Israel’s high-tech sector now accounts for 20 per cent of the country’s economic output, the Israel Innovation Authority (IIA) said this week as it urged the government to invest more to allow tech to grow faster.

In its 2024 State of the High Tech Sector in Israel report, the state-funded authority said that despite the eight-month-old war against Palestinian Islamist group Hamas in Gaza, the tech sector continues to grow – albeit slower than in 2021 and 2022 – and remains Israel’s main growth driver. It accounts for 53 per cent of total exports.

Some 600 new startups were created last year while tech firms raised $8 billion in 2023, down 55 per cent from 2022. In all, Israel has around 9,200 tech firms with a workforce of 400,000.

Dror Bin, the IAA’s chief executive, said that while his budget has grown to help fund initiatives totalling $250 million to help startups having trouble raising money due to the war and a tough global funding environment, the state needs to “double down” on tech investments.

“Israel does not have a lot of natural resources – we are not an oil and gas superpower,” Bin told Reuters.

“We are a country on the verge of a desert so we don’t have a lot of water. The only natural resource we have is the grey cells in the brains of people here and we need to make sure this continues to prosper and grow.”

Innovation, Science and Technology Minister Gamliel agreed that innovation is Israel’s most important resource and that the government “must continue to support companies and develop the necessary infrastructure”.

A separate survey by the Israel Advanced Technology Industries on the influence of the Israel-Hamas war on the tech sector showed that 65 per cent of venture capital funds reported difficulties operating due to identifying as Israeli, and more than 30 per cent of Israeli companies and startups have moved significant activity abroad – and that may worsen in the coming year.

Bin anticipates a similar year in 2024 as last year due to the anxiety over funding rounds but foreigners are still active investors since they know how to assess the risks of investing in Israel and want to invest while valuations remain attractive. He said he would like to see more Israelis invest.

Cyber and fintech remain the hottest sectors for investors, but climate tech accounted for one in six new startups as entrepreneurs seek to solve challenges facing a planet “that is getting warmer, and how to provide food, water, good health care services in an aging population,” he said.

Around 8 per cent of tech workers were called into army reserve duty, while others were also pulled from their comfort zones to volunteer, he noted.

As a result, they met new people and saw a host of civilian and defence needs.

“Following the war,” Bin said, “we will see a baby boom of startups in Israel because of all these crazy things that happened here since Oct. 7.”