STRATEGIC SOCIO-ECONOMIC

ASSESSMENT 2015

Presentation to the 34th Government

June 2015

Maxisport / Shutterstock.com

Whole-of-Government Strategic Initiative

Inclusive

Systematic

Transparent

Continuous

What is a Socioeconomic Assessment?

Main Goal

A road map guiding strategic decisions

and coordinated implementation

Structure

A. General trends and features: review of

both the global and local socio economic

trends

B. Strategic action guidelines

C. Strategic issues: pointing out the

challenges and opportunities of the next

five to ten years

Aging Population

Main Global Trends

Post Crisis World Big Data Era

Climate Change

Rise of developing Economies

The New Normal? - Low Global Growth

Average annual growth rates in developed economies

Source: World Bank

2.7% 2.9%

2.6%

1.2%

1975-1985 1985-1995 1995-2005 2005-2014

Bank of England Interest Rate: 1695 - 2015

Source: Bank of England

2%

0.5%

0

2

4

6

8

10

12

14

1695 1805 1840 1875 1910 1945 1980 2015

9.3

7.9

3.8

4.7 4.6

2.7

5.2

2.6

1.7

5.5 5.5

3.8

1990 2010 2030

China U.S Japan Israel

Decrease in The Earners to Elderly Ratio

The ratio between people aged 20-64 to those over 65

Source: UN World Population Prospects

The Big Data Era has Begun

Digital data storage in billions of Gigabytes

Source: IDC, National Economic Council

130

40,000

Natural Resources

Urbanization Export Based Economy

Geopolitical Challenges

Main Local Trends

High Level of Inequality

Unique Demographics

Young Adult's Immigration to The Center of Israel

Change in Jewish population of ages 15-30 between 2003 and 2012

-11%

-8%

11%

-9%

-13%

Be'er ShevaSub-district

Jerusalemdistrict

Central district Haifa sub-district

Northern district

Source: Israel’s CBS

* Central district – includes Tel Aviv and the center district as well as

Ashqelon and Hadera sub-districts

Running Out of Land Reserves

Land reserves designated for housing

in Central and Tel Aviv districts will

last only for about 15 years.

In case of increasing land reserves

for all open land (excluding industrial

zones), they will be exhausted in

about 60 years.

Under these assumptions:

Current density is kept fixed

No urban renewal

Each district keeps its

proportional part in additional

housing units

Source: National Economic Council

Expected Significant Increase in Traffic Congestion In the Next 15 Years

Congestion in metropolitan areas will be doubled during rush-hours.

On average, each passenger will spend additional 60 minutes per day on the road.

Total man-hours wasted expected to reach 850 million a year.

The estimated loss in GDP is expected to grow to about 25 billion NIS per year.

Source: Ministry of Transportation, National Economic Council

Inequality

Differences in birth rates

Inequality in assets

Gaps in participation and access to employment

Productivity gaps

The Main Reasons for Income Inequality

1.5% 5.5%

24.9%

66.1%

Full Time Job 2 1 0

Poverty incidence by number of

workers in the household

* After transfer payments and taxes

12.3%

40.0%

54.3%

59.8%

Jews -excluding

Haredi

Ethopian Arabs Haredi

Poverty incidence in selected

population sectors

* After transfer payments and taxes

Poverty in Israel - 2012

Source: Social Security

13,092

9,455

6,943

8,219

5,284 5,263

Jews - excluding

Haredi

Haredi Arabs Jews - excluding

Haredi

Haredi Arabs

Distribution of Income from Employee Wages, 2012

Average Monthly Revenue (NIS)

Source: Israel’s CBS, National Economic Council

Women Men

Project Gutenberg

The New World – a Terra Incognita

Socio-Economic Uncertainty

Competition on People

Technological Uncertainty

Competition on Markets

Business as Usual Scenario - Insufficient!

43%

47%

40%

37.5%

2014 2020 2030 2040 2050

Expenditures Revenues

The Challenge – Coping with the Increasing Burden on the Productive Class

Government Revenues and Expenditures Forecast (% GDP) – “Business as usual”

3% 9%

Source: Ministry of Finance, Chief Economist Division

* Under the assumption that employment rates will remain constant for each age group, gender and sector ** Under the assumption that the “Leviathan” gas field will be developed in 2018

A deficit of NIS 100 billion per year =

Israel Defense Forces from Israel - Iron Dome Battery Deployed Near Ashkelon

The Response

Strategic Thinking

+

Flexibility

+

Ability to Execute

Main Strategic Issues

Human Capital Development

Productivity and Competitiveness Financial

Infrastructure

Housing Strategy

Regional Economic

Development

Preparation for Population aging

“Digital Israel”

Human Capital Development and Utilization

What is the Future of Labor Market?

