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DEVELOPMENTS AND TRENDS IN ISRAELI EXPORT – 2012

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DEVELOPMENTS AND TRENDS IN ISRAELI EXPORT – 2012 DEVELOPMENTS AND TRENDS IN ISRAELI EXPORT – 2012 Document Transcript

  • 1 DEVELOPMENTS AND TRENDS IN ISRAELI EXPORTS SUMMARY OF 2012 AND FORECAST FOR 2013 Written by the Economic Department March 2013Written by the Economic Department – March 2013
  • 2TABLE OF CONTENTSExecutive Summary ....................................................................................................... 3Export Adjustments ....................................................................................................... 8General – Trends in world economy .............................................................................. 9Exports of Goods and Services .................................................................................... 10Exports of Goods by Sectors........................................................................................ 11Diamond Exports ......................................................................................................... 12Agricultural Exports..................................................................................................... 13Industrial Exports ......................................................................................................... 13Exports of Services ...................................................................................................... 17Total High-Tech export; Services & Industry ............................................................. 19Export by trading regions............................................................................................. 20Developments in Israels leading export destinations .................................................. 25Exports to the Palestinian Authority ............................................................................ 38Israel’s 20 leading export destinations in 2012............................................................ 39Changes in exchange rates ........................................................................................... 41Export Forecast for 2013 ............................................................................................. 44Written by the Economic Department – March 2013
  • 3Executive SummaryIn the last few years have been witnessing a clear deceleration in the growth of globaltrade in view of the continued debt crisis in Europe, the slow recovery of the US economyand the restrained growth of Asian economies. Consistent with this trend, we have seen asignificant deceleration in Israel’s goods exports during those years. Following two years ofrecovery and growth, in 2012 growth in exports was curbed; whereas in 2010 a positivetrend was recorded with a 19% increase in exports in dollar terms, a trend that continued in2011 with an 11% increase in dollar terms – in 2012, the growth in exports came to a haltand for the first time since 2009, the year of the global sub-prime crisis, the trend points to aslight decrease in the growth of exports.Total exports of goods and services by Israeli industries in 2012 remained unchanged from2011 in dollar terms; exports of goods fell 7%, exports of goods excluding diamondsdeclined 3% while exports of services rose 11%; total exports of goods and servicesexcluding diamonds and sale of start-up companies rose slightly by 1% compared to theprevious year1.Exports of goods and services,In dollar terms, historical data, 1995-2012 and 2013 forecast: 30.0% 23% 25.0% 20% 20.0% 15% 18% 15% 14% 15% 13% 15.0% 11% 9% 9% 10.0% 8% 7% 3% 5% 5.0% 0% 0.0% -5.0% -3% -10.0% -15.0% -13% -20.0% -17%**IEICI EstimatesIn line with the overall negative trend in exports in 2012, diamond exports fell by 24% indollar terms compared with the same period of 2011 while industrial exports declined 3% indollar terms. The decline in industrial exports was seen across the board (high tech and lowtech) and was affected by a broad decline in most industrial sectors, including, amongothers, pharmaceuticals, chemicals, plastics, aircrafts and transportation vehicles, mineralsand metals. In contrast to the general trend, this year agricultural exports rose 2.5% indollar terms.1 It should be noted that goods export data as taken from foreign trade data do not include theadjustments and additions which are factored in the calculation of goods and services exports in thebalance of payment and national accounting – details and explanation are presented in the section onexport adjustments. Export data and rates of change are calculated in US dollars.Written by the Economic Department – March 2013
  • 4In 2012, exports of high tech industries decreased 1% from last year and totaled $21.2billion – the first decline to be recorded by high tech exports since 2002. Exports ofpharmaceuticals led the trend of declines with a 6% decrease. On the other hand, exports ofelectronic components continued to rise and grew by a sizable 13% in 2012 to a record levelof approximately $4 billion. Teva and Intel constitute a dominant and almost absolute factorin the exports of pharmaceuticals and electronic components (respectively). Our estimates,which are based on the data published by these companies, Teva’s weight in pharmaceuticalexports is estimated at 88% and Intel’s weight is almost 90% of total exports of electroniccomponents.High tech exports, 2011-2012 (annual exports – original data, $ billion) 2011 2012 7.3 6.8 3.9 3.4 3.4 3.5 2.8 2.6 2.1 2.1 1.4 1.5 1.0 0.9 Pharmaceutical Electronical Electronic Communication Aircraft Medical & Computing products components equipment equipment Surgical equipmentOther key industrial sectors saw a clear negative trend: exports of chemicals, the biggestindustrial sector ($8.2 billion) fell 12% in dollar terms, exports of metals dropped 11% ($2.4billion), exports of transportation vehicles dropped 11% ($2.1 billion), exports of mineralsshrank 12% ($2 billion), exports of rubber and plastics declined 3% ($1.8 billion), exports oftextiles, apparel and leather declined 7% ($0.8 billion), exports of jewelry declined 1.5%($0.5 billion) and exports of wood, furniture, paper and printing fell 17% ($0.4 billion).Export industries which stood out favorably were machinery and equipment (up 10% to$3.3 billion) and electrical equipment (up 20% to $1.2 billion). Exports of food andbeverages remained unchanged from 2011 and totaled $950 million.In contrast with the negative trend in exports of goods in 2012, exports of servicesmaintained a handsome growth, as in 2011, primarily owing to a significant increase inexports of computer, software, research and development services. In 2012, exports ofservices grew to $30 billion, rising 11% in dollar terms year-over-year. Exports of computerand software services rose 11% in dollar terms to $7.6 billion, exports of research R&Dservices soared 57% in 2012 to $4.8 billion. Exports of services in the high tech sector mainlycomprises computer and support services (information technologies, system integration,outsourcing, etc), sale of software, sales of software licenses, sale of patents and know-howand sale of know-how and services of start-up companies.Written by the Economic Department – March 2013
  • 5In 2012, the growth in exports of services offset the decrease in exports of goods(excluding diamonds), such that total exports of goods and services (excluding diamonds)has remained at a similar level as in the corresponding period of 2011, pointing tostagnation in exports.In 2012, exports to the EU decreased 7% as compared to 20112, exports to Asia rose 5%year-over-year, primarily owing to the accelerated growth in the exports of electroniccomponents, exports to Latin America grew by 8% and exports to Africa declined 3% year-over year. While exports to the US fell 6%, this decline is accounted for by a sharp decreasein the exports of pharmaceuticals in the first half of 2012. Excluding this sector, the picture isreversed and exports to the US point to a 4% increase.2012 saw an increase in exports to only 3 out of 10 major export destinations – the generalpicture points to a decline in exports to developed markets, which was partially offset by anincrease in exports to developing markets.Ranking first among Israel’s major target markets in the period January-December 2012 isthe US. As stated, exports to the US were primarily affected by the continued contraction inexports of pharmaceuticals. Exports to the UK (the second-ranking export market and thebiggest in Europe) remained unchanged. Exports to China pointed to a far more moderategrowth than that recorded in the last few years (6% in 2012 as compared to 32% in 2011 and97% in 2010). China ranks third among export destinations and is Israel’s biggest exporttarget in Asia, and accounts for 26% of total Israeli exports to the continent. The keyindustrial exports to China are electronic components, chemicals and minerals. Thedominance of these industries in exports to China increased during 2012 and reached 71%of total exports to the country. The growth in exports to China in 2012 is primarilyattributed to exports of electronic components which accounted for almost half of totalexports to China during the period. Exports to China in 2012, excluding components, pointsto a 16% drop compared to 2012.In 2012, a negative trend was recorded in exports to Germany, Turkey, Italy, France andeven India. On the other hand, exports to Brazil continued to recover driven by an increasein exports of minerals and chemicals.2 It should be noted that the erosion in the Euro vis-à-vis the dollar during the years accounts for partof the decline in exports to the region, which is calculated in dollar terms.Written by the Economic Department – March 2013
  • 6Israel’s 10 leading export markets, 2012Exports of goods excluding diamonds, in $ billion, % of change year-over-yearThe change in the rating of the 10 leading export markets, 2012Volume of goods exports excluding diamonds, in $ billion Exports 2012 2011 Country % change Change (2012, B$) rating rating US 10.8 -6% 1 1 (-) Britain 3.1 0% 2 2 (-) China 2.4 6% 3 3 (-) Netherlands 2.2 4% 4 4 (-) Germany 1.8 -4% 5 5 (-) Turkey 1.4 -23% 6 6 (-) India 1.3 -10% 7 7 (-) France 1.3 -7% 8 8 (-) Brazil 1.1 28% 9 13 +4 Italy 1.1 -16% 10 9 -1Written by the Economic Department – March 2013
