Tech companies operating in Israel are expected to fortify security as they could face disruptions, said investors and analysts, after Hamas gunmen from Gaza killed hundreds of Israelis and abducted an unknown number of others. The attacks have prompted a broad public outcry against Israeli Prime Minister Benjamin Netanyahu’s government, with some of the country’s top technology executives criticizing policies that could drive away investors and decimate the burgeoning industry.
The high-tech industries have for a few decades been the fastest growing sector in Israel and crucial for economic growth, accounting for 14% of jobs and almost a fifth of the gross domestic product. Its success is mainly due to its highly developed innovation ecosystem and global product demand. But the industry is also sensitive to shifts in global capital flows that can be influenced by events such as the war raging in Ukraine or broader political trends.
Many in the local tech community fear that a drop in foreign investment will cause the industry to become detached from global trends, a concern echoed by the Bank of Israel’s governor last month. The industry also depends on private investments, especially from American venture firms that invest in the most promising startups. In the first half of 2023, 64% of investments in Israeli tech companies were from outside Israel.
Several of Israel’s leading technology companies have closed offices in the United States for security reasons, including chipmaker Intel Corp, the world’s largest computer chip maker in mobile devices and artificial intelligence. And while there has been no direct attack on Intel or its workers, employees who work on military-related projects will likely be called up for army reservist duty, says Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina. That could take a significant toll on production.
The government’s plan to overhaul the judiciary has significantly impacted the tech sector. This move critics say would give the parliament the power to overturn Supreme Court decisions and upend the democratic system of checks and balances. It has sparked mass protests, roiled the shekel, and prompted credit rating agencies to issue warnings about the impact on the economy.
Hundreds of people who work in the tech industry — from young entrepreneurs to employees at big technology giants such as Google and Microsoft — took to the streets on Tuesday in Tel Aviv to call for an end to the governing coalition’s “right-wing extremist” policies. They waved signs with slogans such as “There’s no high-tech without democracy” and blocked a main road in the city center for about an hour to demonstrate against the planned legislation. The government is unlikely to reverse course, even if the protests do not subside. But it will be a test for Netanyahu and his right-wing coalition partners, who are trying to win parliamentary elections this spring.