Chapter 8. Israel
The foundations of SME policy: definitions, statistics and institutions
As in 2014, Israel continues to have two main SME definitions. The first is set forth in Government Decision no. 2190 as follows:
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Micro business: a company or practitioner employing up to five employees and a sales turnover of less than ILS 10 million a year (approximately EUR 2.31 million).
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Small business: a company or practitioner employing up to 50 employees and a sales turnover of less than ILS 25 million a year (approximately EUR 5.78 million).
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Medium business: a company or practitioner employing up to 100 employees and a sales turnover of less than ILS 100 million a year (approximately EUR 23.12 million).
The second definition is that of the Small and Medium Business Agency (SMBA). The SMBA definition, which is shown in Table 8.1, is based on much lower financial (turnover) criteria for micro enterprises than are used in Government Decision no. 2190.1 The SMBA definition has been revised as a result of research that was part of the strategic plan of the agency.
Although there are no plans to unify the SMBA and government definitions, the SMBA classification is the de facto official definition. For example, the SMBA definition was used in a bill passed by the Knesset (parliament) on first call in August, 2016.2
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Israel has a very complete set of SME statistics, including data comparable at the international level. The main source of official data is published by the Central Bureau of Statistics (CBS) Yearly Statistical Abstract.3 Israel also takes part in the OECD-Eurostat Entrepreneurship Indicators Programme (EIP) which presents a wide set of internationally comparable statics on SME and entrepreneurship performance based on official sources. This includes extensive information on the structure and performance of the enterprise population (firm demographics, value added, employment, etc.), productivity, business dynamics (entry, exit, high growth firms, etc.), job creation, international trade and other indicators. Israel also participates in the OECD Scoreboard on Financing SMEs and Entrepreneurs, which comprises an important set of indicators on debt, equity, asset-based finance and framework conditions for access to finance.
In terms of the wider economic context, Israel’s diversified economic structure and vibrant start-up and innovation scene represent important drivers for the development of SMEs and entrepreneurship. Manufacturing activities represent around 20% GDP, of which advanced manufacturing such as machinery, electronics, chemicals and medical instruments account for important shares (about a quarter of manufacturing output). At around 50% of the economy, trade and services (excluding public administration and defence) are also important contributors to GDP, especially IT and other information services. Yet, according to the latest OECD Economic Survey of Israel4, productivity performance is weak since highly dynamic tradable goods industries co-exist with inefficient sheltered sectors. This is derived from deficiencies in product market regulation and competition, particularly in the food chain, banking and electricity sectors. Furthermore, poverty and income inequality are high, especially among specific segments of the population.
Concerning the institutional framework and co-ordination, the Ministry of Economy and Industry is the main authority in charge of economic reform and development. As such, it hosts the Foreign Trade Administration, the Investment Authority, the Industrial Co-operation Authority and the Small and Medium Business Agency. The SMBA operates since 2010 a large network of business support centres (MAOF centres). Over the past few years the SMBA has increased and improved the provision of support services to SMEs by reshuffling and extending its network of business development centres. Yet, as noted in the OECD’s review of SME and Entrepreneurship Policy in Israel 2016, although the co-ordination of SME and entrepreneurship policy is one of the functions assigned to the SMBA, there is no formal mechanism in place for this purpose. There is no inter-ministerial SME and entrepreneurship policy committee and there are no focal points in government ministries and agencies. Furthermore, the 2014 SME Bill that is cited by both the SME Policy Index 2014 and the OECD 2016 review, and which is intended to strengthen the co-ordination role of the SMBA is not yet approved by the Knesset (parliament). In addition, the OECD 2016 report notes, there is no integrated policy document (i.e. SME strategy) setting out a strategic policy framework for SME and entrepreneurship development.
The SME Policy Index 2014 reported that Israel had a well-developed system of public-private dialogue (PPD). The SMBA held quarterly meetings with the SME community. Organisations such as LAHAV (Independent Businesses Association), the Federation of Israeli Chambers of Commerce (FICC), or the Manufacturers Association of Israel and the Enterprise Europe Network Partners were very active in PPD processes. This interim assessment finds that PPD continues to be active, especially in terms of regulatory reform (see section on “Improving business environments for SMEs and entrepreneurs”).