  • 7The change in the shekel’s exchange rate: the real-effective3 currency basket depreciated by4.4% compared to the 2011 average. However, the currency basket’s exchange rate stillpoints to a 12% appreciation compared to the average level in 2006-2007. It should benoted that each 5% appreciation in the real-effective exchange rate contributes to a 1%real decrease in Israeli exports, with a 8-14 months’ lag in effect. A similar effect inopposite direction results from a depreciation in the real-effective exchange rate.Furthermore, the decline in the Euro’s value against the dollar during 2012 accounts forpart of the decrease in Israeli exports to EU countries.In 2013 exports are expected to return to a growth track, a trend that will accelerateduring the second half of the year. While the general weakness in many economies is likelyto continue in the first quarter of 2013, but, as stated, already in the second half of 2013there will be a gradual improvement in global economic activity. The growth momentumwill continue into 2014 and will sustain the recovery in global economy and global trade.Israeli exporters are expected to face waning demand in Israel’s main target markets inEurope and a moderate increase in exports to the US (a market that still account for morethan 60% of Israeli exports). In addition, exporters will face the Shekel’s depreciation vis-à-vis the currency basket, following a trend of appreciation in the last five years.Exports of goods and services, excluding services by start-up companies in 2013, areexpected to grow by 5% in dollar terms, to a total of $95.5 billion. Exports of goods andservices excluding start-ups and excluding diamonds is estimated to total $86 billion, up 5%from an $81.5 billion in 2012. Amid the decline in imports of EU countries, exports to the EUin 2013 are expected to grow by 4% only in dollar terms. Exports to the US are expected togrow 7% in dollar terms whereas exports to Asia are estimated to rise 11% in 2013, mainly inthe second half of 2013.3 In order to more accurately measure changes in foreign currency exchange rate development,the Bank of Israel measures changes in the real-effective rate of the currency basket, which iscomposed of the shekel vis-a-vis the currencies of Israel’s main trading partners, net of inflationdifferences vis-a-vis each country).Written by the Economic Department – March 2013
  • 8 Export Adjustments: the link between exports based on foreign trade data and exports based on the balance of payment and national accounting data: In this context, we wish to emphasize several key points:A. The national accounts data published by the CBS are initial estimates only, which are likely to be revised at a later stage. Accordingly, in its current publication the CBS states that: “bear in mind that economic statistic in Israel have been characterized by high irregularity in the past few years. This makes it difficult to analyze developments based on a series of seasonally-adjusted quarterly data and it would be well advised to examine these developments over longer time periods”.B. Export figures based on foreign trade data (deriving from export records) do not include various adjustments in the calculation of goods and services exports in the balance-of- payment and in national accounting: Most of the adjustments in exports arise from the following:1. International trade in goods sold overseas, where such goods do not enter or exit the country: pursuant to the new international guidelines for entry in the balance-of-payment, these transactions are recorded as exports of goods (in 2010 such transactions were recorded in the balance-of-services), where the purchase of goods overseas or the cost of production overseas by subcontractors are recorded as negative exports, and the sale of goods overseas to the end customer is recorded as a positive export. The summary of the two transactions will be recorded as net exports of goods.2. Sales are recorded based on the work-in-progress in large plants: these plants carry out large-scale projects, while a partial execution of the projects is recognized as a sale that can be recorded in the company’s books. The entry in the balance-of-payments is based on the reports of companies that use this method, while the amounts reported by customs for such exports are deducted from foreign trade data.3. Exports to the Palestinian Authority: these exports are recorded based on VAT invoices rather than customs documents, and are therefore not included in foreign trade data.C. Exports of services are not reported in export records. In contrast to the negative trends in exports of goods in 2012, exports of services continues to point to impressive growth owing to a significant increase in exports of software and research and development (according to international statistic definitions, exports of these items is classified under services). The growth in exports of services had a positive offsetting effect on exports of goods in 2012. Written by the Economic Department – March 2013
  • 9General – Trends in world economyIn the last few years there have been prominent developments both in global tradeand in Israeli exports: in 2009, in the wake of the credit crunch, global demand andcommercial activity contracted notably, which led to a sharp decline in global tradewhich accordingly, a steep decline in Israel’s goods exports. After the rapid recoveryin 2010, Israeli exports bounced back, while in the last two years (2011-2012), weare witnessing a clear deceleration in the growth of global trade amid thecontinued debt crisis in Europe, the slow recovery of the US economy and the tepidgrowth of Asian economies. Consistently with this trend, we have seen a significantslowing of the growth in Israeli exports.Trends in global trade and in Israeli exportsRates of change in dollars, exports of goods including diamonds % Change in import of main target markets % Change in israel exports 22.6% 18.6% 18.7% 12.2% 0.7% 0% -16.7% -24.0% 2009 2010 2011 2012Analysis: Israel Export Institute, Data: Economist Intelligence UnitA further indication of global effects on Israeli exports is provided by a model that,based on the forecasts of research institutions, weights the change in exports ofIsrael’s major target markets. These countries provide a reliable estimate for thedirection in which Israeli exports is headed in the near future. This model clearlyshows the sharp deceleration in the weighted imports of these countries over thelast few years, which in 2012 dropped to a negligible growth rate. At the sametime, the model points to a gradual recovery in these economies, reflecting the trendof Israeli exports during those years.Written by the Economic Department – March 2013
  • 10A projected gradual increase in imports from IsraelWeighted forecast imports in Israel’s key export markets, 2011-2015 18.6% 6.2% 6.8% 5.5% 0.7% 2011 2012 2013 2014 2015Analysis: Israel Export Institute, Data: Economist Intelligence UnitAs aforesaid, an initial analysis of export data relating to goods and services in2012 shows that following two years of recovery and growth, in 2012 the trend ofgrowth came to a halt. The stagnation in exports is in fact consistent with thenegligible growth in the weighted imports of Israel’s main target markets. This trendis in line with the estimates we published at the end of 2011, which projected a curbin growth and stagnation in exports in 2012.Exports of Goods and Services4Exports of goods and services in 2012 remained unchanged from 2011 in dollarterms YoY, totaling $91 billion. Exports of goods fell 7% to $54 billion while exportsof services grew 11% YoY to $30 billion.The decline in goods exports during the year is primarily to diamond exports whichcontracted 27% to a total of $8.3 billion only (as compared to $11 billion in 2011)and accounted for 15.5% of total exports of goods during the period. Industrialexports declined 3% in dollar terms, totaling $44.3 billion (82% of total goodsexports). The decline in industrial exports was seen across the board (high tech andlow tech) and was affected by a broad decline in most industrial sectors, including,among others, pharmaceuticals, chemicals, plastics, aircrafts and transportationvehicles, minerals and metals. Agricultural exports rose 2.5% and totaled $1.4 billion(2.5% of total goods exports).4 As stated, the export figures presented below do not include various adjustments in thecalculation of goods and services’ exports in the balance-of-payment. These adjustments includeongoing projects where no shipments have left the ports of Israel as well as sales made directly bysubcontractors that carry out projects for Israeli companies.Written by the Economic Department – March 2013
  • 11Exports of Goods by Sectors5After slipping 4% in dollar terms in the first quarter of 2012 QoQ (the sharpestdecrease since 2009), in the second quarter exports of goods excluding diamondscontinued to slow, shedding 2% in dollar terms QoQ.In the fourth quarter of 2012 exports of goods excluding diamonds contracted 3.5%,pointing to the continued negative trend in Israeli exports. Apart from the growth inexports which was recorded in the third quarter of 2012 (which was affected by anirregular increase in exports of pharmaceuticals and aircrafts), there is a trend ofstagnation and deceleration in exports as of the second quarter of 2011 – a trendthat accelerated during 2012.Exports of goods, excluding diamonds, including and excluding pharmaceuticalsChange in quarterly exports –, seasonally-adjusted data in % Export exc. Diamonds Export exc. Diamonds & Pharmaceuticals 12% 10.1% 10.6% 10% 8% 6.4% 6% 6.8% 4% 2.1% 2% 0.9% 1.0% 1.2% 3.0% 0% -1.1% -0.4% -0.5% -2.4% -2% -0.9% -2.2% -3.4% -4% -4.3% -3.9% -6%Analysis: Israel Export Institute, Data: Central Bureau of Statistics5 All export figures presented below relate to the exports of goods excluding diamonds, ships andaircrafts – unless otherwise stated. Previous period relates to the previous quarter and is basedon seasonally-adjusted data. Corresponding period relates to the same quarter of 2011 and basedon original data.Written by the Economic Department – March 2013
