ISRAEL’S high-tech sector seems to be a land of milk and honey. Scarcely a month passes without another announcement of a foreign tech giant buying a local firm. In 2015 Israeli startups raised a record $4.4 billion in venture capital, up by 30% from the previous year. Yet the country once christened the “startup nation” is losing steam. Between 1998 and 2012 the tech industry grew on average by 9% annually, more than double the rate of Israel’s GDP. In all but one of the past six years, the tech sector has expanded at a slower rate than the overall economy.

The main cause for the slowdown is a growing shortage of trained workers, according to a recent report by the chief economist of the ministry of finance. This may come as a surprise, given the country’s reputation for having a deep pool of tech talent, mainly because of the Israel Defence Forces (IDF), which rely heavily on technology and churn out thousands of highly skilled workers. But a complex mix of social, educational and business factors is increasingly constraining the size of Israel’s tech workforce.

There is a limit to the size of any industry a small country of only 8m people can sustain. Until recently, the tech industry was helped by two trends: academics and employees of state-owned industries moving into the private sector and the arrival of tens of thousands of Jewish...Continue reading