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Viewing cable 10TELAVIV327, Israel Strengthens Science and Tech Strategy

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Reference ID Created Released Classification Origin
10TELAVIV327 2010-02-12 07:50 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Tel Aviv
VZCZCXYZ0000
RR RUEHWEB

DE RUEHTV #0327/01 0430750
ZNR UUUUU ZZH
R 120750Z FEB 10
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC 5444
INFO RUEHJM/AMCONSUL JERUSALEM 3716
RUEHAM/AMEMBASSY AMMAN 7271
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHDC
UNCLAS TEL AVIV 000327 
 
SIPDIS 
SENSITIVE 
 
STATE FOR D/Lew 
STATE FOR OES/STP - Ferguson, NEA/RA AND NEA/IPA 
AMMAN FOR ESTH - BHALLA 
 
E.O. 12958: N/A 
TAGS: EINV TBIO TSPL ETRD IS
SUBJECT:  Israel Strengthens Science and Tech Strategy 
 
Ref: 09 Tel Aviv 653 
 
1. (U) Summary.  The confluence of several different GOI initiatives 
indicate that the government is reassessing its industrial policy. 
Broadening Israel's R&D strength beyond the high-tech IT and 
communications sectors is the objective, with energy, life sciences, 
water and cleantech sectors being the priorities.  By grappling with 
these issues, Netanyahu hopes to address both short term and long 
term economic problems Israel faces.  End Summary. 
 
Doing Well, and Doing Better 
---------------------------- 
2. (U) At a Cabinet meeting February 7, Prime Minister Netanyahu 
announced that he is establishing a team headed by National Economic 
Council Chairman Prof. Eugene Kandel to formulate a national policy 
on reducing dependency on petroleum, focusing on alternatives and 
research.  This comes on top of recent GOI actions to strengthen 
high-technology funding from the Office of the Chief Scientist of 
the Industry Ministry, start a Life Sciences Venture Capital fund, 
and augment the Israeli contribution to the three US-Israel 
bilateral research foundations.  Separately, Finance Ministry DG 
Shani has started discussions with Kandel on the country's 
industrial policy, asking questions such as what is the best R&D 
policy, whether to encourage large companies or small companies, how 
to further cooperation between academia and industry, and whether to 
encourage investment in one sector over another.  Since November, 
when the PM asked Kandel to formulate a new model for supporting R&D 
in industry, Kandel has been rethinking how to better engage the 
private sector. 
 
3. (U) Some of these issues were brought into focus by the February 
8 announcement by Intel Israel General Manager Maxine Fassberg that 
Israel is in competition with Ireland to be the host of Intel's new 
22-nanometer chip fabrication plant.  Intel is comparing the 
government grants and incentives of the two countries, and will 
decide on the venue in mid-March.  At present Intel has $7.3 billion 
invested in Israel, of which $1.3 billion came from government 
grants.  Intel is now Israel's largest private sector employer with 
nearly 6500 employees working at two chip plants and three design 
and development centers.  It exported $3.4 billion of products from 
Israel in 2009, about 10 percent of the country's tech sector total 
exports.  The new plant would cost $2.7 billion and add 400 more 
jobs.  Debate over how much the government should spend to attract 
investment from one of the world's best capitalized companies is 
expected. 
 
4. (U) Opponents of massive government pay-outs to attract foreign 
high-tech producers prefer to see such funds spent domestically. 
Israel has long promoted home-grown technology start-ups.  Since 
1993 the government has funded a program of assistance and advising 
to small technology entrepreneurs, the Yozma program.  Yozma founded 
the Israeli venture capital market, and since then has sunk $170 
million into companies in all phases of development with a primary 
focus on the early stage.  Initial individual investments by Yozma 
in the start-up's equity typically range between $1 million and $6 
million.  Yozma works with companies on their business plan, on 
management and hiring issues, and in finding strategic partners when 
they are mature enough to go public.  In a less structured but 
equally important vein, the Industry Ministry's Chief Scientist 
office controls a purse of 1.7 billion NIS (USD 456 million), up 
from 1.2 billion in 2007.  These funds are used to support 
handpicked R&D priorities, and the Chief Scientist has great 
latitude in how he can distribute it to spur enterprise development. 
 Yozma and the Chief Scientist's program are only two of the ways 
the GOI has invested in Israel's innovation capability (described 
more fully reftel). 
 
Life Sciences Targeted Separately 
--------------------------------- 
5. (U) In a December 8, 2009, meeting with the investment community, 
Israel's Ministry of Finance and Ministry of Industry and Labor 
jointly unveiled a publicly financed Venture Capital Life Sciences 
Fund.  Finance Director General Haim Shani and Industry and Trade 
Ministry Chief Scientist Eli Opper announced the new Fund will total 
250 million shekels ($80 million).  Trying to copy the successes of 
Israeli high-technology start-ups in the Information and 
Communication fields, the GOI hopes to stimulate Venture Capital 
investment in the biotech, bio-engineering, pharmaceutical, and 
medical devices fields.  The GOI funds will be invested to leverage 
private sector buy-in to product development and research.   As 
Shani put it, "we want to attract smart money."   There will 
actually be two or three different funds by sub-sector, with a 
five-year investment period, and the Life Sciences Fund program is 
expected to last for ten years.  Opper lauded Israeli's 
entrepreneurial spirit, but cautioned that the full impact of the 
new Life Sciences Funds would only be seen in a decade. 
 
6. (U) In announcing the search for managers of the new fund, Shani 
made clear that only well-experienced VC fund managers would be 
considered: those who had managed VC funds of at least $750 million 
for at least 7 years.  Competence in dealing with USG regulatory 
authorities (FDA, USPTO, NIH) was noted as a pre-requisite for 
potential fund managers, possibly indicating the export-driven 
intent of the new VC program.  Additionally, the Tel Aviv Stock 
Exchange (TASE) Board of Directors has announced plans to launch a 
new equity index covering the biomed sector.  Of the approximately 
100 technology companies currently traded on the TASE, 38 are in 
biomed industries, mostly early stage enterprises engaged in life 
sciences, biotech, pharmaceuticals and medical equipment R&D.  The 
total market value of all biomed shares is US$2.2 billion. 
 
7. (U) Job creation is apparently another objective; Israel has more 
than 160 biotechnology R&D companies, of which 90% have fewer than 
50 employees and most do not ordinarily reach commercial levels of 
development.  Finding more ways to employ Israel's biotech 
intellectual capital can reduce the brain-drain phenomenon appearing 
in academia and medicine. 
 
Comment 
------- 
8. (SBU) By reassessing its role in S&T development across a range 
of economic sectors, the GOI is trying to grapple with both present 
and future problems.  For the present, it is trying to maintain 
Israel's competitiveness as a venue for high tech R&D and 
production, doing what is needed to attract the Intel and other 
plants and development centers, and the investment they provide. 
One the practical side, such measures would help address current 
unemployment and budget deficit problems.  For the future, GOI 
investments in Venture Capital funds, technology incubators, the 
binational research foundations (BIRD, BSF and BARD) and other 
measures aim at securing Israel's technology leadership and 
productivity in coming decades.  Given the challenges the future 
poses - regaining education excellence, better integrating 
minorities into the workplace, finding the capital to pursue 
expensive technologies - Kandel is asking the right questions.  An 
activist state role figures largely in the GOI responses. 
 
Cunningham