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IEICI-Developments and trends in Israel exports - H1.2014 summary

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IEICI-Developments and trends in Israel exports - H1.2014 summary

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IEICI-Developments and trends in Israel exports - H1.2014 summary

  1. 1. 1 DEVELOPMENTS AND TRENDS IN ISRAELI EXPORTS Summary of first Half 2014 Written by the Economic Department The Israel Export and International Cooperation Institute August 2014
  2. 2. 2 TABLE OF CONTENTS Executive Summary .............................................................. 3 Developments and trends in Israeli exports ..................................................... 10 Exports of Goods and Services .......................................... 10 Exports of Goods ................................. 10 Industrial exports ................................ 10 Exports of goods by regions and countries ....................................................... 15 Developments in Israel's key export destinations ............................................ 18 Exports of Services .............................................................. 32 Total High Tech Exports: Services and Industry ............................................ 34 Exchange rate ...................................... 35 Centralization in Israeli Exports ....................................... 40
  3. 3. 3 Executive Summary General The sharp decrease in the growth of global trade, alongside the shekel’s appreciation vis-à- vis the dollar had a lingering impact, slowing the pace of growth of Israeli exports. Total exports of goods and services rose 2% in dollar terms compared to the first half of 2013 to $48 billion. As in the last few years, the trend of growth in exports of services continued, while exports of goods continued to stagnate and remained virtually unchanged. Exports of goods Exports of goods in the first half of 2014 rose slightly by 1.5% to $29.5 billion, primarily owing to a 6.5% increase in diamond exports to $5.3 billion. Exports of goods excluding diamonds remained unchanged year-over-year at $24 billion. Agricultural exports declined 6% from the first half of 2013 to $880 million. Industrial exports, remained almost unchanged year-over-year, and totaled $23.3 billion. Export data for the first half of 2014 point to a slowing pace of growth in industrial exports, which unchanged from the first half of 2013. Industrial exports were primarily affected by the decrease in chemical exports and the stagnation in the growth pace of electronic component exports. On the other hand, pharmaceutical exports saw a recovery from the unfavorable trend of the past few years. Exports by trading regions In summary, in the first half of 2014 exports to the European Union rose by 10% year-over- year in dollar terms, but the entire growth is attributed to the Euro’s appreciation against the dollar and the continued diversion of pharmaceutical exports from the US to the EU. Exports to the US fell 6%, mainly due to the continued decrease in pharmaceutical shipments to the country. Exports to Asia remained basically unchanged year-over-year. Exports to Latin America fell 13% and exports to Africa fell 12%. Exports by countries The first half of 2014 saw an increase in exports to 5 out of 10 major export destinations, as compared to the first half of 2013. Israeli exports to 2 countries decreased and remained unchanged to 3 other countries. Exports to the US continued the negative trend from 2013, while exports to the UK and to Turkey continued to grow at double-digit rates year-over-year. Exports to the Netherlands, France, Japan and Hong Kong also rose impressively, while exports to India and Brazil continued to slide in 2014.
  4. 4. 4 The change in the rating of the 10 leading export markets, First half of 2014 Exports of goods excluding diamonds, in $ billion. Excluding exports to the Palestinian Authority and Malaysia (*) Exports to China including Hong Kong totaled $3 billion in 2013 Analysis: IEICI Exports of services Data for the first half of 2014 reinforce the trend of the last few years: while exports of goods continue to stagnate, exports of services have been rising from one year to the next at a rapid pace, supporting the moderate growth of Israeli exports. According to the IEICI’s economic division, exports of services (excluding start-up companies), is expected to grow in the first half of 2014 to $17 billion – a dollar increase of 13% from the first half of 2013, compared to 1.5% only in exports of goods and stagnation of exports excluding diamonds. Exports of start-up services fell dramatically in 2014 compared to 2013, when exports peaked due to an unprecedented number of major transactions, including the sale of Waze to Google. Exports of services including start-ups grew by a moderate 2% from the first half of 2013. Exports of business services (excluding start-ups) rose 18% year over year, to $12 billion. Exports of transportation services were negatively affected by the weakness in global trade and according to estimates, are expected to drop 9% from 2013 levels (to $2 billion). Exports of touristic services rose 15% in the first half of 2014 to $3.1 billion, but are expected to decrease substantially in the second half of the year, on the back of the operation “Solid Rock”. Country Exports (H1.2014, $B) % change 2014rating 2013 rating Change 1 US 5.0 -6% 1 (-) 2 Britain 2.2 34% 2 (-) 3 Turkey 1.4 18% 3 (-) 4 Netherlands 1.3 30% 5 +1 )-( China 1.3 10% 4 (-) 6 Germany 0.9 0% 6 (-) 7 France 0.8 10% 8 +1 8 Italy 0.8 0% 9 +1 9 Russia 0.6 0% 13 +4 10 Spain 0.5 -30% 7 -3
  5. 5. 5 Exports of high tech (industry and services) In the last few years, the share of exports of technology services in total high tech exports has been rising steadily, while the share of exports of high tech industries has been contracting. This reinforces the advantage of the Israeli economy as intensive in innovation and know-how, which do not ultimately lead to the development of domestic production line. This trend persisted in 2014, as exports of high tech services continued to accelerate, reaching their highest level ever. Total exports of goods and services in the high tech rose 10% in the first half of 2014 to $17.5 billion – 37% of total Israeli exports. The core index of high tech industries – excluding industries with dominant companies (pharmaceuticals, electronic components and aircrafts) – rose 14% totaling $10.6 billion (61% of total high tech exports). The exchange rate The dollar’s depreciation against the shekel, which began in the third quarter of 2012, continued in the first two quarter of 2014 and the dollar’s representative rate fell in June to its lowest level in three years. The dollar fell 5% vis-à-vis the shekel in the last 12 months and by more than 12% in the last 3 years. Concurrent with the decline in the dollar-shekel exchange rate, the Euro also weakened against the Israeli currency. The shekel against the dollar and against the Euro, 2011-2014: Source: BOI & IEICI
  6. 6. 6 Source: BOI & IEICI The shekel-dollar exchange rate by global comparison Prompted by the argument that the dollar’s weakness is a global phenomenon, and hardly unique to Israel, we compared the dollar’s rate to 55 different currencies worldwide and analyzed the rates of change in last 16 months. Our analysis shows that the Israel currency and the Icelandic Corona were the two currencies that recorded the sharpest appreciation against the US dollar in the last 18 months. Moreover, currencies of many developing markets which, like Israel, offered a positive interest spread versus the dollar, recently lost ground – while the shekel’s value continued to climb.
