Archive for February 2012

Government debt – Euro zone or Israel?

February 29, 2012

When the politicians and mandarins plotted the evolution of the Euro at the end of the previous century, there was one very specific stipulation for countries that wanted to join – government debt as a proportion of GDP could not exceed 60%. Golden rule.

And off the horses bolted. February 2012 and look at the EU as a whole or just the 17 members of the Euro currency system. The debt rate is around 85%. This is the economic explanation for why countries like Portugal, Greece and Italy are finding it difficult (impossible?) to pay back their debts. Just like a household which is not bringing in enough income, these countries are not creating enough wealth in order to manage their loan schedules.

Quietly, in the background of all this mayhem is Israel. The Ministry of Finance in Jerusalem has just announced that the country’s debt ratio is 73.3%. What’s so “wowish” about that?

  • This stat represents a fall from 2010 of over 1%.
  • The fall is in line with a trend commensurate for two decades.
  • The additional reduction came at a time of global economic slowdown.
  • The change came about despite the nominal level of debt slightly rising, indicating further real growth in the economy as a whole.

By way of comparison, the debt in the European region grew by about 10% and slightly more in the USA.

It remains to be seen how 2012 pans out. Growth in Israel is set to fall to around 2.8%. Unemployment will almost certainly rise from a 30 year low of 5.4%. There are upward pressures on government spending plans.

For now, all this is very encouraging financial news from the Holy Land.


CNBC’s take on the Israel economy

February 26, 2012

Obama may just save America’s economy (and his election campaign). For all the gloom, it is possible that the UK has already seen the worst of its slowdown. As for much of the rest of Europe, I do not see to many leaders of commerce taking their holidays in Greece this year.

So why did CNBC run a feature last week on Israel of all places? Remember, CNBC is arguably the leading tv financial commentator reaching the salons of international corporate decision makers.

Well ostensibly, Michelle Caurso-Cabrera,  one of the station’s leading anchors on the international scene, posed the question how the Israeli economy could continue to function in light of the threat from Iran. Slightly to her apparent amazement, she found that the Finance Minister, Dr Yuval Steinitz, was more concerned about European rather than Iranian meltdown. And the average person in the street was more hasled by mundane things like just wanting the railways to run on time.

Caruso-Cabrera mentioned that 90 Israeli companies are quoted on NASDAQ. She herself covered three on site stories.

  • Colorchip is developing a transceiver to cut dramatically the time of downloading videos from the net. This is the third start up for its CEO.
  • Sodastream now makes about 400,000 units a month, ensuring that it is one of the largest employers of Palestinians in the country. The result is soda pop is available in kitchens all over the world.
  • Brainstorm is developing a unique cure for Lou Gehrig’s disease.

Israel’s success is no secret to major American investors. Back in 2006, Warren Buffet’s team is rumoured to have wrapped up a US$4 billion deal in just ten days, when it brought out precision tool maker, Iscar, located near the border with Lebanon.

Last week,  Berkshire Hathaway reported at 21% drop in profits. However, one of the few strong aspects of the group was Iscar, whose management team drew high direct personal praise from the boss.

OWLinx, Barcelona and a unique telecom solution

February 22, 2012

The annual Mobile World Congress in Barcelona begins on February 27.

Read the trade mags and everyone is talking about the latest telecom hardware and software that is going to be launched – technology that most humans simply pretend to understand with a pathetic smile. Read Israeli coverage and all the media is talking about how a country of under 8 million will have the fourth largest representation at the show – around 8% of the booths.

So if telecom has been identified by many as the Fourth Industrial Revolution, the Holy Land has been a central part of that miracle. Very cool for us who live there, but is there more?

An interesting preview of the Congress from Shlomi Cohen in Globes discusses one of the key issues facing the telecom industry today. He writes: –

A smartphone in the Western world currently consumes around one giga of data a month, mostly video. This is expected to jump to 4 giga a month within four years, and data consumption by tablets and Ultrabooks will rise from 2 giga to 10 giga monthly………Solutions for diverting heavy traffic from cellular networks to Wi-Fi points installed in crowded cities have lately become a hot niche in telecommunications equipment, and large tenders are expected this year.

