Overseas Market Profiles

Source: IMF, Central Bureau of Statistics, Israel, Pacific Exchange
^* IMF estimate
^{^} January-November

Recent Developments

• Israel’s Central Bureau of Statistics estimated that GDP growth in 2010 could reach 4.5%, surpassing the IMF’s forecast of 4.2% (table above), supported by strong private consumption and rapid growth of exports.
• After the sharp declines in 2009, exports and imports of Israel have shown a strong rebound. In the first eleven months of 2010, total exports increased by 22.5% while imports rose by 25.3%.
• With a small population and limited geographical area, the government encourages Israeli companies to develop high-tech industries for the international market to achieve economic growth. Information and communication technology (ICT), homeland security, aircraft, electronics, and environmental technologies are areas which Israel excels.
• Israel is Hong Kong’s second largest export market in the Middle East after the UAE. In the first eleven months of 2010, Hong Kong’s total exports to Israel increased by 20% while Hong Kong’s imports from Israel increased by42.1%.

Current Economic Situation

Israel is considered one of the most advanced countries in the Middle East in economic and industrial development. In the past two decades, the Israeli economy has changed radically from agricultural and low-tech industries to a high-tech powerhouse. Despite Israel’s total exports having fallen YoY by 18.0% in 2009, the country’s high-technology exports^# maintained a 4.2% YoY growth to US$17,870 million, accounting for 42.5% of total exports. In the first eleven months of 2010, Israel’s high-technology exports increased by 13% to US$18,080.

Intel and Microsoft have set up their research and development centres in Israel. Other high-tech corporations such as IBM, Cisco Systems and Motorola have opened up facilities in the country as well. Israel is a global leader in water conservation and geo-thermal energy, and its development of cutting-edge technologies in software, communications and life science have evoked comparisons with the US’s Silicon Valley.

The diamond industry is another important sector of Israel’s economy. The country has one of the world’s largest diamond exchanges in volume terms, situated in Ramat Gan, on the border of Tel Aviv. Diamonds, precious stones and semi-precious stones are also the largest trade between Israel and Hong Kong. Global luxury consumption was badly hampered in 2009, as a result of the international economic downturn. In 2009, Israel’s exports of diamonds and other precious and semi-precious stones dropped YoY by 38.5% to US$9,881 million, accounting for 23.5% of Israel’s total exports. As the global economy starts to recover, luxury consumption is roaring back. Exports of diamonds and other precious and semi-precious stones increased by 35.8% YoY in the first eleven months of 2010.

Overall, Israel’s imports and exports fell sharply in 2009. Israel’s exports decreased by 18.0% YoY to US$42,065 million while imports dropped by 27.3% YoY to US$49,928 million. However, both imports and exports have shown a strong rebound in 2010. Exports rose 22.5% YoY in the first eleven months of 2010, while imports increased by 25.3% YoY over the same period.

Relying heavily on the Western market, Israel’s exports were more affected by the international economic downturn in 2009. The US accounted for 35% of Israel’s total exports in 2009, with the EU and Asia respectively accounting for 25.8% and 19.9%. However, the Asian market is becoming increasingly important for Israel – in the first eleven months of 2010, Israel’s exports to Asia increased by 46% YoY to US$ 12,504 million, accounting for 23.6% of the corresponding categories of exports over the same period.

^# According to the Central Bureau of Statistics of Israel, high-tech products include: office and computing equipment, electronic components, aircraft, electronic and communication equipment, equipment for control and supervision, and pharmaceutical products.

Trade Policy

Most goods can be freely imported, though licences are required for defence-related items. When applying for an import licence, the importer must either be a resident of Israel, a corporation registered in Israel, or a non-profit organisation registered in Israel.

Israel's import tariffs are classified under the Harmonised System codes (HS). Ad valorem duties are imposed on imports transaction value (declared by importers). On top of custom duties, a value-added tax (VAT) of 16% is applied to almost all imported and domestically produced goods and services. For imports, VAT is levied based on the CIF value plus custom duties.
Israel maintains strict regulations on product labelling and country of origin marking. All imports into Israel must bear a label showing the country of origin, the name and address of the manufacturer, the name and address of the Israeli importer and the contents, weight and volume in metric units. All labels must be in Hebrew. English language may be added and the printed letters are not larger than those in Hebrew.

Under the US-Israel Free Trade Area Implementation Act (IFTA ACT), products from Qualifying Industrial Zones (QIZs), which encompass border areas between Israel and Jordan and areas between Israel and Egypt, where no less than 35% of the contents are QIZs-produced (including a minimum of 8-10.5% Israeli inputs), are eligible to receive duty-free treatment when entering the US.

As a WTO member, Israel has moved to replace non-tariff barriers with import duties. According to a WTO report released in March 2006, 48.5% of all Israeli tariff lines were zero-rated. Tariffs on non-agricultural products averaged 5.1%.

In pursuit of higher export growth, the Israeli government has been active in negotiating FTAs internationally. Israel has signed FTAs with a number of countries and regional bodies, including: the US, the European Free Trade Association (EFTA), Jordan (Agreement on Trade and Economic Cooperation, which includes significant tariff reductions in bilateral trade), Turkey, Canada, Mexico, Romania, Bulgaria, and the European Union (EU - both parties signed an Association Agreement which includes tariff-free treatment for industrial goods and most agricultural products). In March 2010, Israel has signed an FTA with Mercosur countries. The Israeli government is also pursuing an FTA with India.

Hong Kong's Trade with Israel ^{^}

Israel is Hong Kong's second largest export market in the Middle East after the UAE. Hit by the global financial crisis, total trade between Hong Kong and Israel dropped by 31.9% in 2009. In the first eleven months of 2010, Hong Kong’s total trade with Israel made a strong comeback, rising 32.9% YoY. The growth was due chiefly to higher Hong Kong imports from Israel, which went up by 42.1% YoY. Hong Kong’s total exports to Israel only increased by 20% YoY over the same period of time.

In the first eleven months of 2010, Hong Kong's total exports to Israel increased by 20% to US$1,145 million. Major export items included pearls, precious and semi-precious stones (US$724 million, 63.2% of total, +18.3% YoY growth), telecommunication equipment and parts (US$68 million, 5.9% of total, +42.1% YoY growth) and electrical apparatus for electric circuits (US$41 million, 3.6% of total, +70.9% YoY growth).

On the other hand, Hong Kong's imports from Israel increased by 42.1% to US$1,918 million in the first eleven months of 2010. Major import items included pearls, precious and semi-precious stones (US$1,616 million, 84.3% of total, +42.9%), semi-conductors, electronic valves and tubes, etc (US$68 million, 3.6% of total, +41.0%), and telecommunication equipment and parts (US$59 million, 3.1% of total, +62.2%).

^{^} Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

Israel's Involvement in the Hong Kong Economy

There were 85 Israeli companies in various sectors as of 2009, according to the Consulate General of Israel in Hong Kong. They are engaged in industries including telecom, high-tech, transportation, finance and cosmetics.

According to the Census & Statistics Department of Hong Kong, as at 1 June 2009, there were 10 Israeli companies with regional headquarters in Hong Kong, another 9 had regional offices, and 6 had local offices in the territory.