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This Is how Israel Plans to Divide up NIS 1.5 Billion Earmarked for Tech Sector

Coronavirus

This Is how Israel Plans to Divide up NIS 1.5 Billion Earmarked for Tech Sector

Out of a total Covid-19 stimulus package of NIS 80 billion (approximately $22 billion), the Israeli Ministry of Finance has allocated just NIS 1.5 Billion to the country’s tech sector

Meir Orbach | 13:04  05.04.2020
The Israeli Ministry of Finance’s budget department has earmarked NIS 1.5 billion (approximately $413 million) for a stimulus package to support the country’s struggling tech sector. That sum is included in a budget totaling NIS 80 billion (approximately $22 billion) allocated to helping the country overcome the coronavirus (Covid-19) crisis.

The decision on how best to dispense those funds was the subject of a conference call held last week between Aharon Aharon, the CEO of government investment arm the Israel Innovation Authority (IIA), Asaf Wassercug, deputy head of the budget department, and a senior official at the Israeli Tax Authority. One thousand entrepreneurs and senior executives from the tech industry were also on the call that was organized by Israel Advanced Technology Industries (IATI), the umbrella organization that represents the local technology and life sciences industry.

Aharon Aharon, CEO of the Israel Innovation Authority Photo: Orel Cohen Aharon Aharon, CEO of the Israel Innovation Authority Photo: Orel Cohen Aharon Aharon, CEO of the Israel Innovation Authority Photo: Orel Cohen

Several people who hold positions in the finance ministry, who spoke to Calcalist on condition of anonymity, described how the funds would be split up.

“The tech industry is the only sector that is receiving separate treatment,” one person said. “The tech sector has unique characteristics and it is extremely important to the state. We sought out a solution that would benefit three types of organizations: large companies, medium-sized companies, and startups.”

“Roughly NIS 500 million (approximately $137.5 million) will be allocated to the IIA to aid startups, with the goal of developing a specialized track for early stage companies,” a finance ministry official said. “The bigger challenge is the medium-sized companies that don’t often seek grants from the IIA and face difficulties securing money from loan funds since they often don’t meet all the criteria,” the ministry official added. “For these companies, we will establish another NIS 500 million fund that will provide collateral for investments. The collateral should help draw local institutional investors who will cooperate with the various investment funds already operating within the Israeli tech sector.”

According to the finance ministry official, “Leveraging NIS 500 million to benefit medium-sized companies could provide an opportunity for NIS 5 billion ($1.37 billion) in investment. We will allow the larger companies, those with an annual turnover that tops NIS 400 million (approximately $110 million), to draw loans out of a separate NIS 8 billion ($2.2 billion) business fund. We are still in deliberations over how best to allocate the remaining NIS 500 million in cooperation with the IIA.”

On Thursday, the IIA announced that the finance ministry’s accountant general has approved a NIS 650 million (approximately $177 million) budget to promote research and development planning. NIS 50 million (approximately $13 million) out of the total sum is set to go towards battling the Covid-19 pandemic and NIS 600 will be allocated directly to companies who had applied for IIA grants this year and whose applications will be fast-tracked for approval this week.

A senior figure in the Israeli tech sector who spoke to Calcalist on condition of anonymity Thursday blasted the government's treatment of the industry, which he called Israel’s primary growth engine. He characterized the fact that only NIS 1.5 billion out of a total NIS 80 billion stimulus was allocated to the sector as “deplorable.”

The executive, who participated in the conference call, said that the government was disregarding the critical blow to the local tech industry, adding that it is the tech sector that could eventually pull the country out of its financial crisis.

“If the funds had been allocated in relation to the sector’s contribution to the GDP, then it deserved to receive a bare minimum of NIS 8 billion (around $2.2 billion),” the senior tech executive said. “The industry is currently in a deep crisis with many companies starving for funds. If they don’t get immediate assistance they will collapse and be beyond saving,” he said. “The tech sector must be protected so that when things begin to recover the industry will be able to lead the economy out of crisis mode. Global competition is immense and other governments are supporting their tech sector far more robustly.

“The tech and life science sectors in Israel are facing a significant and unprecedented crisis,” IATI co-chair Erez Tsur told Calcalist. “We initiated the conference call in order to facilitate direct communication between the local tech community and the government agencies. Roughly 2,800 companies applied to take part in the call and slots were given to the first 1,000 who applied.” Tsur praised the government’s response to the issues raised in the call, but said the actions so far were but “a drop in the bucket.”

“I call on the government to continue to be open to the needs of the industry and quickly allocate more funds so that the companies survive and go on to be the growth engine everyone expects them to be in the post-coronavirus era,” Tsur said. “If they don’t, the outcome will be catastrophic.”

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