Developments and trends in Israeli exports – Q2 2012

1. DEVELOPMENTS AND TRENDS
IN ISRAELI EXPORTS
Summary of the second
half of 2012
Written by the Economic Department
The Israel Export and International Cooperation Institute
August 2012
1

2. Table of Contents:
Executive Summary....................................................................................................... 3
Export Adjustments ....................................................................................................... 6
General – Exports of Goods and Services ..................................................................... 7
Exports of Goods By Sectors ........................................................................................ 7
Diamond Exports ........................................................................................................... 8
Agricultural Exports ...................................................................................................... 8
Industrial Exports .......................................................................................................... 9
Exports of Services ...................................................................................................... 13
Exports by Regions ...................................................................................................... 14
Israel's Main Export Markets: Developments and Changes ........................................ 21
Top 10 Exporters of Goods ......................................................................................... 31
Change in the Shekel’s Exchange Rates...................................................................... 32
2

3. Executive Summary
2012 is shaping up to be a difficult year for exports. On the back of the dire crisis in the
EU, the slowdown in the global economy and the contraction in the volume of global
trade, during the last two quarters, exports of goods from Israel recorded the steepest
declines since the height of the global crisis. While in the second half of 2011 the
growth trend halted, during the first half of 2012 exports declined by 5% in dollar
terms – for the first time since 2008.
Exports of goods, excluding diamonds, ships and aircrafts: 2009-2012 (seasonally- adjusted)
In line with the overall negative trend in exports in the first half of 2012, diamond
exports fell by 23% in dollar terms compared with the same period of 2011. Industrial
exports declined 4% in dollar terms and agricultural exports also decreased 4% in
dollar terms.
During the first half of 2012, exports of high tech industries decreased 6% from
the second half of 2011 and in fact have been steadily declining since the first half
of 2011. Likewise, exports of pharmaceuticals fell 12% (after declining 5% in the
second half of 2011) and exports of electronic components rose 8% (following a 6%
decrease in the second half of 2011). Exports of communications, scientific-medical
and control equipment (the core index of high tech industries1) declined 1% in the first
half of 2012, a similar decline as in the second half of 2011
High tech exports, 2009-2012 (seasonally--adjusted)
1
Total exports of high technology excluding pharmaceuticals, electronic components and aircrafts
3

4. Other industrial sectors saw a negative trend, overall, with downturns recorded in
exports of chemicals, minerals, metals, rubber and plastic, textile and food. On the other
hand, exports of machinery and equipment and electronic equipment increased.
In contrast to the negative trend in the exports of goods, exports of services
continue to grow owing to a significant increase in exports of software, research and
development (according to international statistical definitions, these items are classified
under services). Between January and June 2012, exports of services totaled $14 billion,
rising 9% year-over-year. The growth in exports of services has 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 first half of
2011, pointing to stagnation in exports.
During the first half of 2012, exports to the EU decreased 4% from the first half of
2011, exports to Asia rose 14% year-over-year, primarily owing to the accelerated
growth in the exports of components and minerals, exports to Latin America grew by
9% and exports to Africa increased 6% year-over year. While exports to the US fell
by a sharp 20%, this drop is accounted for by a sharp decrease in the exports of
pharmaceuticals in the second half of 2011 (as a result of a change in Teva’s target
markets). Excluding this sector, the picture is reversed and exports to the US point to a
3% increase.
The first half of 2012 saw a downturn in exports to 5 out of 10 major export
destinations, pointing to a decline in exports to developed markets, which was partially
offset by an increase in exports to developing markets.
Ranking first among Israel’s major target markets in the first half of 2012 is the US. As
stated, exports to the US were primarily affected by the continued contraction in exports
of pharmaceuticals, which were diverted to alternative markets – excluding this effect,
exports to the US actually recorded an upward trend, which was evidenced by
most sectors. Exports to Britain (the second-ranking exports target and the biggest in
Europe) rose 17%, mostly owing to the growth in pharmaceutical exports, which
accounts for more than 50% of exports to the country. Exports of other sectors during
the reviewed period recorded a much more moderate increase of 4%.
Exports to China remained stable. In the first half of 2012 China was ranked third
among export destinations, however, including Israeli exports to Hong Kong, the
Republic of China is placed second. The growth in exports to China continued to be
led by three dominant sectors: electronic components, minerals (potash) and
chemicals. Total exports by these sectors grew 58% during the first half of 2012
topping 1 billion dollars, approximately 75% of total exports (compared to 64% of total
exports in the same period of 2011). Total exports to China, excluding the three
major sectors, decreased 4% year-over-year, totaling $355 million only.
The trend of contraction in exports to Germany and Turkey continued; exports to
Italy also declined considerably, while exports to India and Brazil continued to
recover driven by an increase in exports of minerals and chemicals to these
countries.
4

5. The 10 leading export markets – first half of 2012 vs. first half of 2011
Exports of goods excluding diamonds, in $ billion
Exports 2012 2011
Country Change
(H1.2012, B$) Rating Rating
US 4.9 1 1 (-)
Britain 1.4 2 2 (-)
China 1.4 3 4 +1
Netherlands 1.2 4 3 -1
Germany 0.8 5 5 (-)
Turkey 0.8 6 6 (-)
France 0.7 7 8 +1
Italy 0.6 8 7 -1
India 0.6 9 9 (-)
Brazil 0.6 10 16 +5
In the first half of 2012, the exports of the 10 biggest exporters accounted for 47%
of total exports of goods excluding diamonds, similar to their weight in the whole
of 2011. Total exports for the 10 leading exporters of goods totaled $10.6 billion during
the reported period, down 4% from the same period of 2011. In the years 2007-2011 the
weight of the 10 biggest exporters in total exporters rose from 36% in 2007 to 47% in
2011.
The change in the shekel’s exchange rate: the real-effective2 currency basket
depreciated by 3.4% compared to the 2011 average. However, The currency basket’s
exchange rate still points to a 13% appreciation versus the average level in 2006-
2007. It should be noted 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 in opposite direction results from a depreciation in the real-
effective exchange rate. Furthermore, the decline in the Euro’s value against the
dollar during the first half of 2012 explains part of the decrease in Israeli exports
to EU countries.
The stagnation in exports in 2012 is the main contributory factor to the rise in
unemployment: our calculations show that a 6% growth in exports is needed to
prevent a rise in unemployment. A continued stagnation in exports until the end of
2012 will push up unemployment to 8% at the start of 2013.
2
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 is
composed of the shekel vis-a-vis the currencies of Israel’s main trading partners, net of inflation
differences vis-a-vis each country).
5

