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Symposium shows what Israeli markets have to offer

By Michele Alperin

September 26, 2008

More than 100 people attended a Sept. 18 presentation on Israel’s financial opportunities at the Palmer Inn in Princeton.

As attendee Jerry Neumann observed, "We have always been trained to give tzedakah, and we have supported Israel politically through AIPAC, but now we have the time to ensure its economic future." Neumannn was on the steering committee for the event, cosponsored by the United Jewish Federation of Princeton Mercer Bucks, the New Jersey-Israel Commission, and the American-Israel Chamber of Commerce.

Not all the speakers at the presentation, however, were focused on what American Jews can do to support Israel so much as "what Israel can do for you" and your investment portfolio. As David Anthony, managing partner of the 21 Ventures venture capital fund, observed, "As a Jew, I do not invest in Israel for Zionistic reasons. I invest totally for financial reasons. I have no fiduciary right to make an investment in a location because I have a religious or other intention than return on investment."

But Anthony was quick to add that Israel’s economic stability is essential to its existence. And in a country where technology contributes 45 percent of the gross domestic product -- via products like the Intel Centrino chip, much of the computer code behind Windows XP, and AOL’s Instant Messenger -- and tourism only two percent, he observed, "regardless of how the lines are drawn and which party is in political power, the next 60 years of Israel will be dependent on its technology ecosystem."

Ron Levine, who serves on the New Jersey-Israel Commission and whose firm, Herrick Feinstein, was co-hosting the event, does business with many Israeli entrepreneurial firms, especially in the high-tech and biopharmaceutical sectors. His firm represents Israeli companies that are merging with or acquiring companies in the United States or are entering into licensing agreements as well as U.S. firms that are doing business in Israel.

The stakes of the New Jersey-Israel relationship are big, Levine suggested. New Jersey exports nearly $1 billion in goods and services to Israel annually; Israel is New Jersey’s ninth largest export market; and more than 70 Israeli companies have business operations in New Jersey.

The formal program opened with a greeting from Rysia de Ravel, vice president for Israel and Overseas of the Princeton Mercer Bucks federation and president and chief executive officer of DeraCom Conference Call Services. Adam Zellner, director of policy for Gov. Jon Corzine, served as moderator and talked about the state’s need to invest in infrastructure and its interest in new green technologies coming out of Israel.

Anthony was the first speaker, making a case for investing in Israel.

His first reason was Israeli brain power, supported by its excellent universities. Israel has more per capita electrical engineers than anywhere else in the world, close to the highest number of Ph.D.s, and the highest number of patents per capita.

Perhaps more important is the Israeli government’s support for entrepreneurship through the Office of the Chief Scientist, which Anthony calls "the most important political or governmental body in Israel." Its role is to write checks to startups, and it has a budget of $400 million. What this office provides for him, said Anthony, is leverage on his investments.

The third factor is the rule of law, established in Israel in 1918 by the British, which means that Anthony’s intellectual property -- "my most valuable asset other than the people," he said -- is protected.

Calling Israel a "bootstrap country," Anthony also cited its culture, which created a "world of green" from a world of brown, as entrepreneurial. "I have friends who have failed five times and start again and do number six," he said. "In Europe, if you fail once, the culture is to quit and go get a job at a big company."

Israel’s fifth strength is what Anthony described as a platoon psychology. In a country where everyone serves in the army, soldiers develop the qualities of leadership, trust, integrity, and discipline -- the exact characteristics necessary to start a small technological venture. As a small company, he said, "you’re going to war with Cisco, Intel, and Microsoft. You need a mentality that says, ‘I’m going to war and will displace the technology of those other companies.’"

Finally, Israel is well placed for the shift of economic growth to Asia, India, China, and the Middle East that will occur over the next five years. "Is it easier to get to Moscow, Shanghai, Dubai, Istanbul, or Eastern Europe from Tel Aviv or JFK?" he asked, then answered his own question. "Israel is perfectly positioned at the crossroads of where the global economy is going."

But of course Israel has problems, too, that could reduce its economic strength, which Anthony also listed. First, in a recent study scores of Israeli students in math and science placed 39th and 40th among students from 57 Westernized countries. "All we have is our brainpower," warned Anthony.

