Our comprehensive assessment of Israel's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Israel, as well as the latest industry developments that could impact Israel's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Israel before your competitors.

Country Risk

Israel Country Risk

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Core Views

  • Political risks remain elevated despite a Egypt-brokered truce between Israel and Islamist group Hamas on August 26, as highlighted by protracted violence since the ceasefire. Prime Minister Benjamin Netanyahu is also under increased pressure from within its governing coalition, and we cannot preclude the possibility of early elections. Moreover, risks of spill over effects from the civil war in neighbouring Syria remain high.

Major Forecast Changes

  • We have recently revised our 2014 growth forecast to 1.6% from our previous projection of 2.4%, mainly a result of the seven-week conflict with Islamist group Hamas in the Gaza Strip in July and August. Risks to stability will persist as long as a political solution to the Palestinian issue is elusive, and risks of radicalisation in the West Bank will remain high...

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Israel Operational Risk Coverage (9)

Israel Operational Risk

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BMI View: Israel boasts a well educated population of working age, which is encouraging for investors as it means a high quality domestic supply of labour is readily available. This is complemented by high urbanisation and good access to healthcare, which boosts the availability of labour and the productivity of the workforce. These considerations are the main drivers behind Israel's high overall score of 68.7 out of 100 in our Labour Market Risk Index, which places the country first out of 18 states in the MENA region. However, high employment costs and influential trade unions increase overall inputs for investors and impede the flexibility with which they may act with regard to their workforce. In addition, ostensibly favourable...

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Israel Crime & Security

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Israel scores 41.5 overall in the BMI Crime and Security Risk Index. Although, Israel outperforms in the Criminal Risks rating component, the risk posed by interstate and terrorist threats are high, as the country is surrounded by, or in close proximity to historically hostile states that have backed terrorist groups in Israel.

Violent crime is a problem in Israel, as it incurs the highest assault rates in the region and one of the highest rates for sexual offences. However, the murder rate is quite low in Israel compared to other types of crime.

Organised crime and associated gangland violence are becoming major issues for the police force and gangs are active in drug trafficking, due to the rise in demand for illicit substances. Gangs are currently engaged in a turf war in many parts of the country and car bombs and gunfire in public spaces are becoming increasingly common.

Kidnappings are...

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Israel Labour Market

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Israel boasts a large and well educated population of working age, which is underlined by its regional outperformance in our Labour Market Risks Index. This is encouraging for investors as it means a high quality domestic supply of labour is readily available. However, high wage and severance costs, extensive employee entitlements and a complex regulatory environment serve to increase the overall costs for investors and impede the flexibility of the workforce. That said, Israel scores 69.4 out of 100 in our Labour Market Risks Index, surpassing all its regional counterparts and placing 17 th out of 170 countries.

Israel benefits from a sizeable and well educated labour force which is highlighted in its regional outperforming score of 75.5 out of 100 for Availability of Labour. The score is boosted by a high life expectancy of 82 years and an impressive population growth rate of 1.9% to 8.1mn people in 2013. In addition, the...

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Israel Logistics

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Israel's supply chain benefits from a well developed and connected transport network, timely trade procedures and governance, and a strong growth look. The key risks to the network involve an overreliance on road transport and the underdeveloped port sector. An increase in road traffic is forecast for the medium term which will put extra pressure on the transport network, thereby increasing congestion and possibly reducing quality if investment is not increased. This could negatively impact the logistics sector as it increases costs and transport time. Israel outperforms almost all of its 18 regional neighbours in the BMI Logistics Risks Index. A score of 63.9 out of 100 places it behind United Arab Emirates only.

Israel's rail network offers good links between most urban areas and airports and ports, benefitting the connectivity of the country's logistics sector. A growth in rail freight and investment is boosting the...

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Israel Trade & Investment

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Israel faces some major trade and investment risks for investors despite the organisation of its market economy and open attitude to foreign investment. The major risks to trade are posed by relatively high tax rates and timely bureaucratic procedures. However, the government offers attractive financial incentives in certain industries. In addition, stable institutions and low levels of corruption act to partially mitigate these risks. Israel's average performance is underlined by its score of 58.4 out of 100 overall in the Trade and Investment Risk Index, placing it just inside the top five regionally after the UAE, Qatar, Bahrain and Oman, and 54th out of 170 countries worldwide.

Israel is a relatively open country for economic activity due to its market-oriented economy and generous government incentives for foreign investment. Israel scores 55.6 out of 100 for Economic Openness, placing it sixth in the region. Israel is a particularly...

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Israel Industry Coverage (18)

Autos

Israel Autos

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Although BMI had been concerned that the conflict in Gaza during Q314 would undermine new vehicle sales in Israel - which were down by 12.1% year-on-year (y-o-y) in the month of July - there was no lasting effect. So, based on current buoyant sales trends, BMI is targeting full-year total new vehicle sales of around 260,000 units, representing annual growth of around 16%.