6. Export Adjustments: the link between exports based on
foreign trade data and exports based on the balance of payment
and national accounting data
On August 15, the Central Bureau of Statistics (“CBS”) published the first
estimate of the national accounts for the second quarter of 2012, which indicates
that GDP rose by an annual rate of 3.2%, reflecting an annual 10% increase in
exports of goods and services. 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. In the first estimate for the previous
quarter, the CBS reported a sharp 14% growth in exports of goods and services,
which a month later was revised to 3% and by the third estimate revised to a 2%
decrease in exports (a revision that reduced the growth rate for the reported
period from 3% to 2.7%). 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.
6

7. General – Exports of Goods and Services3
Israeli exports of goods and services in the first half of 2012 decreased 3% in dollar
terms compared with the first half of 2011, totaling $41.6 billion. Exports of goods
fell 8% to $27.5 billion while exports of services grew 9% year-over-year totaling
$14 billion.
The decrease in exports of goods during the first half of 2012 primarily stemmed
from a sharp drop of 23% in diamond exports which fell to $4.9 billion and
accounted for 18% of total exports of goods for the period. Industrial exports recorded a
4% decline in dollar terms and it amounted to $21.8 billion (79% of total goods
exports). Agricultural exports also declined by 4% to $840 million (3% of total goods
exports).
Exports of goods and services excluding diamonds and excluding sales of start-up
companies in the first half of 2012 decreased 0.4% in dollar terms compared to the
same half of 2011.
Exports of Goods by Sectors4
2012 is shaping up to be a difficult year for exports. On the back of the dire crisis in
the EU, the slowdown in the global economy and the contraction in the volume of
global trade, during the last two quarters, exports of goods from Israel recorded
the steepest declines since the height of the global crisis.
During the first quarter of 2012 exports of goods excluding diamonds declined 4.2% in
dollar terms compared to the fourth quarter of 2011, the first significant decrease since
the second quarter of 2010 and the steepest since the first quarter of 2009 – export data
for the second quarter point to a continued contraction of Israeli exports. During
this quarter exports fell by 2% in dollar terms, a decline that was reported by most
sectors.
3
As stated, the export figures presented below do not 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.
4
All export figures presented below relate to the exports of goods excluding diamonds, ships and
aircrafts – unless otherwise stated. Previous period relates to the previous quarter and based on
seasonally-adjusted data. Corresponding period relates to the same quarter of 2011 and based on
original data.
7

8. Exports of goods, excluding diamonds, ships and aircrafts: 2009-2012
Change in export volumes – quarter vs. previous quarter, seasonally-adjusted data
Source: Central Bureau of Statistics. Analysis by the Export Institute
The decrease in exports is also apparent when comparing data with the same period of
2011: in the first quarter of 2012 exports declined 1.8% (year-over-year), in the second
quarter the pace of decline accelerated to 6%. Overall, during the first half of 2012
exports decreased 5% compared to the same half of 2012 and by 4% compared to the
same period of 2011. Total exports in the second quarter of 2012 totaled $11.4 billion –
3% below the quarterly exports average in the whole of 2011.
Diamond Exports
Following a 23% growth in diamond exports in 2011 (which, among others, was
affected by the price hike in the industry), the trend reversed and diamond exports
fell 23% from the first half of 2011, totaling $4.9 billion. During the first half of
2012 exports of refined diamonds amounted to $3.4 billion (70% of total diamond
exports), dropping 17% compared to the same half of 2011, while exports of crude
diamonds totaled $1.5 billion (30% of total diamond exports), down 34% from the same
period of 2011.
Agricultural Exports
During 2011 agricultural exports rose 4% to a total of $1.4 billion. In the second quarter
of 2012, agricultural exports fell 12% from the same period of 2011 and 8% from
the first half of 2011. Agricultural exports in the first half of 2012 decreased 4% from
the first half of 2011, totaling $840 million which accounts for 4% of total goods
exports during the period. Bear in mind that since most of the agricultural exports
are targeted at EU countries, the dollar income from these exports was highly
affected by the Euro’s depreciation vis-a-vis the US dollar during the period.
8

9. Industrial Exports
In the first half of 2012 industrial exports decreased 2% quarter-over-quarter and
4% year-over-year. High tech exports, which declined 10% during the first quarter of
2012 from the fourth quarter of 2011, rose slightly during the second quarter, but this
growth primarily stems from an increase in pharmaceuticals and electronic components.
In other industrial sectors a clear negative trend was recorded in the second
quarter of 2012, with declines in the export of chemicals, machinery and equipment,
metals, rubber, plastics and textile, to name a few.
9

10. High Tech Exports
Despite a slight increase in high tech exports, a worrisome downturn trend in
export development is notable. An analysis of high tech exports quarter over quarter
points to a contraction in exports in 3 out of the last 5 months. An analysis of the data
year over year is indicative of a significant slowdown in the second half of 2012, which
developed into an apparent decline during the second quarter of 2012. Overall, in the
second quarter of 2012, high tech exports fell by 7.5% from the second quarter of
2011, while in the first quarter of 2011 high tech exports fell 7% from the first
quarter of 2011.
The negative trend in high tech exports
Change in export volumes – quarter vs. previous quarter, original data
In the second quarter, pharmaceutical exports rose 7% quarter-over-quarter, an
increase that partially offset the decrease in high tech exports – it should be noted,
though, that this increase follows a sharp 20% drop during the first quarter of 2012.
Overall, Israel’s pharmaceutical exports fell 20% during the first half of 2012.
Excluding pharmaceutical exports (which are subject to high volatility from one
period to the next) from total high tech exports, the result is a 3% decrease in
dollar terms in the second quarter of 2012, following a 1.5% decline in the first
quarter of the year. An analysis of the development high tech exports, with the
exclusion of pharmaceuticals, also points to a consistent decline in export volumes
(a decline in 3 out of the last 5 months).
10

11. Exports of high tech industries
Change in export volumes – seasonally-adjusted data, $ million
Pharmaceuticals
Electronic components and computers
Communications, control, medical & scientific equipment
Aircrafts
2500
2000
1500
1000
500
0
Exports of electronic components and computers rose 7% in dollar terms quarter-
over-quarter, while exports of communications and control equipment as well as
medical and scientific equipment fell 8.5%.
Exports of aircrafts are subject to great volatility due to the nature of the transactions
and the date of delivery in the industry. In the first half of 2012, aircraft exports
decreased 6% compared to the same period of 2011. During July 2011 (which was not
included in the above calculation) an exceptional transaction was recorded – with $640
million worth of exported aircrafts, 4.5 times the average exports in April-June and 50%
higher than the total exports of this industry for the three months.
Total high tech exports in the second quarter of 2012 amounted to $5.2 billion:
pharmaceutical exports totaled $1.7 billion (33% of high tech exports), exports of
electronic components and computers totaled $1.2 billion (23% of high tech exports),
exports of communication and control equipment, medical and scientific equipment
totaled $1.8 billion (36% of high tech exports) and aircraft exports in the second quarter
totaled $425 million (8% of high tech exports).
11

