While Israel’s vaunted high-tech industry continued to show peak performance over the past year, local startups are increasingly moving operations outside the country, draining the nation of engineers, tech personnel, and managers, the Israel Innovation Authority (IIA) cautioned in its annual report. The trend underscored deeper concerns about the economy’s main growth engine, the report warned.

In a worrying sign, the number of tech employees based in Israel declined amid a trend of relocation requests and as local tech companies continue to expand their operations, management, and R&D activity outside the country, according to the IIA, which is in charge of directing the nation’s tech policies.

Most of the growth in R&D operations was recorded in Eastern Europe and the United States, as the fast appreciation of the shekel, which has gained more than 20 percent over the past 12 months, has been driving up costs of hiring and expanding operations in Israel.

“Israeli high-tech is currently at a crossroads. On the one hand, while many countries around the world slowed down, Israel continues to build breakthrough companies, attract investment, and lead at the forefront of global technology,” outgoing Israel Innovation Authority CEO Dror Bin told The Times of Israel. “On the other, part of the activity, workforce, and capital is moving outside Israel.”

“This may not be a trend felt overnight, but over time it could erode the relative advantage upon which the startup nation was built,” Bin said.

High-tech contributed to about half of the economy’s growth in 2025, and its share of GDP reached a record high of 18.3 percent, cementing the sector as a major pillar of the Israeli economy, according to the IIA’s annual report. It contributed 1.44 percentage points out of Israel’s total GDP growth of 2.9%.

The high-tech sector’s contribution to the Israeli economy stems in large part from taxes paid by the workers in the sector, and hence a wave of tech employees and managers departing will affect state revenues and the entire economy.

“Israeli high tech became so successful that now it’s coming back to bite it, because it created........

© The Times of Israel