BMI believes that there will be a slowdown in new vehicle sales growth in 2015. We are targeting growth of 4.5% in passenger car sales, with slightly stronger growth of 7% for the commercial vehicle sector. Passenger car sales could well be undermined by higher taxes and still-depressed consumer confidence. That said, passenger cars will continue to account for the lion's share (77%) of total new vehicle sales in 2015. Over the full forecast period to 2018, we are targeting 24% growth in the...

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Commercial Banking

Israel Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Israel Consumer Electronics

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BMI View: Israel has one of the most mature consumer electronics markets in the region, with a vibrant start up community and strong government spending on ICT, in large part through the military, resulting in high penetration of PCs and smartphones. Although this leaves little opportunity for reaching new customers, Israel's rise as a key hub for global IT and CE vendors' research and development centres over the last several years will help ensure continued replacement demand for consumer electronics products over the five years to 2019. In January 2015, the Ministry of Communications...

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Defence & Security

Israel Defence & Security

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BMI View:  Israel's domestic and regional security situation remains volatile. BMI thinks that the ceasefire between Israel and Hamas is a short-term solution for temporary peace. However, we expect a likely resumption of hostilities in the not too distant future. We are currently most concerned about the rising tensions across the West Bank. We also expect the number of Christian draftees into the army to increase without notable impact to the size of the army.

This quarter, BMI explains how divisions exist and divisions are being created by the Israeli government in relation to compulsory military...

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Food & Drink

Israel Food & Drink

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In May 2010, parliament passed the new Law on Medicinal Products and Medical Devices, which is based on EU legislation. The law was published in the Official Gazette of the Republic of Serbia on May 7 2010. Part IV of the law details the rules that govern medical devices. The following areas are covered:

  • Classification;

  • Registration, including variations, renewals and cancellations;

  • Conditions and licensing in relation to medical device manufacturing;

  • Marketing;

  • Wholesale;

  • Importation;

  • Retail;

  • Clinical trials;

  • Labelling;

  • Quality Standards and Quality Control Methods;

  • Vigilance; and

    ...

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Freight Transport

Israel Freight Transport

Information Technology

Israel Information Technology

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Lebanon Commercial Banking SWOT

Strengths

  • A loyal depositor base and large remittances provide a significant cushion against systemic risks.

  • Traditionally conservative risk management has contributed to relatively solid fundamentals in the industry.

Weaknesses

  • Political instability and slow growth in the economy will hinder profitability over the coming years.

  • Despite the country introducing Islamic Banking regulation almost a decade ago, the government support for the sector is lacking, and thus growth will remain minimal.   

Opportunities

  • An improvement in political...

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Infrastructure

Israel Infrastructure

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BMI View: We currently forecast 2.6% real growth in Israel's construction industry in 2015, following an estimated contraction of 0.4% in 2014. Our forecast is supported by low base effects and a recovery in gross fixed capital formation (GFCF). We maintain our medium-to-long term favourable view of Israel's construction market and we forecast an average growth rate of 2.3% between 2016 and 2024.

Key developments in Israel's infrastructure sector:

  • Our Country Risk team expects growth in gross fixed capital formation (GFCF) to accelerate by 3.1% in 2015 as result of low base effects following a sharp decline in 2014, estimated at -1.5%. In terms of GDP real growth, our Country Risk team forecasts a more solid 3.1% in 2015, from 1.6% in 2014.

  • Israel's infrastructure project pipeline...

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Insurance

Israel Insurance

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BMI View: Private expenditure will be bolstered by a number of positive factors, including subdued inflation, low unemployment and expansionary fiscal and monetary policy, with tax cuts and public sector wage hikes boosting expenditure. This will drive the growth of the life sector which, combined with a rise in life-spans, will see consumers more concerned about saving for the future. Rising wealth in Israel will also see greater demand for motor vehicle insurance, as greater disposable income leads more consumers to purchase cars, and personal accident insurance, as overall healthcare expenditure rises.

Gross life premiums in Israel will decline by 4.2% in 2015 to USD7.4bn. However, this will predominantly be due to currency effects, with the sector actually experiencing growth o f 4.4% in local currency terms. The rise if life premiums will be driven by an increase in per capita income,...

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Medical Devices

Israel Medical Devices

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BMI Industry View: One of the most attractive markets for multinationals in the region, Israel's medical device market is valued at USD1,077.4mn in 2013, equal to USD139 per capita. Strong trade relations with the USA facilitate medical device imports and exports, while Israel is also a very dynamic market in terms of medical device start-ups. The market is expected to expand at a CAGR of 9.5% during the forecast period, which should see it reach USD1,692.8mn, or USD205 per capita, by...