  7. 7. 7 The dollar versus other currencies – rate of change in last 18 months Rate of change in the dollar’s rate; 30/6/2014 compared to 31/12/2012 Source: IEICI While in the last year and a half, the dollar depreciated 8.1% against the shekel – it rose 7.6% against the Brazilian real, by 10.3% against the Australian dollar, by 15.4% versus the Chilean Peso and by 17% against the Japanese yen. A similar trend was recorded in Singapore (+2.0%), Taiwan (+2.9%), Malaysia (+5.0%), the Czech Republic (+5.3%), Thailand (+6.1%) and Canada (+7.1%). In fact, of the chosen 55 currencies, only the Icelandic corona gained more ground against the dollar than the shekel. It should be noted that the corona’s appreciation against the dollar is only partial recovery from its crush in 2008. Since January 2008 the corona’s rate plummeted 44% versus the dollar, while the shekel rose 11%.
  8. 8. 8 The shekel-dollar exchange rate by global comparison The shekel’s real exchange rate relative to the currency basket fell to a 10-year low. The real-effective currency basket reached 104 points in June 2014, down 17% since January 2004 to its lowest level since December 2011 (12.5 years). The real-effective currency basket: 2002-2014 Source: BOI & IEICI The shekel’s appreciation has steadily eroded the profits of Israeli exporters undermining their competitiveness against overseas markets. The continued erosion in the exchange rate is detrimental to exports, which account for 40% of GDP and therefore impedes the growth of the Israeli economy. Bear in mind that a 10% increase in the real exchange rate translates into 2% erosion in exports; in other words, an annual loss of $1.8 billion in exports and 0.6% in GDP. An analysis of the profitability of exporters based on their financial statements (at the end of this report) points to a clear adverse impact in the last few years. Export concentration continues An analysis of data for the first half of 2014 shows that export concentration continued in 2014 and today, the aggregate exports of the ten biggest exporters in Israel account for half of total exports.
  9. 9. 9 Analysis: IEICI 36.4% 41.9% 43.3% 46.0% 47.5% 48.5% 50.5% 49.9% 63.6% 58.1% 56.7% 54.0% 52.5% 51.5% 49.5% 50.1% 2007 2008 2009 2010 2011 2012 2013 H1.2014 G10 Rest of Exporters
  10. 10. 11 Developments and trends in Israeli exports Summary of first half 2014 Exports of Goods and Services1 In the first half of 2014, the growth pace of Israeli exports was slow. Total exports of goods and services grew 2% in dollar terms from the first half of 2013, to $48 billion. Excluding exports of start-up companies, goods and services exports rose 6%. As in the last 2 years, the growth in the reported period is primarily attributed to services (excl. start-ups), which rose 13% year-over-year in dollar terms, totaling $17 billion2. In comparison, exports of goods3 continued to stagnate and remained virtually unchanged. While goods exports rose 1.5% year-over-year to $29.5 billion, this was entirely due to a 6.5% growth in diamond exports to $5.3 billion, Total exports of goods, excluding diamonds, remained unchanged from 2013, totaling $24 billion. Exports of Goods Industry, diamonds and agriculture Exports of goods in the first half of 2014 rose slightly by 1.5% to $29.5 billion, mainly owing to a 6.5% increase in diamond exports to $5.3 billion, accounting for 18% of total goods exports. On the other hand, agricultural exports fell 6% year-over-year to $880 million, 3% of total goods exports. Industrial exports, which accounts for 79% of total goods exports, remained at the same level as in the first half of 2013, totaling $23.3 billion. Industrial exports Export data for the first half of 2014 point to deceleration in the growth of industrial exports, which remained unchanged from the first half of 2013. Industrial exports were mostly affected by the decrease in chemical exports and the stagnation in the growth rate of electronic components. On the other hand, 1 All export figures presented below are based on export data as reflected in foreign trade statistics and services export data based on national accounts. The goods and services export data include various adjustments in the calculation of goods and services’ exports in the balance-of-payment. These adjustments include ongoing projects where no shipments have left the ports of Israel as well as sales made directly by subcontractors that carry out projects for Israeli companies. Details on the items included in the adjustment of foreign trade data to the balance-of-payment is presented at the end of this review. 2 Based on IEICI’s estimates 3 Includes adjustments of foreign trade data to the balance of payments and exports to the Palestinian Authority
  11. 11. 11 pharmaceutical exports recovered after losing ground in the last few years. During January- July pharmaceutical exports rose 14% in dollar terms to $3.7 billion. Chemical exports declined 4% in dollar terms to $5.6 billion, and exports of electronic components remained unchanged from the first half of 2013 ($2.3 billion). Total exports of these industries, which are highly concentrated and dominated by a small number of giant corporations, rose in the first half of 2014 by 2% to $11.6 billion – 48% of total exports in the reported period. Exports of other industries - stagnation Exports of goods excluding diamonds, and excluding pharmaceuticals, chemicals and electronic components, remained unchanged from the first half of 2013. Exports in other industrial sectors totaled $12.6 billion, accounting for 52% of total exports4. Exports of Aircrafts and Vehicles5 fell 14% (to $1 billion), exports of electronic equipment6 declined 3.5% (totaling $630 million), exports of oil distillates fell 33% ($330 million) and exports of metals declined 7.5% ($380 million). On the other hand, exports of machinery and equipment7 rose 6% (to $2.7 billion), rubber and plastics rose 16% ($1.1 billion), food and beverages increased 2% ($560 million), textile rose 12 % ($430 million) and exports of jewelry rose 26% (to $330 million). Exports of ($5.1 bill9ion) and exports of food and beverages ($1.1 billion) remained virtually unchanged compared to 2012. the biggest industrial sector ($8.2 billion) fell 12% in dollar terms, exports of metals dropped 11% ($2.4 billion), exports of transportation vehicles dropped 11% ($2.1 billion), exports of minerals shrank 12% ($2 billion), exports of rubber and plastics declined 3% ($1.8 billion), exports of textiles 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 and beverages remained unchanged from 2011 and totaled $950 million. 4 Goods excluding diamonds 5 Mainly aircrafts 6 Including, among others, equipment and systems in the field of alternative energy, electricity and electronics. 7 Including, among others, machinery in the field of printing, robotics, irrigation and food
  12. 12. 12 Exports of other industries H1.2014 / H1.2013 – $ billion Data analyzing and estimates: IEICI 5.6 2.7 1.1 0.6 0.6 0.4 0.4 0.3 0.3 0.2 5.8 2.5 1.0 0.7 0.5 0.4 0.4 0.3 0.5 0.2 - 1 2 3 4 5 6 7 Chemicals Machinery & equipment Rubber & plastic Electrical equipments & electrical motors Food & beverages Textiles Metal products Jewellery Refining petroleum Wood&Paper B$ H1.2014 H1.2013