  • 12Exports of goods, excluding diamonds: 2009-2012Change in export volumes – quarter vs. previous quarter, seasonally-adjusted data 13 50% 11.8 12 11.7 11.8 11.7 11.7 40% 11.4 11.3 11.1 11 10.6 10.5 30% 10.2 10.3 10.4 10 20% 9.3 9 10% 8.2 8.4 10.8%10.0% 10.7% 5.4% 8 3.8% 1.5% 0% 1.7% 1.1% 1.0% 1.5% -2.8% -1.3% -2.0% -4.2% -3.3% 7 -10% -13.3% 6 -20%Analysis: Israel Export Institute, Data: Central Bureau of StatisticsDiamond ExportsFollowing a 23% growth in diamond exports in 2011 (which, among others, wasaffected by the price hike in the industry), the trend reversed and throughout 2012steep declines were seen in diamond exports which culminated in the third quarterof 2012. In the fourth quarter, diamond exports fell 41% to its lowest level sincethe third quarter of 2009. In the fourth quarter of 2012, the trend of declineslightly moderated to 8.5%.Overall in 2012, diamond exports contracted 24% YoY, to $8.3 billion, 15.5% oftotal goods exports.Exports of crude diamonds in 2012 totaled $5.6 billion (67% of total diamondexports), down 25% from 2011, when exports of crude diamonds totaled $2.7 billion(33% of total diamond exports), dropped 23% from 2010.Despite the sharp decrease in diamond exports in 2012, according to assessmentsof experts in the industry, diamond exports are expected to recover already in2013.Written by the Economic Department – March 2013
  • 13Agricultural ExportsIn the fourth quarter of 2012, agricultural exports continued its impressive positivetrend and rose 16% YoY, following a 5% increase in the third quarter. Overall in2012, agricultural exports rose 2.5% YoY and totaled $1.4 billion, 2.5% of totalgoods exports6. The rise in agricultural exports was due to a 19% growth in exportsof fruit, while exports of vegetables and field crops declined 3.5% and exports offlowers fell 14%.Industrial ExportsIn the fourth quarter of 2012 industrial exports decreased 2% YoY. Overall in 2012,industrial exports declined 3% in dollar terms compared to 2011 and totaled $44.3billion, 82% of total goods exports. High Tech ExportsFor the first time in a decade, high tech exports recorded a contraction. In the pastyear, high tech exports declined 1% to $21.2 billion (48% of total industrial exports,and 46% of total goods exports excluding diamonds). In 2011, high tech exportsrose7%, following a 12% growth in 2010. The last time high tech exports decreasedwas in 2001-2002, the years of the global high-tech crisis and second Intifada –during those years high tech exports fell 10% and 12.5%, respectively. Even in 2009(the year of the serious global crisis, during which total exports fell by a double-digitrate, with sharp declines across the board), high tech exports actually grew 5%.Industrial high tech exports: 1990-2012Annual export volume –original data, $ billion 7.3 2011 2012 6.8 3.9 3.4 3.4 3.5 2.8 2.6 2.1 2.1 1.4 1.5 1.0 0.9 Pharmaceutical Electronical Electronic Communication Aircraft Medical & Computing products components equipment equipment Surgical equipmentAnalysis: Israel Export Institute, Data: Central Bureau of Statistics6 It should be noted that since agricultural exports are mostly directed to EU countries, the dollarproceeds of these exports was highly affected by the Euro’s depreciation against the dollar during theperiod.Written by the Economic Department – March 2013
  • 14The contraction in high tech exports primarily stemmed from declines in exports ofpharmaceuticals and communication equipment, while on the other hand, thegrowth in exports of electronic components offset these declines. Excluding thissector, high tech exports would have recorded a steeper decline of 4%.In 2012, pharmaceutical exports fell 6% and totaled $6.8 billion (33% of total hightech exports), compared to exports of $7.3 billion in 2011. Teva’s manufacturing,marketing and selling activity has substantial impact on pharmaceutical exports andit is almost an exclusive player in the exports of this sector. According to Teva’spublications7, as of year-end 2010, the company’s weight in Israel’s pharmaceuticalexports is more than 88%. However, although Teva’s production and exports fromIsrael account for a significant portion of the company’s global revenues – most ofTeva’s drug production is outside Israel. The pharmaceutical giant operatesproduction facilities in East Europe (mainly Hungary, the Czech Republic, Croatia andPoland), in West Europe (Germany, Spain, UK, Ireland and Italy), in Asia (mainlyJapan and India) and in the US – with most of the manufacturing, apart from Israel,carried out in Germany, the Czech Republic, Hungary and the US. The company’s keyproduction facilities in terms of size and staff engaged in production, are located inthe US, Hungary, Germany, Israel, Japan and the Czech Republic8.Additional sectors that contributed to the negative trend were exports ofcommunication equipment, which fell 6% to $2.6 billion (12% of total high techexports) and exports of computer systems, which declined 2% to $930 million (5% oftotal high tech exports).On the other hand, the growth in exports of electronic components helped tooffset the declines in high tech exports with an impressive increase of 13% to $3.9billion, and accordingly, its weight in total high tech exports rose to 18%. Similar tothe pharmaceutical industry, the electronic components sector is materially affectedby the Intel’s production and export activities. According to statements by companytop executives in Israel9, total exports arising from Intel’s chip production facilities inIsrael totaled $3.5 billion in 201210 - meaning: Intel’s share of electroniccomponents exports in 2012 was estimated at 90% and it accounts for 16.5% oftotal high tech exports. Assuming Teva’s weight in pharmaceutical exports is 88%(according to 2010 data), the company’s exports in 2012 can be estimated at $67 In its website Teva states that its exports in 2010 totaled NIS 22 billion. According to the CBS’ data,pharmaceutical exports in NIS during that year totalled NIS 24.8 billion.8 The biggest staff engaged in Teva’s production activity work in the US, Germany and Hungary (13%each of total employees in production), in Israel and Japan (12% each) and in the Czech Republic (8%).In total, 14,000 are employed in the production facilities according to the company’s reports in itsperiodic and annual statements for 2012.9 According to publications on the company’s website and statements made by Israel Intel’s president,Moly Eden, in a press conference held on February 17, 2013.10 Excluding exports by Israeli suppliers as a result of their partnership with Intel.Written by the Economic Department – March 2013
  • 15billion. Based on this estimate, exports by Teva dn Intel alone totaled $9.5 billion in2012, which account for 45% of total high tech exports (!).Apart from exports of electronic components, exports of aircrafts rose 4% in 2010(to $2.1 billion, 10% of total high tech exports). Exports of electronic equipment alsorose in 2012 (by 2% to $3.45 billion, 16% of total high tech exports). It should benoted that the electronic equipment sector was substantially affected by the activityof defense companies, excluding which this sector would have recorded a significantdecline in exports. Exports of medical-surgical equipment remained unchangedfrom 2011 and totaled $1.45 billion (7% of total high tech exports).Exports of high tech industries, 2011-2012Annual exports – original data, $ billion Pharmaceuticals Electronic components & computers Communications, control, medical & scientific equipment Aircrafts 2,500 2,000 1,500 1,000 500 -Analysis: Israel Export Institute, Data: Central Bureau of StatisticsWritten by the Economic Department – March 2013
  • 16 Other Industrial SectorsA clear negative trend was also observed for the majority of other industrial sectors in2012. Exports of the chemicals sector, the biggest among industrial sectors, fell by 12% indollar terms, totaling $8.2 billion, exports of metals declined 11% to $2.4 billion, exports oftransportation vehicles also fell 11% to $2.1 billion and exports of minerals contracted 12%to $2 billion.Other industrial sectors that saw declines in exports were: rubber and plastics (down 3% to$1.8 billion), textiles, apparel and leather (down 7% to $810 million), jewelry (slightly downby 1.5% to $470 million), and wood products, paper, publishing and printing which fell 17%to $380 million.Two sectors that stood out favorably were: machinery and equipment11 which rose 10% YoYto $3.3 billion and exports of electrical equipment12 which rose sharply by 20% to $1.2billion. Exports of food and beverages remained unchanged compared to 2011 and totaled$950 million.Exports of industrial sectors, 2012Annual exports – original data, $ billion20.6% 1.2 Electrical equipments 9.9% 3.3 Machinery & equipment 0.95 -0.3% Food & beverages 0.5 -1.3% Jewellery 1.8 -2.7% Rubber & plastic 0.8 -6.7% Textiles 2.1 -10.6% Transport equipment 2.4 -11.1% Metal 8.2 -11.6% Chemicals 2.0 -11.6% Minerals 0.4 -16.5% Wood&PaperAnalysis: Israel Export Institute, Data: Central Bureau of Statistics11 Including, among others, exports of printing, robotics, irrigation and food machinery.12 Including, among others, equipment and systems in alterative energy, electricity, electronics andcomponents.Written by the Economic Department – March 2013
  • 17Exports of ServicesIn contrast to the negative trend in goods exports in 2012, services exportscontinue to grow handsomely compared to 2011, mainly owing to a significantincrease in exports of software and R&D. In 2012 services exports totaled $30billion, up 11% YoY. The growth in services exports The growth in services exportshas offset the decrease in goods exports (excluding diamonds), such that totalexports of goods and services (excluding diamonds) is effectively at the same levelit was last year, pointing to stagnation in exports.In 2012, exports of business services (which account for 58% of total servicesexports), rose 16% YoY and totaled $20.2 billion. Exports of tourism services (17% oftotal services exports) rose 5% YoY to $5.1 billion. Exports of transportation servicesrose 1% to $4.5 billion (15% of total services exports). A study of transportationservices items shows that “shipments between foreign ports” (which accounts for64% of total exports of transportation services and 10% of total services exports)rose 3% YoY to $2.85 billion.Among the business services sectors:Exports of computer services13, which accounts for 38% of exports of businessservices and 26% of total exports of services, rose 11% in 2012 YoY, to a total of $7.6billion.Exports of research and development services, which accounts for 24% of exports ofbusiness services and 16% of total exports of services, rose sharply by 57% duringyear to $4.8 billion.Exports of services of startup companies, which is included in R&D exports (and ispartially derives from the number of exits during the year) doubled by more than2.5% in 2012 and totaled $1.1 billion. Exports of start-up companies in 2012 reachedits highest level since the subprime crisis and currently accounts for 4% of totalservices exports and 1.2% of total exports of goods and services exports in 2012.2012 is considered one of the best years in terms of the sale of Israeli technologycompanies – in the past year more than 50 exit transactions were signed for a totalof $9.3 billion. 13 Including development of software computer services and outsourcing (IT)Written by the Economic Department – March 2013