For further action: Israel has in general a well-established framework for SME and entrepreneurship policy, yet policy co-ordination could be improved through the development of an SME strategy, the establishment of a co-ordination mechanism and the adoption of the SME Bill. Indeed, although the SMBA is the main agency in charge of enterprise policy, its role appears as being limited to the co-ordination of business support services through the MAOF centres and providing support to some horizontal initiatives such as the introduction of regulatory impact analysis. As recommended by the OECD’s review of SME and Entrepreneurship Policy in Israel 2016, the government could craft a single strategic policy document which lays out the vision, objectives, target groups, policy measures and budgets dedicated to the support of SMEs and entrepreneurs. This could be particularly important given the already noted dual nature of the economy in which a highly productive and innovative sector co-exists with less productive and dynamic firms. An SME strategy could for instance devise measures to increase productivity spill over effects from the dynamic sectors into the rest of the economy. This could be also important given the regular consultations which are already happening between the SMBA and the private sector, and which could be a good starting point for integrating other relevant government institutions into a wider public-private dialogue platform.
Improving the business environment for SMEs and entrepreneurs
According to the SME Policy Index 2014, the regulatory environment was one of the weak areas in the Israeli policy framework. To address this issue, Israel established three inter-ministerial committees working on 1) improving the general business climate (the Doing Business Committee), 2) the system of business licensing, and 3) the introduction of regulatory impact analysis (RIA) for new legislation and regulations. Although the Doing Business Committee is no longer operational, the two other committees remain active.
One of the main improvements was the issuance in October 2014 of Government Resolution 2118, which provides the basis for a comprehensive, whole-of-government regulatory policy.5 The resolution includes provisions to reduce the current regulatory burden (stock) and to undertake ex ante regulatory impact analysis.
In compliance with Government Resolution 2118, an official responsible for RIA has to be designated in each ministry or government agency involved in matters related to regulations. A special unit at the Prime Minister’s Office is tasked with determining the methodology for RIA and its implementation. Nonetheless, the implementation of the Resolution 2118 started only in January 2017. According to the resolution, the ministries have to formulate five-year action plans to reduce the regulatory burden, including a reduction of 25% of administrative costs. The ministries have also to formulate and disseminate detailed action plans to be implemented every year.
The SMBA is not directly involved in the RIA process since it is not a source of legislation and regulations. However, the SMBA provides substantive analysis of the impact of regulations on SMEs and provides comments to the relevant ministries and the RIA co-ordination unit hosted at the Prime Minister’s Office. The analytical work undertaken by the SMBA is the product of consultations with business organisations and takes the form of white papers. For example, as part of the wider RIA efforts the SMBA has published guidance for the implementation of an SME test. However, the guidance is not yet part of the RIA efforts. Furthermore, the SMBA white papers are not exclusively focused on RIA; they comprise other relevant areas for SME development – for example, timely payments for public procurement contracts or value-added tax (VAT) payments.
Israel has been implementing reforms to simplify start-up procedures over the past few years. In 2013-14, three main agencies were involved in the registration process for corporations and self-employed individuals: the Registrar of Companies (part of the Israeli Corporations Authority at the Ministry of Justice), the Tax Authority and the National Insurance Institute. According to the Doing Business indicators, starting a business has become easier over the past few years due to several improvements, notably the adoption of a single identification number to deal with different government agencies and the establishment of an online registration platform. Also, the tax and social security registration were merged: the National Insurance Institute receives information about the opening of the tax file, and opens, without the employer's request, a file for the new employer as well. Furthermore, in November 2015 an optional electronic system for company registration was launched which now, according to interviews, handles 75% of all applications and provides registration within two to four days. Through the system, users can upload the articles of association and pay the registration fee of about ILS 2500 (about EUR 600). The use of the electronic system does not require the involvement of a lawyer if the company has an electronic certificate.
