Investments Atmosphere – Part 1:Privatization and Competition Towards the Future
Socialism and the need for a change
Over the years the Israeli economy has established itself as stable and yielding, providing a solid investing environment for both local and international investors. In this new series of articles we try to unravel the explanations for the great progress the Israeli economy has made since the foundation of the country sixty-four years ago.
A very intriguing process which many liberal economies underwent in the past fifty years is the process of privatization. When founded, the Israeli state and economy were socialist in nature. In order to settle the land and boost the weak economy the "we-feeling" and socialism had to run in the veins of every Israeli. But as times changed, so did the economy, and a need for a stronger business sector rose.
The Israeli government, which held most of the major assets in the Israeli market, had privatized its properties since ever the 1960's in a long and planned process, but 1986 marked a year in which those processes were highlighted. Since then and up to these days the Israeli government has been privatizing its possessions and decreasing it's involvement in the markets. "Bezeq", Israel's main telecommunications provider is an example of such privatization as it went under the process in 2005 when the Israeli government's 46.3% of holdings in the firm were sold for NIS 4.237 billion to a group of investors. In fact, over the period of 2005-2008 the government had earned USD 5.7224 billion due to privatizations of its assets.
Today, "Bezeq" is highly profitable and its value is estimated by USD billions. As a result of those privatizations the Israeli economy is currently considered much more competitive and enjoys an increase in growth, freedom of occupation and property rights, as well as an improvement in the quality of goods and services and in their suitability to the requirements of consumers.
Competition and its Fruits
The outcome of these privatizations was the emergence of the business sector, and its control and ownership over greater shares of the Israeli market as the process continued. Today the Israeli economy is considered as a technologically advanced market economy, including rapidly developing high-tech and service sectors. The World Economic Forum (The WEF) indicates that the Israeli economy is "Innovation Driven" which sets it at the highest stage of development rank according to this institute. The WEF also states in his most recent report from 2010-2011 that the Israeli economy is 5th in the strength of investor protection, 6th in the availability of latest technologies and 1st in the quality of research institutes. In its 2012 competitiveness report the IMD (International Institute for Management Development) ranks Israel as the 19th most competitive economy in the world and 10th in inward flows of direct investments with a total of 4.7% of investments as of the country's GDP and a total of USD 11.4 Billion. Israel is also considered 1st in the world in business and total expenditure on R&D in percentages, and its main strengths are mentioned to be a strong R&D culture, skilled workforce, high educational level, dynamism of the economy and open and positive attitudes towards business.
Without those gradual but essential privatizations, it is doubted if the Israeli economy could have shown such great success.