12. Other Industrial Sectors:
A negative trend was also observed for the majority of other industrial sectors in
the second quarter of 2012. Exports of chemicals (excluding pharmaceuticals) fell by
10% in dollar terms (totaling $2.1 billion), exports of machinery and equipment
declined 7.5% (to $772 million), exports of metals declined 6.5% (to $607 million),
exports of rubber and plastics decreased 6% (totaling $484 million), exports of
textiles declined 1% (totaling $209 million), exports of jewelry fell 12% (to $97
million), and exports of wood products, paper, publishing and printing fell 16%
year-over-year to $89 million.
On the other hand, a small number of sectors recorded an increase: export of minerals
was one of the few industries to grow year-over-year, rising 51% to $623 million – after
falling 34% in the first quarter of 2012. However, it should be noted that this sector is
primarily affected by the potash exports of Israel Chemicals, which fluctuate from one
period to the next, depending on the dates of renewal of potash contracts. Another
industry that recorded an increase from the previous quarter was export of electrical
equipment, which rose 4% to $328 million. Exports of food and beverages remained
unchanged at $250 million.
Exports of industrial sectors
In grey: change in export volumes – QoQ, seasonally-adjusted data in $ million
In red: export volumes – Q2/2012, original data in $ million
Source: Central Bureau of Statistics. Analysis by the Export Institute
12

13. Exports of Services
In contrast to the negative trend in goods exports year-to-date, services exports
continue to grow handsomely, mainly owing to a significant increase in exports of
software and R&D in the first half of 20125. The growth in services exports has
offset the decrease in goods exports (excluding diamonds), such that total exports
of goods and services (excluding diamonds) is effectively at the same level it was
last year, pointing to stagnation in exports.
In the months January-June 2012, services exports amounted to $14 billion, up 9%
from the same period of 2011. Exports of business services (including start-up
companies), which accounts for 66% of total services exports, grew 12% year-over-year
to $9.3 billion. Exports of tourism services grew 9% year-over-year to $2.6 billion
(19% of total services exports). Exports of transportation services decreased 5% to
$2.1 billion (15% of total services exports).
Among the business services sectors:
Exports of computer services, which accounts for 39% of exports of business services
and 26% of total exports of services, rose 16% during January-June 2012 year-over-
year, to a total of $3.6 billion.
Exports of research and development services, which accounts for 25% of exports of
business services and 16% of total exports of services, rose 36% during the said period
to $2.3 billion. Exports of services by startup companies (which partially derives
from total exits during the period) leaped 120% during January-June to a total of $630
million.
Additional sectors exporting business services:
Exports of wholesale commerce rose 4% to $370 million (4% of total services exports)
while exports of banking and financial services fell 30% to $210 million (2% of total
services exports).
Exports of services to the Palestinian Authority in January-June 2012 totaled $102
million, up 1% in dollar terms from the same period of 2011. Total exports to the
Authority accounts for 1% only of Israel’s total services exports.
5
In accordance with international statistical definitions, exports in these sectors are classified under
services.
13

14. Exports by Regions
Analysis of data of exports of goods excluding diamonds, by regions
The negative trend in exports during the second quarter of 2012, stemmed, among
others, from a decrease in Israel’s exports of goods to EU countries, which was also
affected by the sharp decline in the Euro against the dollar6. Exports to the
European Union, which accounts for one third of Israeli exports, decreased 2% from the
previous quarter, after dropping 14% in the first quarter of 2011.
On the other hand, exports of goods to the US excluding diamonds rose 2% from the
first quarter of 2012 (after rising 6% during the quarter), following the dramatic decline
in the exports of chemical industries to the US (mainly pharmaceuticals) during the
second half of 2012.
Exports to Asia rose 11% during the second quarter of 2012, pointing to a consistent
growth rate. Exports to the Rest of the World fell 16% quarter-over-quarter, after
growing 5% in the first quarter of 2012.
Development of exports by regions
Export volume – seasonality-adjusted data, $ million
Source: Central Bureau of Statistics. Analysis by the Export Institute
An analysis comparing export figures by trade regions compared to the same
quarter of 2011 points to a trend of significant decline in exports to Europe
alongside stability and growth in exports to Asia. For example, in the second quarter
of 2012 exports to EU countries fell 13% year-over-year. Exports to Asia, in contrast,
rose by an impressive 20% year-over-year during the second quarter of 2012. Exports to
the US fell by a sharp 18% year-over-year; however, this is entirely explained by a
dramatic decrease in exports of chemical industries (mainly pharmaceuticals) during the
6
The Euro depreciated 2.1% against the dollar in Q2/2012, and 2.7% in Q1/2012.
14

15. second half of 2011. Net of this sector’s impact, the picture is reversed pointing to a
6% increase in exports to the US. Exports to the Rest of the World fell 1%.
These trends are reinforced by comparing data for the second quarter of 2012 to the
average data for 2011. This comparison suggests that exports to EU countries in
Q2/2012 is 5.5% below the 2011 average, exports to the Rest of the World is 6% below
average while exports to Asian countries in Q2/2012 is 13% above the 2011 average.
Exports in the second quarter of 2012 vs. the 2011 average
By trading regions – original data
Source: Central Bureau of Statistics. Analysis by the Export Institute
The European Union
The downturn trend in exports to the EU has aggravated in the first two quarters
of 2012, after growing sharply by 21% during 2011 and being one of prominent
drivers of Israeli exports during that year. In the first quarter of 2012 exports to the
EU fell 14% quarter-over-quarter, with a further quarter-over-quarter 2% decrease
recorded in the second quarter of 2012. Some of the decline in the value of exports to
the EU stems from the rapid depreciation in the Euro against the dollar during those
periods. In the first quarter of 2012 the Euro declined 2.7% vis-a-vis the dollar while in
the second quarter it depreciated by a further 2.1%.
A similar picture is drawn when comparing the data to the same period of 2011; in the
second quarter of 2012 exports to the EU dropped 13% year-over-year, which is
primarily accounted for by the Euro’s 11% depreciation against the dollar compared to
the second quarter of 2011.
During the second quarter of 2012 the majority of industrial sectors to the EU saw
a drop in exports. Exports of chemical industries (including pharmaceuticals) fell
13% (totaling $1.6 billion), exports of machinery and equipment decreased 11% (to a
15

