Inside Israel's plans for a new development strategy

BERLIN, Germany — Over the past year, Israeli officials have pulled together a strategy to overhaul the country's approach to development — and they are hoping it will go ahead regardless of the outcome of Israel's repeat election Tuesday.

The new strategy, which has not been publicly released, would leverage increased development activities to expand the Israeli private sector's access to the global south, according to officials familiar with the plan, including the potential creation of a development finance institution.

"The message is of a fundamental change in the scale that characterized Israel's activity [in international development] to date," said Zafrir Asaf, director of financial institutions and emerging markets in the Ministry of Economy and Industry and one of the main architects of the plan.

A committee to overhaul the country's development strategy was created following a July 2018 government resolution. Originally due in May, its report has been postponed due to the early dissolution of parliament after Prime Minister Benjamin Netanyahu was unable to form a governing coalition following an election in April.

With an average net ODA of 0.08% of gross national income in 2012-2016, Israel has been among the smallest Organisation for Economic Cooperation and Development donors. Critics point out that its low contribution to aid also includes controversial expenses such as investments in the occupied Palestinian territories and the absorption of Jewish newcomers from lower-income countries. It is not a member of the OECD’s Development Assistance Committee, which covers most major donors and sets limits on what kind of spending can be counted as aid.

"We are a generation behind," Asaf told Devex. "We were not in the game. Neither in scale nor in focus."

Things have not always been that way. In the 1960s and 70s, the country's development agency, MASHAV, was the largest department in the ministry of foreign affairs and its bilateral aid grants budget, as a percentage of GDP, neared the averages for members of the OECD-DAC at the time. The budget declined following ruptures between Israel and many African governments following the 1973 Yom Kippur War, which presaged a shift in Israeli geopolitical priorities.

There are diverse reasons for Israel’s renewed interest in development, including Netanyahu’s emphasis on building alliances with the global south and growing demands from civil society and academic circles for Israel to become more active in the field. But mainly it is the result of an understanding that Israel’s foreign trade is declining and the need to engage with new markets.

The 2018 resolution that formed the strategic committee had a stated goal of realizing “the potential that lies in international development for strengthening Israel’s economy and improving its political standing.” And the strategy that emerged is focused on utilizing Israeli funds to ease private sector access to emerging economies.

Asaf said this is more than just a play for new markets, but an opportunity to call on the expertise of Israeli businesses in areas like agriculture to help spur growth in places in the global south.

He said Israel wants “to be very robust and targeted in assisting the private sector to become relevant in solving development problems.” That will involve thinking about tools to support small- and medium-sized companies as they enter the global south, as well as a strong focus on innovation for development, he said.

But he is aware that an approach to development that focuses on private investment will raise some eyebrows — it as an issue that has often been controversial in development circles.

“There must be a balance between the needs of the developing world and Israel's interests,” he said. “They don't necessarily contradict each other ... We want to leverage the intersections between them.”

The question of launching a DFI is also central to the strategy. Reports from a development-focused conference held by the Israeli government earlier this year suggested that a DFI would have an initial investment of about $200 million. Avi Simhon, chair of the National Economic Council that advises the prime minister on economic issues, confirmed to Devex that this is the planned scale. He said that he supports the creation of a DFI and believes that if Netanyahu is re-elected it could be put in place in a matter of months.

Israel has already announced a plan to create a $250 million fund at the Inter-American Development Bank to invest in regional infrastructure projects in Latin America. The fund would raise its capital from Israeli institutional investors, while the government would offer a safety net equal to 10% of the fund’s assets.

More broadly, though, the committee has not put an overall price tag on Israel’s new development strategy. And it has not announced how much ODA might increase, if at all.

"Overall, Israel is a large enough economy that, if its aid was in line with some countries with comparable income levels, its aid budget could rise to $1 billion," Ian Mitchell, a senior policy fellow at the Center for Global Development, told Devex. "It would become a top-20 donor in absolute terms, make a major contribution to development, and also encourage other countries to step up their efforts."

Simhon cautioned that Israel’s efforts would not be comparable to donors such as Norway and Sweden, which are among the most generous globally. Still, observers said the implementation of the strategy could be an important first step in generating public support for development financing.

"Public discourse on development doesn't exist in Israel," said Alon Beer, director of the Israeli Society for International Development, which leads public efforts to advance an Israeli development policy. "Countries that have international development laws bother to explain to the public why it's important and what they gain from it. When does one hear about aid in Israel? Only when there's a disaster and a relief delegation gets sent."

Whether the strategy takes flight may hang on who wins Tuesday’s vote. It is currently a close race between Netanyahu’s rightist Likud party and a centrist alliance. A new Netanyahu government is likely to support the strategy, while other political actors have not staked out a position.

As he waits for the election, Asaf hopes that whatever government emerges might be interested in implementing the plan. "This is not a political issue," he said. "Our recommendations are for 10-15 years. By definition they are relevant for the next government as for the governments that succeed it.”