Mr Cohen then goes on to describe some of the Israeli tech on offer in this category. That is interesting in itself. However, whether or not the data is offloaded to WiFi, it needs to get back (“backhaul”) from an antenna node to the network backbone, and fibre – the technology primarily on offer – does not reach most of these nodes.  

I have recently been talking to a new start-up called OWLinx, a spin off from the Jolt department of the American conglomerate, MRV Communications. At its peak, the unit achieved annual sales of over US$3m with little formal promotional effort.

What makes OWLinx different is their understanding and near unique capabilities in the field of free-space-optic (FSO) wireless data links. This approach offers a cost-effective connection from such nodes to the fibre network point-of-presence hundreds of metres away, over the air, at fibre speeds of gigabit and beyond. 

To put it simply, this is a very convenient method to deliver large amounts of information at high speed. That means that with use of some compact hardware, owners of mobiles or whatever will receive data much much quicker.

OWLinx will not have a stand at Barcelona. The founders are currently initiating talks with investors. With the r&d complete, it is just a case of raising money to relaunch the marketing force. Next year in Spain?

So you want to set up a successful business

February 20, 2012

At the end of the day, when somebody approaches a business mentor for help, they are usually saying: “Pls Mr Genie, turn me into a big success”. I suppose that if life were that simple, then the Genie would probably not be in the supporting role but making mega bucks for him or herself.

What prompted this blog was the fact that last night I hit upon on a new powerpoint presentation on LinkedIn, which dealt with the theme of “business success”. I apologise for losing the link, but I did print two of the 42 slides.

Slide 12 noted that neither technology nor a product creates core value. It is the “business model” that makes the difference. And slide 14 refers to four questions, which together help to formulate a successful model:

  • What excites your customers?
  • How do you create value for your customers?
  • How do you earn money?
  • Who is on your team and what values do you pursue?

All very nice in theory. Then bright and early this morning, in walked a client, who could not fathom why a change in her strategy, which had been so effective to date, had evoked a zero response. She was in no mood for long analyses.

So we explored if the new approach was likely to appeal to the clientele. Not only did this barely receive a moderate answer, it was clearly evident that the customers would now receive no major benefit. In fact, my client realised that she had compromised her own vision in order to secure the new direction. So it should not have come as a surprise that there was to be no new revenue stream.

Overall result; a massive victory for the owner of the presentation and an interesting lesson for my client – but a lesson from which we can all learn.

Israeli start ups – the next generation

February 18, 2012

Last week, I wrote about the success that Israeli companies have enjoyed in launching their apps on the global market. In parallel, at the end of this month, Israel will have the fourth largest delegation at the annual Mobile World Congress in Barcelona.

When the Israeli economy effectively shut down in 1986, it was known for trading in polished diamonds, arms and Jaffa oranges. The last two are still dominant, but number three on the list is now hightech – in all its forms and with great gusto.

Apps and mobiles are just one part of the new economy. Exits and FDI in 2011 did keep moving ahead. The continuous move of multinationals to set up r&d centres in the Holyland is another part of the puzzle. (For example, check out the Facebook event in Tel Aviv, scheduled for March 2012).  However, my point is that there is something else going on.

Israel has a culture that drives initiatives forward from the ground upwards. For example, this weekend, the newspaper “The Calcalist” – Hebrew for the word economist – featured seven new companies in the field of cloud computing.

By definition, these companies have barely been around for more than 24 months. With names like Cloudyn, Dome9 and 6Scan, they have an average of 10 workers. And they have all already brought in their first million dollars in venture capital – in one instance, US$11 million.

Biotech can boast a similar story.Consider BioInvest Israel, which  will open its doors again in Haifa. Investment groups are due from Italy, Poland, Japan and the USA to name a few. Why?

Well, take a company like Marx Biotechnology Ltd, which I have been concerned with for some time. Within a year, their small team of biologists have achieved POC to develop a diagnostic kit for the detection of the early stage of Graft Versus Host Disease. (Experts had said that it could take a decade just to reach this point.)

