Israel’s innovation community may offer beneficial conditions to both local start-ups and international corporations looking to set up in the country – particularly when combined with the experience of an international banking partner that works to help meet diverse needs.
Trade and economic overview
According to the International Monetary Fund (IMF), Israel’s economy weathered the Covid-19 pandemic “exceptionally well”, recording only a mild downturn in 2020, and growing by 8.1% in 2021. The IMF attributes last year’s recovery to consumer spending and the nation’s top-performing high-tech sector. The agency puts real GDP growth at 5% for 2022 and expects the economic recovery to solidify this year and over the medium term as a result of strong consumption, investment and exports.
Already considered by many to be a long-established hub for high-tech innovation, Israel appears to have benefited from the acceleration of the trend towards digitisation brought on in part by the pandemic.
It has been reported that the Israeli government expects services exports – including technology services such as cybersecurity and artificial intelligence – for the full year 2021 to have reached 51%, exceeding the export of goods for the first time.
“Israel’s trading history has shifted over the last decade and exports have grown considerably,” says Kfeir Barkai, Head of Treasury and Trade Solutions (TTS) at Citi in Israel. “The high-tech sector in particular is on an upward trend, with the virus having highlighted the importance of technology and innovation.”
In goods trade, opportunities continue to present themselves, including in the natural gas sector as the country emerges as a gas exporter. Elsewhere, Israel’s defence exports reached double-digits in 2021, achieving a 55% increase within two years.
New trade prospects may also develop regionally, boosted by the signing of the Abraham Accords in September 2020 and the formalisation of Israel-Gulf nations trade relations. Trade between Israel and the UAE topped US$1.1bn in 2021, according to Israeli statistics.
“If you look at what’s happening geopolitically across the Middle East, it’s clear there is a lot more room to grow,” says Barkai. “These are new ties with regional markets, and Citi, with its significant presence across the region, is well-placed to connect that network and help support the anticipated growth.”
A maturing technology hub
Israeli government policies have played an important role in promoting innovation and driving the country towards becoming a high-tech powerhouse. More recent measures have included attempts to develop innovation resources beyond the Tel Aviv metropolitan area.
According to a 2019 PwC report commissioned by tech NGO Start-up Nation Central, there are 536 multinational corporations (MNCs) representing 35 countries with innovation activities, such as research and development, in Israel. The report notes an increasing shift towards partnership-led models based on open innovation.
Moreover, homegrown Israeli start-ups are rapidly becoming global companies, whether based in Israel or led by Israelis abroad. Today there are 91 Israeli-founded tech unicorns, according to Israeli start-up founders club and fund TechAviv.
“This growing trend has enabled something very new for the Israeli market in that local companies are no longer solely the target of acquisitions – they’re also increasingly becoming the acquirers,” says Israeli innovation expert Ornit Shinar, Global Head of External Innovation and Venture Investing at Citi Innovation Labs.
Start-up Nation Central reports a marked increase in the number of Israeli start-ups acquired by Israel-based companies last year. “There were 39 such deals carried out in 2021, the highest number on record, up from 21 in 2020, another indication that the Israeli innovation ecosystem is maturing,” it said in its December 2021 end-of-year summary.
In terms of investments in start-ups – at an all-time high in 2021 according to the same report – financial technology (fintech) was one of three sectors that dominated funding.
A Deloitte report ‘Overview of the Israeli fintech system’, notes that Citi’s teams will continue working to help ensure the local fintech space can be credited for a “significant portion” of the growth in the nation’s fintech fields.
Citi established its Tel Aviv-based Innovation Lab in 2011 after identifying the potential of merging the bank’s well-established position in the global financial markets with the nation’s innovation community. The lab, which was at first supported by the Israeli Ministry of Finance and the Chief Scientist, aims to understand and define new needs and opportunities in the financial arena and provide cutting-edge tools for the financial markets.
It was expanded in 2013 to include the Citi Tel Aviv Accelerator – run by Shinar as part of her remit – a programme that supports financial technology start-ups by linking them with Citi’s expertise and network.
“We connect with the local ecosystem to learn about the new and exciting technologies being developed in this space, either incubating new ideas or teaming up with more established companies, and then collaborate closely with teams across the bank, including TTS, to see where they might be integrated to drive innovation,” says Shinar.
“We are firm believers that one plus one equals three, and that if we take our existing capabilities, and combine them with unique technology, we can really make a difference to how business can be done.”
More than a bank
Today, Citi is one of the largest international financial institutions operating in Israel, having become the first foreign bank to obtain a full banking licence and roll out a comprehensive range of client services in 2020.
“Our support includes helping MNCs set up shop in the Israeli market – often without their own local presence, which means we need to equip these companies with the technology to help support connectivity and control. But we are also immensely proud of our support to Israeli-founded start-ups and unicorns as they expand their business and grow into the world, which often can necessitate different technological requirements,” says Barkai.
With many of these companies operating in the leanest possible way, but with ambitious expansion plans, they require a financial partner with an established global footprint.
“These are often fast-growing companies which have needs that extend beyond traditional banking products,” says Barkai. “By collaborating with us, they’re able to harness the data products and digital capabilities that Citi has developed in recent years – often in close collaboration with fintechs – to help drive their intended growth.”
He names CitiConnect® as one such product that allows companies to digitally manage the complexities of collecting cross-border business-to-business payments through a direct connection from their enterprise resource planning system or treasury workstation.
Access to working capital and other funding solutions – which can often be necessary at each stage of development – is also facilitated digitally by means of Citi’s online accounts payable and accounts receivable platforms, says Barkai.
Outlook for the future
As Israel makes its transition from start-up nation to scale-up nation, Citi’s teams will continue working to help ensure the bank remains at the cutting edge.
“As we do so, it is important to remember that Citi’s mantra, which is to always be the best for our clients, will forever be central to what we do. We are not just looking for the shiniest new toy; we are committed to delivering solutions to our clients to help their businesses flourish,” says Shinar. “This is not about innovation for innovation’s sake; this is about working to create the future in an innovative, efficient and secure way.”