Nevertheless, there are reports that obtaining licenses for businesses in the food industry is becoming more cumbersome due to new requirements by the Ministry of Health. Requirements on nutrition labelling,6 government-approved Good Manufacturing Practice (GMP) certifications and the use of the Codex Alimentarius7 as a reference for food standards, which makes food imports much more difficult. On the other hand, municipalities seem to apply different standards, so local requirements vary from one place to another.
Results in terms of obtaining business licenses and permits are inconclusive based on the information available for this interim assessment. A review of SME and entrepreneurship policies in Israel noted that the complex system of licenses and permits is one of the main factors holding back SME growth (OECD, 2016).8 This complexity is due to the fact that licenses and permits are issued mainly by municipal authorities, following approval by relevant government departments (e.g. Ministry of Health, Ministry of Environmental Protection), and must be renewed annually. According to the review, approximately 40% of enterprises need a license in Israel, but one quarter of them does not have one.
The government has been working to address these shortcomings for several years. In 2005 it launched an inter-ministerial committee (the Haber Committee) to review business licensing and issue recommendations for reform. In 2006 a subcommittee was created to develop a plan to implement the recommendations of the Haber Committee. However, according to the website of the Ministry of Environmental Protection, “it took years for all the parties involved, some of whom had opposing interests, to agree on how best to implement the recommendations.”9 The result was the amendment to the Business Licensing Law (2010) and the Government Decision 1007, which unites licensing requirements throughout Israel, “making it difficult” for municipalities to add additional local requirements and reducing delays in obtaining licenses, especially in industries that do not pose environmental risks.
The government continues working on improving licenses and permits. According to the consultations for this interim assessment, the municipal authorities now apply a harmonised licencing system and even act as a one-stop shop for different local institutions (e.g. police, fire department). However, there is no evidence on the effectiveness of the system. Furthermore, according to the OECD’s Indicators of Product Market Regulation – which, among other matters, measure barriers to entrepreneurship including the complexity of the licenses and permit system – Israel is a “less competition friendly” economy.10 The specific indicators measuring the restrictiveness of the licenses and permits system show that Israel is the third most restrictive country in this regard.11
Over the past few years Israel has introduced reforms to its bankruptcy framework, which is governed by three statutes: the Bankruptcy Ordinance dealing with individuals; the Companies Ordinance dealing with corporate liquidations and receiverships; and the Companies Act for corporate reorganisations. The latest is the Official Receivers’ Reform of 2013, which provides a specific structure and a target time frame (18 months) for the procedure. Its aim is to facilitate the “fresh start” policy by providing certainty and predictability for all parties.12
On March 2018, the Knesset approved a new Insolvency and Economic Rehabilitation Law overhauling insolvency procedures for individuals (bankruptcy) and companies (liquidation, receivership, stay of proceedings and restructuring). It aims to advance debtors’ financial rehabilitation; to maximise the return to creditors; and to increase the certainty and stability of the law, shorten procedures, and reduce the bureaucratic burden.13
For further action: Israel has adopted the initial steps to address the difficult regulatory environment identified by the SME Policy Index 2014 and subsequent reports. The mandate by Government Resolution 2118 of 2014 to undertake ex ante and ex post RIA and the establishment of a RIA co-ordination unit provide ripe ground for improvement of the business environment for SMEs, including through the eventual adoption of an SME test following the guidance developed by the SMBA. However, this interim assessment is inconclusive regarding the role of local authorities in providing business licences. On the one hand, the consultations indicate that business licenses have been harmonised and that local authorities now even act as one-stop shops for licencing procedures. On the other hand, the OECD indicators of Product Market Regulation still note that Israel is one of the most difficult economies in this area. Apart from this, this interim assessment finds progress in terms of the introduction of a single identification number and the creation of an online registration platform.
