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The National Digital Program of the Government of Israel

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Chapter 2: Primary Goal – Accelerated Economic Growth

Economic growth is the main economic objective that policy makers currently face. Growth enables the government to “expand the economic pie” and, in doing so, increase the standard of living, create quality and challenging employment opportunities and improve the benefit for all citizens.

The State of Israel is experiencing decelerated growth in recent years – the annual growth rate in the country has decreased from 5.5% in 2010 to only 2.6% in 2016[39], as the Israeli economy confronts a world environment slowly recovering from the 2008 crisis and a global economy that has been on the verge of a recession for several years[40].

photo: GDP Change in Israel in the Years 2010-2015

 

On this backdrop, digitization holds great potential to serve as a significant economic growth engine. Average wages of an employee in Israel in ICT sectors is 90% higher than average wages[41]. Furthermore, various studies have found that every 10% increase in broadband penetration rate in developed countries leads to an increase of 0.25%-1.21% in national GDP growth[42]. Moreover, in the digital age, ICT usage is a potentially vital component for the growth of every business and for realizing the potential of every citizen, even those not directly employed in the ICT industry - a necessary foundation for ensuring economic competitiveness and continued economic growth. Therefore, as part of the National Initiative, investment in developing competencies needed to advance digital industries and businesses will be promoted, while also developing national growth engines. Strengthening Israel’s standing as an advanced innovative country, a startup ecosystem, will create significant benefits for the economy and for narrowing gaps, improving public goods and increasing opportunities for the public at large.

 The challenge facing the State of Israel is to utilize the advantages of digitization to create an innovative, advanced and competitive economy, while utilizing the advantages of ICT to deepen economic growth and its penetration to all economic sectors and the population at large.

photo: Digital Economy in National Digital Programs around the World

 

The State of the Digital Economy in Israel – The Innovation and Leading Technological Standing of the Israeli High-Tech Industry is Not Permeating into Other Parts of the Economy

The state of the digital economy in the State of Israel is complex. On the one hand, Israel leads the world in startup companies per capita engaged in innovation and in the volume of R&D investments in relation to GDP. The high-tech industry in Israel is a growth engine responsible for about 42% of total industrial exports.  Israel has advanced communication infrastructures deployed throughout the country and has a mobile penetration rate among the highest in the world[43].

On the other hand, there are considerable gaps between the “start-up nation” as reflected in the flourishing high-tech sectors, and between extensive parts of the economy that do not optimally enjoy the advantages of digitization. Thus, for example, Israel is ranked in the third percentile among the 34 OECD member countries on indices pertaining to the percentage of persons that purchase online (e-Commerce), the percentage of online banking users and the percentage of persons subscribed to broadband network services[44]. At the same time, the continued development of technological and advanced industries is impeded by a continuing shortage of thousands of skilled workers as reflected in the volume of open positions in ICT fields (in other words, unfilled positions), that surged by about 78% within only three years[45].

How to Achieve Accelerated Economic Growth through Digital Means  

To leverage digitization to create accelerated economic growth, the National Initiative set three strategic objectives it will act to achieve in implementing the Program:

1. Promote Digital Industries and Business
Identify and promote areas that constitute points of convergence between the public sector, the domestic market and the data-rich industry; harnessing the relationship between government and the private sector to create national growth engines such as digital health and cyber, urging businesses in Israel to adapt to the digital age while adopting data-driven innovation. This will enable the creation of new jobs, increase demand for skilled workers and improved productivity and competitiveness in the Israeli economy.

2. Develop the Employment Market in the Digital Age
By adapting the employment market in Israel to the digital age, it will remain competitive, advanced and innovative. The labor force will have more skilled with higher productivity, maximizing its positioning in a world that is becoming more global and competitive.

3. Support the Development of Infrastructures
To achieve the quantum leap needed in the Israeli economy, a basket of cross-organizational infrastructures must be developed to support the leveraging of the digital revolution. This pertains to both advanced physical communication infrastructures and to “soft” infrastructures such as regulation and secure identification.

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