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Oil & Gas

Israel Oil & Gas

Petrochemicals

Israel Petrochemicals

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BMI View: Lower naphtha prices will help support Israeli petrochemicals margins over the medium term, while in the short-term producers will benefit from a recovery in the domestic market, according to BMI 's latest Israel Petrochemicals Report.

In the first 10 months of 2014, Israeli rubber and plastic production declined 1.1% year-on-year (y-o-y) while petroleum and chemical products output declined 2.4%. Downtime at Oil Refineries Ltd's (ORL) hydrocracker in September did not help output volumes, but improved margins in petrochemicals helped shore up its profitability.

In 2014, Israel's petrochemicals industry included capacities of 450,000 tonnes per annum (tpa) ethylene, 345,000tpa propylene, 125,000tpa benzene, 230,000tpa xylenes, 165,000tpa polyethylene (PE), 450,000tpa...

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Pharmaceuticals & Healthcare

Israel Pharmaceuticals & Healthcare

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BMI View: Israel offers an attractive pharmaceutical market, with the government committed to developing the public healthcare system. An improving intellectual property regime and high penetration of patented medicines will be seen as positive by innovative drugmakers. Risks to our outlook include political uncertainty and the fiscal deficit, which pose a risk to the government's planned healthcare expenditure.

Headline Expenditure Projections

  • Pharmaceuticals: ILS7.51bn (USD2.10bn) in 2014 to ILS7.82bn (USD2.06bn) in 2015; +4.16% in...

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Real Estate

Israel Real Estate

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BMI View:  The Israeli retail market is weathering the effects of the conflict in Gaza well. Although conflict is sure to have a dampening effect on the economy, BMI forecasts strong growth in Israel for 2015, and the drivers underlying the real estate market, such as Israel's world class technology industry and relatively robust institutions, remain strong.

Israel is a location where people are accustomed to risk and the effects of political conflict and violence. Clashes that are within the range of what has come to be 'normal', although they may dampen economic activity in the short run, are unlikely to derail economic growth in the medium term. As such BMI sees Israeli economic growth accelerating over the next several years, increasing each year after 2014's weak 2.5% growth to peak around 4.4% growth in 2019.

For...

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Retail

Israel Retail

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BMI View: 2015 is largely set to be a year of recovery for the Israeli retail sector and the country's wider economy following the seven-week conflict on the Gaza strip during the summer of 2014. Nonetheless, consumer confidence has been dented and as a result we are forecasting a slight decline in household spending during the course of the year. Beyond 2015 we believe there remains great potential in Israel's retail market owing to a growing and increasingly affluent population. We are expecting growing demand for non-essential items, particularly in personal care and communications.

Israel's economy has swiftly moved towards recovery following 2014's summer conflict in Gaza. We are currently forecasting real GDP growth of 3....

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Shipping

Israel Shipping

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We expect moderate growth across Israel's ports in 2015, which will benefit from the base effects of a rebound in economic growth following disruption caused by the conflict in 2014. The port of Haifa will return to growth following two years of decline in its container throughput. The Israeli ports sector is undergoing a state of flux, with the major ports set to be expanded with new, privately operated, terminals, which will be able to handle the larger vessels that are becoming the norm on the key Asia-Europe trade route on which Israel stands. However, these developments face strong opposition from current port workers and unions, which is impacting throughput.

...

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Telecommunications

Israel Telecommunications

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BMI Industry View

BMI View : The Israeli government's decision to force incumbent operator Bezeq to open wholesale access to its wireline infrastructure will catalyse investment and growth in the country's broadband sector. This will create much needed growth opportunities for mobile operators and ensure the telecoms market can keep up with the demands of Israel's vibrant IT market.

Key Data

  • Mobile subscriptions declined by 0.3% y-o-y in the 12 months to June 2014. This was a total net subscription loss of 28,000.

  • The rate of decline of the market share weighted average ARPU accelerated in H114, with a decline of 6.1% compared to a decline of 4.7% in FY13.

  • The fixed telephony and fixed broadband...

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Water

Israel Water

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BMI View : This quarter we have substantially upgraded and expanded our water forecasts due to the release of new historical data and the addition of new indicators. We now provide forecasts for extraction by source (ground, surface, river and desalination) along with treated wastewater. Overall, we view the Israeli water sector as offering limited opportunities for services and utilities companies, but substantial potential for water infrastructure companies. In particular, we anticipate significant long-term development of the wastewater collection, treatment and redistribution infrastructure.

Israel will require USD53.7bn in funding to develop water infrastructure projects over the next 40 years. The sum is in line with the Israeli Water Authority Council's development plan. Infrastructure projects will focus on desalination, with the Israeli government aiming to reach 750 cubic...

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