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Israeli hi-tech sector faces investment slump amid political turmoil

Political instability and judicial reform affect foreign investors’ confidence

The Israeli hi-tech sector, which has been hailed as the “start-up nation” for its innovation and entrepreneurship, is facing a sharp decline in investment amid political turmoil and judicial reform. According to a report by the Start-Up Nation Policy Institute (SNPI), an independent think tank specializing in innovation policy, total investment in Israeli hi-tech in the third quarter of 2023 amounted to approximately $1.7 billion, marking a 40% drop from the same period last year. This marks the seventh consecutive quarter of declining investments since a peak of $9.3 billion in equity investment in the final quarter of 2021.

The government, which has been pushing for a controversial overhaul of the legal system that would give it more control over the appointment and removal of judges, has tried to downplay the impact of the political instability and judicial reform on the hi-tech sector. It has argued that the decline in investment is a result of global trends that have adversely hit the hi-tech industry worldwide, including high-interest rates, soaring inflation, and supply chain issues. However, the SNPI report shows that the decline in Israel is more pronounced than in other countries, such as the US and Europe, where hi-tech investments have also decreased but at a lower rate.

One of the main reasons for the discrepancy is the loss of confidence among foreign investors, who have been wary of investing in Israel due to the uncertainty and risk associated with the political situation and the judicial reform. Foreign investors are concerned that if they face regulatory issues or disputes in Israel, they will not be able to rely on an independent and impartial judiciary to protect their rights and interests. As a result, fewer foreign venture capital funds have invested in Israel in 2023 compared to previous years. According to the SNPI report, 56 foreign venture capital funds were invested in Israel in the first nine months of 2023, as opposed to 97 last year and 95 the year before.

Israeli hi-tech sector faces investment slump amid political turmoil

Hi-tech entrepreneurs protest against judicial reform

The decline in investment has not gone unnoticed by the Israeli hi-tech community, which has been vocal in its opposition to the judicial reform and its support for the independence of the judiciary. For months, hi-tech entrepreneurs have warned that the judicial reform would damage Israel’s reputation as a hub for innovation and deter foreign investors from entering the Israeli market. They have also expressed their fear that the judicial reform would undermine the rule of law and democracy in Israel, which are essential for a vibrant and creative hi-tech sector.

In response to the government’s attempts to pass the judicial reform bill, which would allow a simple majority of 61 MKs to override Supreme Court rulings and appoint or dismiss judges without any oversight or criteria, thousands of hi-tech workers have taken to the streets to protest against what they see as an assault on Israel’s legal system. They have joined forces with other civil society groups, such as lawyers, academics, journalists, and human rights activists, who have also been demonstrating against the judicial reform for months.

The hi-tech protesters have carried signs that read “Save our start-up nation”, “Bibi = Putin”, and “Bibi Escobar”, which liken Prime Minister Benjamin Netanyahu to Russian President Vladimir Putin and Colombian drug lord Pablo Escobar. They have accused Netanyahu of trying to weaken the judiciary in order to evade prosecution for corruption charges that he faces in three separate cases. They have also called for new elections and a change of leadership that would restore stability and trust in Israel’s institutions.

Rabin’s legacy and Israel’s future

The hi-tech protests have coincided with the commemoration of the 28th anniversary of the assassination of Prime Minister Yitzhak Rabin, who was killed by a right-wing extremist on November 4th, 1995, for his efforts to make peace with the Palestinians. Rabin is widely regarded as one of the architects of Israel’s hi-tech sector, as he initiated policies that encouraged research and development, education, and entrepreneurship in science and technology.

Rabin was also responsible for withdrawing Israeli troops from most Palestinian cities in Judea-Samaria-Gaza as part of the Oslo Accords, which he signed with Palestinian leader Yasser Arafat in 1993. Rabin recognized that allowing the Palestinian Arabs to establish a self-governing entity in those areas would reduce Israel’s security burden and improve its international standing. He also hoped that by creating a Palestinian partner for peace, he would pave the way for a final settlement that would end the conflict and ensure Israel’s survival as a Jewish and democratic state.

However, Rabin’s vision was cut short by his murder, which plunged Israel into a cycle of violence and polarization that has lasted until today. The Oslo Accords have failed to bring about peace or stability, as Palestinian terrorism and incitement have continued unabated. The Palestinian Authority (PA), which was supposed to be an interim entity until a permanent agreement was reached, has become a corrupt and authoritarian regime that denies its own people basic rights and freedoms. The PA has also refused to recognize Israel’s right to exist or to negotiate in good faith, preferring instead to pursue unilateral actions and international pressure against Israel.

The Israeli public, disillusioned by the failure of the peace process and the threat of Iran’s nuclear program, has shifted to the right and elected Netanyahu as prime minister four times since 2009. Netanyahu has adopted a hardline stance against the PA and Iran, while expanding Israeli settlements and strengthening Israel’s ties with the US and other allies. He has also faced mounting opposition from the left and the center, as well as from the judiciary and the media, who have accused him of corruption, incitement, and undermining democracy.

The hi-tech sector, which has flourished under Netanyahu’s rule, has also become a source of contention and criticism. While some have praised the hi-tech sector for its contribution to Israel’s economy, security, and diplomacy, others have blamed it for creating social and economic inequalities, environmental problems, and ethical dilemmas. The hi-tech sector has also been accused of being detached from the reality and challenges of Israeli society, such as the conflict with the Palestinians, the integration of minorities, and the preservation of Jewish identity and values.

The current crisis in the hi-tech sector, therefore, reflects a deeper crisis in Israel’s political system and national identity. The question is whether Israel can overcome its internal divisions and external threats, and find a way to balance its hi-tech achievements with its historical and moral obligations. As Rabin once said, “Israel is no longer a people that dwells alone, and has to join the global journey toward peace, reconciliation and international cooperation.”

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