Israeli High-Tech Faces Exodus and Contraction Risk Amid Political Uncertainty

The Israeli high-tech sector is projected to continue its gradual shift abroad, rather than collapse, in the coming years, even if the current coalition wins the next election. However, a more significant risk looms in the long term: boycotts, academic isolation, and brain drain could lead to the sector not just shrinking but contracting.

The trend of high-tech activity moving overseas has been ongoing since 2019. Data from the Innovation Authority indicates a decline in the percentage of employees in private high-tech firms working in Israel, dropping from 69% in 2019 to 62% by March 2026. The exodus of senior management is even more pronounced, with 23% of executives already based in the United States. This movement of operations abroad will directly impact state revenue, as the high-tech sector accounted for a record 18.3% of GDP and 58% of exports in 2025, employing 11.4% of the workforce. In 2021, high-tech employees paid approximately 35% of all income tax from salaries.

Factors contributing to this trend include global economic forces like the strengthening shekel and the impact of artificial intelligence on recruitment. However, the decline in the proportion of employees in Israel began years before these factors became prominent. The article suggests that decisions to relocate operational centers from Israel are a significant driver, particularly for growth in the United States. Furthermore, the number of new startups founded in Israel has been decreasing since 2014, with a notable increase in startups incorporating outside Israel since 2023.

Political developments are also seen as a catalyst. The article posits that a government that maintains the reserve duty burden on remaining high-tech employees and proceeds with legislative changes to the judicial system, as promised by Justice Minister Yariv Levin and Finance Minister Bezalel Smotrich, is expected to accelerate this trend. Investor confidence could also be affected, with rating agencies like Moody's identifying the weakening of state institutions, particularly the judiciary, as a potential reason for a credit rating downgrade. Past attempts to reform the judiciary in 2023 led to a significant drop in high-tech fundraising.

Academic and international isolation pose further threats. Israeli researchers have seen a decline in grants from European research bodies, and there has been a significant increase in reported academic boycotts. The article warns that if Israel's relations with Europe continue to deteriorate, Israeli startups may face difficulties in securing grants, and the scientific community could experience further isolation, potentially accelerating brain drain. The long-term outlook suggests that a combination of these factors, foreign funding dependency, academic decline, and a shrinking pool of future engineers due to educational trends, could lead to a contraction of the entire high-tech industry.