Israel Infrastructure Report 2007

Israel's construction industry has been under the microscope for its inability to move in tandem with the overall economic revival. Logging negative growth over the last decade, the industry has only lately started showing signs of recovery, it contributed 8.5% to the Israeli GDP in 2005. BMI's newly released Israel Infrastructure Report Q406 forecasts some improvement in prospects with moderate to average, single-digit growth over the 2006-2010 period.

Israel is witnessing increased investment in infrastructure projects through the build-operate-transfer (BOT) route, but the right investment climate is imperative for continued growth. Though construction activity has been predicted to reach 2001 levels, it will still be 30% below 2000's level when the al-Aqsa intifada broke out.

Israeli GDP is expected to rise 4.5% in 2006, after expanding an estimated 5.2% in 2005. Private consumption has been the main driver of economic growth, supported by falling unemployment, rising consumer confidence and ongoing tax cuts. Also, despite the 'politics of coalition' posing a slight risk to macroeconomic policy-making, BMI would retain a target of '3% of GDP' deficit.

Israel's war with Lebanon has impacted on its economy. Increased war spending has led to major cutdowns in budgetary allocations to other sectors of the economy. This has affected the 'traditional sectors' the most, forcing infrastructure to the bottom-most rung on the spending ladder. Moreover, war damages to infrastructural facilities in northern Israel are yet to draw the attention of budget planners. With strong trading ties with the US and Europe and a highly educated workforce, the Israeli economy is one of the most progressive among its peers. It also has one of the most open and transparent business environments in the region. But the tinderbox security situation has the potential to offset any potential gains. Israelis and Palestinians have already seen many failed rounds of peace talks lowering their confidence in the diplomatic option. On the BMI Business Environment Ranking matrix, Israel receives a score of 23, placing it fifth out of the eight states included from the Middle East and Africa (MEA) region.