16. total of $732 million), exports of rubber and plastic fell 17% (totaling $317 million),
exports of medical-optical instruments declined 7% (to a total of $211 million),
exports of metals declined 11% (totaling $196 million), exports of plant products
decreased 10% (to a total of $193 million), exports of food and beverages decreased
1.5% only (totaling $82 million) and exports of textile products fell 24% from the
same quarter of 2011 (totaling $85 million).
In the second quarter of 2012 there was an overall decrease in Israeli exports to all
major export destinations in the EU (8 markets, which together account for 70%
of total exports to the EU). Exports to Britain, Israel’s leading export market in
Europe, decreased 3% year-over-year (totaling $838 million), and was primarily
affected by the British pound’s depreciation against the dollar at a similar rate. Exports
to Germany fell 16% (to $416 million), exports to France dropped 16% (to $289
million), exports to France decreased 4% (totaling $273 million), exports to Italy
dropped by a staggering 30% (to $265 million), exports to Cyprus decreased 8% year-
over-year (to $211 million) and exports to Belgium fell 13% (totaling $210 million).
The only market to which exports did not decrease was The Netherlands – where
exports actually increased by 3% in the second quarter of 2012 to a total of $576
million. At the same time, exports to the Netherlands slowed rather considerably
compared to the 12% growth in exports in the first quarter of 2012 (year-over-year),
which totaled $634 million. (Bear in mind that many Israeli companies has set up parent
companies and subsidiaries, so that the Netherlands has become a transition market for
Israeli exports to other countries).
Overall, exports to the EU, excluding diamonds, in the first half of 2012 totaled $7.3
billion, representing 32% of total Israeli exports during this period.
Exports to the EU, 2009-2012
Export of goods excluding diamonds / original data / in $ million
Source: Central Bureau of Statistics; analysis: the Export Institute
A detailed analysis of the development of exports to Israel’s major export markets in
Europe is presented below
16

17. United States
Following a continued decrease in exports to the US and a consistent decline in its
weight in total Israeli exports, in the first quarter of 2012 exports to the US picked
up considerably, and in contrast to the general negative trend rose 6% quarter-
over-quarter. In the second quarter of 2012 exports to the country rose slightly by
2% from the first quarter. Exports figures for the first and second quarter of 2012 are
still significantly below those recorded in the same period of 2011, due to the dramatic
drop in the exports of chemical industries to the US (almost entirely pharmaceuticals) –
a decline that had a material affect on total exports to the country. During the first
quarter of 2012 exports to the US fell by 22%, but excluding the sharp 44% drop in
exports of chemicals (mainly pharmaceuticals), this year-over-year decrease is
offset entirely.
The trend of recovery in exports to the US is also apparent from the data for the second
quarter of 2012: excluding the effect of the sharp drop in chemical exports (40%), the
result is a 6% increase in exports to the US year-over-year.
Overall, exports of goods to the US, excluding diamonds, in the first half of 2012
amounted to $4.9 billion – 22% of total Israeli exports.
Exports to the US, 2009-2012
Export of goods excluding diamonds / original data / in $ million
3,400
3,200
3,000
2,800
2,600
2,400
2,200
2,000
10
10
10
10
11
11
11
11
12
12
20
20
20
20
20
20
20
20
20
20
1.
2.
3.
4.
1.
2.
3.
4.
1.
2.
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Exports to the US
Source: Central Bureau of Statistics; analysis: the Export Institute
- A detailed analysis of the development of exports to the US is presented below -
17

18. Effect of chemical exports on total exports to the EU and the US
Rate of growth year-over-year
Source: Central Bureau of Statistics; analysis: the Export Institute
The sharp drop in pharmaceutical exports points to a considerable diversion of
these exports from the US to traditional and developing markets for the purpose of
reducing dependence on one geographic region.
Asia
In contrast to the general trend, exports to Asian countries rose 11% quarter-over-
quarter in the second quarter of 2012. Exports to Asian countries maintained a
stable growth despite the sharp volatility and downturn trend in Israeli exports
during 2012, with an increase recorded in 6 out of the last 7 quarters. Compared to
the same quarter of 2011, exports to Asia rose 20%.
Total exports to Asia in the second quarter of 2012 came at $2.5 billion, representing
22% of total Israeli exports during the period. The growth in exports to Asia year-over-
year was due to the continued growth in exports to China and the accelerated growth in
exports to Vietnam (owing to the sharp increase in exports of electronic components7).
Likewise, the continued recovery in exports to South Korea and India contributed to the
positive trend in exports to Asia. On the other hand, exports to Japan and Taiwan
dropped considerably, thus slightly offsetting the growth in exports to the continent.
7
Global Intel has assembly and testing facilities in China and Vietnam and a large portion of the
production of components in Israel is transferred to these countries.
18

19. Exports to Asia, 2009-2012
Export of goods excluding diamonds / original data / in $ million
2,600
2,500
2,400
2,300
2,200
2,100
2,000
1,900
1,800
10
10
10
10
11
11
11
11
12
12
20
20
20
20
20
20
20
20
20
20
1.
2.
3.
4.
1.
2.
3.
4.
1.
2.
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Exports to Asia
Source: Central Bureau of Statistics; analysis: the Export Institute
It should be noted that most of the growth in exports to Asia is affected by the growth in
the export of electronic components, chemicals and minerals, sectors controlled by two
of the biggest exporters in Israel (Intel and Israel Chemicals), and by the business
decisions of these manufacturers with regard to the distribution of exports among target
markets and supply dates. Thus, in the first half of 2012 exports of goods to Asia8
totaled $8.5 billion, up 1.5% year-over-year, while net of these industries, exports to
Asia actually decreased 3.5% in the first half compared to the same period of 2011.
Rest of the World
Exports to other trading partners (Latin America, Ukraine, Canada and the rest of
Europe) in the second quarter of 2012 fell by a sharp 16% from the previous quarter,
and by 1% from the same quarter of 2011. Total exports to these regions in the second
quarter of 2012 amounted to $2.7 billion, accounting for 24% of Israeli exports during
the period.
Most of the decrease in exports to the rest of the world stemmed from the rapid
contraction in exports to Turkey – Israel’s biggest export destination within the “Rest of
the World” group and one of Israel’s key export markets in general. Exports to Turkey,
which grew 43% in 2011 (totaling $1.85 billion), fell 18% year-over-year in the second
quarter of 2012, after dropping 23% in the first quarter. Overall, in the first six months
of 2012 exports to Turkey fell more than 20% compared to the first half of 2011, from
8
Including diamonds
19

