Often coined the “Start-Up Nation,” the State of Israel’s unprecedented hi-tech success has become a veritable national brand. Yet the vast majority of the country’s start-ups – more than three-quarters in total – can be found in the narrow coastal corridor between Tel Aviv and Herzliya.
Despite stretching just 424 km. from north to south, Israel is home to a clear geographic and economic periphery, with central regions becoming increasingly overcrowded and peripheral areas falling behind in economic growth and prosperity.
While Israel’s North, South and the West Bank account for nearly 90% of the country’s territory, only 35% of the population live in those regions.
With the country’s population predicted to soar from nearly nine million citizens today to 17 million by 2048, Israel’s 100th anniversary, the clock is ticking to expand the economic pie, ensuring that the growing population doesn’t all converge on the already-congested center and that Israel’s economic success is truly a cause for national celebration.
Following his move into national politics, Likud MK Nir Barkat is currently heading an effort to build the competitiveness of Israel’s periphery, based on his decade-long experience as mayor of Jerusalem.
After successfully working with Prof. Michael Porter – a celebrated economist from Harvard Business School – during his term as mayor to identify Jerusalem’s competitive advantages and drive the city’s economic growth, Barkat is now seeking to scale the case study to the national arena.
Seeking to replicate his municipal efforts, the five-year “Let’s Grow Israel” task-force aims to harness public and private funding to increase employment, boost productivity and foster industrial growth in peripheral regions.
“There is a sense of urgency because when you look 30 years ahead, it’s very clear that the challenge is to make sure that Israel’s periphery becomes attractive for young people and investors,” Barkat told The Jerusalem Post.
“Otherwise, we may jeopardize the North, the South, Judea and Samaria and Jerusalem.”
As mayor, Barkat worked with Porter and Prof. Richard Florida of the University of Toronto to identify tourism and the hi-tech industry, particularly life sciences, as “clusters” – geographically proximate groups of interconnected companies and associated institutions in a particular field – in which Jerusalem has a competitive edge and could revive the city’s stagnant economy.
Securing NIS 1.2 billion in government funding in addition to private investment, Barkat worked to ensure collaboration between the city’s business community, non-profits and other stakeholders to grow jobs, increase wages and patenting rates, and improve resilience in the case of economic downturns.
Since 2012, boosted by the city’s life sciences cluster, Jerusalem’s resurgent start-up scene has seen the number of hi-tech companies increase from 250 to approximately 600. Since 2016, incoming tourism has leaped from 2.6 million annual visitors to almost 4 million.
“The biggest challenge is how to expand the success story, not just for the classic hi-tech sector which I came from, but figuring out how to expand it to desert tech in the South, agritech in the North and to expand international tourism opportunities to other regions of our country,” said Barkat.
“We must, for the security of the state, for the benefit of expanding the pie and making sure that more parts of the country enjoy the same opportunities. It’s nothing less than international security for our country.”
IMMEDIATELY AFTER leaving his former Jerusalem office, Barkat and his team worked with Porter again over a six-month period to identify high-potential clusters in the North, South and West Bank that could offer the peripheral regions a competitive advantage.
In the South, they identified desert technology, hi-tech, cyber and tourism as clusters providing economic opportunity. In the North, tourism and wellness, agro-food tech and hi-tech including specialized manufacturing were identified. Finally, in the West Bank, light industry and Bible tourism were identified as potential areas of economic growth.
To realize the plans, Barkat hopes to secure government funding worth NIS 1.5b., together with NIS 3b. in finances from the private sector and NIS 0.5b. from local government and philanthropic actors for investment in the periphery.
If the investment leads to the creation of at 100,000 new jobs as envisioned, the plan projects at least an NIS 25b. return on investment for stakeholders as a result of enhanced economic activity.
“If you look at Jerusalem today, there’s no comparison with 10 years ago,” Michal Shalem, chief executive of Let’s Grow Israel, told the Post.
“There are still problems but if you focus on the two clusters of tourism and life sciences, it’s like a revolution. It happened because we understood the main growth engines needed to develop to attract more tourists, and because of the special programs, investments and incentives introduced for biotechnology and hi-tech start-ups.”
To nurture Israel’s periphery as a competitive hub for creation and entrepreneurship, the team behind Let’s Grow Israel emphasizes the need to both attract and retain talent.
Necessary measures include providing low barriers to entry and attractive tax policies for companies and individuals, fostering civic culture identity and ensuring that each region has the infrastructure, health services, education, sports facilities and cultural opportunities to represent an attractive destination for talent and to retain young adults raised there.
“Because we didn’t see the formation of a government in June, we’re currently going from one municipality to another in the periphery,” said Shalem. “We are presenting our plan, they are presenting their plans and looking for common knowledge where our plans meet theirs, where they need more legislation to overcome barriers and develop more infrastructure.
“Hopefully when a new government will be formed, we’ll be able to put an even more detailed plan on the table. With the help of MK Barkat, we’ll be able to do that.”