  13. 13. 13  Exports of high tech industries The stagnation in the growth of Israeli exports in the last two years was felt across high tech industries. Although in the first half of 2014 the data point to a 3.5% dollar increase in exports of high tech products, this is primarily due to the growth in pharmaceutical exports, a concentrated and dominant sector that accounts for 35% of total high tech exports, and which is almost completely led by Teva. Excluding pharmaceutical exports, the 3.5% increase becomes a 1.5% decrease in exports of high tech products. Another concentrated industry is electronic components which, similar to the pharmaceutical industry, are considerably affected by the production and exports of one dominant company: the global chip giant, Intel. An accelerated chip production that culminated last year owing to the upgrade of the Kiriyat Gat plant, came to a halt in the first half of 2014, as a result of which exports of components did not grow from the first half of 2013. Exports of pharmaceuticals and electronic components Q2.2010 – Q2.2014, in millions of dollars Source: IEICI Pharmaceuticals – high volatility from one quarter to the next; has a crucial impact on high tech exports in particular and Israeli exports in general Electronic components – a dramatic increase in exports in 2012-2013 as a result of the upgrade of the Kiryat Gat plant; was a significant contributor to high tech exports in those years - 500 1,000 1,500 2,000 2,500 Export of Pharmaceutical Q - 2.2010Q2.2014 - 200 400 600 800 1,000 1,200 1,400 Export of Electronic Components Q - 2.2014Q2.2014
  14. 14. 14 According to the IEICI’s economic division, Teva’s share is 90% of pharmaceutical exports and 31% of high tech exports, while Intel’s share is 80% of the exports of electronic components and 17% of high tech exports. Overall, the aggregate share of these two dominant companies is close to half of Israel’s high tech exports (!).  Exports of other high tech sectors The crucial weight of pharmaceuticals and electronic components in high tech exports and the dominance of Teva and Intel, require an analysis that excludes the impact of the two firms, in order to better study the condition of Israel’s high tech industries. The analysis shows that excluding exports of pharmaceuticals and electronic components, high tech exports fell 2.2% in the first half of 2014 compared to the same period of 2013. This downturn is worrisome since most of the high tech exporters belong to this sector, which consists of communications, electronics, medical-scientific equipment and computer systems. High tech exports excluding pharmaceuticals, components and aircrafts Q2.2012 – Q2.201, QoQ, in billions of dollars Source: IEICI
  15. 15. 15 Exports of goods by regions and countries Analysis of exports excl. diamonds by trading blocs-unadjusted An analysis of exports by geographic regions shows a high correlation to exports by industries, which was largely affected by the dominant export industries. For example, pharmaceuticals, which are dominant in exports to the US and to the EU, were the main contributor of volatility in exports to these regions. Exports of electronic components, while remaining basically unchanged from the first half of 2013, had a significant impact on total exports to Malaysia, China, Vietnam and Costa Rica – countries housing Intel’s assembly plants. Exports of chemicals and oil distillates, a major export to the EU, decreased considerably in 2014 and had a negative impact on Israeli exports to the region. The European Union Trade data for the first half of 2014 point to a 10% increase in dollar terms compared to the first half of 2013. The growth in exports to the EU – in contrast to the general trend - predominantly stems from the accelerated growth in pharmaceutical exports in the region; Pharmaceutical exports to the EU (mainly the UK and the Netherlands) soared 63% in the first half of 2014, totaling $2.1 billion. Today, pharmaceutical exports accounts for 25% of total exports to the EU, while 61% of Israel’s pharmaceutical exports are targeted at EU countries. Pharmaceutical exports have a considerable impact on exports to the EU: when pharmaceuticals are excluded from total exports to the EU, the 10% increase becomes a slight 0.5% decrease from the first half of 2013. It is emphasized, the Euro’s appreciation versus the dollar during the period (4.5% increase in January-June 2014 compared to the average rate in January-June 2013) also accounts for the growth in exports in dollar values. Accounting for the impact of the exchange rate (and excluding pharmaceuticals) the decrease in exports to the EU is even steeper. Total exports to the EU in the first half of 2014 was $8.4 billion, accounting for 35% of total goods exports excluding diamonds. Rest of Europe (East Europe + AFTA) Exports to other European countries which are not members of the EU comprise exports to East Europe and AFTA (Iceland, Norway and Switzerland). Exports to these countries in the first half of 2014 totaled $2.4 billion (10% of total exports excluding diamonds), up 6% in dollar terms, year over year. The increase in exports to the region is entirely attributed to exports to Turkey, which rose 18% in the first six months of 2014, after soaring 78% in 2013. The 33% increase in exports to Switzerland also contributed to the favorable trend, while a 30% decrease in exports to Ukraine, on the back of the security crisis in the region – partially offset the trend. It should be noted that in the last few years Ukraine is one of Israel’s 11
  16. 16. 16 biggest export markets in Europe. In 2013 exports to the Ukraine rose 20% to $350 million, and since 2010 exports increased by an average 48% annually. The US In the first half of 2014, exports to the US fell 6% year over year, mainly due to the decrease in pharmaceutical shipments to the country. Exports to the US have been declining for five consecutive quarters. Total exports to the US amounted to $4.9 billion, 20% of total Israeli exports excluding diamonds. Asia In the first six months of 2014, exports to Asia remained unchanged from the same period of 2013. An increase was recorded in exports of electronic components, control, measurement and navigation instruments (mainly for the semiconductors market) and medical-scientific instruments. On the other hand, exports of chemicals and minerals to Asia decreased. In a breakdown by countries, exports to china, Japan, South Korea and Hong Kong increased, while exports to India and Taiwan fell significantly. Total exports to Asia in the first six months of 2014 amounted $4.8 billion (20% of total goods exports excluding diamonds). Latin America Exports to Latin American countries in the first six months of 2014 amounted to $1.2 billion (5% of total exports), down 13% in dollar terms from 2013. Exports to Latin America were affected by the sharp decrease in exports to Brazil (due to the contraction in chemicals and minerals exports) and Costa Rica (electronic components), which were partially offset by the increase in exports to Mexico and Columbia. Africa In line with the general trend, the contraction in exports to Africa continued in the first half of 2014. Total exports to the continent decreased 12% to $630 million (2.5% of total exports), following a 4% decrease in 2013. The decrease in exports to Africa was primarily due to a dramatic contraction in exports to Nigeria (attributed to chemicals and oil distillates) and the decline in exports to South Africa.