Second, funding for the Office of the Chief Scientist has not grown in real terms, and there have been threats that it will spend no money. This scares Anthony, who said, "I would shift my money from Israel to Eastern Europe in a heartbeat if I had to. If the Office of the Chief Scientist shuts down, I will go elsewhere."

Last is Israel’s brain drain, which Anthony said is caused by high taxes.

The second speaker was Cliff Goldstein, president of the Amidex 35 Israel Mutual Fund and a board member of the America-Israel Chamber of Commerce. As a child, Goldstein received from his father five shares of stock in Ampal, the American Israel Corporation, one of the first American companies to invest in Israeli industries.

Yearly he and his father would attend the shareholder meetings at the Waldorf Astoria. "A seed was planted in that room," he said. "I felt the vibe in that room to support, build, and strengthen the State of Israel, and also to make money."

With this history, it was not surprising that in the late 1990s Goldstein tried to convince some of the big investment houses to create a mutual fund based on Israeli stocks. One of his goals was to get the average person involved in Israel investment, and the fund he eventually created, Amidex 35, requires only a $500 minimum investment.

Goldstein failed with the big firms. For example, Lehman Brothers refused, saying Israeli stock was too risky. "Ten years later I’m still here, but where’s Lehman?" Goldstein asked. "I started Amdex because no one else did, and that infuriated me."

Goldstein creates his index with both Israeli stocks that trade on the Tel Aviv Stock Exchange and those on Wall Street -- about half and half in terms of market capitalization. "I’m not a big believer in stock picking," he said, "and I decided that indexing is the way to go." Even if investors wanted to select individual stocks that trade in Tel Aviv, he added, it is almost impossible to do so for an investment of under $100,000.

Over the last five years, even given the threat of Iran and Hamas on the Gaza Strip, the Tel-Aviv exchange has risen 120 percent, and that includes the recent threat of collapse of the American financial system.

The third speaker, Zvi Chalamish, is the chief financial officer of the Government of Israel Economic Mission. His organization is responsible for raising foreign currency through bond and loan guarantee offerings.

"While the U.S. is known as the land of opportunity," Chalamish joked, "Israel is usually known as the land of unexpected surprises." But in this case the surprise may have been the strength of the Israeli economy. Despite the global slowdown, Israel grew 5.3 percent in the first half of 2008 after four years of more than five percent growth, he said. Its exports were up 12 percent; the shekel is strong; industry productivity is on the rise; the current account and budget show a surplus; and tourism is surpassing records. Rating agencies recently recognized this strength and upgraded Israel’s ratings: Moody’s from A2 to A1, and Standard and Poor’s and Fitch from A minus to A.

Chalamish described how the Israeli economy has changed since the mid-1980s, when government policy was based on socialist principles -- "everyone has nothing," he joked.

The socialist economy served the country well until a major economic crisis in 1985 when inflation topped 400 percent. The government responded by instituting an economic stability program that created a free open market economy.

That policy worked until 2000, but in the face of the Intifada and the collapse of the high-tech market, Chalamish said, "government involvement was still too high." Growth was slow, unemployment was 12 percent, and the deficit was huge. That is when Ariel Sharon promoted Benjamin Netanyahu to finance minister, and he made some big changes. "He put our public sector on a diet to create a healthier private sector," said Chalamish. "He cut taxes, cut expenditures in the budget, cut unemployment benefits, privatized state-owned companies, created a capital market, and invested in infrastructure."

Chalamish ended by announcing a recently launched initiative to transform Israel into a global financial center, modeling it after Israel’s success with the high-tech sector.

Israel companies today are thriving in many economic sectors: Netafim leads the world market in water drip irrigation; Teva Pharmaceuticals is the largest generic drug company in the world; Comverse developed voice mail; Check Point created the firewall industry; Given Imaging invented a camera in a pill that films the gastrointestinal tract and transmits images to a computer; and IDE Technologies specializes in research and development of water desalination processes. Even an Israeli kibbutz is represented on Nasdaq -- by Shamir Optical Industry, a leading producer of progressive lenses for glasses and contact lenses that went public three years ago for $250 million.

"Israel has brainpower and energy, coupled with cash," said Goldstein. With 10 Israelis on the list of the world’s richest billionaires and 10,000 millionaires, he concluded, "Israel is not a desert with people walking around in kibbutz hats, picking oranges, and selling them to American tourists."