  • 18Additional sectors exporting business services:Exports of services to industrial sectors declined 3% to $2 billion, exports ofwholesale commerce rose 7% to $800 million, exports of communication, postaland currier services declined 6% to $390 million while exports of banking andfinancial services fell 22% to $410 million.Exports of services to the Palestinian Authority is expected to decrease sharply by28% and total $285 million only, compared to $386 million in 2011.In the second half of 2012, a negative trend developed in exports of services, whichaggravated during the fourth quarter of 2012. During the quarter all the majorexport industries recorded declines, quarter-oevr-quarter; exports of servicesexcluding start-ups contracted 6%, after slowing 2% in Q3, exports of businessservices excluding start-ups also fell 6% after slowing 2% in Q3, exports of tourismservices fell 8% after declining 3% and exports of transportation services declined4% in Q4, with no change recorded in Q3. The contraction in services exports in thelast few quarters raises concern for the future, especially given the growing weightof services in total exports.Exports of services and exports of business services, excluding start upcompaniesExport volume – seasonality-adjusted data, $ million 8,000 7,500 Exports of services - Total 7,000 6,500 Export of other 6,000 business services 5,500 5,000 4,500 4,000 3,500 3,000Analysis: Israel Export Institute, Data: Central Bureau of StatisticsWritten by the Economic Department – March 2013
  • 19Total High-Tech export; Services & IndustryAnalysis of high tech export data based on goods and servicesIn the last few years the weight of exports of high tech services has been capturinga more significant share of the industry, while the weight of exports of high techindustries has been shrinking. This trend has been clearly visible in 2012; exports ofhigh tech industries has declined for the first time in a decade, while exports ofhigh tech services continued its accelerated growth and reach its highest level ever.Total exports of high tech industries, which comprise mainly pharmaceuticals,electronic components, aircrafts, telecommunication equipment, control andsupervision equipment and medical and scientific equipment, declined 1% totaling$21 billion. The weight of industrial high tech in total high tech exports has droppedto 63%, from 68% in 2011 and 70% in 2010.In line with the trend of accelerated growth in exports of high tech services in thelast few years, in 2012 the trend continued. Total exports of high tech services grew23% (following 16% in 2011) totaling $12.2 billion. The weight of high tech services intotal high tech exports leaped to 37% from 32% in 2011 and 30% in 2010. Exports ofhigh tech services mainly includes computer and support services (informationtechnology, systems integration, outsourcing, etc), sale of software, sales of softwarelicenses, sale of patents and knowhow, sale of knowhow and services of start-upcompanies and R&D services to global companies.Total exports of products and services in the high tech sector increased by 6% in2012 to $33.3 billion – 37% of total exports in 2012, 19% of total business productand 14% of GDP. Trends of high tech exports A decline in industry, an increase 75% 70% 68% 65% 63% 55% 45% 32% 37% 35% 30% 25% 2010 2011 2012 High-tech industries High-tech ServicesAnalysis: Israel Export Institute, Data: Central Bureau of StatisticsWritten by the Economic Department – March 2013
  • 20Export by trading regionsAnalysis of data of exports of goods excluding diamonds, by trading blocsIn the fourth quarter of 2012, exports of goods (excluding diamonds) declined 1.5%YoY, and totaled $11.4 billion. During the quarter, exports were affected by a sharpdecrease in exports to Asian countries, which until then had seen moderate growth,despite the global slowdown in demand and the general decline in exports.In the fourth quarter of 2012 exports to Asia totaled $2.2 billion, down 13% from$$2.5 billion in 2011. Accordingly, Asia’s weight in exports declined from 21% inQ4/2011 to 19% in Q4/2012. The decline in exports to the regions in the fourthquarter primarily stems from a sharp decrease in exports of minerals and chemicals –however, we estimate that already in Q1/2013, exports to Asia will recover, in linewith the growth in these exports.Exports to the EU continued to shrink. During the fourth quarter of 2012 exports tothe EU declined by 4% in dollar terms YoY – after declining 15% and 13% in Q3 andQ2, respectively. At the same time, it should be stated during Q4, the Eurodepreciated by 3.8% on average against the dollar, which explains most of thedeclines in exports, since there were recorded in dollar values. Export to E.U % Change in euro-dollar rate 7.1% -4.1% -4.2% -3.8% -9.8% -11.4% -13.0% -14.8% Q1.2012 Q2.2012 Q3.2012 Q4.2012Each period is presented year-over-yearAnalysis: Israel Export Institute, Data: Central Bureau of StatisticsTotal exports to the EU came at $14.3 billion – 34% of total goods exports, remainingthe biggest destination for exports of goods from Israel.Written by the Economic Department – March 2013
  • 21In contrast to the negative trend in exports to the EU, the trend of recovery inexports to the US continued and even strengthened. In Q4/23012 exports to the USgrew by a sharp 20% in dollar terms YoY (totaling $2.7 billion, 24% of exports duringthe quarter), following a 5% increase in Q3/2012. Overall, in the second half of 2012exports to the US rose 11% YoY – after dropping sharply in the first quarter of 2012by 20% YoY. The recovery in exports to the US primarily stemmed from a rapidgrowth in pharmaceutical exports in the second half of 2012. Pharmaceutical exportsto the US, being dominant, are subject to volatility from one period to the next andaffected by Teva’s activity in the country.Development of exports by trading AreasChange QoQ– original data in % E.U Asia U.S 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0%Analysis: Israel Export Institute, Data: Central Bureau of StatisticsThe European Union and Other European CountriesExports to Europe in 2012 accounted for 38% of total exports (40% in 2011). Totalexports to Europe were $17.6 billion, down 6% in dollar terms YoY.Exports to the EU in 2012 accounted for 31% of total exports (32% in 2011). Exportsto the EU totaled $14.3 billion, down 7% in dollar terms YoY.Written by the Economic Department – March 2013
  • 22Exports to our countries in Europe, which are not members of the EU, includingRussia, Turkey and AFTA, accounted for 7% of total exports (similar to its weight in2011) totaling $3.4 billion, down 3% in dollar terms YoY.The decline in exports to Europe was affected, among others, by the Euro’sdepreciation against the dollar in 2012 YoY. The dominance of European countries inIsraeli exports and especially the significant share of EU countries, increase theseexports’ sensitivity to the stability of European markets,As stated last year in the IEI’s forecast for 2012, exports to EU indeed had a negativeaffect on total goods exports and was the main reason for the declines in 2012. Thedeclines in exports to the EU during 2012 were recorded in most industries and tokey target markets. In 2012, exports fell to Germany, France, Italy and Belgium, witha sharp deceleration recorded in the second half of 2012 in exports to the UK andHolland.The USExports to the US totaled $11 billion, down 6% in dollar terms YoY. The decline inexports to the US is entirely accounted for by the sharp decrease in pharmaceuticalexports to the US market. Total exports to the US, excluding this sector, grew 4%YoY. Exports to the US in 2012 accounted for 24% of total exports of goods excludingdiamonds, similar to its weight in 2011.AsiaDespite the decelerating growth in exports to Asia in 2012, this market remained astable and consistent exports target in terms of growth rates. The share of Asiancountries in Israeli exports continued to grow in 2012 and as of year-end 2012 isaccounts for 21% of total exports, a significant increase from 19% in 2011.Total exports to Asia in 2012 came at $9.5 billion, up 5% in dollar terms YoY,compared to a growth rate of 8.5% in 2011. The said growth in exports to Asiaprimarily stemmed from the continued growth in exports to China (albeit far moremoderately than that in recent years), from the impressive rise in exports toSingapore and wing to the accelerated growth in exports to Vietnam (owing to thesharp growth in exports of electronic components14). On the other hand, the14 Global Intel has assembly and testing facilities in China and Vietnam and a large portion of theproduction of components in Israel is transferred to these countries. For example, exports toMalaysia consists entirely of electronic components and affected by Intel’s business decisionsregarding the allocation of Israeli production to assembly plants owned by global Intel and located worldwide.Written by the Economic Department – March 2013