  17. 17. 17 Exports by trading regions H1.2014 versus H1.2013, in billion $ Source: IEICI Breakdown of exports by trading regions H1 2014 in % Source: IEICI 8.4 4.9 4.8 2.4 1.2 1.2 0.6 0.6 7.7 5.3 4.7 2.2 1.4 1.4 0.7 0.6 - 1 2 3 4 5 6 7 8 9 E.U U.S Asia Rest of Europe Latin America Unclassified Countries Africa Rest of World B$ H1.2014 H1.2013 E.U 35% U.S 20% Asia 20% Rest of Europe 10% Latin America 5% Unclassified Countries 5% Africa 3% Rest of World 2%
  18. 18. 18 Developments in Israel's key export destinations Ranking of export markets and details by sectors: exports of goods excluding diamonds During the first half of 2014 there was an increase in exports to 5 of the 10 leading export markets, as compared to the same period of 2013. Exports to 2 countries decreased and to 3 markets remained unchanged. An analysis of exports by countries in the first half of 2014 indicates that the trend of exports to the US remained unfavorable, while exports to the UK and Turkey continued to grow at double digit rates compared to the same period of 2013. Exports to the Netherlands, France, Japan and Hong Kong also rose impressively while exports to India and Brazil are on a downward trend that continued in 2014. Israel’s 10 major export destinations, first half of 2014 Exports of goods excluding diamonds, change in % YoY Excluding exports to the Palestinian Authority and Malaysia8 Source: IEICI 8 Malaysia, which was originally ranked 7, is not included in the 10 key export targets, since exports to Malaysia consists of electronic components, which accounts for 98% of total exports to the country. Global Intel has testing and assembly plants in several markets in Asia, including Malaysia. In our opinion, the chips manufactured in Intel’s Israeli plans are shipped to these destinations.
  19. 19. 19 The change in the ranking of 10 export destinations, First half of 2014 Based on exports of goods excluding diamonds, in billions of dollars, excluding exports to the Palestinian Authority and Malaysia Source: IEICI (*) Exports to China including Hong Kong totaled $1.6 billion in the first half of 2014, up 11% from last year. Including Hong Kong, China is ranked third of export destinations) The weight of countries in exports, First half of 2014 In percent of total exports of goods excluding diamonds; excluding exports to the Palestinian Authority Source: IEICI, (*) Exports to China including Hong Kong, account for 6.5% Country Exports (H1.2014, $B) % change 2014rating 2013 rating Change 1 US 5.0 -6% 1 (-) 2 Britain 2.2 34% 2 (-) 3 Turkey 1.4 18% 3 (-) 4 Netherlands 1.3 30% 5 +1 )-( China 1.3 10% 4 (-) 6 Germany 0.9 0% 6 (-) 7 France 0.8 10% 8 +1 8 Italy 0.8 0% 9 +1 9 Russia 0.6 0% 13 +4 10 Spain 0.5 -30% 7 -3 US 20.6% Britain 9.2% Turkey 5.9% Netherlands 5.3% China 5.3% Germany 3.5% France 3.2% Italy 3.2% Russia 2.6% Spain 2.2% R.O.W 38.9%
  20. 20. 21 The United States Exports of goods to the US, Israel’s major and most important export market, fell 6% year- over-year in the first half of 2014, totaling $5 billion. The decrease in pharmaceutical exports (down 22% to $1.3 billion) the main industrial exports to the US (one quarter of total goods) was the main contributory factor to the contraction in exports. On the other hand, an increase in exports of chemicals (20% to $680 million) and electronic components (7% to $270 million) offset the downward trend, to some extent. Excluding pharmaceuticals, chemicals and components, exports to the US remained unchanged from the first half of 2013. The deceleration of exports to the US is nothing new – in fact, exports to Israel’s most significant market have been on a downward trend for quite some time. Between 2008 and 2013, exports fell by a cumulative 13% and by an annual average of 2.2%. Excluding pharmaceuticals, exports fell by a cumulative 9% and by an annual average of 2%. Excluding pharmaceuticals, chemicals and electronic components, exports fell by a cumulative 4% and by an annual average of 1%. Downturn in exports to the US, 2008-2013 Exports of goods excluding diamonds in $, billion Source: IEICI An analysis of the first half of 2014 and a comparison to corresponding periods draws a similar picture: exports to US fell 9% from the same period in 2008 and by an annual average 2%. Excluding pharmaceuticals, exports declined 4% (an annual average of 1%) while exports excluding pharmaceuticals, chemicals and electronic components, fell by similar rates. In fact, exports of other industries (excluding pharmaceuticals, components and chemicals) remained unchanged in the last four years, but fell 10% from 2008. 11.6 11.8 11.6 11.4 10.7 10.1 9.0 9.5 10.0 10.5 11.0 11.5 12.0 2008 2009 2010 2011 2012 2013 B$
  21. 21. 21 Stagnation in exports to the US, First half of 2014, year-over-year Exports of goods excluding diamonds, in billion $ Source: IEICI Exports of other industries to the US point to a mixed trend and overall, remained unchanged from the first half of 2013. Among the major export industries, there was an increase in exports of machinery and equipment which, among others, includes machinery in the fields of printing, robotics, irrigation and food (up 10% to $350 million) exports of rubber and plastic products (up 6% to $205 million), and exports of textiles (up 18% to $185 million). On the other hand, there was a decrease in exports of medical-scientific equipment (down 6% to $255 million), exports of metals (down 4% to $245 million), exports of telecommunication equipment (down 2% to $225 million), exports of textiles (down 3% to $325 million), exports of control, measurement and navigation instruments – mainly for the semiconductors industry (down 20% to $220 million) and exports of engines and electric equipment, which among others, includes equipment and systems in the field of alternative energy, electronics and electricity (down 14% to $160 million). 3.2 2.8 2.3 2.9 2.9 2.9 2.9 5.6 5.7 5.3 6.1 4.9 5.3 5.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 H1.2008 H1.2009 H1.2010 H1.2011 H1.2012 H1.2013 H1.2014 אלפים Export To the U.S - Excluding Pharmaceutical, Electronic components & Chemicals Export To the U.S
  22. 22. 22 United Kingdom The trend of growth in exports to the UK continued in 2014. Compared to the first half of 2013, exports to the UK rose sharply by 34%, but the upward trend in exports is attributed to the rise in pharmaceutical exports – a dominant export industry. Exports to the UK, Israel’s biggest destination in Europe and ranking second among global markets, totaled $2.2 billion in the first half of 2014. Like the situation in the US, exports to the UK are highly affected by the dominance of the pharmaceutical industry, which is mainly attributed to Teva’s operations in the UK, a major target market for the company. The sharp increase in pharmaceutical exports to the country has established Britain’s position as Israel’s second export market globally and its biggest export destination among European countries. Between 2010 and 2013, exports of pharmaceuticals to the UK soared 146%, an average annual growth of 35%9. Total exports excluding pharmaceuticals grew by a far more moderate rate: a cumulative growth of 25% in the years 2010-2013 and 8% annually, and since 2011 exports to the UK grew by a cumulative rate of 3% only. In 2014, the trend of growth in pharmaceutical exports continued: total exports of pharmaceuticals to the UK grew by 53% in dollar terms to $1.55 billion, 69% of total exports to the country. Excluding pharmaceuticals, exports to the UK remained unchanged from 2012 ($705 million). Trends in exports to the UK (H1.2011-H1.2014) Exports of goods excluding diamonds in $, billion (2010-2013) Source: IEICI 9 CAGR 45% 53% 59% 69% 0% 10% 20% 30% 40% 50% 60% 70% 80% - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2010 2011 2012 2013 Total export - Exc. Pharmaceuticals Export of pharmaceuticals % Share of pharmaceuticals M$
