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Israel's innovation rankings lay bare split between high-tech and the rest

  • On the European Innovation Scoreboard Israel is ranked a "strong innovator".
  • Familiar weaknesses in some parts of the education system and low productivity and efficiency in its traditional industries seem to hold back higher innovation rankings.
  • Israel's image is very much determined by its performance in some eye-catching and deals-driven fields.
Surfers ride the waves on a beach in Tel Aviv, Israel
Ahikam Seri | Bloomberg | Getty Images
Surfers ride the waves on a beach in Tel Aviv, Israel

Israel's self-styled image as a global innovation hub got a bit of a knock last week with the appearance of the European Union's annual European Innovation Scoreboard.

The review has ranked it quite stable in recent years but highlighted a more than 8 percent decline since 2010. This seemingly contradicts a broader Global Innovation Index ranking that appeared the previous week, in which the country climbed four spots compared to last year.

While Israel performs strong on a variety of aspects, such as R&D (research and development) and especially attracting venture capital, familiar weaknesses in some parts of the education system and low productivity and efficiency in its traditional industries seem to hold back higher innovation rankings.

"Trying to reduce the innovation ecosystem into one number is by definition an exercise which we have to take with a few grains of salt," Uri Gabai, chief strategy officer at the Israel Innovation Authority, formerly the government's Office of the Chief Scientist, told CNBC via telephone.

When looking at the larger trends, it's clear that Israel is still performing strongly, he says:

"We're doing extremely well and we're in the midst of one of the best period of Israeli high-tech, talking about the last five years since the bouncing back from the global financial crisis."

On the European Innovation Scoreboard Israel is ranked a "strong innovator", just above the EU average but well below the pack designated as "innovation leaders". That appears to be in contradiction to what seems to be its position in several high-tech industry fields and certainly its own self-image.

The same can be said of the Global Innovation Index (GII), published by the UN's World Intellectual Property Organization, WIPO, together with INSEAD and Cornell University. It's moving up partly due to improvement in one of its weaker areas, tertiary education. It maintains strong or top positions in research and venture capital attraction.

"Israel has always hovered just below the top-20 or just inside and this has been a source for discussion for awhile because Israel is perceived in many respects in the top five," Sacha Wunsch-Vincent, senior economist at the WIPO and co-editor of the GII, told CNBC via telephone.

Israel's image is very much determined by its performance in some eye-catching and deals-driven fields.

"If you're thinking about world class innovation clusters, in which university-industry technology transfer and associated spillovers work, Israel is clearly among them with U.S., Switzerland and maybe Germany," said Wunsch-Vincent.

"On VC (venture capital) and business angels etc. Israel is probably the only country in the world that looks as efficient and functional as the U.S.," he noted.

Yet, there exist familiar weaknesses that bring down the country's ranking on the GII, some that have to do with OECD (Organization for Economic Co-operation and Development)-wide phenomena such as low investment rates across the economy.

But there are some areas in which the country underperforms relative to other industrial countries, says Wunsch-Vincent: "In Israel you see some outliers, which show things can be improved. In particular, the data on education and also particular items in the area of knowledge impact, for instance the number of new companies created, high-tech manufacturing or computer software spending across the economy and there suddenly they have results that are below the OECD average."

Meanwhile, Gabai of the Israel Innovation Authority argues that in many aspects, innovation in Israel is already at a very high-level and that this is affecting indexes that measure progress or relative position, with other countries working to catch up.

He agrees that education is an issue, with the high-tech sector needing more people than the system can provide. The authority is therefore working hard to bring in groups that have traditionally been underrepresented in high-tech, mainly the ultra-orthodox Jewish and the Arab populations.

He challenges some of the European Innovation Scoreboard's data but acknowledges: "Definitely if you take it as an average over the entire economy, the innovation level is not high enough."

Manufacturing, or traditional, industries need to catch up, he says: "A big challenge for us at the Innovation Authority is to bridge this gap between high-tech, which is doing extremely well in innovation and in many aspects is leading the world in technology, and just an hour's drive from there you get manufacturing industries that lag behind."

To improve the country's overall economy, it will need to mobilize its existing R&D effort even more efficiently, he says: "Our goal for the next decade or so is to get more economic impact out of that R&D and innovation."

While Israel may not rank as highly as some might think it could on innovation indexes, it's right up there. And the WIPO's Wunsch-Vincent expects it to maintain and possibly even improve that position:

"We identified all the ingredients that lead us to think that Israel will function as an innovation hotbed well into the future." he said.

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