  • 23declines in exports to India, South Korea, Japan and Taiwan had a negative impact onthe growth in exports to Asia.Latin AmericaExports to Latin America accounts for 6% of total exports (5% in 2011) and in 2012totaled $2.7 billion, up 8% in dollar terms YoY. Most of the growth in exports to LatinAmerica stemmed from a sharp 28% increase of 28% in exports to Brazil, whichaccounts for 43% of total export to the region. The growth in exports to Mexico(+27%), Chile (+74%) and Columbia (+39%) contributed to the positive trend inexports to the region.AfricaExports to Africa in 2012 accounted for 3% of total exports and totaled $1.4 billion,down 15% in dollar terms YoY. The decline in exports to Africa is entirely accountedfor by a decline of more than 60% in the “Rest of the World” item (as classified bythe CBS). This decline is a correction of the exceptional increase of 142% in 2011 inthis item. The catalogue of exports to ROE countries includes Israel’s unclassifiedexport to Africa, which is 2011 accounted for 25% of exports to the continent.However, the trend of slowdown in global trade also affected demand by Africancountries, most of which recorded declines in imports from Israel compared to 2011.For example, exports to Nigeria, Israel’s biggest export destination in Africa,contracted 8% YoY. Exports to South Africa decreased 3% and exports to Egypt fell13%. On the other hand, exports to Kenya soared 87% compared to 2011.Rest of the WorldExports to Rest of the World15, which accounts for 3% of total exports, totaled $1.4billion in 2012, up 5% in dollar terms YoY. Most of the increase is attributed to thecontinued growth in exports to Australia (+4%) and to the sharp growth in exports toNew Zealand (+155%).Unclassified exports, unclassified countriesThe catalog of exports to “unclassified countries” primarily includes Israel’sunclassified defense exports, which accounts for 5% of total goods exports16. Totalunclassified exports declined 5% in 2012 to $2.4 billion. 15 Including exports to Oceania and Pacific countries and exports to Canada. 16 Excluding diamondsWritten by the Economic Department – March 2013
  • 24Exports in 2012 by trading regionsOriginal data in $ billion, 2012 15.3 14.3 2011 2012 11.4 10.8 9.1 9.5 3.5 3.4 2.4 2.6 2.5 2.4 1.7 1.4 1.3 1.4Breakdown of exports by trading exports, in percentWeight of regions in Israel’s goods exports, 2012 Rest of Latin Europe America Unclassified 7% 6% Countries 5% Africa 3% R.O.W 3% Asia 21% E.U 31% U.S 24%Analysis: Israel Export Institute, Data: Central Bureau of StatisticsWritten by the Economic Department – March 2013
  • 25Developments in Israels leading export destinationsRating of export markets and details by sectors: exports of goods excludingdiamondsDuring 2011 there was an increase in exports to 7 out of Israel’s 10 leading exportmarkets. Overall in 2012, there were only 3 target markets to which exportsimproved as compared to 2011. In the first three quarter of 2012 exports to 5major target markets improved – an indication that the negative trend in exportsaggravated in the fourth quarter17.The decline in exports in 2012 was mainly recorded in developed markets (but notonly), while the growth in exports to developing countries was a balancing factor andslightly offset these declines. During 2012, exports to the US fell 6%, exports toFrance decreased 7%, exports to Italy fell 16% and exports to Germany contracted by4% (it should be noted that during the period the Euro depreciated against the dollarand this had affected exports which are denominated in dollars18).In contrast to the declines in exports to developed countries, most of the growth inexports in 2012 stemmed from the continued rise in exports to developing countries.Exports to Brazil grew 28%, exports to Russia rose 10%, exports to Mexico grew 27%and exports to Vietnam soared 121%. Exports to China continue to grow in 2012(6%), however, the growth in exports to China was significantly lower than that in2011 and 2010 (97% in 2010 and 32% in 2011).Israel’s 10 leading export markets, 2012Exports of goods excluding diamonds, in $ billion, % of change year-over-year17 It should be noted that the calculation of 10 major target markets does not include exports to thePalestinian Authority, which traditionally constitutes Israel’s biggest target market, except for the US –additional details on trade with the Palestinian Authority is presented on page 32.18 During 2012 the Euro fell by an average 7% against the dollar.Written by the Economic Department – March 2013
  • 26The change in the rating of the 10 leading export markets, 2012Volume of goods exports excluding diamonds, in $ billion Exports 2012 2011 Country % change Change (2012, B$) rating rating US 10.8 -6% 1 1 (-) Britain 3.1 0% 2 2 (-) China 2.4 6% 3 3 (-) Netherlands 2.2 4% 4 4 (-) Germany 1.8 -4% 5 5 (-) Turkey 1.4 -23% 6 6 (-) India 1.3 -10% 7 7 (-) France 1.3 -7% 8 8 (-) Brazil 1.1 28% 9 13 +4 Italy 1.1 -16% 10 9 -1(* Exports to China including Hong Kong totalled $3 billion in 2012)The weight of countries in exports –2012Out of total exports of goods excluding diamonds, excluding exports to thePalestinian Authority R.O.W 41.6% U.S Italy 23.5% 2.5% Brazil 2.5% France 2.8% U.K India 6.9% China 2.9% 5.3% Turkey 3.1% Germany Netherlands 4.0% 4.9%Analysis: Israel Export Institute, Data: Central Bureau of StatisticsWritten by the Economic Department – March 2013
  • 27United StatesIn 2012, exports of goods to the US, Israel’s leading and most important exportdestination, declined 6% YoY to $10.8 billion. The decline in exports ofpharmaceuticals was the main factor affecting export data during the period.Excluding pharmaceutical exports, exports to the US rose 4%, while other sectorrecorded a mixed trend compared to 2011.As stated, the decrease in exports to the US was primarily affected by the sharp dropin exports of pharmaceuticals. Exports of pharmaceuticals, the biggest industrialexports to the US, fell by a steep 17% YoY, from $4.1 billion in 2011 to $3.4 billionin 2012. Most of the decrease was recorded in the first half of 2012, while thesecond half saw an impressive recovery in pharmaceutical exports. As stated in thechapter on the sector, production and exports in this industry are primarilydominated by Teva, while most of the products manufactured in Israel is shippedto destinations in North America (mainly the US) and Europe.Exports of other industries to the US point to a mixed trend. Among the majorexport industries, there was an increase in exports of chemicals and oil distillates(up 28% to $1.1 billion), exports of medical and surgical equipment (up 5% to $563million) exports of rubber and plastic products (up 9% to $396 million), exports ofrubber and plastic (up 10% to $348 million), exports of textile and apparel (up 4% to$334 million), exports of office machinery and computer systems (up 9% to $321million), and exports of exports of industrial control, optical and photographicequipment (up 23% to $300million).On the other hand, there was a decline in exports of telecommunication equipment(down 10% to $564 million), exports of metals (down 7% to $536 million) andexports of measuring, control and navigation instruments (down 19% to $463million).Exports of electronic components contracted further as a result of the continueddiversion of exports by electronic component companies from developed todeveloping markets, however, its impact on total exports to the US diminishedconsiderably relatively to the last few years. Exports of electronic components to theUS in 2012 totaled $328 million, up 1% YoY, down 24% from 2010 and down 82%from 2009.It should be noted that exports of electronic components is significantly affected bythe business activity of global Intel, which holds assembly and testing facilities for itsproducts in China, Vietnam, Malaysia and Costa Rica. In the last few years there is aclear and consistent decline in exports of components to the US with acorresponding rise in these exports to the aforementioned countries. These changesWritten by the Economic Department – March 2013
  • 28result from business considerations and do not necessarily point to general trends inIsraeli exports or in global trade and demand.United KingdoomIn 2012 exports to Britain, Israel’s biggest destination among European countries,remained unchanged compared to its levels in 2011 (totaling $3.1 billion), but therelative stability in exports to the country is attributed to the growth in exports inQ1, which soared 65% YoY, owing to a sharp leap in pharmaceutical exports. Alreadyin the second quarter the trend changed and total exports to the country slipped 3%,with a further 5% decline in the third quarter. In the fourth quarter the negativetrend culminated as exports to the UK fell 14% YoY.Like the situation in the US, exports to Britain are highly affected by the dominanceof the pharmaceutical market, which primarily stems from Teva’s operations in theUK, a major target market for the company. In fact, the sharp increase inpharmaceutical exports to the country is the factor that established Britain’s positionas Israel’s second exports market globally and its biggest exports destination amongEuropean countries.The growth in exports of pharmaceuticals began to accelerate in Q2/2011 and thus,while Q1/2012 points to a sharp 735% growth YoY, Q2 and Q3 saw stability inexports compared to the corresponding periods of 2011. The negative trend inpharmaceuticals exports aggravated in Q4/2012 with a steep 19% decline, so thatoverall in 2012 exports to Britain remained unchanged YoY. Between January andDecember 2012, pharmaceutical exports to the UK rose 6% to $1.9 billion, 58% oftotal exports to the country. Excluding this impact, exports to the British Isledeclined 6%.At the same time, it should be noted that exports to Britain point to a mixed trend:exports of chemicals (excluding pharmaceuticals) rose 11% to $320 million to $320million, agricultural exports rose 20% to $125 million, exports oftelecommunication equipment increased 8% to $95 million, exports of aircrafts rose4% to $85 million, exports of machinery and equipment grew by a sharp 47% to $81million and exports of medical and surgical equipment remained on a growth trackwith a handsome increase of 19% to $45 millionOn the other hand, declines were recorded in exports of textile and apparel (down21% to $60 million), exports of industrial control, optical and photographicequipment (down 24% to $42 million), exports of office machinery and computersystems (down 9% to a similar level), exports of food and beverages (down 13% to$37 million), exports of measuring, control and navigation instruments (down10%Written by the Economic Department – March 2013