  23. 23. 23 Exports to the UK in other industries point to a mixed trend: exports of chemicals and oil distillates decreased 10% to $145 million, agricultural exports fell 16% to $77 million, exports of telecommunication equipment fell 34% to $28 million, and exports of machinery and equipment declined 5% to $27 million. On the other hand, exports rubber and plastics rose 25% to $84 million, exports of aircrafts rose 12% to $60 million and metal exports increased 25% to $50 million. China In January-June 2014 Israeli exports to China grew 10% year-over-year, totaling $1.3 billion. In the past few years, China has established its position as Israel’s biggest and most important export destination in Asia, especially in light of the continued decrease in Israeli exports to the Indian market, which until recently was equally significant as the Chinese market. Exports to China are substantially affected by changes in three dominant export industries: electronic components, chemicals and minerals. Unlike the trend of the last few years, in the first half of 2013 the aggregate weight of these industries dropped to 67% of total exports (74% in the first half of 2012). Accordingly, the aggregate weight of other export industries rose to 33% of total exports to China (26% in 2012). This trend continued in the first half of 2014: the aggregate weight of the three industries declined to 66% of total exports, while the weight of other industries increased to 34%. Concentration of exports to China (H1.2011 – H1.2014) Source: IEICI 64% 74% 67% 66% 0% 10% 20% 30% 40% 50% 60% 70% 80% H1.2011 H1.2012 H1.2013 H1.2014 Share of key exports to China, H1.2011-H1.2014 Share of Minerals & Chemicals Share of Electronic components Share of Electronic components, Minerals & Chemicals
  24. 24. 24 The dominant sector exporting to China in the last few years is electronic components, which is largely dominated by Intel. Exports of components in the first half of 2014 rose 12% year-over-year to $500 million – 39% of total exports to China. Bear in mind that global Intel holds assembly and testing facilities in major markets in Asia (China, Vietnam and Malaysia) to where the chips manufactured in the company’s production plants in Israel are shipped. Changes in the exports of components result from Intel’s business considerations and decisions regarding the allocation of exports among target markets, and do not necessarily point to changes in local demand. Minerals, which primarily consist of potash are the second biggest exports to China, accounting for 18% of total exports to this market. Total mineral exports to China rose 16% from the first half of 2013 and totaled $230 million. This industry is almost entirely affected by the business activities of Israel Chemicals and subject to great volatility from one period to the period. Minerals are usually supplied following new agreements and transactions, agreements for the renewal of supply based on previous deals and/or exercise of options to supply based on previous deals. Chemicals are the third biggest export to China, and account for 8% of total exports. In 2014 exports of chemicals fell 13% year over year and totaled $110 million. Exports of other industries (excluding the 3 dominant sectors) rose by an impressive 13% in the first half of 2014. These industries saw an overall favorable trend, with an increase in the exports of scientific-medical equipment (rose 44% to 105 million), exports of machinery and equipment (increased 40% to $90 million), exports of control, measurement and navigation instruments (increased 40% to $60 million). On the other hand, exports of metals decreased 4% to $44 million, telecommunications fell 20% to a similar level and exports of rubber and plastic fell 27% to $21 million. Trends in exports to China – dominant sectors versus other industries (H1.2011 – H1.2014) Source: IEICI 369 358 390 442 659 1,043 775 843 - 200 400 600 800 1,000 1,200 H1.2011 H1.2012 H1.2013 H1.2014 M$ Rest of export to china Export of Electronic components, Minerals & Chemicals
  25. 25. 25 Turkey In the first half of 2014, the trend of growth in exports to Turkey continued and even accelerated. Following the rapid growth in 2013 (up 78% to $2.5 billion), exports to Turkey in the first six months of 2014 totaled $1.4 billion, up 18% from 2013, a record year in exports to Turkey. In the first six months of 2014, the value of Israeli exports to Turkey was equivalent to the annual average in the years 2007-2012. Exports of goods to Turkey, 2007-2013 and H1.2014 versus H1.2013 Goods excluding diamonds, original data in billion $ Source: IEICI In line with the trend of the last few years, the leap in exports to Turkey is almost entirely attributed to the dramatic increase in exports of chemicals and oil distillates which, as at year-end, accounts for 80% of total goods exports to Turkey. Total exports of chemicals and oil distillates in the first six months of 2014 soared 22% to a total of $1.1 billion. It is noted that a large share of exports to Turkey, especially in this industry, includes exports that are directed to other markets. 1.4 1.2 2.5 1.4 1.8 1.3 1.1 1.6 1.2 1.1 0.9 2.0 0.9 1.3 0.8 0.6 0.9 0.6 0.0 0.5 1.0 1.5 2.0 2.5 H1.2014 H1.2013 2013 2012 2011 2010 2009 2008 2007 B$ Export To Turkey Export To Turkey - Excluding Chemicals & Oil refineries
  26. 26. 26 Turkey is in fact a gateway to countries that do not have official diplomatic relations with Israel. This fact explains how, while Israel-Turkey relationships are deteriorating, exports to the country reach record levels each year. Exports of other sectors (total exports excluding chemicals and oil distillates) fell 4% year over year. The leading exports to Turkey in 2014 are: metals10, which rose 23% (to $66 million), engines and electrical equipment soared 150% (to $50 million), wood products and printing rose 23% (to $24 million), mining and minerals fell 20% (to $18 million), agricultural exports declined 5% to $12 million, industrial equipment for control, optical equipment and photographic instruments fell 26% to $5 million, food and beverages fell 44% to $5 million and electronic components fell 88% to about $1 million. The Netherlands According to exports data for the first half of 2014, the Netherlands is ranked fourth (alongside China) among Israel’s export markets. Total exports to the Netherlands in the period came to $1.3 billion, soaring 30% from 2013. The sharp increase in exports to the Netherlands was primarily driven by the growth in pharmaceutical exports, which tripled from the same period of 2013 (from $120 million to $370 million). Given the fact that the Netherlands is a global trade center and a gateway for Israeli companies to other European countries (and countries across the globe), the bulk of pharmaceutical exports is not directed to the local market but shipped to other markets (mainly UK, Germany and US). Excluding pharmaceuticals, total exports to the Netherlands in the first half of 2014 rose 6% year over year. Exports of machinery and equipment increased 16% to $210 million, exports of food and beverages rose 18% to $47 million, exports of medical-scientific equipment soared 106% to $43 million, exports of telecommunication equipment rose 24% to $42 million, exports of rubber and plastics rose 4% to $40 million and exports of computer systems rose 44% to $30 million. On the other hand, exports of chemicals and oil distillates fell 9% to $260 million, and agricultural exports fell 8% to $105 million. It should be noted that many Israeli companies have parent companies, subsidiaries or affiliates in the Netherlands, and the country constitutes a gateway for Israeli companies to other European countries and to certain countries outside Europe. 10 Mainly includes metal scraps and metal for recycling – that offer low added value to exports and GDP
