Startup Nation? Israel's construction industry struggles to innovate

Relying on Manpower, not Technology: An updated report from the Bank of Israel reveals Israel's lag in competitiveness and innovation in the construction sector compared to other developed nations. Despite its moniker as the Startup Nation, Israel falls significantly below the OECD average.

According to the report, high accessibility to cheap and unskilled labor, alongside inadequate government investment in construction technologies, are the main factors hindering innovation and competitiveness in the construction sector in Israel.

The data presenting the capital stock per worker, i.e., the level of investment in machinery and technology relative to the number of workers in the sector, is revealed to be low compared internationally and is described by the Bank of Israel as an "indication of lagging innovation and competitiveness in the sector". Furthermore, the report states that the main barriers to innovation adoption are limited knowledge, the need for coordination among various factors, and unsuitable regulation. 

The report also highlights that productivity in the Israeli construction sector is very low compared to its counterparts in OECD countries. In international comparison, this data is 54% lower than the average, while overall labor productivity is only 11% lower. In this aspect, Israel ranks second to last in labor quality among OECD countries, with Belgium excelling in this regard.

However, the Bank of Israel notes that this method is criticized due to various measurement methods worldwide, so they prefer to examine the "capital stock per worker", i.e., all investments in machinery and equipment per employee, which also left us far behind. 

Additionally, the skills of workers in Israel are low compared to their OECD counterparts, with Israel relying more on unskilled workers. This is attributed to the high availability of cheap non-Israeli workers, which reduces the incentive to innovate and exposes companies to unstable employment.

The Bank of Israel urges the government to provide support for innovation

Despite actions taken in the field, the Bank of Israel believes that the government has an important role in training skilled labor for the industry, with the responsibility to either cancel regulations that hinder innovation or introduce new regulations that will improve coordination company to company or between companies and local authorities and other entities. The government can also provide information to consumers about innovative construction methods and create governmental incentives for innovative construction.

They also offer limited government subsidies for innovation and research, mainly among small and medium-sized companies, and expand existing subsidy policies. Additionally, the report states that innovation in the industry has a positive impact, such as reducing pollution and noise, which may justify government support. 

One of the significant barriers to innovation is the use of cheap and unskilled construction workers. Solutions found around the world include training skilled labor, whether through comprehensive government training, training of migrants, or training local labor through foreign companies. 

Another barrier, according to the report, is the long processes of standardization and regulation compared to the global market in terms of building materials and innovative construction methods. Therefore, the Bank of Israel notes that both regulation adaptation to the industry and setting uniform standards are required to overcome market asynchrony. In this aspect, they mention the use of BIM system to streamline processes, as well as the requirements in some Scandinavian countries to reduce waste and pollution on construction sites, indirectly leading to more advanced construction.