra

el

Swit

zerl

and

Ge

rman

y

Swed

en

Taiw

an

Au

stri

a

Den

mar

k

Kore

a

Jap

an

Innovation Capacity

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Innovation and Entrepreneurship Oriented Economy

IMD World Competitiveness Yearbook 2011

Sources: IMD World Competiveness Yearbook 2011

7.01 6.77 6.55 6.55 6.44 6.26 6.24 6.22 6.12 6.03

USA

Isra

el

Ho

ng

Kon

g

Taiw

an

Swed

en

Fin

lan

d

No

rway

Net

her

lan

ds

Can

ada

Sin

gap

ore

Venture Capital

7.5 7.06 7 6.98 6.98 6.87 6.82 6.7 6.69 6.64

Isra

el

Mal

aysi

a

Co

lom

bia

Taiw

an

Ho

ng

Kon

g

Kore

a

Pola

nd

Bra

zil

Irel

and

USA

Entrepreneurship

8.25 8.24 8.14 8.08 7.96 7.92 7.88 7.88 7.64 7.63

Isra

el

Ho

ng

Kon

g

Au

stra

lia

Bra

zil

Taiw

an

Turk

ey

Irel

and

Ph

ilip

pin

es

Icel

and

New

Zea

lan

d

Flexible and Adaptability

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Israel has a Rich Legacy Leading World Innovations

63

48

6

5

5

4

3

3

2

2 Germany

France

Korea

India

Singapore

UK

Ireland

Japan

Canada

Israel

SOURCE: NASDAQ, May 2009; Israel’s investment promotion center; Factiva

Non-US companies in NASDAQ, 2009

Some of the world’s cutting edge technology has been developed in Israel

First instant messaging services

Internet security pioneer Pill-Camera Capsule Endoscopy

Instant messaging

Life science Firewall/VPN

By Given Imaging

By Check Point

By Mirabilis

First USB-Flash drives technology

USB flash drive

By M-Systems

Israel is a world leading high tech cluster

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Multinational Giants have Recognized Israel's Innovative Environment and Established their R&D Centers

1 In some cases by M&A of Israeli companies SOURCE: Press search; Israel Venture Association

1995-2000 2000-2010 1990-1995

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SOURCE: Company web site; IVC; Dow Jones; VentureSource; Thomson Reuters; U.S. Central Intelligence Agency; World fact book, 2007, 2008

Venture Capital Investments per Capita, 2008

90

60

55

40

20

20

12

10

10

8 China

India

Korea

Singapore

UAE

France

UK

Denmark

Ireland

USA

Israel 265

Very Intensive Venture Capital Industry with Strong International Presence …

Some of World Largest VC Companies Are Active in Israel Venture Capital Investment in Israel is Very High

Description Activity in Israel

First investor and business partner in companies that make up 10% of the Nasdaq's value

Present in Israel since 2001 Israel is the only place

outside the Silicon Valley in which Sequoia invests

Managed Capital: $380mn in three VC funds

Portfolio includes 27 companies

Nine exits

Early-stage venture firm investing in technology-driven companies (e.g., eBay)

Capital under management: $2.5bn in committed VC

Present in Israel since 2001 Managed capital: $490mn

in two VC funds Portfolio includes 28

companies Six exits

Global private equity group with $4bn in funds advised by the group worldwide

Present in Israel since 2000 Portfolio includes 5 Israeli

companies Two exits

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R&D incentive programs Tax incentive program

Strong Support from the Israeli Government

SOURCE: Team analysis

Program Description

Pre Seed

Designed to encourage and support individual entrepreneurs

Grants are up to 85% of the approved expenses for building prototypes, registering patents, designing business plans

Generic R&D

Supports the formation of consortia comprised of industrial firms and academic institutions, to jointly develop generic, pre-competitive technologies

Grants are up to 66% of the approved budget

No royalty payments Overall budget: ~ $60mn/yr

Competitive R&D

Grants are on a sliding scale from 20% to 50% of R&D budget

Royalty payment is 3% to 5% of future product sales

Supports more than 1,000 projects/yr from more than 500 companies

Overall budget: ~ $300mn/yr

Program Description

Grants Programs

Foreign investor investing more than 140mn

NIS will enjoy a grant of 20% of the

investment and a reduced tax rate for an

eight-year period

Priority Area Programs

For a foreign investor, the dividend tax rate

is 4% and a total corporate tax rate is 11.5%

Time: If at least 25% of the company is

foreign owned, then the benefit period is 10

years

Strategic Program

Intended for large multinational companies meeting the following criteria

– Annual turnover > $3bn

– Project investment >$130mn

Full corporate tax and dividend tax exemptions for 10 years

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Venture Capital Investment Split

Total Investment By Sector

Communications & Networking

21%

Software 13%

Life Sciences 18%

Internet 22%

Semmiconductors 13%

Other 13%