  • 29to $34 million), exports of engines and electrical equipment (down 11% to $31million) and exports of jewelry, which fell 9% to $31 million. Exports of rubber andplastics remained unchanged and totaled $148 million.Another point worthy of mention is the fact that none of 7 major industriesexporting to Britain19, which account for 84% of total exports to the country,recorded a decline in exports compared to last year (6 went up, 1 remainedunchanged).ChinaDuring 2012 export to China grew 6% YoY to $2.45 billion. This increase was incontrast to the general trend of decrease in exports to the majority of Israel’s leadingexport destinations. China is ranked as the biggest export market in Asia, therecipient of 6% of Israel’s goods exports to the continent.The main industrial exports to China are electronic components, chemicals andminerals which, as of year-end 2012, accounted for 71% of total Israeli exports tothis country. The dominance of these sectors in exports to China increased during2012. In 2011 they accounted for 68% and in 2010 only 62%. These sectors arealmost absolutely affected by the business activity of two large corporations: Intel(electronic components) and Israel Chemicals (chemicals and minerals), while theaccelerated growth in exports to China in the last year primarily stems from theactivity of these companies.In 2011, Israeli exports to China totaled $2.3 billion (a 32% growth following a sharp97% growth in 2010). During this year, exports of electronic components, chemicalsand minerals to China aggregated in excess of $1.5 billion, while exports of all otherindustries totaled less than half ($743 million). Moreover, while exports of the threemajor industries leaped 43% in 2011 and accounted for the accelerated growth inexports to China, other industries recorded a more moderate increase of 14% only.The contrasting trends in exports to China in 2011, strengthened in 2012. Totalexports of the three dominant sectors grew 12% in 2012 to $1.7 billion, representing71% of total exports, as compared to 68% in 2011. Excluding these industries, thepicture is reversed pointing to a decline in exports YoY. Total exports of all otherindustries declined 4% YoY to $712 million, accounting for 29% only of totalexports.19 Based on the exports average in the last three years.Written by the Economic Department – March 2013
  • 30It should be noted that in 2012, in contrast to previous years, there was a decreasein exports of minerals and chemicals to China – so that the growth in exports toChina is entirely attributed to exports of electronic components, which in 2012represented almost half of total exports to China. Excluding electroniccomponents, exports to China fell 16% YoY. Weight of key exports to China (2009-2012) 80% 71% 68% Weight of Minerals & 70% 62% Chemicals 60% 50% 41% Weight of Electronic 40% components 30% 20% Weight of Electronic 10% components, Minerals & Chemicals 0% 2009 2010 2011 2012Analysis: Israel Export Institute, Data: Central Bureau of StatisticsExports of minerals, which primarily includes potash, is the second biggest exportindustry and accounts for 14% of total exports to China. This industry is almostentirely affected by the business activities of Israel Chemicals and subject to greatvolatility from one quarter to the next. Minerals are usually supplied following newagreements and transactions, agreements for the renewal of supply based onprevious deals and/or exercise of options for supply based on previous deals.In 2012 exports of minerals to China totaled $335 million, down 36% YoY. In ouropinion, in the first quarter of 2013 exports of mineral to China will likely bounceback, which is bound to have a positive affect on total exports to the country.As stated above, exports of other industries (excluding the 3 dominant sectors)decreased 4% in dollar terms year-over-year, totaling $712 million only (29% oftotal exports to China). Among other sectors, declines were recorded in exports ofmetals (down 21% to $110 million), exports of control, measurement andnavigation instruments (down 42% to $63 million), exports of office machinery andcomputer systems (down 14% to $41 million), exports of engines and electricalWritten by the Economic Department – March 2013
  • 31equipment (down 5% to $22 million) and exports of rubber and plastic (down 7% to$20 million).On the other hand, an impressive increase was recorded in exports of medical andsurgical equipment, which rose 29 % to $130 million, exports of telecommunicationequipment, which increased 15 % to $110 million, exports of food and beverages,which rose 26% to $41 million and exports of pharmaceuticals which leaped 40% to$17million). Export to China; The biggest exporters vs. other sectors (2009-2012) 2,000 Rest of Export to 1,800 1,736 china 1,548 1,600 1,400 Electronic 1,200 1,080 components, Chemicals & 1,000 Minerals 800 743 712 654 600 515 362 400 200 - 2009 2010 2011 2012The NetherlandsAccording to exports data for 2012, the Netherlands is ranked fourth amongIsrael’s export markets. Total exports to the Netherlands in 2012 came to $2.25billion, up 4% from 2011.The increase in exports to the Netherlands was primarily driven by a sharp growth inexports of pharmaceuticals, which rose YoY by a sharp 34% to $470 million (21% oftotal exports to the Netherlands). In the past few years there is a consistent increasein exports of pharmaceuticals to the country which leaped 130% between 2012 and2012.Apart from pharmaceuticals, other sectors did not record an increase in exports tothe Netherlands compared to 2011, and it remained at a level of $1.8 billion. Anincrease was recorded in exports of machinery and equipment (15% of totalWritten by the Economic Department – March 2013
  • 32exports), which rose 19% to $344 million, agricultural exports (12% of total exports),which increased 24% to $272 million, and exports of telecommunicationequipment, which rose 4% to $87 million.On the other hand the following industries recorded a decline in exports: minerals(down 8% to $77million), rubber and plastic (down 1% to $67 million), food andbeverages (down 9% to $65 million), computer systems (down 24% to $50 million),medical and surgical equipment (down 34 % to 47 million), metals (down 20% to$40 million), engines and electrical equipment (down 12% to $33 million) andexports of textile products and apparel which fell sharply by 50 % to 21 million only.Exports of chemicals and oil distillates, Israel’s biggest exports to the Netherlands,remained unchanged in 2012 and totaled $576 million (26% of exports to theNetherlands).It should be noted that many Israeli companies have parent companies, subsidiariesor affiliates in the Netherlands, and the country constitutes a gateway for Israelicompanies to other European countries as well as to certain countries outsideEurope.GermanyThe trend of contraction in exports to Germany continued throughout the first threequarter of 2012, during which exports to Germany dropped 18%. However, in thefourth quarter exports surprisingly soared by 47%. This increase offset most of thedeclines in exports to Germany, which in 2012 totaled $1.8 billion – down 4% indollar terms YoY.An analysis of exports to Germany shows that the sharp growth in the fourth quarterstemmed from exports of measurement, control and navigation instruments whichsoared following a major transaction. Exports of this industry, which in the first threequarter of 2012 totaled $63 million only, leaped 994% in the fourth quarter to $260million (4 times the export volume in the three quarters combined). Exports ofmeasurement, control and navigation instruments totaled $323 million in 2012, upby a sharp 118% from 2011. Net of this sector, exports to Germany fell by 14% in2012 to $1.5 billion.Germany is the 5th biggest target market for Israeli exports in the world and thirdin Europe20 and one of the most stable target markets for Israeli exports, posting20 Given the fact that Holland is a passageway for goods to other destinations around the world andthat goods exported from Israel to Holland are not intended solely for this market, some considerGermany as the second most important exports market in Europe.Written by the Economic Department – March 2013
  • 33steady growth rates over the last few years. Exports to Germany are highly diverse,without one dominant sector or company that distinctively affect exports to thecountry – for this reason, the continued contraction in exports to Germany(excluding measurement, control and navigation instruments), which was recordedby nearly all the major sectors, reflects the repercussions of the European debtcrisis on Israeli exports.4 out of the 5 major industrial exports to Germany (accounting for 54% of totalexports to this market) recorded declines compared to 2011 (excludingmeasurement, control and navigation instruments): exports of chemicals and oildistillates fell 13% (to $175 million), exports of rubber and plastic fell 13% (totaling$227 million), exports of machinery and equipment fell 7% (to $155 million),exports of machinery and equipment fell 31% (to $150 million) and exports ofmetals declined 18% (to $135 million).Other exports that declined in 2012 were: telecommunication equipment (down21% to $98 million), engines and electrical equipment (down 13% to $83 million)and agricultural exports (down 6% to $61 million).It should be noted that despite the general trend, several industries recorded anincrease in exports: medical and surgical equipment rose 6% to $110 million,pharmaceuticals grew 3% to $66 million and textiles rose 3% to $50 million.TurkeyIn 2012, exports to Turkey fell 23% to $1.4 billion. Despite the sharp drop inexports, Turkey remained the 6th biggest export destination, similar to its rankingin 2011.Unlike exports to Germany, which are highly diverse, exports to Turkey aredominated by chemicals and oil distillates. These exports fell 33% in 2012, followingwhich the sector’s weight in total goods exports diminished to 62% (in 2011 itaccounted for 70% of total exports to the country).Exports of metals21, which accounts for 11% of total exports to the country, fell 12%YoY and totaled $153 million.A positive point arising from a sectoral analysis of exports to Turkey is the fact thatexcluding the chemicals sector, exports actually decreased by 3% only, whereasexcluding the two aforementioned dominant sectors, the entire decrease is offset.Accordingly, several industries actually improved from last year: exports of21 Primarily consists of metal scraps and metals for recyclingWritten by the Economic Department – March 2013