Fostering access to finance
The SME Policy Index 2014 noted that Israel had an advanced legal and regulatory framework for access to finance, with a functioning credit registry and two credit bureaus. Concerning the credit registry, the Central Bank’s Banking Supervision Department continues to publish information on “restricted accounts and restricted bank customers” on its website.14 The information is freely available and includes details on debtors restricted by courts in the course of bankruptcy procedures and debtors in debt collection proceedings, among other things.
Furthermore, following the Credit Data Law 5776 of 2016, the Central Bank is establishing a Central Credit Register to provide data to credit bureaus for uses such as credit ratings, credit reports, and financial consulting.15 This is leading to the establishment of a new credit bureau that is expected to enter the market in 2019; however, this credit bureau is intended to target households and not firms, given that households are seen as facing greater difficulties in accessing credit.16 The two credit bureaus mentioned by the SME Policy Index 2014 continue to operate (managed by international companies Coface17 and Dun & Bradstreet18) and provide various types of credit information such as restricted accounts, lawsuits, liquidation proceedings, and returned cheques. According to Doing Business, the credit bureaus cover 71.4% of the adult population, the highest level in the MED region and above the OECD average of 63.7%.
A registry of moveable assets also continues to operate under the Pledges Registry of the Ministry of Justice.19 According to the SME Policy Index 2014, the registry was fully operational and had several offices.
According to the consultations for this interim assessment, the low levels of bank competition are a major impediment for greater SME access to credit: the sector is dominated by six major banks, with two of them holding 60% of the market. This has resulted in comparatively high interest rates for SME loans despite the very low levels of non-performing loans; and has caused SME lending growth to lag the growth in SME GDP. To address this shortcoming a Committee for Increasing Competitiveness in Common Banking and Financial Services (“Strom Committee”) was founded in 2015, and the government has recently begun to implement some of its recommendations. For example, a law that separates credit card companies and banks was passed in January 2017 as part of a series of moves to enhance the competition level in the banking industry and to lower financing costs for SMEs. In addition, in March 2016 a credit data law was passed, according to which in 2018 a central households and SME credit database will be established, which is expected to improve competition and data accessibility in the Israeli credit market.
Other reforms are also intended to foster SME access to alternative sources of finance. For example, in October 2016 the Tel Aviv Stock Exchange relaxed its listing requirements to facilitate initial public offerings of R&D-intensive companies, and hence their access to capital in their early stages.20 However, there are no facts and figures on the impact of this measure for innovative SMEs. In addition, to promote competition among institutional investors and to help expand the funding options for SMEs, the authorities are working to establish a legal framework for the issuance of collateralised debt obligations. Nonetheless, there are no details of how and when this would be implemented.
Israel is also promoting access to crowdfunding and peer-to-peer (P2P) lending by allowing these transactions when they are ILS 1 million (about EUR 233 000) or less. Loans above that are supervised by the Israel Securities Authority.
In terms of the availability of sources of finance for SMEs, the main credit guarantee scheme is the Small and Medium Businesses Fund (SMBF), which is sponsored by the SMBA and the Ministry of Finance and managed by two private companies. The SMBF guarantees about 70% of a loan for an existing SME and up to 85% for a new firm. According to the OECD’s 2016 review of SME and Entrepreneurship Policy, the SMBF’s rejection rate was a very high 45%, and the fees charged by the Fund were low compared to international standards. The recommendation by the review in this regard was to increase fees and address the high rejection rates. However, the consultations for this interim assessment noted that these rejection rates and low fees were needed in order to keep credit guarantees accessible and sustainable. This argument could seem surprising, though, given the lack of competition between banks and the consequent limited or expensive access for SMEs and households to credit. In addition, according to official figures and as cited above, non-performing loan rates are low; hence the justification for a 45% rejection rate would seem uncertain.
The market for private equity in Israel is one of the most dynamic in the world given the high prevalence of innovative and technological firms. However, according to the consultations for this interim assessment, there is a financing gap for the funding of the growth of medium-sized firms. To address this gap, in 2016 the SMBA and the Ministry of Finance launched two equity funds managed by private companies Kogito Capital and Peninsula.21 The funds target companies with a turnover of between ILS 10 million and 100 million (EUR 2.4 million -20 million).22 The funds have a total capital of ILS 900 million with a contribution by the government of ILS 200 million. To incentivise investments in high potential firms, the government takes a share of the losses if there are any. No information on the results of this fund was provided for this interim assessment so there is no evidence on its effectiveness.
