How is the Start-Up Nation threatened – and what can be done?

Published: JULY 6, 2018 12:27

A cityscape of Tel Aviv (photo credit: REUTERS/AMIR COHEN) — A cityscape of Tel Aviv

(photo credit: REUTERS/AMIR COHEN)

Without more highly trained hi-tech employees, Israel will not be able to maintain its competitive edge.

On paper, Israel is doing really well. With some 6,000 start-ups – the highest number per capita worldwide, according to Start-Up Nation Central – Israel’s tech scene is churning out world-renowned innovation and lifesaving tools.

Beneath the surface, Israeli hi-tech companies are grappling with a severe shortage of at least 10,000 engineers and software programmers over the next decade, with firms already relocating abroad because of the shortage.

That estimate is from the Israel Innovation Authority (IIA), the branch of the government dedicated to putting on the country’s best face for luring talent and fostering local R&D. In other words, when the guy selling you a product starts listing its faults, you’re in trouble.

The authority is now ringing the alarm as to obstacles facing Israeli start-ups, established firms and hi-tech multinational corporations.

“The shortage increases when you go up the pyramid; there are really few available high-end engineers doing algorithms,” IIA’s chief strategy officer, Uri Gabai, previously told The Jerusalem Post. “It’s also a problem for the mid-level of software developers and coders.”

At the same time, a relatively strong shekel is making it much more expensive for local start-ups and established multinational tech corporations to hire locally, since Israeli employees are paid in shekels but services are sold in dollars and euros.

This is all combining to sharply push up the wages of hi-tech employees, with average salaries for Israeli engineers going up by 38% in the last decade, according to the authority.

The sharply increased salaries make it difficult for Israeli start-ups to compete with multinational corporations in paying engineers. It also undercuts the incentives for large MNCs to relocate services here.

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Companies like Wix.com, a multibillion dollar Israeli web development platform, are expanding dramatically in countries such as Lithuania, since Israel faces a shortage of web developers, and Eastern European computer programmers can be paid significantly less than their Israeli counterparts.

This reporter toured Wix’s offices in Vilnius, the capital, last year, and spoke with Wix executives on background on why future Israeli hi-tech expansion is more likely to happen abroad.

Israeli-based Wix is expanding its large R&D office in Vilnius, Lithuania (Max Schindler)

It comes down to this: Without more highly trained hi-tech employees, Israel will not be able to maintain its competitive edge. That is forcing politicians from unlikely sides of the spectrum to propose new solutions.

Education Minister Naftali Bennett – who normally squabbles with Arab politicians – has been pushing forward plans to get more Israeli Arabs into hi-tech.

Israeli Arabs constitute 20% of the population but only around 1% of the employees in the industry, and Bennett has obtained a sharp increase in funding for computer science programming in Arab schools as a way to grow and strengthen the Israeli economy.

TO DOUBLE the number of hi-tech employees overall, encourage investment and decrease “brain drain” – or stop the departure of legions of highly educated Israelis for better economic opportunities in Silicon Valley and elsewhere – unorthodox proposals abound.

One plan – historically anathema to the Jewish state – is to expedite the processing of work visas for highly educated, non-Jewish internationals.

In early February, the Population and Immigration Authority announced that start-ups and hi-tech firms would be able to hire non-Israelis as “experts” for up to one year in a special 12-month pilot program.

Hundreds of people apply annually for foreign hi-tech or engineering work visas in Israel. Around 3,000 people worked in Israel on the expert visa in 2015, according to financial newspaper Calcalist.

Yet the “expert” plan has been stymied, and immigration lawyers contacted by the Post criticized the Interior Ministry for not hiring enough requisite staffers.

“It’s not good enough to declare that we’ve opened the sky for professional workers to the hi-tech [realm],” attorney Zari Hazan told the Post. “We haven’t seen an increase, nothing yet. We are waiting two or three months, and all the requests are stuck in Jerusalem.”

Hazan added: “They need to [increase] the quantity of people approving the visas. There’s only one manager to deal with all the requests at the Interior Ministry. They need to bring more people to work there.”

Lingering demographic concerns may be gumming up the plan, as not all the coalition parties are fully on board.

And not enough hi-tech candidates see Israel as a viable place to relocate, with some potential employees holding misconceptions about the security situation and possibly receiving salaries lower than in Silicon Valley or other Western tech hubs.

Pedaling uphill, Israel’s hi-tech ecosystem is trying to entice foreigners to work in Tel Aviv with generous relocation packages. Eran Shir, CEO and co-founder of Nexar, a dash-cam mobility start-up, is leading a consortium called BETA (Be In Tel Aviv), where Israeli firms cooperate in recruiting foreign hi-tech workers.

BETA offers tens of thousands of dollars in relocation costs, along with assistance in dealing with the Interior Ministry and Hebrew lessons, Shir told the Post.

“In regard to bureaucracy, the jury is still out,” Shir said. “I’m still optimistic; that’s why I’m an entrepreneur. But what I’m meeting is a lot of goodwill from different branches of the government, inbound interest, different organizations.”

Still, Israel faces difficulty in recruiting talent comparable to that of Silicon Valley, as a Financial Times exposé from earlier this week demonstrated.

One entrepreneur, Liad Agmon – whose tech company provides services to half a billion customers of global retailers, including Under Armour – is questioning whether his next start-up will be abroad.

“There is no edge here [in Israel] anymore,” Agmon told the Financial Times. “If I start my company, say, in Portugal, I can get extremely talented engineers for a third of the price. From an economic perspective, there’s no advantage at all to being in Israel.”

The hi-tech industry currently comprises one-twelfth of the Israeli workforce, or slightly more than 8% of all workers. Average monthly salaries stand at some NIS 21,000 ($5,940), as opposed to outside the industry, where average Israeli monthly wages are NIS 9,800 ($2,770).

While the percentage of its Gross Domestic Product that Israel invests in research and development is higher than that of any other country, and its venture capital investments make up the highest share of GDP per capita worldwide, this will all come to a screeching halt if the worker shortage worsens – as it does annually.