  • 34machinery and equipment rose 30% to $65 million, exports of engines andelectrical equipment soared 94% to $43 million, exports of textiles rose 21% to $30million, exports of minerals grew 57% to $30 million and agricultural exports rose28% YoY to $24 million.On the other hand, exports of paper and wood products declined 21% to $48 millionand exports of pharmaceuticals remained unchanged from 2011 at $32 million.It should be noted, that like the Netherlands, Turkey serves as a gateway to some ofthe goods exported to it.IndiaThe trend of contraction in exports to India continued in 2012. After declining 11%in 2011 YoY, from $1.7 billion to $1.5 billion, in 2012 the negative trend continuedwith a further decrease of 10% to $1.3 billion. In the last three years the annualgrowth of exports to India averaged 3.6% only22, compared to an average annualgrowth of 17% in exports to Asia and 8% in total export. It should be noted that thebase year in this calculation is 2009, a year of severe economic downturn.As of year-end 2012, India is ranked 7th among export destinations and 2nd amongexport markets in Asia (accounts for 14% of total exports to the continent). Israelprimarily exports minerals, chemicals and security products to India – theseproducts are supplied pursuant to new contract and transactions, and thereforeexports to India are highly volatile.Israel’s main exports to India are minerals (25% of total exports to the country)which fell by a sharp 30% in 2012 YoY and totaled $315 million. As we stated in theprevious survey for then third quarter of 2012, potash shipments to India, whichwere renewed during the third quarter of 2012 contributed to the growth in totalexports to the country, but the Rupee’s depreciation and the change in subsidies tofarmers led to excess potash inventories and to a drop in demand. As a result, Indiarefrained from signing new contracts, which led to a significant decline in exportsof minerals, the main industrial exports to the country, and to a contraction inexports to India in Q4 and in the whole of 201223.Exports of chemicals and oil distillates, the second biggest exports to India, whichaccounts for 20% of total exports grew 10% in 2012 YoY and totaled $243 million.22 Based on the calculation of CAGR (compound annual growth rate), with 2009 as the base year.23 As the company stated in its financial statements for Q3/2012; the expiry of existing contracts andthe delay in the renewal of contracts in India and China is expected to significantly reduce potashshipments to India.Written by the Economic Department – March 2013
  • 35Another sector that notably affects exports to India is defense exports, which isalso subject to a great deal of volatility, which affects exports of “defense”industries24. Exports of industrial equipment for control, optical equipment andphotographic instruments, between January and December of 2012, rose 30 % YoY,totaling $130 million. Exports of control, measurement and navigation instrumentsrose 35% to $30 million. On the other hand, exports of aircrafts declined 5% to $37million, exports of exports of computer systems fell 41% to $23 million and exportsof electronic equipment fell 48% to $ 11 million only. Overall exports of “defense”sectors fell by a slight 2% YoY and totaled $246 million – 19% of total exports toIndia.A key industry exporting to India, which contributed to the negative trend wastelecommunication equipment (accounts for 13% of total exports to the country,17% in 2011) which in 2012 fell 31% to $174 million. On the other hand, exports ofmetals rose 30% to $85 million and exports of machinery and equipment rose 41%to $115 million. Also noteworthy are exports of pharmaceuticals which soared 78%YoY to $20 million.FranceIn line with the negative sentiment in exports to Europe, exports to Francedeclined 7% in 2012 to $1.27 billion. France ranks 8 among Israel’s major exportmarkets.Similar to the breakdown of Israeli exports to Germany, exports to France aredecentralized without one dominant sector. The major industrial exports to Franceduring the period include: metals (totaled $276 million, down 3%), chemicals and oildistillates (totaled $191 million, down 31%), agricultural exports (totaled $123million, up 29%), rubber and plastic (totaled $98 million, down 5%),telecommunication equipment (fell 26% to $70 million), aircrafts (rose 46% to $70million), food and beverages (rose 15% to 57 million) and medical and surgicalequipment which fell 11% YoY to $50 million.BrazilIn 2012, Brazil climbed to the 9th place among Israel’s leading export markets,rising 4 places from last year. Exports to Brazil during 2012 totaled $1.1 billion,growing 28% from 2011. Most of the growth in exports to Brazil is attributed to the24 Sectors included under defense exports are those whose exports primarily stem from defense companies.Written by the Economic Department – March 2013
  • 36sharp increase in exports of minerals, which accounts for 36% of total exports toBrazil.Exports of minerals to Brazil (mainly potash) during 2012 rose by a marked 62% to$405 million. Similar to the situation concerning exports to China and India, most ofthe change in the industry’s export levels stems from ICL’s business activity in thecountry. As we anticipated in the previous review, during the fourth quarter of2012 the growth in exports of mineral to Brazil continued, and was the main driverof the growth in exports to the country.Chemicals and oil distillates, one of the two key industries exporting to Brazil(accounts for 30% of total exports to the country) totaled 345 million, rising 10% YoY.Machteshim-Agan, which holds production facilities in Brazil, has considerableimpact on chemical exports to the country.Apart from these two sectors, a positive trend was recorded by other exportingindustries: exports of telecommunication equipment rose 9% to $91 million,exports of pharmaceuticals rose by an impressive 55% to $56 million, exports ofrubber and plastic soared 90% to $35 million and exports of aircrafts marked asuccessful year, leaping from exports of dozens of thousands of dollars to $20 million– following a defense deal signed by one company.ItalyDuring 2012 Israeli exports to Italy fell 16% YoY, totaling $1.1 billion – accordingly,Italy fell to the 10th place among export markets. The decline in exports to Italy wassignificantly affected by a sharp decrease in exports of chemicals and oil distillates,a key exporting industry to Italy (43% of total exports), which fell 23% to $477million, and from a drastic decline in agricultural exports, which fell 70%, from $103million in 2011 to $32 million only in 2012.Other sectors that had an adverse impact on exports to Italy in 2012 were rubberand plastic (down 22% to $76 million), telecommunications equipment (down 17%to $50 million), minerals (down 19% to $46 million), textiles (down 8% to $32million), food and beverages (down 10% to $31 million) and electronic equipmentwhich fell by a sharp 90% to $2 million only.On the other hand, machinery and equipment rose 4% to $100 million, metals rose16% to $73 million and (up 54% to $23 million), and industrial equipment forcontrol, optical equipment and photographic instruments rose 17% to $41 million.Written by the Economic Department – March 2013
  • 37Israel’s major export markets: Change in imports from Israel versuschange in total imports of goodsRate of change in %, exports of goods excluding diamondsImport from World (% change)** Import from Israel (% change)* 28% 6% 4.0% 2.8% 4% 4.2% 0.5% 1% 0.1% 0% -1.8% -1.4% -5.5% -5.9% -7% -10% -13.4% -15% -16% -23%Analysis: Israel Export Institute, Data: Central Bureau of Statistics & Economist Intelligence Unit* Estimated growth in goods imports 2012/2012** Growth in goods imports from Israel (excluding diamonds, 2012)*** The US: growth in goods imports from Israel (excluding diamonds, 2012)Written by the Economic Department – March 2013
  • 38Exports to the Palestinian AuthorityThe Palestinian Authority is traditionally one of the most important export marketsfor Israeli goods – apart from the US, the Palestinian Authority is Israel’s biggestexport destination.The Palestinian Authority primarily trades with Israel, which is the main export andimport market for Palestinian goods. Other goods exported and imported toPalestinian territories are conveyed through Israeli custom checkpoints, mainly viathe Haifa and Ashdod ports and Jordan’s border crossings.In fact, Israel and the Palestinian Authority do not share “commercial borders” andthe Palestinian Authority does not control sea ports or land border crossings. In theabsence of these, the Paris Agreement (the economic addendum to the Osloagreements, which regulates the economic relations between Israel and thePalestinian Authority) establishes a uniform custom code for Israel and thePalestinian Authority and in their trading with countries across the globe.Goods exports to the Palestinian Authority in the first three quarters of 2012totaled $2.2 billion, down 16% YoY. In 2011, exports to the Authority totaled $3.6billion, up 14% from 2010. For comparative purposes, exports to the UK, Israel’ssecond biggest export market in the world25 totaled $3.1 billion.Exports of goods to the Palestinian Authority26 4.0B$ 3.6 3.5 3.3 3.1 3.0 2.9 2.8 2.6 2.5 2.1 2.0 2.0 1.8 1.7 1.5 1.4 1.2 1.0 1.0 0.5 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Analysis: Israel Export Institute, Data: Central Bureau of Statistics25 Based on foreign trade data taken from export records; excluding exports to the PalestinianAuthority.26 Because there is one customs code there are no export records for products exported from andimported to the Authority. Trade data are published by the Palestinian Authority as part of thepublication of balance-of-payment data.Written by the Economic Department – March 2013
