Experts are concerned whether Israeli tech industry can recover after Gaza war

Israel, known as the "Start-Up Nation," ranks among the world’s leading centers for technological innovation. The Israeli tech sector has demonstrated resilience for years, despite constant geopolitical challenges in the Middle East. However, as Israel marks the first anniversary of the deadly Hamas attack on Oct. 7, some local experts are concerned about whether Israel's local tech sector can weather the storm and recover in the post-war era.

Ophir Dror who cofounded a new Israeli cyber startup, recalls being drafted to the Israeli military on his birthday on the seventh of October.

“For four or five months, I was not available. I was in Gaza, I couldn’t even jump on Zoom calls, so it was just super hard not to be there and be part of a company I just founded and that came out of stealth while I wasn’t there,” Dror said in an interview with The Times of Israel.

“The main reason behind the progress of our [startup nation] brand is the talent that we have here in Israel,” he added.

However, he articulated concerns about the future of the Israeli tech sector amid the ongoing regional war against Iranian terror proxies, such as Hamas and Hezbollah in Lebanon.

“I think if we get to a point where a lot of this talent – either the younger guys who just come out of the army or university, or the more traditional people that build this industry with much more knowledge and experience working in enterprises – decides that Israel is not the best place for them to live, and I think it is right now, this will be a big blow to the high-tech industry and the recovery of the economy,” Dror warned.

The tech industry is the leading growth engine of Israel's economy, contributing 20% of the nation's GDP and accounting for over 50% of its total exports. An August study revealed that the tech sector generates more than a third of Israel's total income tax revenue. The health of this sector, therefore, is critical to the future of the Jewish state.

The local tech industry faces several challenges resulting from the ongoing war, such as the continuous military call-up of thousands of tech employees; a decrease in international funding; and the displacement of Israeli residents from the southern and northern parts of the country. Furthermore, some have raised concerns about a growing global creeping boycott of Israeli companies and institutions.

Sergei Sumkin, a senior researcher at the Aaron Institute for Economic Policy at Reichman University near Tel Aviv, believes the tech sector is still resilient despite the recent slowdown.

“There are worrying signs of a slowdown in the high-tech sector, but it is still resilient,” Sumkin assessed. “We are at a crossroads right now and if the government will not step in, increase the budget of the Israel Innovation Authority, and make the right decisions to support the tech sector, the price of taking the wrong decisions today will be very high,” he warned.

In June, Israel Innovation Authority CEO Dror Bin urged the Israeli government to increase investments in the local tech industry, highlighting the need to address the challenges posed by a decline in foreign investments.

“However, going forward the tech sector’s high dependency on foreign investments and increasing competition, backed by massive government investments in other global innovation hubs, require the Israeli government to double down on their investments in Israeli tech,” Bin stated.