In a startling development that reverberates through international financial circles, foreign investment in the State of Israel has plummeted by an alarming 60 percent during the initial quarter of the year 2023. This disconcerting revelation comes courtesy of a comprehensive report unveiled by the country’s Finance Ministry, casting a shadow of uncertainty over the nation’s economic prospects.
During the first quarter of 2023, Israel managed to attract a meagre $2.6 billion in foreign investments. This figure starkly contrasts with the thriving quarterly averages witnessed throughout the years 2020 and 2022, symbolising a downturn of proportions hitherto unseen. Notably, the report refrains from drawing comparisons between the current year and 2021, a record-breaking period considered an outlier due to its unprecedented economic performance.
The downturn in foreign investment has manifested in multiple facets, evident in the dwindling number of foreign transactions and a commensurate reduction in the influx of foreign investors during this initial quarter.
According to the report, sourced from the Central Bureau of Statistics, foreign direct investment in Q1 2023 plummeted by a disconcerting 34 percent, settling at a mere $4.76 billion. This figure, once again, diverges sharply from the buoyant quarterly averages witnessed in the years 2020 and 2022.
The repercussions of this precipitous decline are further exacerbated by the sharp plunge in the average size of exit transactions—comprising mergers and acquisitions or initial public offerings of shares. In Q1 2023, the average transaction size witnessed an alarming 80 percent nosedive, diminishing to a paltry $56 million, a stark contrast to the robust $307 million recorded in both 2020 and 2022. The Finance Ministry has attributed a substantial portion of this precipitous decline to the faltering valuations of numerous technology firms in the United States.
Contrary to the preceding year, wherein foreign investment transactions soared to an impressive $29.3 billion, this year’s Q1 starkly contrasts, reflecting a meagre $26.4 billion in foreign investments, a figure reminiscent of the statistics observed in 2020.
Unraveling the causes behind this alarming downturn reveals a complex web of factors. In the latter half of 2022, investments in private companies experienced a marked deceleration, precipitated by rising interest rates, a tumultuous global stock market, and widespread tech-sector layoffs. This financial uncertainty was further compounded by domestic political turmoil, chiefly revolving around the contentious judicial overhaul announced at the onset of the year. The proposed reform, viewed with trepidation by foreign investors, has prompted a cautious “wait-and-see” stance in the realm of deal-making.
Within the business and tech communities, the primary concern stems from the apprehension that the envisaged judicial overhaul may undermine democratic principles and weaken the system of checks and balances, thereby dissuading venture capitalists and other financial stakeholders from injecting capital into the nation and potentially triggering an exodus of funds.
Remarkably, in 2022, approximately 72 percent of foreign investments, amounting to a staggering $21 billion, hailed from the United States, mirroring the preceding year’s statistics. Furthermore, investments from the United Kingdom contributed another 8 percent, or $2.4 billion, to the foreign investment landscape.
In a report submitted to the Knesset on Monday, Finance Minister Bezalel Smotrich, while extolling Israel’s relatively robust economic and financial standing on the global stage, candidly acknowledged that inflationary pressures have not receded to the extent he had initially anticipated.
The profound implications of this precipitous decline in foreign investment resonate far and wide, underscoring the pressing need for a concerted effort to reinvigorate Israel’s economic landscape and rebuild investor confidence in the post-pandemic era. The journey to economic recovery and resurgence begins here, with vigilant stewardship and decisive policy measures required to navigate these turbulent waters successfully.