Increasing Uncertainty!

Demography

Regulation

Business Environment

Psychology and Culture

Work Relations

Technology

The State is the Central Player in the Development of Human Capital

?

The Future of Jobs

21st Century Skills

Early Childhood

Army and Civilian Service

Employment Policy

The Education

System

K-12

Tertiary Education

System

Future Graduates of Education System Entering the Job Market

405 353 375

111 159 202 53 82

127

2009 2019 2029

Jews (Excluding Haredi) Arabs Haredi

Number of People Aged 25-29 (Thousands)

Source: Israel CBS, Projection 2009-2059

Return for Tertiary Education: an Indication

12%

27%

46%

70% 70%

83%

Israel OECD Germany

Tertiary Education - Not Academic Academic Higher Education

Source: Education at a Glance 2014 OECD

Without deducting the effects of skills, geography and more.

Who Do We Want to Resemble?

Southern Europe

Focus on the Workplace

Northern Europe

Focus on the Person

Directions of Action

21st Century Skills

System-Wide Synchronization

Promote skills and quality employment for

women, Arabs, the Haredi, Ethiopian and

people with disabilities

Upgrade vocational and technological

training systems

A national program to improve education

in the Arab sector

Treatment of the shortage of skilled

manpower in the economy

Strengthen Active Labor Policy

Productivity and Competitiveness

30 33

37 38

45 49

42

51 56

2005 2010 2014

Israel OECD Europe

The Israeli Economy Suffers from Relatively Low Productivity Levels

Productivity per hour worked ($), international Comparison

Source: OECD

147

209

383

Public Services Local Industry andServices

Global Industry andServices

Only a Small Part of the Economy is Exposed to Global Competition

Productivity (2014 Data), Thousands NIS per year

Source: Israel CMS

Share of Employees in the sector

14% 52% 34%

Israel's Position in the Global Value Chain

Manufacturing,

assembly,

programming

Management,

Marketing,

Registration of IP

R&D and

entrepreneurship

High Value

Added

Low Value

Added

High Number of

Employees

Small Number of

Employees

Excess Regulation in Israel

Product Market Regulation Index (OECD)

*Excluding USA

1.1

1.6

1.9 2.1 2.2 2.2

2013 2008

Israel Mexico ישראל מקסיקו *OECDממוצע OECD

average

Source: OECD

Directions of Action

Increase productivity in traditional industries and local services

Reduce bureaucracy and streamlining regulation

Encourage the growth of large technology companies

Encourage the entry of multi-national companies

Diversify Israel's target markets

Develop other export fields

Financial Infrastructure

The Distribution of Sources of Capital will Drastically Change

Expected Increase in Financial institutions Assets (NIS Billions)

Source: Bank of Israel and Financial Market Department in the Ministry of Finance

Risk weighed assets

in the banks

Assets

Fin

an

ce

co

nsu

mers

Difficulty in Access to Finance

Institutional Investors

The Public SMEs Corporations Government

Banks

Startups

Foreign investors

Lack of

information

And Tools ?

Directions of Action

Improving access to credit for new

players

Capital market reforms with an

emphasis on the stock exchange

Establishment of the Financial Stability

Committee

Housing Strategy

45 45

55

65

2001-2005 2011-2015 2021-2025 2031-2035

Housing Needs are Rising: Scenarios of Demand

Annual Average (Thousands)

Source: Israel CBS, National Economic Council

Creating an Apartment in Israel takes approximately 12-13 years

The average duration for creating an apartment on public land (years)

Source: Bank of Israel

6 Preparation + Approval of plan

in district committee

1.5

Development plan

0.5 auction Construction

permit

3 Construction

2-2.5

Incentive problems!

2000s: Plans vs. Demand

Approved plans and Demand (thousands of residential units, annual average)

13

37

26

68

85

2000-2003 2004-2006 2007-2011 2012-2014 2015-2020

60

Demand Approved Plans

Source: Israel CMS, planning administration. Processing: National Economic Council

Incentive Problems in Housing Sector

Planning Committees

Municipalities

Developers

Government

Directions of Action

Strategic plan for housing, including goal setting

Build a strategic housing stock and adjustment mechanism

Shorten production time of apartments

Restructure incentives for local authorities

Massive urban renewal plan

Regional Economic Development

Government Investments in the South

The expansion of railway lines to

Sderot and Netivot

High-tech Park in

Beer Sheva

Beer Sheva – Center

for Cyber and Big

Data

Development of

Transportation

Infrastructure

IDF’s Transfer to the Negev

Transportation

Infrastructure,

Highway 6

Government Investments in the North

Railways to Beit She’an and

Carmeil

?