  27. 27. 27 Germany Germany is the 6th biggest market for Israeli exports in the world and the third in Europe11. Exports to Germany are highly diverse, and no dominant industry or company has a marked impact on exports to the country. Exports to Germany, the strongest economy in Europe and one of the most dominant economies worldwide, remained unchanged from the first half of 2013, totaling $860 million. Among the main export industries, exports of chemicals and oil distillates decreased 6% to $140 million and exports of medical-scientific equipment decreased 6% to $55 million), while exports of machinery and equipment rose 9% to $87 million), exports of rubber and plastics increased 8% to $84 million), metal exports rose 11% to $70 million and exports of electronic components rose 7% to $52 million. It should be noted that German imports from Israel are particularly small given the fact that Germany is one of the biggest importers in the world12. Germany’s imports from Israel as a share of total imports is 0.14% only – the smallest percentage among Israel’s key export markets. This share is even smaller than China’s share, although its imports are subject to quite a few restrictions. France In line with the positive sentiment in exports to Europe, exports to France in the first half of 2014 rose 10% in dollar terms, totaling $770 billion. Israel primarily exports advanced metal products, chemicals and agricultural produce to France, which together account for half of exports to the country. These three industries rose in 2014 year-over-year: exports of metal products rose 10% to $163 million, (21% of total exports), exports of chemicals and oil distillates rose 2% to $107 million (14% of total exports) and exports agricultural produce rose 5% to $106 million (14% of total exports). Exports of rubber and plastic products also rose (up 25% to $62 million), exports of aircrafts increased 2% to $40 million, exports of telecommunication equipment rose 14% to $38 million and exports of food and beverages rose 12% to $36 million. Italy Israeli exports to Italy in the first half of 2014 totaled $630 million, virtually unchanged from the first half of 2013. Exports to Italy are strongly affected by exports of chemicals and 11 Given the fact that Holland is a passageway for goods to other destinations around the world and that goods exported from Israel to Holland are not intended solely for this market, some consider Germany as the second most important exports market in Europe. 12 Germany is the 3rd biggest importers after the US and China. In 2013 Germany’s goods imports totaled $1.2 trillion, twice the imports of the UK and France.
  28. 28. 28 oil distillates, a key exporting industry to Italy, which accounts for half of total exports. Exports of chemicals and oil distillates remained unchanged year-over-year and totaled $326 million (52% of total exports to Italy). The main sectors whose exports to Italy contracted from 2013 were: machinery and equipment (down 7% to $46 million), metals (down 16% to $26 million), of industrial equipment for control, optical equipment and photographic instruments (down 39% to $17 million), and agricultural produce (down 37 % to $12 million). An increase in exports was recorded in the following sectors: rubber and plastics (up 9% to $40 million), telecommunication equipment (up 29% to $18 million), food and beverages (up 7% to $17 million), minerals (up 27% to $17 million), and measurement and testing equipment (up 34% to $12 million). Russia Russia is ranked ninth among Israel’s main export markets. During the first half of 2013 exports to Russia came to $520 million, unchanged from 2013. Exports of agricultural produce are the main exports to Russia, accounting for 38% of total exports. In the first half of 2014, agricultural exports grew 13% to $206 million. Other leading export industries are chemicals and oil distillates and pharmaceuticals. Exports of chemicals fell 13% year-over-year totaling $50 million (9% of total exports) and exports of pharmaceuticals increased by 84% to $40 million (7% of total exports). Spain In the first half of 2014, Israeli exports to Spain fell 30% year over year, totaling $510 million. During the period, exports were affected by a steep decrease in exports of chemicals and oil distillates, which account for 47% of total exports to Spain (down 49% to $235 million). Excluding chemicals, exports fell 1% only from the first half of 2013. Other exports to Spain in the period included: industrial control equipment (up 25% to $60 million), machinery and equipment (down 17% to $54 million), agricultural produce (down 18 % to $32 million), rubber and plastics (up 14% to $24 million), mineral products (down 15% to $20 million), metals (down 1% to $11 million), food and beverages (down 5% to $9 million), and medical-scientific equipment (up 21% to $8 million).
  29. 29. 29 Brazil In the first half of 2014, Brazil ranked 11th among Israel’s main export markets. Exports to Brazil totaled $455 million, down 13% from the first half of 2013. The decrease in exports to Brazil is mainly attributed to a steep decline in exports of chemicals and minerals, which account for 55% of total exports to the country. Chemicals and oil distillates, the main exports to Brazil (32% of total exports) totaled $150 million, falling 15% from the first half of 2013. 'Makhteshim-Agan' ('Adama') and Israel Chemicals, which own production plants in Brazil, considerably affect the exports of chemicals to the country. Exports of minerals to Brazil (mainly potash and phosphates) fell 32% year-over-year and totaled $105 million. Similar to the situation with China and India, the change in mineral exports is attributed to ICL’s business activities in the country. Other exports to Brazil pointed to a mixed trend: exports of telecommunication equipment declined 1% to $52 million, pharmaceutical exports fell 10% to $38 million, exports of rubber and plastics rose steeply by 37% to $26 million, exports of machinery and equipment rose 6% to $26 million and metal exports fell 4% to $21 million. India Amid a severe downturn in the Indian economy in the last few years, high inflation and continued depreciation of the local currency, we see a continued contraction in India’s demand for Israeli goods. Between the years 2010 and 2013, Israeli exports to India fell from $1.7 billion to $1.1 billion only in 2013 –an aggregate decline of 36%, or 14% in average annual terms. Overall, the decline in exports to India in 2010-2013 totaled $600 million in dollar term – equal to 6% of Israeli exports to Asia and to Israeli exports to South Korea in 2013. Accordingly, India’s weight in Israeli exports to Asia fell significantly. Trends in exports to India in 2010-2013 Exports of goods excluding diamonds in $, billion Source: IEICI 1.7 1.5 1.3 1.1 20% 16% 14% 11% 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 0% 5% 10% 15% 20% 25% 2010 2011 2012 2013 אלפים Export to India Export to India out of total export to Asia (%)
  30. 30. 31 In 2014, the contraction in exports to India continued, as total exports fell 23% year-over- year to $450 million. In line with the overall negative trend, most exports to India decreased: Israel’s main exports to India are minerals (19% of total exports to the country) which fell by 52% in the first half of 2014 and totaled $84 million. Exports of minerals are strongly affected by the production and export activity of Israel Chemicals. In the company’s13 financial statements, ICL reported a drop in sales due to waning demand and lower selling prices of potash and phosphates, as a result of the change in farmers’ subsidiary policy and the currency’s depreciation versus the dollar. Exports of chemicals and oil distillates, the second biggest exports to India, accounting for 18% of total exports, fell sharply by 18% year over year and totaled $82 million. These exports are affected by changes in the activity of Israel Chemicals (ICL Industrial Products) and Oil Refineries. Another industry that notably affects exports to India is defense and security, which is also highly volatile and affects exports of “defense” industries. Exports of industrial equipment for control, optical equipment and photographic instruments, fell 67%, to $16 million. Exports of control, measurement and navigation instruments rose 7% to $12 million, exports of electronic equipment fell 51% to $3 million and exports of aircrafts fell 66% to $2 million only. Total exports of these industries fell 54% to $33 million (7% of total exports). Another key export to India is telecommunication equipment which recovered in 2014 after several years of decline. In the first half of 2014 it rose 20% to $80 million (18% of exports). Another important export is machinery and equipment which, among others, includes equipment and products of companies in the fields of agro-technology, water, cleantech and the environment. Total exports of this industry fell 10% to $52 million – 12% of total exports to India in the reported period. Additional exports to India include metals, which declined 1% to $30 million, engines and electrical equipment, which soared 150% to $18 million and medical-scientific equipment which fell 26% to $12 million. At the end of June, 2014, India is ranked 12th of Israel’s main export market. Malaysia The ranking of Israel’s key export markets did not include Malaysia although technically it was ranked 7th in the first half of 2014 (similar to 2013). 13 Financial statements for 2013, first and second quarters of 2014