20. $955 million to $755 million. In addition, exports to Costa Rica plummeted by 80%,
which had a material effect on exports to the “ROW” group. It should be noted that
exports to Costa Rica almost entirely consists of electronic components and
absolutely affected by Intel’s business decisions regarding the allocation of Israeli
production to globally dispersed plants owned by global Intel, which assembled
these components.
In contrast, the rise in exports to Brazil and Russia had a favorable effect. Exports to
Brazil grew 31% year-over-year, totaling $325 million and exports to Russia rose 23%
to $270 million. Another export market that has been growing at increasing rates is
Nigeria - in the second quarter of 2012 exports to this country leaped 149% to a
total of $122 million.
The growth in exports to Egypt continued in the second quarter of 2012; during
the quarter, exports to the country rose 34% to a total of $36 million. In the first
half of 2012, exports of goods totaled $149 million, growing 198% year-over-year.
Most of the increase is accounted for by the growth in the chemicals industry, which
represented 66% of exports to Egypt during the period. Exports of chemicals soared
more than 800% to $98 million.
Second quarter 2012: change in the relative weight of export markets
Weight of target market in Israeli exports, Q2/2012 versus Q2/2011
Source: Central Bureau of Statistics; analysis: the Export Institute
20

21. Israel's Main Export Markets: Developments and
Changes
Rating of export markets and details by sectors, exports of goods
excluding diamonds
In the second quarter of 2012 there was a decrease in exports to 6 out of 10 major
export markets, as compared to a decrease to 2 out of 10 major export destinations
in the quarter of 2011. A summary of export data for the first half of 2012 draws a
similar picture of a downturn in exports to developed markets, which was partly
offset by the rise in exports to developing markets.
For example, during the first half of 2012 exports to France declined 3% year-
over-year, exports to Italy decreased 16% and exports to Germany fell 17% in
comparison to the first half of 2011. (It should be noted that during the second
quarter, the Euro fell sharply against the dollar, which affected exports in dollar
value terms. However, net of this impact exports to EU countries have still fallen
during the second quarter9).
In contrast to the drop in exports to developed countries, exports to developing
markets maintained a positive trend. Exports to China in the first half of 2012 rose
36% year-over-year, exports to Russia rose 18%, exports to India increased 3%
and exports to Brazil soared 42% year-over-year.
Israel’s 10 major export destinations: first half of 2012
Based on exports of goods excluding diamonds, in $ million, change in % year-over-year
9
During Q2/2012 the Euro fell by an average quarterly rate of 11% against the dollar, further to
an average 4% decline in Q1/2012. The GBP weakened by an average 3% further to a 2% decline
in Q1/2012.
21

22. The change in the rating of 10 major export markets - first half of 2012
Based on exports of goods excluding diamonds, in $ million
Exports
Country Rating 2012 Rating 2011 Change
(H1.2012.B$)
US 4.9 1 1 (-)
Britain 1.4 2 2 (-)
China 1.4 3 4 +1
Holland 1.2 4 3 -1
Germany 0.8 5 5 (-)
Turkey 0.8 6 6 (-)
France 0.7 7 8 +1
Italy 0.6 8 7 -1
India 0.6 9 9 (-)
Brazil 0.6 10 16 +5
Countries’ weight in exports: first half of 2012
Based on exports of goods excluding diamonds, in $ million
Source: Central Bureau of Statistics. Analysis by the Export Institute
22

23. The United States
Rated first among Israel’s leading export destinations is the US. Exports of goods
(excluding diamonds) to the US in the first half of 2012 totaled $4.9 billion, dropping
steep 20% from the first half of 2011. As stated in the previous section, this drop
stemmed almost entirely from a sharp decrease in exports of pharmaceuticals, without
which exports to the US would have risen 3% year-over-year. Exports of
pharmaceuticals, Israel’s industry with the biggest export volumes to the US, fell
dramatically during 2012. In the first quarter of 2012 exports of pharmaceuticals to the
US dropped 52% year-over-year. The second quarter draws a similar picture with a 45%
decline year-over-year in this industry’s exports. These data point to a permanent
change due to a strategic decision by the biggest company in the industry to
diversify its target markets. Overall, pharmaceutical exports to the US in the first half
of 2012 totaled $1.4 billion, a steep 49% drop from the first half of 2011.
Other exporting industries to the US generally recorded a positive trend. Among
the major export industries, in the first half of 2012 there was an increase in exports of
chemicals and oil distillates (up 19% to $475 million), exports of medical and
surgical equipment (up 3% to $278 million), exports of rubber and plastic products
(up 19% to $221 million), exports of engines and electric equipment (up 22% to $174
million), exports of office machinery and computers (up 21% to $160 million),
exports of industrial equipment for control and supervision optical equipment and
photographic instruments (up 32% to $148 million) and exports of food and
beverages (up 14% to $114 million).
On the other hand, there was a decrease in exports of telecommunication equipment
(down 10% to $285 million), exports of metals (down 14% to $267million), and
exports of instruments for testing, measuring and navigating (down 6% to $215
million).
Exports of electronic components continued to contract due to the diversion of exports
by electronic component companies from developed to developing markets, but its
impact on total exports to the US declined considerably, relative to the last few years.
Exports of electronic components to the US in the first six months of 2012 amounted to
$152 million only, dropping 26% from the same period of 2011. Exports of electronic
components, as stated above, is significantly affected by the business activity of Intel,
which holds assembly and testing facilities for its products in China, Vietnam, Malaysia
and Costa Rica. Over the past year there was a dramatic decline in exports of
components to the US while the export of such components to several Asia countries
increased considerably. These changes result from inner-company business
considerations and do not necessarily point to general trends in Israeli exports.
Britain
According to export data for the first half of 2012, Britain is Israel’s second-biggest
export destination (similar to its ranking in the first half of 2011), and the biggest
destination among European countries. Total exports to Britain during the period were
$1.5 billion, up 17% compared to the same period of 2011.
23

