Economy
Israel has a diversified economy with substantial government ownership and a rapidly developing high-tech sector. Poor in natural resources, Israel depends on imports of petroleum, coal, food, uncut diamonds, other production inputs and military equipment. It also has received substantial direct economic aid from the United States, including approximately $1.2 billion per year since the mid-1970's, although that regular annual amount has been being tapered off by $120 million per year beginning in 1998. In 2007, direct economic aid from the US amounted to $120 million, or about 0.07% of Israel's GDP. In addition, Germany has given much aid, as fixed reparations resulting from the Nazi murder of 6 million Jews in the Holocaust, in which Menachem Begin called blood money. In May 2007, Israel was invited to join the OECD.
The country's GDP (Purchasing power parity) in 2006 reached $195 billion according to the International Monetary Fund or $179 billion according to the World Bank. GDP per capita has been $30,464 according to the International Monetary Fund or $26,200 according to the CIA World Factbook. $30,464 is on par with most Western European countries such as France or Italy, while $26,200 is lower than most Western European countries except Greece, Spain and Portugal but higher than all Eastern European countries and close to the average for the European Union.
The major industrial sectors include metal products, electronic and biomedical equipment, processed foods, chemicals, and transport equipment. Israel possesses a substantial service sector and the Israel diamond industry is one of the world's centres for diamond cutting and polishing. It is also a world leader in software development and is a major tourist destination.
In 1998, Tel Aviv was named by Newsweek as one of the ten most technologically influential cities in the world. American billionaires and business tycoons including Bill Gates, Warren Buffett, and Donald Trump have each praised Israel's economic environment, and the country acted as the country for Berkshire Hathaway's first investment outside of the USA when it purchased ISCAR Metalworking, and the first R&D Centres outside the USA for companies including Intel and Microsoft. The country has now become known as Silicon Wadi.
Macro-Economic Trend
Israel's strong commitment to economic development and its talented work force led to economic growth rates during the nation's first two decades that frequently exceeded 10% annually. The years after the 1973 Yom Kippur War were a lost decade economically, as growth stalled, inflation soared and government expenditures rose significantly. By 1984, the economic situation became almost catastrophic with inflation reaching an annual rate close to 450% and projected to reach over 1,000% by the end of the following year. However, the successful economic stabilization plan implemented in 1985 and the subsequent introduction of market-oriented structural reforms reinvigorated the economy and paved the way for its rapid growth in the 1990s and became a model for other countries facing similar economic crises.
Two developments have helped to transform Israel's economy since the beginning of the 1990s. The first is waves of Jewish immigration, predominantly from the countries of the former USSR, that has brought over one million of new citizens to Israel. These new immigrants, many of them highly educated, now constitute some 16% of Israel's 6.5 million population. Their successful absorption into Israeli society and its labour force forms a remarkable chapter in Israeli history. The skills brought by the new immigrants and their added demand as consumers have given the Israeli economy a strong upward push.
The second development benefiting the Israeli economy is the peace process begun at the Madrid conference of October 1991, which led to the signing of accords led to a peace treaty between Israel and Jordan (1994), although the Oslo Accords between Israel and the Arabs led to the Second Intifada, which caused Israel to lose billions of dollars in economic terms. However, peace process with the Arab and European worlds has helped to ease Israel's economic isolation from its neighbours and has begun a process of regional economic integration that may help to stabilise the region. It has also opened up new markets to Israeli exporters farther afield, such as in the rapidly growing countries of East Asia. The peace process has stimulated an unprecedented inflow of foreign investment in Israel, as companies that formerly shunned the Israeli market now see its potential contribution to their global strategies.
Israeli companies, particularly in the high-tech area, have recently enjoyed considerable success raising money on Wall Street and other world financial markets; Israel now ranks second among foreign countries in the number of its companies listed on US stock exchanges.
The United States is Israel's largest trading partner; two-way trade totalled some $12.6 billion in 1997. The principal US exports to Israel include computers, integrated circuits, aircraft parts and other defence equipment, wheat, and automobiles. Israel's chief exports to the US include cut diamonds, jewellery, integrated circuits, printing machinery and telecommunications equipment. The two countries signed a free trade agreement (FTA) in 1985 that progressively eliminated tariffs on most goods traded between the two countries over the following ten years. An agricultural trade accord was signed in November 1996, which addressed the remaining goods not covered in the FTA. Some non-tariff barriers and tariffs on goods remain, however. Israel also has trade and cooperation agreements in place with the European Union and Canada, and is seeking to conclude such agreements with a number of other countries, including Turkey, Jordan and several countries in Eastern Europe.
Until the last decade, Israel's trade with the Arab world was minimal due to the Arab League boycott. Beginning in 1945, Arab nations not only refused to have direct trade with Israel (the primary boycott), but they also refused to do business with any corporation that operated in Israel, or any corporation that did business with a corporation that did business with Israel (the secondary and tertiary boycotts).
2.8% of the country's GDP is derived from agricultural activity. While Israel imports substantial quantities of grain, it is largely self-sufficient in other agricultural products and food stuffs, due to the fact that food must be regulated Kashrut for sell in the Israeli retail market, and hence imports almost no food products from other countries. For centuries, farmers in Israel have grown varieties of citrus fruits such as grapefruit, oranges and lemons. Citrus fruits are still Israel's major agricultural export.