  31. 31. 31 Exports to Malaysia totaled $790 million ($1.5 billion in 2013). and was ranked 7 among export destinations. In fact, exports of electronic components accounts for more than 98% of exports to Malaysia and excluding this industry, there is virtually no trade between the countries. Global Intel has testing and assembly facilities in several key markets in Asia, Malaysia among them. In our opinion, the chips manufactured in the company’s plants in Israel are sent to these markets. As stated above, changes in the export of components result from Intel’s business considerations and decisions regarding the allocation of exports between markets, and do not necessarily point to changes in local demand.
  32. 32. 32 Exports of Services Data for the first half of 2014 paint a clear picture: while exports of goods continue to stagnate, services exports continue to grow rapidly from one year to the next, supporting the moderate growth of Israeli exports. According to the IEICI’s economic division, exports of services (excluding start-up companies), is expected to grow in the first half of 2014 to $17 billion – a dollar increase of 13% from the first half of 2013, compared to 1.5% only in exports of goods and stagnation of exports excluding diamonds. Exports of start-up services fell dramatically in 2014 compared to 2013, when exports peaked due to an unprecedented number of major transactions, including the sale of Waze to Google. Exports of services including start-ups grew by a moderate 2% from the first half of 2013. The continued increase in exports of services was due to the sharp growth in exports of business services, which is expected to grow 18% year-over-year in the first half of 2014 (excluding start-ups). The growth in business services exports is mainly attributed to exports of computer and software services, which soared 25% from the start of 2014 and now accounts for 30% of total services exports. Exports of business services, including start ups, are expected to grow 1% and total $12 billion. Exports of transportation services in 2014 were affected by the weakness in global trade and according to estimates, are expected to decline 9% from 2013. This is mainly due to lower revenues from export shipments, shipping services between foreign ports, leasing fees and port services – exports of transportation services are expected to reach $2 billion. Exports of tourist services increased 15% in the first half of 2014 to $3.1 billion. It should be noted that export of tourism services is expected to drop in the second half of 2014 as a result of operation “Solid Rock”. Exports of business services (H1.2014 versus H1.2013): Export of computer and software services14, is expected to increase 25% to a total of $5 billion. Export of research and development services (excluding start-ups), is expected to rise 18% to $19 billion (11% of total exports of services). Export of professional services (legal, engineering, accounting-financial, architectural services and different management services) also contributed to the positive trend in the services industry with a projected increase of 21% to a total of $1.8 billion. Export of services to industrial sectors is expected to rise 6% to $965 million, export of wholesale commerce is expected to increase 24% to $540 million, export of banking and financial services is projected to remain at the same level as in the first half of 2013 ($330 million) and exports of communication services is expected to decline 4% to $120 million. 14 Including development of software computer services and outsourcing (IT)
  33. 33. 33 Exports of services and exports of business services, H1.2014 – H1.2013 Excluding start-ups ($ Billion) Source: IEICI 0 5,000 10,000 15,000 Export of services - Total Export of software & computing services Export of other business services
  34. 34. 34 Total High Tech Exports: Services and Industry Analysis of high tech export data by goods and services Data for the first half of 2014 paint a clear picture: while exports of goods continue to stagnate, services exports continue to grow rapidly from one year to the next, supporting the moderate growth of Israeli exports. In the last few years, the share of technology services exports in total high tech exports has been rising steadily, while the share of exports of high tech industries has been contracting. This reinforces the advantage of the Israeli economy as intensive in innovation and know-how, which do not ultimately lead to the development of domestic production line. This trend persisted in 2014, as exports of high tech services continued to accelerate, reaching their highest level ever. Total exports of high tech industries, which consists of pharmaceuticals, electronic components, aircrafts, telecommunication equipment, industrial control equipment and medical and scientific equipment, rose in the first half of 2014 by 3.5% (to $10.6 billion), owing to pharmaceutical exports, excluding which it actually declined 1.5%. The share of high tech industries in total high tech exports fell from 71.5% in the first half of 2011 to 61% in the first half of 201415. In line the accelerated growth in exports o high tech services in the last few years, this sector continued to grow in 2014. Total exports of high tech services rose 23% to $7.7 billion (excluding start-ups). The weight of high tech services in total high tech exports rose from 28.5% in mid-2011 to 39% in 2014. The core high tech index - comprises high technology industries excluding industries with dominant companies (pharmaceuticals, electronic components and aircrafts). This index rose 14% and totaled $10.6 billion (61% of total high tech exports). Total exports of high tech products and services rose 10% in the first half of 2014 totaling $17.5 billion - 37% of Israeli exports. 15 In 2013 the weight of high tech industries in total high tech exports fell to 61% from 66% in 2012 and 73% in 2010 71.5% 64.5% 64.8% 61.6% 28.5% 35.5% 35.2% 38.4% 25% 45% 65% H1.2011 H1.2012 H1.2013 H1.2014 Trends in high tech exports: industry declines; services increase High - technology industries High - technology Services
  35. 35. 35 Exchange rate Dollar-shekel The dollar’s depreciation against the shekel, which began in the third quarter of 2012, continued in the first two quarter of 2014 and the dollar’s representative rate fell in June to its lowest level in three years. In the first half of 2014, the dollar-shekel average exchange rate was NIS 3.48/dollar, down 3.5% from NIS 3.61 in 2013. The dollar fell 5% vis-à-vis the shekel in the last 12 months and by more than 12% in the last 3 years. USD-NIS, 2011-2014: Source: BOI & IEICI Prompted by the argument that the dollar’s weakness is a global phenomenon, and hardly unique to Israel, we compared the dollar’s rate to 55 different currencies worldwide and analyzed the rates of change in last 18 months16. Our analysis shows that the Israeli currency and the Icelandic Corona were the two currencies that recorded the sharpest appreciation against the US dollar in the last 18 months. Moreover, currencies of many developing markets which, like Israel, offered a positive interest spread versus the dollar, recently lost ground – while the shekel’s value continued to climb. 16 Comparison to currency rates as of 31/12/2012
  36. 36. 36 While in the last year and a half, the dollar depreciated 8.1% against the shekel – the dollar rose 7.6% against the Brazilian real, by 10.3% against the Australian dollar, by 15.4% versus the Chilean Peso and by 17% against the Japanese yen. A similar trend was recorded in Singapore (+2.0%), Taiwan (+2.9%), Malaysia (+5.0%), the Czech Republic (+5.3%), Thailand (+6.1%) and Canada (+7.1%). The dollar versus other currencies – rate of change in last 18 months Rate of change in the dollar’s rate; 30/6/2014 compared to 31/12/2012 (*) In addition, the dollar strengthened by 46.3% against the Venezuelan Bolivar, by 65.5% against the Argentine Peso and by 109% against the Iranian Real.