For further action: The SME Policy Index 2014 had already noted that Israel had a well-developed legal and regulatory framework for access to finance and a well-diversified market for sources of funds for SMEs and start-ups. The main recommendation in that report was to facilitate equity investments in non-technological firms. This interim assessment finds that there are several new initiatives in that and many other areas of access to finance – such as fostering banking competition (which is identified as a main issue by the authorities) and developing alternative sources of finance other than bank credit. These measures represent important areas of progress. However, almost no evidence exists in terms of the results of these initiatives, even if many of them have been operational for over one year. Israel could therefore track their progress so as to assess the concrete results of the new and older initiatives.
Nurturing entrepreneurship and SME growth
SMEs in Israel continue to have access to a wide array of business development services (BDS), including through the expansion of the network of small business development centres (MAOF centres) from 26 in 2014 to 40 now. Following a model that is prevalent in Israel, the MAOF centres are funded by the public resources of the SMBA but managed by private firms, which have to participate in a tender process to be able to operate these centres. The MAOF centres offer a wide array of BDS at subsidised prices and through a vast network of specialised consultants which provide personalised support. The MAOF centres receive funding according to the levels of satisfaction of their clients. This is assessed through surveys, some of them using control groups to better measure performance – although, according to the consultations for this assessment, it is often difficult to find the right firms for the control groups. The network of MAOF centres also acts as a one-stop shop for other government agencies, hence maximising their impact and value for money.
Israel has also registered progress in terms of SME access to public procurement. The Government Procurement Administration (GPA) in the Ministry of Finance is in charge of publishing centralised tenders and of disseminating regulations and administrative codes on public procurement. Local authorities, however, have their own rules and their regulations and do not need to abide by the GPA, although there are ongoing efforts to align local and central processes (procurement by schools, for example, is under municipal responsibility).
In 2016 amendments were made to the Mandatory Tender Law and the Mandatory Tender Regulations in order to prevent the exclusion of SMEs from these markets. These amendments included the screening of tender processes for potential barriers for SME participation, the elimination of fees for the participation in tenders of less than ILS 50 million (EUR 10 million), and the publication (from 2018) of information on tenders granted to SMEs.
In addition, there are new and ongoing efforts to establish e-procurement, an area that was considered weak in the SME Policy Index 2014 and the 2016 OECD review of SME and Entrepreneurship Policy. These efforts have been inspired by international experiences from other OECD countries and include pilot platforms where SMEs can consult and submit their bids (e.g. Menorah and Na’ama systems for conventional e-procurement and Zohar system to promote public access to innovative products and services).
The SME Policy Index 2014 pointed to the existence of three key institutions promoting SME internationalisation:
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The Foreign Trade Administration (FTA) of the Ministry of Economy, which had a network of 35 economic and trade representatives and offices in 50 countries.
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The Israel Export and International Co-operation Institute (IEICI), a non-profit organisation operated by the government and the private sector promoting the export of Israeli goods and services, as well as trade relations and co-operation and strategic alliances with overseas companies.
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The Manufacturers Association of Israel (Department of Foreign Trade and International Relations), which advocates for local industry in terms of foreign trade policy, while at the same time promoting international collaboration and the principles of free trade.
Through their websites, these institutions provide extensive information for SMEs regarding international markets and trade. Furthermore, the IEICI also acts as a one-stop shop, while the FTA assists firms with setting up partnerships/alliances and determining market entry strategies.
Since the publication of the SME Policy Index 2014, a number of new programmes and initiatives have been introduced by these institutions. For example, the FTA introduced a “Smart Money” programme for SMEs with turnover of up to ILS 200 million (double the size of the SMBA definition). This programme provides loans for marketing consulting services and training. Another new programme, Shalev, was launched in June 2017 to support mostly micro firms through loans for marketing activities, business planning and training. The programme aims to benefit about 100 firms per year.