If Marx Biotech is successful, not only will tens of thousands of lives be saved every year. The kit will allow for a vastly extended use of stem cell treatment. It will be a test of the company’s skills to reach market in the predicted 24 months.

I can discuss similar examples in the field of Cleantech, and not just the usual set of wind or solar stories. Telecomm, Nanodiamonds, Security and more have all come my way in recent months – all stories where one or two individuals had a spark and ‘went for it’, triumphantly.

Slowdown or not, 2012 will be another fascinating year for the Israeli economy, challenging the boundaries of the accepted.

Did the IMF give a positive report about the Israeli economy?

February 15, 2012

As an IMF delegation completed its annual visit of Israeli financial institutions and delivered an interim report, the Bank of Israel released some disturbing news. There is an “unprecedented” hole over US$1.0 billion in the Israeli government budget for 2012. The bank blames extra expenditure on social issues, which means that the deficit will become recurring, while treasury officials point to a downturn in tax revenues.

Which begs the question, what do our friendly international financiers think about the country’s economy?

To date, Israel has escaped the worst of the international dips and bends of recent years. Nearly 5% growth in 2011, and the IMF still believes the economy will expand by almost 3% in 2012. Great stuff. Add in to that stat that unemployment is expected to remain “acceptable” – about 6.5% – and things look rosy.

The IMF operatus memorandi is to make constructive criticism. It points to faults that can be corrected, before they have an adverse effect. With regard to public expenditure, the report was explicit:

The top priority is to keep public debt on a downward track over the medium term. This will maintain confidence in Israel despite strained international markets, and so allow some flexibility in the deficit path in the short term…..

Ooops! Whatever the reason for the gap, it has to be plugged and fast. Otherwise, gains made over several years can dissipate very quickly.

Another area for ripe for structural change concerns the ultra orthodox and Arab sectors of the populations, both known to be relatively poor and where large families predominate. Female employment is well below the national average.

Quite simply, the IMF estimates that if people in these sectors worked as much as in other parts of the population, GDP would accelerate by 15%. Just to rub the point in, the IMF noted that within a generation, the two groups will constitute around 50% of the whole population.

The plethora of other recommendations imply that Israel’s financial mandarins have much work to do. These include: –

  • Implementing a tax for holders of more than one property
  • Instituting mechanisms for handling a crash of a major financial institution
  • Reducing intervention by the central bank in the foreign currency markets.

Overall? Not too bad at all, especially compared to other and larger economies in the OECD. There again, this is a global dynamic economy, where you cannot rest on your laurels.

Israeli apps and the global market

February 14, 2012

I recently met up with a former client. In a two room office in central Jerusalem, his team develops apps for smartphones etc. His order book is full to the extent that he does not have time to answer all his incoming mails.

How successful are Israeli apps in the commercial market place? Just by considering four press releases from the past few days, the answer must verge towards the very positive.

Take Android app developer Pops Ltd., who has raised just $1.5 million to personalize incoming message alerts, on the mobile phones, Facebook, e-mail, WhatsApp, etc. With under ten people on its payroll, this start up has managed to attract the attention of Mangrove Capital, one of Europe’s premier vc groupings.

FootTraffic offers advertisers a performance marketing platform for location-based offers. In other words, this is not just another attempt to reach potential customers via their mobiles. Payment is only deducted if a sale is concluded. That is one large rung up on the sophistication ladder.

The slogan of CallmyName is ” a world without phone numbers”. A relative veteran in the industry – founded in 2007 – and one of the dozens of Israeli companies featuring at Barcelona 2012, CallmyName offers a complete package for dialling via names. Deals are now in place to take this offer into the UK, Germany, Singapore and elsewhere. All this is supported by a recent investment package valued at US$6.0 million from an overseas outfit.

Last but by now means least is Viber 1. Within 13 months of launch, it has supplied one billion minutes of free phone calls for smartphone owners in over one hundred countries. 54 million individual users and growing rapidly. Now that is an amazing achievement.