Reciprocal Purchasing Relationships Expected to Grow in Coming Two Years Due to New Guidelines
The Foreign Investment and Industrial Cooperation Authority at the Israeli Ministry of Economy and Industry presented its vision for renewed activity at its conference in Tel Aviv last week. The Authority is the agency in charge of managing reciprocal purchasing agreements for foreign companies active in Israel to the benefit of Israeli industry. The agency announced it would be increasing its activity through a number of new tools and procedures launched at the conference.
Senior officials from multinational companies, directors of government agencies and government-owned companies and senior members of Israeli industry all participated in the conference.
Head of the Israeli Industrialists’ Association Shraga Brosh, said: “Over the past few years, there has been a clear decline in the establishment of new factories in Israel and at the same time we’ve seen a significant growth in the establishment of factories abroad. The Foreign Investment and Industrial Cooperation Authority has opened a window of new opportunities and Israeli industry must meet the challenge and up its productivity in a manner which is attractive, competitive and innovative.”
Amit Lang, Director General of the Israeli Ministry of Economy and Industry opened with remarks describing the significant contribution to Israeli industry made by late President and Prime Minister Shimon Peres, who passed away this week: “Bolstering industry and its various branches, increasing its activity in markets around the world, creating thousands of jobs and encouraging the consumption of local products – all of this would not have happened without the support of Shimon Peres and his faith in Israel’s industrial capabilities.” Lang added that reciprocal purchasing relationships are a “worthwhile investment and opportunity and not only a duty mandated by agreements. We will ensure that whoever is obligated will do so and will find along the way that Israel’s industry has a lot to offer.”
Shmuel Zucker, Deputy Director and head of the Purchasing Department at the Israeli Defense Ministry, said: “Tens of thousands of households make their living thanks to these reciprocal purchasing relationships and billions return to the Israeli economy directly and indirectly. Reciprocal purchasing bolsters Israeli industry, employment and livelihoods and we need to make an effort so that every deal includes a reciprocal purchasing component to help small industries as much as we can.”
Ziva Eger, Chief Executive of the Foreign Investment and Industrial Cooperation Authority at the Israeli Ministry of Economy and Industry, said: “The new procedures we launched today are a basis for building partnerships between the government, Israeli industry and international companies. These partnerships will lead to new opportunities and to leveraging of income from reciprocal purchasing agreements towards promoting small and medium businesses as well as industry in the periphery.”
Yigal Gurevitch, Branch Director of Industrial Cooperation at the Authority, added: “We will enforce fulfillment of these agreements. From today, reciprocal purchasing agreements will be part of every deal the government makes with foreign companies and it will no longer be possible to proceed with projects without the Authority’s approval of a reciprocal purchasing relationship agreement. Whoever works with us creatively and fulfills this obligation in critical areas for our government will get back their investment manifold. Those who do not cooperate – we will not wait until their projects end, but will enforce these obligations annually.”
During the past several months, the Authority laid the groundwork for the changes presented at last week’s conference. This was carried out with an eye towards similar agreements in other advanced countries with economic characteristics similar to those of Israel.
As part of the new procedures:
The duty to present a reciprocal purchasing agreement as a threshold condition towards taking part in any tender will be made clear to agencies.
New and clear procedures will be presented for orderly annual reporting on the pace of fulfillment by foreign companies.
Enforcement against companies not meeting their obligations will be bolstered.
A system of benefits (multipliers) will be granted to multinational companies that choose to invest in advancing local industry: quality investments, expanding production lines and transformation to advanced production methods. Emphasis will be given for purchasing from small and medium businesses from the periphery, professional training programs and more.
As part of the new procedures, there will be a demand for any projects winning tenders to use at least 20% local subcontractors.
There are more than 200 multinational companies with reciprocal purchasing obligations in Israel; the average rate stands at more than $2 billion annually. 40% comes from defense deals, 60% from civilian projects; the activity involves 500 Israeli industries and SMB’s, in thousands of deals annually.
Alongside the multinational companies active in Israel, there are some 200 agencies legally obligated to insert a reciprocal purchasing clause into their tenders, so long as the tenders meet the minimal threshold obligating reciprocal cooperation ($5 million.)
A changing trend: Foreign Investment and Industrial Cooperation Authority data show that thought the Israeli Defense Ministry leads the list of agencies obligated to hold reciprocal purchasing agreements, 70% over the past five years ($9 billion) were invested in the civilian sector, compared to only 30% from defense industry orders ($3.5 billion). This shows that reciprocal purchasing relationships in defense agreements go far beyond the defense industry alone.
The main sectors where reciprocal purchasing agreements are realized are electronics, communications and computers, the metal industry, machinery and aviation.
Aaron Kliner – Headline Media
Foreign Media Adviser to the Ministry of Economy & Industry