Overall, according to the consultations for this interim assessment, Israel’s foreign trade is concentrated in a few companies and in a few sectors; hence, the strategic objective of the government is to promote small exporters as a means for diversification and also to foster higher productivity in the economy (given the link between productivity and international competition). There is also interest in diversifying the markets for exports away from the tradition markets (the United States and Europe) and into Asian markets, notably China, India and Japan, countries with whom there are ongoing trade negotiations.
For further action: Israel has introduced several initiatives to foster entrepreneurship and SME growth since the SME Policy Index 2014. These include the expansion of the MAOF centres, the introduction of reforms on public procurement and the introduction of new programmes for SME internationalisation. These appear as very positive efforts that could be better linked to maximise results. For example, according to the consultations for this interim assessment the MAOF centres, which build on a public-private co-operation model recurrent in Israel, have very limited direct involvement in SME internationalisation. These centres constitute an extended network of one-stop shops that could maximise the impact of the internationalisation programmes implemented by the FTA, IEICI and others. Along the same lines, the MAOF centres could disseminate information on public procurement opportunities and actively promote the participation of SMEs in that market.
Investing in entrepreneurial human capital
Regarding entrepreneurial learning in upper secondary education, Israel has been strategically moving from mainly project-based initiatives to system-level actions and is integrating entrepreneurship key competence into a life-long learning perspective. Nowadays, entrepreneurial learning is part of the national youth, education and economic policies and includes school-enterprise co-operation across different education levels. The new socio-economic strategy 2030 of the Israeli government features mainstreaming of key competences and entrepreneurial learning in all parts of general education, and technical and vocational education and training (TVET).
The education system benefits from networks that are inspired by a strong vision of entrepreneurship and industry-education co-operation. These networks (e.g. Amal23 and ORT24) have established structured partnerships with the business community serving as mentors for entrepreneurial youth. They engage more than 15% of junior-high and high-schools in Israel. Similarly, Unistream, a government-funded programme operated by the Israeli Innovation Authority, supports training of underprivileged Israeli teenagers and young adults in entrepreneurship and leadership to promote youth start-up and ventures with steady mentorship by local business leaders.
The government furthermore provides funding, regulatory support and guidelines for the development of entrepreneurship competence and enhancement of entrepreneurial culture in education institutions. An example of this is a recent recommendation for teachers on the promotion of entrepreneurship and business skills amongst underprivileged and at-risk youth, aiming at value creation, development of entrepreneurial mind-set, and including aspects of practical entrepreneurial experience. Moving forward, the Israeli authorities need to concentrate further efforts on the systemic integration of entrepreneurship key competence into the national curriculum and teacher training. The European Entrepreneurship Competence Framework (EntrComp) can be a possible source of inspiration.
The Israeli government has made a substantial step forward in addressing women’s entrepreneurship. In 2017, the SMBA commissioned a feasibility study to analyse the state of women’s entrepreneurship. The study looks at the gap between female and male entrepreneurship and is used to develop a fact-based solution to increase women’s entrepreneurship, especially in high-value added sectors. Furthermore, Parliament recently engaged actively with the issue of women’s entrepreneurship, with a new parliamentary lobby on female entrepreneurs established in January 2017.
Training for women entrepreneurs is part of a national institutional framework for SME support, and several official government programmes provide training to women entrepreneurs (e.g. MAOF and KIEDF’s Arab Israeli Loan Fund [SAWA]). Non-governmental programmes and organisations similarly provide support measures and training. The Economic Empowerment of Women Centre (EEWC) for instance supports entrepreneurial aspirations of around 1.000 women annually, providing them with start-up training, as well as financial literacy, computer literacy, social media marketing, business site tours and “marathon-style” training courses. A 2015 evaluation of the EEWC program reported that 40% of the women owned their own business at the end of the program, and that the five-year survival rate of these businesses was 71%. The programme-level data are collected by MAOF, KIEDF and non-government partnerships and show a positive trend: women make 52% of all entrepreneurs participating in these programmes.