  37. 37. 37 The dollar’s value actually declined against other leading currencies (3.7% versus the Euro, 4.9% versus the Pound Sterling and 3.1% versus the Swiss Franc), however, its fall vis-a-vis the shekel was much steeper. In fact, of the chosen 55 currencies, only the Icelandic corona gained more ground against the dollar than the shekel. It should be noted that the corona’s appreciation against the dollar is only partial recovery from its crush in 2008. Since January 2008 the corona’s rate plummeted 44% versus the dollar, while the shekel rose 11%. Shekel-Euro In 2014, the Euro also depreciated against the shekel. The Euro-shekel average exchange rate in the first half of 2014 was NIS 4.77 compared to NIS 4.80 in 2013, a 0.5% decrease in value. Euro-shekel, 2011-2014: Source: BOI & IEICI
  38. 38. 38 Changes in the value of the dollar against the Euro also have an indirect impact on the analysis of export data in dollar terms. During the first half of 2014 the Euro continued to appreciate against the dollar. The Euro’s average rate was $1.371, up 4.4% from its average rate in the first half of 2013. The Euro’s appreciation against the dollar accounts for part of the growth in Israel’s exports to EU countries. Euro-dollar, 2012-2014: Average monthly rate Source: X-Rate, IEICI Currency basket For a more accurate measurement of the development in exchange rates, the Bank of Israel measures the real-effective exchange rate of the currency basket, which is composed of the shekel’s exchange rate against the currencies of Israel’s 28 main trading partners, net of the effect of inflation differences vis-a-vis each country.
  39. 39. 39 The shekel’s real exchange rate relative to the currency basket fell to a 10-year low. The real-effective currency basket reached 104 points in June 2014, down 17% since January 2004 to its lowest level since December 2011 (12.5 years). The shekel’s appreciation has steadily eroded the profits of Israeli exporters undermining their competitiveness against overseas markets. The continued erosion in the exchange rate is detrimental to exports, which account for 40% of GDP and therefore impedes the growth of the Israeli economy. Bear in mind that a 10% increase in the real exchange rate translates into 2% erosion in exports; in other words, an annual loss of $1.8 billion in exports and 0.6% in GDP. An analysis of the profitability of exporters based on their financial statements (at the end of this report) points to a clear adverse impact in the last few years. Apart from currency risks, exporters are facing a downturn in global business activity, fierce competition from European and Asian markets and import restrictions imposed by many governments that are trying to protect domestic production. The real-effective currency basket : 2002-2014 Source: BOI & IEICI 90 95 100 105 110 115 120 125 130 135 140
  40. 40. 41 Centralization in Israeli Exports The export concentration report of the IEICI’s Economic Department is continually monitoring the development and trends of Israeli exports in the last few years17 based on the export data of Israeli exporters. This report has previously shown worrisome statistics of growing concentration in Israeli exports, the rising dependence of exports (and the economy) on a small number of giant corporations, and the difficulty facing small and medium exporters in increasing their sales to overseas markets in the last few years18. An analysis of data for the first half of 2014 indicates that export concentration has continued, and to date exports of the ten biggest Israeli exporters account for more than half of total exports of goods.19 The findings of this analysis, covering the period 200720 to 2013 attest to a steady increase in the weight of the exports of dominant firms: for example, in 2007 their weight of total exports was 36% “only”; in 2118 it rose to 42%; in 2119, the global crisis year, the dominance of the 10 biggest corporations (which were hurt less by the repercussions of the crisis) continued and their exports in that year climbed to more than 43% of total exports; the rapid recovery in exports in 2010 saw a steep increase in the weight of these companies, to 46% of total exports; the trend continued in 2011 and 2012, as their weight increased to 47.5% and 48.5%, respectively. In 2013, export concentration peaked as the weight of the 10 biggest exporters in Israel crossed the threshold to 50.5% of total exports. Correspondingly, the weight of exports of other exporters combined fell from 63.6% in 2007 to 49.5% in 2013. In 2014 export concentration continued and the ten biggest exporters together accounts for 50% of total exports. Analysis: IEICI 17 The data in this analysis are based on exports of goods excluding diamonds, in dollar terms 18 Despite the growth in exports over the last few years 19 Goods excluding diamonds 20 The basis year of the analysis 36.4% 41.9% 43.3% 46.0% 47.5% 48.5% 50.5% 49.9% 63.6% 58.1% 56.7% 54.0% 52.5% 51.5% 49.5% 50.1% 2007 2008 2009 2010 2011 2012 2013 H1.2014 G10 Rest of Exporters
  41. 41. 41 In 2013 the exports of the 10 biggest exporters (G10) totaled $23.9 billion, up 8% from 2012. Aggregate exports of all the other exporters totaled $23.4 billion, 0% growth from 2012. The stagnation in exports of goods in the first half of 2014 was reflected in the exports of the 10 biggest exporters and other exporters. Exports of 10G in the first half of 2014 totaled $12 billion, up 1% from the same period of 2013. The exports of other exporters remained unchanged from the first half of 2013. Analysis: IEICI 22.5 24.2 20.4 22.5 24.6 23.4 23.4 12.0 12.1 12.9 17.5 15.6 19.2 22.3 22.0 23.9 11.9 12.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 2007 2008 2009 2010 2011 2012 2013 H1.2013 H1.2014 B$ G10 Rest of Exporters

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