A group of at least 10 of Israel’s 82 unicorns (start-ups valued at $1b within their first year) intends to construct a business hub outside of Israel. This news comes in light of the government’s legal reform, which experts across the board have warned will lead to economic turmoil for the hi-tech sector.
The Israeli company leaders plan to fly together to neighboring countries and negotiate terms for the construction of the hub. Cyprus and Greece are currently at the top of the list of possible locations, as they are close enough to Israel to allow workers to conveniently commute home on the weekends; Spain and Portugal have also been floated as possible locations.
While these plans were reportedly being made prior to the legal reform’s proposal, recent developments related to the controversial judicial overhaul have kicked things into full speed.
On Thursday, it was reported that the chief economist at the Finance Ministry, Shira Greenberg, has explicitly warned against the negative effects that the judicial reform will have on Israel's economy.
In a document passed to ministers, Greenberg highlighted the risk posed to the economy by the reform's negative impact on Israel's reputation within the global market.
"The market perceives the reform as harmful to the… independence of state institutions and increasing uncertainty in the investment environment," the document read. "This may harm economic activity and, in particular, private investments."
Other companies ditching Israel
The negative impact that the reform is expected to have on the economy has been anticipated by many, and has led several companies and figures within the hi-tech sector to withdraw their funds from Israel.
In January, Papaya Global and Disruptive Technologies Venture Capital — two companies which together represent more than $4b in value — announced that they were pulling out of Israel’s economy.
“Following Prime Minister [Benjamin] Netanyahu’s statements that he is determined to pass reforms that will harm democracy and the economy, we made a business decision at Papaya Global to withdraw all of the company’s funds from Israel,” Guez tweeted. “In the emerging reform, there is no certainty that we can conduct international economic activity from Israel. This is a painful but necessary business step.”
As well, in early February, Verbit founder and serial entrepreneur Tom Livne announced that he intends to leave Israel and stop paying taxes in protest of the government’s intention to reform the country’s judicial system, calling others in the hi-tech sector to join him.
“I hope [others] will see me doing this and follow my lead… to stop residing in Israel and to stop paying taxes. This is the solution and one that will hurt [the government] the most,” Livne said.
In an interview with the Jerusalem Post, founder and Chair of the Israel Innovation Institute Dr. Leo Beckman noted the danger that a “hi-tech flight” poses to the state’s economy.
“Hi-tech is around 11% of Israel’s workforce, 25% of taxes come from hi-tech and it makes up 50% of Israel’s exports. Now take part of the hi-tech people and money out of this equation, and the immediate impact will be on our health systems and security, because someone has to pay for it, and that money comes from hi-tech,” Beckman said.
“There are high-tech salaries that are almost three times more than the average income in other sectors in Israel. This is where the money is, this is where the economic growth opportunities are,” he said. “So of course, if you are killing the future companies of the sector, if you are making it harder for international players to make the decision to come here and not elsewhere, then it will be huge. And we're already experiencing it.”