24. Like the situation in the US, exports to Britain are highly affected by the dominance of
the pharmaceutical market, primarily due to Teva’s operations in the UK, which has
become a major target market for the company after diverting some of its US exports.
This sharp growth in pharmaceutical exports is the key factor that secured Britain’s
position in 2012 as Israel’s second most important export market and biggest target
market in Europe. Between January and June 2012 exports of pharmaceuticals to the
UK rose 48% to $800 million, 53% of total exports to the country. For the sake of
comparison, exports of all other sectors during the said period totaled $700 milion,
rising a moderate 4% from January-June 2011.
The growth in pharmaceutical exports to the UK accelerated during the second quarter
of 2011 and therefore, while the first quarter of 2012 points to a quantum leap of 735%
year-over-year, the second quarter witnessed stability in export levels from last year. In
line with thee developments, in the second quarter of 2012 exports to the UK
decreased 2% after growing by a sharp 87% in the first quarter of the year.
During the second quarter of 2012 most of the key industries exporting to the British
Isle recorded a decrease in exports. Exports of chemicals (excluding pharmaceuticals)
which grew 64% in the first quarter of 2012, fell 6% in the second quarter of 2012.
Summing up the two quarters, these exports rose 19% to $156 million. The growth in
agricultural exports slowed from 35% in the first quarter to 17% in the second quarter
(overall in the first half of 2012 it rose 7% to $82 million), exports of rubber and
plastic products, which rose 14% in the first quarter, remained unchanged in the
second quarter (in the first half of 2012 it rose 7% to $79 million). Exports of aircrafts
increased 20% in the first quarter but declined 3% in the second quarter (totaling $45
million in the first half of 2012, up 8%). Exports of telecommunications equipment
which rose 28% in the first quarter, decreased 5% in the second quarter (totaling $41
million in the first half of 2012, up 9%). Exports of textile and leather products
decreased 16% in the first quarter and dropped 30% in the second quarter (totaling $32
million in the first half of 2012, down 23%), exports of machinery and equipment,
which rose 43% in the first quarter, remained unchanged in the second quarter (totaling
$31 million in the first half of 2012, up 21%) and exports of medical and surgical
equipment which grew 46% in the first quarter, rose a further 28% in the second
quarter (totaling $25 million in the first half of 2012, up 37%).
Other sectors that recorded a downturn in the second quarter of 2012 were: industrial
equipment for control and supervision optical equipment and photographic
instruments (down 33% in the first quarter and down 37% in the second quarter –
overall down 35% in the first half of 2012 to $21 million), office machinery and
computers (from a 4% increase in the first quarter to a 13% decrease in the second
quarter – overall down 5% in the first half of 2012 to $21 million), and food, beverages
and tobacco (down 2% in the first quarter and down 18% in the second quarter –
overall down 10% in the first half of 2012 to $20 million). Exports of metals in the
first half of 2012 totaled $49 million, unchanged year-over-year.
24

25. China
After a slight deceleration in the growth rate in the first quarter of 2012, during which
exports to China grew 17% “only”, exports to the country accelerated in the second
quarter with a 52% growth rate. As we projected in our review for the first quarter of
2012, during the second quarter there was a marked improvement in exports to China
owing to a sharp growth in exports of minerals – one of the main export industries to
China. In the first half of 2012, exports of goods to China (excluding diamonds) totaled
$1.4 billion, a 36% increase from the same period of 2012. China is third among
Israel’s main export destinations, but if we include exports to Hong Kong, China
rises one level to the second place with total exports valued at $1.65 billion (ahead
of Britain, with exports of $1.5 billion during the period).
The main industrial exports to China are electronic components, chemicals and minerals
which, in 2011, accounted for 68% of total Israeli exports to this country. The
dominance of these sectors in exports to China grew during the first half of 2012,
reaching 75% of total exports to the country. These sectors are almost absolutely
affected by the business activity of two large corporations: Intel (electronic
components) and Israel Chemicals (chemicals and minerals), and the accelerated
growth in exports to China in the last year primarily stems from the activity of
these companies.
In 2011, Israeli exports to China totaled $2.3 billion (a 32% growth following a sharp
97% growth in 2010). During this year, exports of electronic components, chemicals
and minerals to China aggregated in excess of $1.5 billion, while exports of all other
industries totaled less than half ($743 million). Moreover, while exports of the three
major industries leaped 43% in 2011 and accounted for the accelerated growth in
exports to China, other industries recorded a more moderate increase of 14% only.
The contrasting trends in exports to China in 2011, strengthened in 2012. Total
exports of the 3 dominant sectors in the first half of 2012 grew 58% to more than
$1 billion, representing 75% of total exports, as compared to 64% of total exports
in the same period of 2012. Net of the three dominant industries in the first half of
2012, the picture is reversed and actually points to a decrease in exports year-over-
year. Total exports excluding these industries declined by 4% year-over-year,
totaling $355 million only.
The main industrial exports to China in the last few years is electronic components,
which, to a large extent, is dominated by Intel, and during the first half of 2012 grew
100% year-over-year, totaling $646 million, 46% of total exports to China.
Exports of minerals, which primarily includes potash, is the second biggest export
industry and as of June 30, 2012, accounts for 18% of total exports to China. During the
second quarter there was a marked improvement in mineral exports, an industry that is
entirely affected by Israel Chemicals’ activity in China. As stated in our previous
review, in March 2012 ICL announced that it signed agreements with several Chinese
customers for the supply of Potash aggregating 550,000 tons (estimated at $250
million), some of which was supplied during the second quarter of 2012. Accordingly,
there was a sharp growth in minerals exports in the quarter, leading to a 20% increase in
these exports overall during the six-month period. Total exports of minerals to China in
25

26. the first half of 2012 was $247 million, the bulk of which (98.5%) was recorded in the
second quarter.
Based on ICL’s reports, in the third quarter the company is expected to supply to
remaining goods pursuant to the previous agreement. Consequently, potash exports to
China are expected to remain on the growth path and have a positive affect on exports
of goods to China in the third quarter of 2012. It is yet unknown when the company is
expected to renew supply contracts with Chinese exporters, while current estimates
suggest the end of the third quarter.
The chemicals industry rank third in export volumes to China, accounting for 11% of
total exports to the country halfway through 2012. Chemicals exports during the period
grew 13% to $151 million.
As stated above, exports of other industries (excluding the 3 dominant sectors)
decreased 4% in dollar terms year-over-year, totaling $355 million only. Among
other sectors, declines were recorded in exports of metals (down 12% to $62 million),
exports of machinery and equipment (down 3% to $57million) and exports of
instruments for measuring and navigating (down 59% to $27 million) On the other
hand, an increase was recorded in the exports of medical and surgical equipment (up
35% to $60 million), in exports of telecommunication equipment (up 45% to $57
million), and exports of office machinery and computers (up 33% to $24 million).
The Netherlands
According to data for the first six months of 2012, the Netherlands is ranked fourth
among export markets. Total exports to the Netherlands in January-June 2012 came to
$1.2 billion, up 8% from the same period in 2011.
The increase in exports to the Netherlands was primarily driven by a sharp growth in
exports of pharmaceuticals, which doubled year-over-year, from $146 million in the
first half of 2011 to $304 million in the current half (25% of total exports to the
Netherlands). Excluding pharmaceutical exports, the growth in exports to the
Netherlands was 3% year-over-year, totaling $900 million.
Other key sectors exporting to the Netherlands: chemicals and oil distillates fell 21%
to $263 million (22% of total exports), agricultural exports rose 45% to $170 million
(14% of total exports) and exports of machinery and equipment, which rose 18% to
$160 million (13% of total exports).
Additional changes were recorded in the first half of 2012: exports of
telecommunications equipment (down 3% to $42 million), exports of minerals,
mining and quarrying products (up 4% to $39 million), exports of food and
beverages (down 11% to $39 million), exports of office machinery and computers
(up 39% to $3 million) and exports of rubber and plastic products (down 8% to the
same level).
26