Israel’s FTA acts as the “backbone” for the state’s SME internationalisation support system. It has a chain of economic missions around the world tasked with helping SMEs expand into foreign markets by providing advice, helping them complete tender bids, and connecting them to local businesses.
The government also invests major resources in skills development for internationalisation. The Ministry of Economy, through the FTA, offers support training (e.g. online courses and webinars) to eligible exporters. It also operates the “Smart Money” initiative which finances marketing consulting services. A variety of quality training and mentorship programmes are delivered through the Administration’s Centre for Learning, including a certified exporter course, country-specific courses, digital trade, marketing, logistics and transportation, legal and finance courses. Webinars, courses and other services for small exporters are also available from the Israel Export Institute, which trains and prepares mentors to assist exporter companies. Information on training programmes and providers is publicly available, and more than 20% of SMEs in key economic sectors (e.g. medical technology, high-tech and new-tech) have participated in training on SME internationalisation since the last assessment.
For further action: Israeli authorities need to concentrate further efforts on the systemic integration of entrepreneurship key competence into the national curriculum and teacher training. The government might consider scaling up the high-quality, gender sensitive, modern services for exporting SMEs to other key economic sectors, and adopt policy measures to increase women's entrepreneurship, especially in high-value added sectors. Given the major investment in programmes and the high importance of export promotion for the Israeli economy, more attention should be given to assessing the impact of the training programmes. A well-developed monitoring and evaluation system should be set in place to provide feedback on how to further increase the quality and efficiency of such services.
The way forward
Israel has continued progressing in the areas analysed by this interim assessment, especially in terms of policies for entrepreneurship and SME growth and access to finance, and to a lesser degree on improving the business environment and the building blocks of SME policy. Overall, Israel has one of the most advanced policy frameworks of the MED region. Beyond this, the actions suggested by this report are as follows:
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Considering adopting a unified SME definition, given that several support programmes use definitions other than the ones cited in the first section of this chapter (the SMBA definition and the Government Decision 2190).
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Giving the SMBA a greater policy co-ordination role, beyond the management of the network of MAOF centres and based on models applied in other countries, including OECD and MED economies. This interim assessment notes that the SMBA has some role in the implementation of RIA and an advocacy role in the eventual introduction of an SME test; but this role seems rather limited in terms of access to finance, public procurement and access to international markets.
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Building on the above, and as suggested by the SME Policy Index 2014 and the OECD review of SME and Entrepreneurship Policy 2016, Israel could develop an SME strategy to increase policy co-ordination and adopt more-articulate objectives between policy areas. This interim assessment finds that Israel does indeed have specific strategic objectives in terms of regulatory reform, access to finance (e.g. increasing bank competition and access to alternative sources of finance for SMEs) and access to international markets (diversification of markets, products and exporting companies), to mention a few. These strategic orientations could be combined into a single SME or private enterprise development strategy consolidating efforts and identifying institutional responsibilities. The development and implementation of the strategy could build on the already active system of public private dialogue outline in the first section of this chapter. The strategy could also consider specific SME aspects such as the introduction of the SME test in the ongoing RIA efforts.
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The implementation of an SME strategy could also help to better track policy results. This interim assessment finds for instance that there is little evidence on the impact of measures on access to finance and public procurement.
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The well-established network of MAOF centres, managed by the SMBA could also provide a well-positioned mechanism for the delivery of the different policy aspects of the SME strategy, beyond the provision of business development centres.
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Entrepreneurship as a key competence could be further scaled up at system level into the national curriculum and in teacher training programmes.
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The modern services for exporting SMEs could be scaled up to additional key economic sectors. More attention could be given to assessing the impact of the training programmes.
