The Jerusalem Post
The Jerusalem Post: Business and Innovation

Foreign investment dropped by 60% in the first quarter of 2023

 An artistic illustrative image of a downward graph indicating a negative trend. (photo credit: INGIMAGE)
An artistic illustrative image of a downward graph indicating a negative trend.
(photo credit: INGIMAGE)

The troubling statistic is a sobering confirmation of economist warnings against the government’s judicial reform plan.

Foreign investments in Israel saw a dramatic 60% decline during the first quarter of 2023, according to a Treasury report revealed by Israel’s chief economist on Wednesday. Preliminary data gathered in 2023 paints a sobering picture of the steep drop in foreign investment transactions, totaling approximately $6.2 billion. The data represents a hefty plummet compared to quarterly averages in 2020 and 2022 (with 2021 being excluded as it was a record-setting outlier).

The Treasury's report, which summarizes foreign investments in Israel and trade agreements for the year 2022, also included initial figures for the start of 2023. These figures indicate a decline in investments, reflected in both the number of transactions and the number of investors, both of which dropped by a third compared to previous years. Simultaneously, according to data from the Central Bureau of Statistics (CBS), direct foreign investments in Israel in the first quarter of 2023 amounted to approximately $4.76 billion, marking a 34% decrease from the quarterly averages in 2020 and 2022.

Furthermore, the data from the Treasury's economic division shows an 80% drop in the average value of exit deals during this quarter, falling from an average of $307 million in 2020 and 2022 to about $56 million in the first quarter of 2023. This decline can partly be attributed to the decrease in the valuation of many technology companies in the United States. Another contributing factor is that several companies raised capital at lower valuations compared to previous rounds.

Has judicial reform but foreign investment on the decline?

For months, hundreds of economists, experts, and executives have warned that the government’s approach to judicial reform will likely result in diminished foreign investment — to potentially catastrophic effect, considering hi-tech’s central role in the economy. In 2022, Israel's hi-tech sector represented 18.1% of the country's GDP, making it the largest contributor to the economy. Much of the investment in this sector comes from foreign investors attracted by Israel's renowned innovation. However, by undermining the judicial authority of Israel’s High Court, they argue, Israel runs the risk of scaring off investors who would prefer to put their money into more stable investment environments.


“As nearly all of Israel’s academic economists, myself included, have been saying since this government rolled out its proposed judicial coup legislation, the result will be similar to aiming a flame-thrower at our economy (and hi-tech, our economic locomotive, in particular), our health system, and the general fabric holding together Israeli society and our army,” said Prof. Dan Ben-David, head of the Shoresh Institution for Socioeconomic Research and an economist at Tel Aviv University. “What we are currently witnessing is only the initial damage resulting from the major uncertainty that the government policies are sowing. The long-run effects – if what they’re doing will be able to grow and mature – will be no less than catastrophic for Israel’s future.”

 Graph showing recession economy (credit: PIXABAY)
Graph showing recession economy (credit: PIXABAY)

As of press time, the Finance Ministry has not released an official comment on the matter. 

On Monday, Finance Minister Bezalel Smotrich wrote off the concerns for Israel’s economy as a result of the judicial reform as “a campaign conducted in recent months by irresponsible parties who are trying to harm the economy in a deliberate way as part of their political struggle against the right-wing government and the important amendments it seeks to pass in the Israeli justice system.”