? ?

Low Income From Labor in the Periphery

7,370 7,710

10,040

8,800

6,550

South Jerusalem Center and TelAviv

Haifa North

Gross Monthly Income per Employee - NIS, 2012

Source: Israel CBS

Insufficient Investment in Public Services in the Periphery

Average achievements of eighth-graders in standardized math tests in 2011 *Hebrew education only

1.4 1.6

2.3 2.3

2.0

South North Jerusalem Haifa Center

Hospital Beds per 1,000 People

48 49 52 55

59

Sotuh North Jerusalem Haifa Center

Source: Ministry of Health Source: Ministry of Education

Commuting to Workplace

Source: Israel CBS, Google Maps ,Bureau of Transportation USG

Driving distance (KM) Between cities and employment centers

96%

4%

96%

4%

93%

7%

Up to 60 KM Above 60 KM

Israel Britain USA

Driving distance between the place of residence to the workplace

Tel Aviv Be’er Sheva South 143 46 Arad

148 39 Dimona

148 36 Yerucham

Tel Aviv Haifa North 105 44 Nazareth

136 43 Carmiel

114 25 Acco

137 62 Tiberias

Israel’s Metropolitan Centers

Haifa – 500,000

Jerusalem – 900,000

Be’er Sheva - 200,000

Tel Aviv – 2.8 million

* Population in metropolitan

centers in Israel, definition by

the CBS Source: Israel CBS, OECD

Another Major

Metropolitan Center

in the North

?

Directions of Action

Formulation of a holistic plan for the North.

Strengthen the capacities of local

authorities, focusing on week authorities

Strengthen cooperation in metropolitan

areas: economic development, planning

and construction, transportation

Reducing dependence on private vehicles

in metropolitan areas

Aging Population

Burden on Employees

The ratio of working age population (20-64) to the elderly population (65 and over)

5.7 5.5

3.8

3.9

3.3

2.1

1980 1990 2000 2010 2020 2030

Israel Western Europe

Source: Israel CMS, OECD

The Main Causes for Population Aging

14.1 15.6

18.4 20.5

Men Women

1979 2009

Development of life expectancy at the age of 65, by gender (years)

38 37

68

75

74 69 64 59

Number of people by age (Thousands) 2011

Baby Boom Generation

Source: Israel CBS, National Economic Council

10.7%

12.4%

2009 2029

Expected Increase in Public Spending

1.7%+

Source: Ministry of Finance

Corresponds to an additional expenditure of NIS 20 billion per year today

The effects of aging on public expenditure (% of GDP)

62

63.5

64.8

67

65 65.2

Israel 2015 OECD 2012 OECD 2030*

Women Men

Retirement Age: Israel versus the OECD

* Updated forecast for 2012, some countries

decided in recent years to further raise the

retirement age Source: OECD

Average Mandatory retirement age - OECD

73

150

45

100

2012 2030

Israeli Caregivers Foreign Caregivers

In the “Business as Usual” scenario, 20% of newly hired women in 2030 will be working in the nursing field

Total: 250

A Significant Increase in Nursing systems Needs –

With an Emphasis on Labor

Development in demand for caregivers (thousands)

* Corresponding to the ratio of demand to Caregivers in 2012

Source: JDC, NII, Israel CBS, MMM

Total: 118

Directions of Action

Treatment of the actuarial deficit of The National Insurance Institute

Preparation of the pension system

Gradual adjustment of the retirement age

Integration of elders in employment and in the community

Preparation of nursing and health systems

Digital Israel

Israel – The shoemaker’s son goes barefoot?

START-UP NATION

High technological capabilities

Global leader in various tech fields

Country-wide broadband deployment

Unique knowledge infrastructure

Insufficient utilization of technology in health care, education, welfare, community, training, higher education etc.

Low availability of policy-supporting information

Promoting growth and employment Reducing social inequalities

Efficiency and savings Improving citizen services

A Quantum Leap - the National Initiative "Digital Israel"

Directions of Action

Expansion of National Digital Program

Urging deployment of fiber optics

Adjustment of government to the information age:

Digital citizen services

Human capital

Acquisitions

Legislation

What’s Next?

Approval of master plans

Jul-Aug 2015

Incorporating plans in the budget and

2016 work plan

Jan 2016

Presentation and approval of

the Cabinet

March 2016

Progress status and

implementation of plans

June 2015

Formulation and implementation of new master plans

Thank You