27. 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 as well as to certain countries outside Europe.
Germany
The worrisome trend of contraction in exports to Germany continued during the second
quarter of 2012. After dropping 18% during the first quarter, exports fell by a further
16% in the second quarter. Overall exports of goods to Germany in the first half of 2012
(excluding diamond) fell 17%, totaling $827 million. Germany is the 5th biggest target
market for Israeli exports in the world and third in Europe10.
Germany is one of the most stable target markets for Israeli exports, posting
steady growth rates over the last few years. Exports to Germany are highly
diverse, without one dominant sector or company that distinctively affects exports
to the country – for this reason, the continued decline in exports to Germany,
which was recorded by nearly all the major sectors, is a cause for concern.
4 out of the 5 major industrial exports to Germany (accounting for 50% of total
exports to this market) recorded declines from the first half of 2011 (the fifth
sector remains stagnant): exports of chemicals and oil distillates fell 10% (to $121
million), exports of rubber and plastic dropped 9% (totaling $87 million), exports of
machinery and equipment fell 30% (to $76 million), exports of metals declined 11%
(to $72 million) and exports of electronic components remained unchanged year-over-
year (totaling $57million).
Our analysis further shows that similar to the trend in the first quarter of 2012,
only 2 out of 12 major export industries (accounting for 84% of total exports)
recorded an improvement from the same period of 2011. Exports of medical and
surgical instruments rose 8% year-over-year to $53 million, while exports of
pharmaceuticals grew 11% to $31 million.
Turkey
Despite a sharp drop in exports in the first two quarter of 2012, Turkey maintained its
position as the 6th ranking market for Israeli exports. Similar to the negative trend in
exports to Germany, the contraction in exports to Turkey persisted: in the first quarter of
2012 exports to the country fell by 23% while in the second quarter they dropped 18%
year-over-year. Overall, exports of goods to Turkey in the first half of 2012
decreased 21% to $755 million.
10
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.
27

28. Unlike Germany, exports to Turkey are dominated by chemicals and oil distillates,
which accounted for 70% of total exports to the country in the past year. In fact, the
entire growth in exports to Turkey in 2011 (38% to $1.8 billion) resulted from a sharp
65% increase in exports of chemicals and oil distillates. Excluding this industry,
exports to Turkey did not grow in 2011. In the first half of 2012, this industry saw a
sharp 29% drop in exports to Turkey, and its weight in total goods exports to Turkey
declined to 61%.
Exports of metals, which in the first half of 2012, accounted for 11% of total exports to
the country, also recorded an exceptional increase in the first half of 2011. These
exports primarily consist of metal scraps and metals for recycling. During January-June
2012 metal exports fell 18% year-over-year to $83 million.
A positive point arising from a sectoral analysis of exports to Turkey is the fact that
excluding the two aforementioned dominant sectors, the entire decrease is offset
(resulting in a small 0.5% increase in dollar terms). In fact, exports of other
industries during the second quarter of 2012 actually improved considerably from the
first quarter: during the second quarter of 2012 exports of other sectors was 18% year-
over-year, after declining 15% in the first quarter.
A positive trend was recorded by other sectors: exports of machinery and equipment
rose 28% (to $36 million), exports of engines and electric equipment grew 49% (to
$30 million), exports of pharmaceuticals rose 3% (to $16 million), exports of textiles
rose 12% (to $15 million), exports of minerals leaped 99% (to $15 million) and
agricultural exports grew 16% year-over-year to $14 million. On the other hand,
exports of paper and wood products fell 17% to $23 million.
It should be noted, that like the Netherlands, Turkey serves as a gateway to some of the
goods exported to it.
France
In the first half of 2012 France was Israel’s 7th biggest target market (rising from the 8th
place in the same period of 2011). Exports of goods excluding diamonds to France
during the period totaled $673 million, down 3% in dollar terms from the same period
of 2011. Excluding the Euro’s depreciation against the dollar, exports to France
increased in real terms.
Similar to the breakdown of Israeli exports to Germany, exports to France are
decentralized without one dominant sector. The major industrial exports to France
include: metals (totaled $152 million, up 4%), chemicals and oil distillates (totaled
$96 million, down 20%), agriculture (amounted to $72 million, up 32%), machinery
and equipment (totaled $56 million, up 2%), and rubber and plastic (amounted to $53
million, down 8%), telecommunication equipment (fell 26% to $37 million), aircrafts
(rose 51% to $35 million), food and beverages (increased 11% to $28 million) and
medical and surgical equipment which totaled $27 million, unchanged from last year.
28

29. Italy
During the first half of 2012 Israeli exports to Italy fell 16 % from the same period of
2011, totaling $616 million. As a result, Italy slipped to the 8th place among target
markets for Israeli exports, down one place from last year). The decrease in exports to
Italy essentially stemmed from a drastic decline in agricultural exports, which fell
83%, contracting from $85 million in the first half of 2011 to $15 million in the current
period, and a marked downturn in exports of chemicals and oil distillates, which
dropped 18% from $342 million in the first six months of 2011 to $280 million in the
first half of 2012.
Other industries that had an adverse effect on exports to Italy during the period were:
electronic equipment (down 96% to $600,000 only), engines and electrical
equipment (down 51% to $12 million), rubber and plastic (down 18% to $44
million), and mineral products, which fell 28% to $23 million
India
After declining 4% in the first quarter of 2012, exports of goods to India rose 13% in
the second quarter, year-over-year. Overall, in the first half of 2012, exports to India
rose 3% in dollar terms, totaling $600 million. During the period India ranked 9th among
global export targets and second among Asian markets, similar to its ranking in 2011.
It is important to note that exports to India are highly volatile, changing from one
period to the next. Israel primarily exports minerals, chemicals and security
products to India – these products are supplied pursuant to new agreements and
transactions, renewal of supply contracts based on prior deals and/or exercise of
supply options based on prior deals.
Israel’s main exports to India in the first half of 2012 were chemicals and oil distillates.
These exports, which accounted for one quarter of total goods exports to India between
January-June 2012, grew 81% to a total of $152 million. Most of the growth in exports
of chemicals and oil distillates was recorded in the first quarter (soaring 217% to $86
million), while in the second quarter it decelerated to 16% year-over-year, amounting to
$66 million.
In the first quarter of 2012 exports of mineral products to India fell by a sharp 60%, as a
result of waning demand for minerals in India and a delay in supplies from the first
quarter to the second quarter. This decline is primarily due to the recent depreciation in
the Rupee and the change in subsidies to farmers – these led to the creation of excess
inventory and to a drop in demand. In the second quarter there was a marked
improvement in exports of minerals to India, with a 54% growth year-over-year,
to $36 million. However, a summary of the two quarters points to a 37% decrease
in these exports to a total of $72 million. Based on ICL’s reports, during the third
quarter shipments to India resumed and supply of minerals to India is expected to
grow considerably. Accordingly, we expect a continued growth in exports to India
in the third quarter of 2012.
29

