Unemployment is way under 6% in Israel. Chinese venture capital is surging into the Holy Land. Some would argue that Israel is bucking a global trend as foreign investment continues to flood in:

……during the first 10 days of June, a total of $237 million were invested, mostly by foreign investors. The first 10 days of May saw investments totaling $28 million, with $327 million invested during the entire month of May. The sum for the first half of 2016 is approaching $2 billion.

But, and there is a big “but” as I have mentioned several times  since the beginning of the year. There is also an increasing surge of worrying signs that the economy is not just slowing down. It is losing its competitive global edge.

For example, the rate of growth for the first quarter of 2016 stood at a paltry 1.3%. An index used by the Bank of Israel, which combines leading economic indicators, progressed by an insignificant 0.13% in May.

The Chief Scientist, Avi Hasson, spelt it out very bluntly this week. Hightech in Israel is struggling, both in order to find the correct resources and in competing with other countries – which have successfully improved on the ‘Israeli formula’.

• If in 2002, the government invested almost 0.8% of the GDP in high-tech, that stat has dropped to under 0.6%.
• The country already lacks thousands of engineers.
• That employment hole is not likely to be filled soon, as currently less than 10% of students apply for a science degree. (In 2004, the proportion was 13%).
• Both the Bloomberg and WIPO Global Innovation Index show Israel dropping down the ladder by six or seven places over the last year.

If there is a message in all of this info, it is that something major is not right. As Bloomberg itself noted: “Israel’s long-held status as a hotbed of tech innovation is under threat….”. The government seems less interested, tax incentives are no longer competitive and new regulations are piling up.

Google’s chief, Eric Schmidt, and Cisco boss, Jon Chambers, have echoed similar comments in recent weeks. Israel is no longer number the only country in the game of start up nations.

In itself, none of this worries me. Text books are full of economic cycles. Britain led the industrial revolution, based on steam, only to be overtaken by Germany and the USA. Yet today, the UK is still arguably the world’s fifth largest economy. It learned to adapt.

What does concern me, big time, is that for all these warning signs, the Israeli government has not taken one major policy stand on the issue. The mandarins and the politicians in Jerusalem appear either incompetent and / or uncaring as to what will happen to the future of our economy.