Political Unrest in Israel: is the Country Facing a Tech Exodus?

In the past few weeks, hundreds of thousands of people have been protesting in the streets over government plans to overhaul the judicial system. What are the repercussions on businesses? Will startups and tech companies move from Israel in search of more stable political conditions?

The Israeli Startup Ecosystem

Israel has emerged as a major global hub for technology startups and innovation in recent years. It is home to over 6,000 startups and sees significant investment from tech companies and venture capital firms. The country has one of the highest numbers of startups per capita worldwide, and Tel Aviv ranks just behind Silicon Valley as a leading tech ecosystem: as of now, Israel — which has a population of almost 9m — has developed 97 unicorns. As an example, in comparison, the UK has 43.

Several key factors have contributed to Israel’s success as a startup hub. First, it has a highly educated workforce, with a strong emphasis on science, technology, engineering, and math. The country also has mandatory military service, which provides technical training and skills that translate well to the tech sector.

Government programs offer grants, tax incentives, R&D partnerships, and other support to promote entrepreneurship and innovation. A culture that encourages creativity, challenging authority, thinking outside the box, and taking risks also fosters a startup mindset.

Israeli startups are industry leaders in sectors such as cybersecurity, fintech, autonomous vehicles, medical devices, and more. Major companies like Google, Facebook, Microsoft, and Intel have research and development centres in Israel to tap into the local talent pool. Cross-pollination between the military, academia, and the private sector creates opportunities for collaboration and the advancement of new technologies. With a combination of talent, experience, ambition, and chutzpah, Israeli entrepreneurs will likely shape the future of technology for years to come.

Israel’s startup success has also led to a vibrant community and culture around entrepreneurship. Major tech conferences like DLD Tel Aviv and Cybertech draw international attendees. Coworking spaces, accelerators, and networking events connect founders and help startups scale. A sense of shared purpose and mission contributes to a tight-knit tech community.

The country’s startup ecosystem has momentum, talent, and ambition in spades-all the ingredients for future success as a global technology leader. However, the recent measures announced by the government are posing a huge threat to the stability of the local tech ecosystem.

What is happening in Israel

In November 2022, Israel elected its new government, the most far-right and religiously conservative in the country’s history. Led by Prime Minister Benjamin Netanyahu, the government has recently announced plans for a series of controversial proposals for judicial reform capable of disrupting the balance of power and putting an end to the country’s judiciary system’s 75-year run as an independent institution.

If passed, the proposed legislation would severely undermine judicial oversight of the parliament (Knesset), while granting Prime Minister Benjamin Netanyahu unprecedented control over judicial appointments. Like Hungary and Poland, Israel’s reform plans follow an illiberal playbook that would erode the pillars of its democracy and the independence of its judiciary.

The proposed reform has caused immense outrage and resulted in never-before-seen mass demonstrations across Israel that have persisted for more than two months, with a staggering half a million people participating countrywide. In fact, according to polls, most Israelis are against the suggested alterations.

More quietly, non-political figures such as tech industry leaders and CEOs are reappraising what it means to operate in the country and deciding that if the government retools the judiciary, it is time to leave. Last month, Riskified (NYSE: RSKD), an Israeli fintech firm, revealed that it would assist workers who wish to relocate to its development centre in Lisbon, Portugal — a facility it launched several months ago. The company’s founders consider it crucial to retain employees who express a desire to move abroad, thereby avoiding the loss of valuable personnel.

Why Portugal is a great place for Israeli startups

A unique society and culture, a strong economy & innovation mindset, government support and a “global-first” market approach are just a few of the factors that make Israel’s and Portugal’s startup ecosystems among the most successful in the world.

Portugal has become an attractive destination for Israeli startups looking to expand into Europe. In the past couple of years, many Israeli companies have chosen Portugal to support their European expansion plans — Shield, Air Doctor and OurCrowd, to name a few. Furthermore, to correct a moral historical wrong, the Portuguese government has been facilitating the obtention of citizenship to Portuguese sefardites’ descendants.

In addition to being a stable and welcoming democracy, many others are the reasons why Portugal is a great place for Israeli startups:

• Easy access to the EU market: By setting up operations in Portugal, Israeli startups gain access to the entire European Union single market of over 500 million consumers. Portugal’s membership in the EU makes it easy for companies to expand across Europe.
• Cost-effective talent and operations: Compared to other Western European countries, Portugal has a lower cost of living and doing business. Salaries for knowledge workers are more competitive, and office space and other operational costs are lower. This makes Portugal an affordable place for startups to hire talent and set up offices.
• Generous tax incentives: The Portuguese government offers attractive tax incentives for startups, including a special tax regime for intellectual property assets and other R&D activities. Startups can benefit from a low corporate tax rate of 21% and various tax exemptions and credits. The government also provides grants and other support for startups.
• Highly skilled talent: Portugal has a well-educated, highly skilled workforce, especially in engineering, IT, and software development. Portuguese universities produce many tech graduates each year, providing startups with access to top talent. English proficiency is also high, which is useful for Israeli startups.
• Strong infrastructure: Portugal has high-quality infrastructure, including modern airports, road and rail networks, and high-speed internet connectivity.
• Lifestyle advantages: Portugal offers an exceptional quality of life, with great weather, beaches, food, and wine. The lower cost of living also allows for a better work-life balance.
• Gateway to Latin America: Portugal’s close ties with Latin America, especially Brazil, provide Israeli startups with an entry point into Latin American markets. Cultural and language ties facilitate business in the region.
• Startup-friendly policies: The Portuguese government has been developing policies and programs to promote entrepreneurship and support startups. There are various grants, funding programs, incubators, and accelerators available for startups. The government is eager to welcome innovative startups from abroad.

If you are interested in knowing more about how to get your business up and running in Portugal, call us today!

Originally published at https://www.bridgein.pt on April 3, 2023.