  • 39Israel’s 20 leading export destinations in 2012Israel’s export markets ranking 11th to 20th include Spain, exports to which rose 7%in 2012 mainly owing to the growth in key exports to the country, chemicals and oildistillates. Spain ranks 11 among Israel’s key export markets in 2012 with exportstotaling $1.05 billion.Another country which is a member of Israel’s billion club is Russia, exports to whichslightly topped $1 billion in 2012, up 10% from 2011 (Israel’s 12th export target in2012). Exports to Russia have been growing steadily in the last few years mainly (butnot only) owing to the continued growth in exports of pharmaceuticals, chemicalsand oil distillates. In 2012, exports of pharmaceuticals rose sharply by 50% YoY(following a 40% increase in 2011 and 41% in 2010), and exports of chemicals and oildistillates rose 28% (after rising 2% and 21% in 2011 and 2010, respectively).Another important exports market for Israel is Japan (ranked 14th) with a 4% rise inexports to $870 million. Exports to Japan in 2012 was primarily affected by a sharpleap in exports of electronic components (from $13 million in 2011 to $110 million in2012), whereas exports of testing and measurement instruments fell sharply (from$152 million in 2011 to $72 million in 2012)27.Exports to Vietnam, one of the most important growth markets for Israeli exportsin the last few years, reco4rded an impressive growth. During 2012 exports toVietnam soared 120% totaling $750 million. In the last three years exports toVietnam leaped by an annual average of 86%, while in the last two years it soaredby an annual average of 145%. Most of the growth during those years stems from asteep and rapid growth in exports of electronic components – but it should be notedthat excluding this sector, exports still point to a double-digit growth for mostindustries that export to Vietnam.Additional notable targets of Israel’s goods exports were: Belgium – exports to whichfell 13% in 2012 (totaling $780 million), as part of the negative trend in exports to EUcountries and South Korea, with a 3% decline in exports to $700 million, mostly dueto a 46% decline in exports of electronic components. Excluding electroniccomponents, exports to South Korea grew by 7%.Taiwan – exports to this country was also affected by the sharp decrease in exportsof electronic components (down 61% in 2012) which led to an 8% decline in totalexports to $680 million. On the other hand, measurement and testing instruments27 This sector is a derivative of the semiconductors industry and is affected by the volatility of thisindustry. Many companies categorized as manufacturers of measurement and testing instruments areengaged in the development, manufacture and marketing of testing and processing systems andequipment for the global semiconductors market.Written by the Economic Department – March 2013
  • 40rose sharply by 36% and offset the decline in exports of electronic components.Excluding these two sectors, exports to Taiwan remained unchanged from last year.Canada – an important target market to which exports slipped 4% in 2012 to $705million. Exports were affected by a 44% decline in chemicals and oil distillatesfollowing unusually high exports in 2011. Excluding this sector exports to Canadagrew 9%.While Malaysia is ranked 16th with exports of $765 million, they almost entirelystems from exports of electronic components. 36% 10% 7% 7% 3% -4% -3% -2% -8% -13%Ranking Country Exports (M$) 11/12 %change11 Spain 1,045 7%12 Russia 1,014 10%13 Cyprus 907 -2%14 Japan 868 3%15 Belgium 780 -13%16 Malaysia 765 7%17 Vietnam 753 121%18 Canada 707 -4%19 South Korea 702 -3%20 Taiwan 679 -8%Analysis: Israel Export Institute, Data: Central Bureau of StatisticsWritten by the Economic Department – March 2013
  • 41Changes in exchange ratesExport data which are stated in dollars are, among others, affected by the frequentchanges in the shekel’s rate against the dollar and the Euro, and the dollar’s rateagainst the Euro. We estimate the dollar’s weight in the developments of Israeliexports at 75%.In 2012 the Euro’s average rate was $1.289, 7% lower than its average rate in 2011,which was $1.392. This decline in the Euro vis-a-vis the dollar partially explains theslowdown in the growth of Israeli exports to European countries.In the first quarter of 2012 the dollar-shekel’s average exchange rate was 3.77, up4.7% from its average exchange rate in the first quarter of 2011. In the secondquarter of 2012 the dollar-shekel’s average exchange rate was 3.82, up 11.1% fromits average exchange rate in the second quarter of 2011. In the third quarter of 2012the dollar-shekel’s average exchange rate was 3.99, up 12.4% from its averageexchange rate in the third quarter of 2011. In the fourth quarter of 2012 the dollar-shekel’s average exchange rate was 3.94, up 5.9% from its average exchange rate inthe fourth quarter of 2011.In the whole of 2012 the dollar-shekel’s average exchange rate was 3.86, up 7.8%from its average exchange rate in 2011.In contrast, in the first quarter of 2012 the Euro-shekel’s average exchange rate was4.94, up by a marginal 0.4% compared to the first quarter of 2011. In the secondquarter of 2012 the Euro-shekel’s average exchange rate was 4.92, down 1% from itsaverage exchange rate in the second quarter of 2011. In the third quarter of 2012the Euro-shekel’s average exchange rate was 4.99, down 0.6% from its averageexchange rate in the third quarter of 2011. In the fourth quarter of 2012 the dollar-shekel’s average exchange rate rose to 5.03, but remained unchanged compared tothe average exchange rate in the fourth quarter of 2011.In the whole of 2012 the Euro-shekel’s average exchange rate was 4.95, 0.5% lowerthan its average exchange rate in 2011.Written by the Economic Department – March 2013
  • 42The shekel against the dollar, 2010-2012Analysis: Israel Export Institute, Data: bank of IsraelThe shekel against the Euro, 2010-2012Analysis: Israel Export Institute, Data: bank of IsraelWritten by the Economic Department – March 2013
  • 43For a more accurate measurement of the development in exchange rates, the Bankof Israel measures the real-effective exchange rate of the currency basket, which iscomposed of the shekel’s exchange rate against the currencies of Israel’s 30 maintrading partners, net of the effect of inflation differences vis-a-vis each country.During the second half of 2011, the shekel’s appreciation against the effectivecurrency basket came to a halt and the shekel began to lose strength, a trend thatpersisted in 2012 until the third quarter when the currency basket reached a recordlevel of 116.9 (September 2012), the highest since year-end 2009. In the fourthquarter of 2012 the shekel began appreciating vis-à-vis other currencies rising 1.2%during the quarter (a trend that continued into 2013). Overall in 2012, the shekeldepreciated 4.4% vis-à-vis the currency basket, following a 3% decline in its value in2011. However, the real-effective exchange rate still points to a 12% increase fromthe average level in the years 2006-2007, which contributed to the rise in exports inthese years up to the outbreak of the global economic crisis.It should be noted that each 5% decline in the real-effective exchange ratecontributes to a real 1% increase in Israeli exports, with an 8-14 months’ lag ineffect. An appreciation in the real-effective exchange rate leads to a similar effect,but in the opposite direction. The Currency Basket – Real-Effective: 1999- 2012140.0135.0130.0125.0120.0115.0110.0105.0100.0 95.0 90.0Analysis: Israel Export Institute, Data: bank of IsraelWritten by the Economic Department – March 2013
  • 44Export Forecast for 2013Following a significant deceleration in the growth of global economy in 2012,according to forecasts in 2013 we are expected to witness a gradual pick-up in thegrowth of global economic activity, which will accelerate in the second half of2012. While the general weakness in many economies is expected to continue inthe first quarter of 2013, already in the second half of 2014 there will be a gradualimprovement in the global economy. Both sides of the political map are likely toreach a fiscal cliff deal with an agreement on a clear fiscal policy, while the Chinesestimulus plan and economic recovery measures in Europe are expected to underpingrowth in these regions. The growth momentum will continue into 2014 andsupport the trend of recovery of global economy and world trade.The World Trade Organization (WTO) recently revised downwards its projections fortrade growth in 2013 from 5.6% to 4.5%. The main factors for the downward revisionwere the continued debt crisis in Europe, the slow recovery of the US economy andthe slow growth of China’s economy. These factors contributed to a significantdeclined in global demand and to the deceleration of global trade activity in 2013.The WTO projects that in 2013 imports by developed countries will grow by 3.4%and imports and developing economies will grow by 6.1%.At the same time, 2013 is expected to be better than the prior year, whichrecorded a moderate 2.9% growth in global trade.Global trade, 2008-2013Seasonally adjusted, base index Q1.2005 = 100 Source: WTOWritten by the Economic Department – March 2013
  • 45Change in global trade, 2008-2013Annual rate of change, in %Source: WTO(*) 2012, 2013 - forecastIsraeli exporters are expected to face waning demand in Israel’s key export marketsin Europe and with a moderate increase in imports to the US (bear in mind thatdespite the accelerated growth in exports to developing markets in the last fewyears and growth in their share of the exports pie, traditional markets still representsmore than 60% of total Israeli exports). At the same time, the shekel is depreciatingvis-à-vis the currency basket, following a real decline in the shekel in the last fiveyears.Rates of growth in imports by Israel’s key target market: 34% E.U Asia U.S 23% 24% 17% 16% 13% 9% 4% 3% 3% 5% -5% 2010 2011 2012 2013Analysis: Israel Export Institute, Data: Economist Intelligence UnitWritten by the Economic Department – March 2013
  • 46The following chart is based on weighted growth data and growth forecasts for theimports of several chosen economies, which constitute Israel’s main target markets.This model presents the anticipated changes in imports by these markets, whoseweight in exports is 80%, and which therefore provide a good indication of futuretrends.The model shows that after dropping 5%, imports by key target markets in the EU isexpected to grow by 3% in 2013. US imports is expected to grow by 3% and importsby Israel’s key target markets in Asia are expected to increase from 4% to a growthrate of 9% in 2013.On the back of the aforesaid, we expect that exports of goods and services,excluding start-up companies is expected to grow by 5% in 2013, in dollar terms.And total $95.5 billion.Exports of goods and services excluding start-up companies and excludingdiamonds are estimated to total $86 billion in 2013, up 5% from $81.5 billion in2012.Amid the decline in imports by EU countries exports to the EU is expected to growby 4% in dollar terms in 2013. Exports to the US are expected to increase by 7% indollar terms while exports to Asia are expected to grow 11% in dollar terms, mainlyin the second half of 2013.Exports of goods and services – comparison in dollar terms, 1995-2013 30.0% 23% 25.0% 20% 20.0% 15% 18% 15% 14% 15% 13% 15.0% 11% 9% 9% 10.0% 8% 7% 3% 5% 5.0% 0% 0.0% -5.0% -3% -10.0% -15.0% -13% -20.0% -17%*IEI’s estimate** IEI’s forecast, excluding export of services by start-up companiesWritten by the Economic Department – March 2013