Is Israeli Red Tape Strangling Start-Up Nation?

High Tech Firms Flee as Taxes and Regulation Increase

Get Out Nation: Israeli tech entrepreneurs are shunning Tel Aviv amid what they call suffocating regulation in the Jewish state.
haaretz
Get Out Nation: Israeli tech entrepreneurs are shunning Tel Aviv amid what they call suffocating regulation in the Jewish state.

By Reuters

Published October 30, 2013.
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High-tech entrepreneur Eyal Waldman decided he had had enough of Israeli investors when they told him to choose between his titles of chairman and chief executive at the company he co-founded, Mellanox Technologies.

So in August, Waldman delisted the chip designer - Tel Aviv Stock Exchange’s sixth-largest company, with a market value at the time of 6 billion shekels ($1.7 billion) - dealing a heavy blow to an ailing bourse that had already seen its chief executive and chairman resign a month earlier.

Waldman said the attitude of Israeli institutional investors, who had been empowered by changes to the Securities Law, was suffocating.

“Mellanox is not an impulsive company. (Delisting) is something we were thinking of, that we saw build up. This was not our place any more,” he told Reuters.

Since Mellanox delisted, a handful of Tel Aviv’s largest companies have threatened to follow suit unless Israel becomes more business friendly.

The problem is the result of both more regulation and less.

Over the past decade, Israel has relaxed rules on overseas investments. Previously, Israeli pensions had to invest nearly 100 percent at home; now they can invest without limitation abroad. At the same time, over the past year the government has introduced securities regulations that Israeli companies complain make doing business far harder, including more stringent reporting requirements, pushing even more money out of the country.

The new regulations and other measures were an effort to help consumers and protect investors. Competition was subdued by the domination of a handful of conglomerates in the mobile phone, retail, construction and petrol distribution sectors, and consumers were struggling to keep up with bills.

In 2011, hundreds of young Israelis, angry they could not afford housing and bitter about the high price of groceries, set up a tent city in the heart of Tel Aviv’s financial district and for weeks refused to move. This culminated in the largest demonstration in Israel’s history, with 400,000 people demanding a more affordable cost of living.


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