Israeli hi-tech companies face shortage of thousands of engineers and programmers

Israeli hi-tech companies face a sharp shortage of some 10,000 engineers and software programmers, and some firms may be forced to relocate abroad because of the shortage, the Israel Innovation Authority said in its annual report released Sunday.

The public agency is funded by the Economy Ministry to the tune of NIS 1.6 billion ($450 million) annually and is responsible for fostering research and development in Israel. It is now ringing the alarm as to obstacles facing Israeli start-ups, established firms and hi-tech multinational corporations.

“If there is no dramatic increase in the number of employees in high-tech, Israel’s economy will reach a dead end and get stuck. Thus, the goal of the Innovation Authority: Half a million employees in innovation-oriented companies within a decade,” the report states, as the agency is trying to double the number of Israeli hi-tech employees from its current 270,000 total.

While Israel invests a greater percentage of its Gross Domestic Product on research and development than any other country, and venture capital investments make up the highest share of GDP per capita worldwide, the country will not be able to maintain its competitive edge without more highly-trained employees.

“The shortage increases when you go up the pyramid; there are really few available high-end engineers doing algorithms. It’s also a problem for the mid-level of software developers and coders,” said Chief Strategy Officer at the Israel Innovation Authority, Uri Gabai, in an interview with The Jerusalem Post.

Due to the shortage of highly skilled employees, average wages for Israeli engineers rose by 38% between 2005 and 2015, a sign that more companies are chasing fewer suitable candidates. The sharply-increased salaries make it difficult for Israeli start-ups to compete with multinational corporations in paying engineers, even though “Israelis excel in setting up small startups around a groundbreaking idea,” the report touts. That in turn, hampers the most innovative technologies coming out of start-ups as they lack the obstacles posed by big firms’ bureaucracy.

The hi-tech industry currently comprises one-twelfth of the Israeli workforce, or slightly more than 8% of all workers. Average monthly salaries stand at some NIS 21,000 ($5,940) as opposed to outside the industry where average Israeli monthly wages are NIS 9,800 ($2,770).

In order to double the number of hi-tech employees overall, the IAA proposes a number of carrots and sticks to encourage investment and decrease ‘brain drain’ – or stop the legions of highly-educated Israelis who depart the country for better economic opportunities in Silicon Valley and elsewhere.

The IIA estimates that Israel can produce 1,500 more hi-tech employees with greater funding to students majoring in STEM – science, technology, engineering and math – in the next five years. Other ways the public agency will try to reduce the shortfall in programmers and engineers is to expedite the processing of work visas for highly-educated, non-Jewish internationals, a contentious issue for the Jewish state as it is concerned with maintaining a Jewish majority.

The public agency also seeks to encourage the 300 multinational corporations present in the country to expand their supply chains locally. Today, some 70% of the employees at multinationals’ R&D centers are engineers and programmers. Rather than locate research and development centers in Israel, the IIA is trying to persuade MNCs via “significant tax benefits,” the report says, to locate their design, production, marketing, smart-manufacturing and sales teams locally. It remains undisclosed how many millions of shekels these corporate tax breaks will amount to.

Along with cajoling MNCs to expand their non-research offices here, the IIA wants to better integrate women, Arabs, the ultra-Orthodox and engineers older than 45 in the historically young, male and Ashkenazi-dominant sector. Yet when it comes to proposals to diversify the old boys’ club, the IIA report sounds vague when it comes to changing the culture at these firms.

One proposal that could help to shakeup the non-diverse field is to fund “coding boot camps” in Israel. Already, there are many private schools and institutes offering workers the chance to retool and learn computer code in order to become a software engineer.

“Basically if you’re in the middle of your career – in your late 30s and 40s – we’ll help pay for coding schools that do intensive training for six to nine months, and they’re quite popular these days. We copied that model from the Israeli Army, where they do intensive training in intelligence units,” said the IIA’s Gabai. By the middle of 2018, the IIA will pay the private coding academics up to NIS 40,000 per graduate recruited by a hi-tech company for a salary above NIS 14,000 ($3,960) monthly. It is unclear how much of a tuition break the students will get, since the IIA will fund the schools directly and not the pupils.

In the past decade, the IIA has given grants to more than 1,100 R&D projects in 650 companies, with the average grant valued at NIS 1.4 million ($400,000). A company can apply for up to NIS 50m. of funding for over five years.

“Today, Israel boasts of global achievements... There are 600 new start-up companies per year, and there are over 300 R&D centers of multinational companies such as Intel, Google, IBM and Apple. We are ranked second in the world by the World Economic Forum’s innovation index,” Innovation Authority director-general Aharon Aharon said in a statement. “Yet these achievements do not seep into other sectors of the economy.”