Notes
← 1. Another difference between the definitions is that the SMBA definition is an enabling definition – that is, it is enough for a business to be in either the employees group size or in the turnover group size in order to be classified as a certain enterprise type. By contrast, the definition in Government Decision no. 2190 is a restrictive one: the business has to be in both the employees size group and in the turnover size group in order to be classified as a certain enterprise type.
← 2. Amendment No. 25 to the Mandatory Tenders Law.
← 3. Central Bureau of Statistics (2017), “Statistical Abstract of Israel 2017”, www.cbs.gov.il/reader/shnatonenew_site.htm.
← 4. OECD (2016), OECD Economic Surveys: Israel 2016, OECD Publishing, Paris. https://doi.org/10.1787/eco_surveys-isr-2016-en.
← 5. OECD (2015), “Country Profile: Israel”, in OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris, https://doi.org/10.1787/9789264238770-en; and Government Resolution No. 2118 (22 October 2014), www.pmo.gov.il/policyplanning/Regulation/Documents/Reducing%20the%20Regulatory%20Burden.pdf.
← 6. This requirement will enter into force in January 2021.
← 7. FAO (2018), Codex Alimentarius, www.fao.org/fao-who-codexalimentarius/en/.
← 8. Together with the product market regulation constrains also highlighted by the 2016 OECD Economic Survey of Israel, and a lack of systematic entrepreneurship education.
← 9. Israel Ministry of Environmental Protection, “Business Licensing Process”, www.sviva.gov.il/English/env_topics/IndustryAndBusinessLicensing/BusinessLicensingProcess/Pages/default.aspx.
← 10. OECD, “Indicators of Product Market Regulation”, www.oecd.org/eco/growth/indicatorsofproductmarketregulationhomepage.htm#indicators.
← 11. OECD, “Economy-wide Product Market Regulation (PMR)”, www.oecd.org/eco/reform/Indicators_PMR.xlsx.
← 12. No statutory amendments were needed for this reform, which consists on: 1) filing a proof of claims and allowance/disallowance; 2) an economic study (investigation) of the debtor; 3) and the establishment of a repayment plan for up to three years or filing immediate discharge if NINA (no income no asset) debtors.
← 13. www.globalforumljd.org/sites/default/files/docs/cop/Questionnaire%20Israel.pdf.
← 14. Bank of Israel, “Customer Information on Restricted Accounts and Customers”, www.boi.org.il/en/ConsumerInformation/RestrictedAccountsAndCustomers/Pages/Restrictedac.aspx.
← 15. Bank of Israel (20 September 2016), “The Bank of Israel publishes a draft licensing policy for credit bureaus and business information bureaus”, www.boi.org.il/en/NewsAndPublications/PressReleases/Pages/20-09-16c.aspx.
← 16. Scheer, S. (11 November 2015), “Israel regulator sees credit bureaus helping to lower loan costs”, Reuters, www.reuters.com/article/israel-banking-regulator-idUSL8N1362XF20151111.
← 17. CofaceBdi, www.bdi.co.il/EngDefault.aspx.
← 18. Dun & Bradstreet, “Private Customers Management”, www.dbisrael.co.il/business-protection/private-customers-management/.
← 19. Ministry of Justice, “Israeli Corporations Authority”, www.justice.gov.il/Units/RasutHataagidim/units/RashamHakdasot/Pages/default.aspx.
← 20. Tel Aviv Stock Exchange, “R&D Companies”, https://www.tase.co.il/Eng/Listings/IPO/ResearchandDevelopmentCompanies/Pages/RDCompanies.aspx.
← 21. Ministry of Economy and Industry (1 April 2016), “Cogito Capital and peninsula Chosen to Establish Growth Capital Funds for Investment in Small and Medium-Sized Businesses: Total Investment NIS 1 billion”, http://economy.gov.il/English/NewsRoom/PressReleases/Pages/GrowthCapitalFundsInvestment1Billion.aspx
← 22. This definition does not align with the medium-sized firm definition by the SMBA.
← 23. A network of (junior) high schools and colleges working in partnership with enterprises to promote technology, science and arts.
← 24. A network of comprehensive and vocational schools and colleges in the area of science and technology education.