30. Another sector that notably affects exports to India is defense, which is also subject
to a great deal of volatility. Exports of industrial equipment for control and
supervision optical equipment and photographic instruments in the first half of
2012 rose 36% year-over-year, totaling $61 million, exports of machinery and
equipment rose 29% to $49 million, exports of instruments for measuring and
navigating leaped 155% to $20 million and exports of aircrafts soared from $120,000
in the first half of 2011 to $9 million in the first half of 2012. On the other hand,
exports of electronic equipment fell 71% (from $14 million in January-June 2011 to
$4 million in the current six months).
Exports of telecommunication equipment fell 42% during the first half of 2012 to a
total of $93 million.
Another notable sector is pharmaceuticals whose exports soared 130% from the first
half of 2011, to $14 million.
Brazil
During the first half of 2012, Brazil climbed to the 10th place among Israel’s leading
export markets, rising 6 places from last year. Exports to Brazil during January-June
2012 totaled $587 million, growing 42% from the first half of 2011. Most of the growth
in exports to Brazil is attributed to two sectors: minerals (potash) and chemicals and
oil distillates, which together account for 68% of total exports to Brazil.
Exports of minerals to Brazil in the first half of 2012 leaped 112% to $218 million
(37% of total exports). Similar to the situation concerning exports to China and India,
most of the change in the industry’s export levels stems from ICL’s business activity in
the country. During the third quarter of 2012 exports of mineral to Brazil is
expected to grow, owing to the supply of potash under contracts signed between
ICL and Brazilian importers. Consequently, exports of minerals to Brazil is
expected to keep growing and remain a driver of goods exports to Brazil in the
quarter ahead.
Exports of chemicals and oil distillates to Brazil in the first half of 2012 totaled 185
million, after increasing 11% year-over-year. Machteshim-Agan, which holds
production facilities in Brazil, has considerable impact on chemical exports to the
country.
Apart from these two sectors, a positive trend was recorded by other exporting
industries: exports of telecommunication equipment rose 60% to $50 million, exports
of pharmaceuticals rose 62% to $28 million and exports of rubber and plastic soared
by 214% to $26 million. On the other hand, exports of machinery and equipment fell
15% to $23 million and exports of metals decreased 11% to $17 million.
30

31. Change in exports to key export markets – first half of 2012
Rate of change in % year-over-year, exports of goods excluding diamonds
* US – excluding pharmaceuticals
** Source: the Exports Institute
Top 10 Exporters of Goods: Development in the
Exports and Comparison to Other Exporters
Total exports for the 10 biggest exporters of goods in 2011 came at $22 billion, and
their weight in total exports of goods excluding diamonds was 47%, compared to 36%
in 2007.
In the first half of 2012, total exports for the 10 biggest exporters of goods amounted to
$10.6 billion, down 4% year-over-year. The weight of this group in total exports of
goods (excluding diamonds) remained unchanged from last year, at 47%.
The exports of the four largest groups of exporters, as of the first half of 2012,
accounted fore one third of total exports of Israeli goods (excluding diamonds),
amounting to $7.5 billion. The weight of these exporters in total exports of goods
(excluding diamonds) grew from 23% in 2007 to 34% in 2011. As stated, their weight
in total exports of goods has not changed in the first half of 29012 year-over year.
31

32. Change in the Shekel’s Exchange Rates
Export data which are stated in dollars are, among others, affected by the frequent
changes in the dollar-euro exchange rate, and consequently, the shekel-euro exchange
rate . We estimate the dollar’s weight in the developments of Israeli exports at 75%.
In the first half of 2012 the Euro’s average rate was $1.297, 7.6 % lower than its
average rate in the same period of 2011, which was $1.403. This decline in the Euro
vis-a-vis the dollar explains part of the contraction in the growth of Israeli exports
to EU countries.
In the first quarter of 2012 the dollar-shekel’s average exchange rate was 3.77, up 1.3%
from the average exchange rate in the fourth quarter of 2011 and up 4.7% from the
average exchange rate in the first quarter of 2011. In the second quarter of 2012, the
dollar-shekel’s average exchange rate was 3.82, up 11.1% year-over-year. In the first
half of 2012, the dollar-shekel’s average exchange rate was 3.80, 7.8% higher than its
average rate in the same period of 2011.
The Shekel against the Dollar from the start of 2010:
Av. 2011
$
In the first quarter of 2012 the Euro-shekel’s average exchange rate was 4.94, rising by
a marginal 0.4% from the first quarter of 2011. In the second quarter of 2012 the Euro-
shekel’s average exchange rate was 4.91, down 1% year-over-year. In the first half of
2012 the Euro-shekel’s average exchange rate was 4.92 – down 0.3% year-over-year.
32

33. The shekel against the Euro, from the start of 2010
€
Source: the bank of Israel
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 30 main
trading 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 effective currency
basket came to a halt and the shekel began to lose strength, a trend that persisted in
2012. For example, the real-effective currency basket at the start of the year (January-
June) was 113.2 points – pointing to a 2% decline in the shekel’s value compared to the
currency basket in 2010 and a 3.4% depreciation compared to the 2011 average.
However, the real-effective exchange rate still points to a 13% increase from the
average level in the years 2006-2007, which contributed to the rise in exports in these
years up to the outbreak of the global economic crisis.
It should be noted that each 5% decline in the real-effective exchange rate
contributes to a real 1% increase in Israeli exports, with an 8-14 months’ lag in
effect. An appreciation in the real-effective exchange rate leads to a similar effect,
but in the opposite direction.
33

34. The Currency Basket – Real-Effective: 1999 to June 2012
Source: Bank of Israel
34