Promoting Digital Transformation



Over the last three decades, economic research has shown the high economic return on public and private investment in digital systems. The cumulative public and private investment in digital systems in Israel is low, resulting in a clear negative contribution to the level of labor productivity per hour worked of the Israeli worker, in comparison to leading countries with similar attributes to Israel (benchmark countries: Austria, Denmark, Finland, Ireland, Sweden, and The Netherlands).


The stock of ICT capital, which is 37% lower in Israel compared to the benchmark countries, contributes 2.1% to the productivity gap in Israel, amounting to $0.5 per hour worked. This disparity is also evident in fiber optic infrastructure, as well as hardware and software, both in the government and private sectors. Hence, the lag in ICT investment in Israel has a negative impact on its GDP. Bridging the gap in the stock of ICT capital would have increased the GDP by NIS 14 billion per year (around 1% of the GDP). This is an investment on a significantly smaller order of magnitude than investment in transportation infrastructures, which nevertheless has a major potential impact on government efficiency and on the advancement of the business sector, as it would require parts of the business sector to update and upgrade their digitalization systems in order to achieve compatibility with the new government interfaces. While Israel is noted for its extensive innovation sector, innovation in the business sector is directed almost exclusively outwards, rather than towards the advancement of the Israeli economy as a whole.


Given the low rates of ICT investment in Israel, there is an evident need for additional investment which would contribute to productivity, growth, and of course the quality of life in Israel. Therefore, the goal is to promote digital transformation in Israel as a means to increase productivity and growth, and to lead the Israeli economy to a level resembling that of leading countries toward 2030, while utilizing the opportunity presented by investment in digital systems, which includes investment in physical infrastructure as well as investment in a shift to online services.


The objective of this study is to formulate a policy of digital transformation while determining goals and priorities for digital transformation, with an emphasis on government investment which would contribute to the efficient operation of government services and to further investment by the business sector. This will be done by setting metrics for evaluation of digital transformation, based on the OECD model with a reference to GDP contribution, to allow measurement of costs and benefits as well as the impact of digital transformation on growth. These metrics would facilitate the development of an operative, prioritized work plan, aiming to accomplish a level of digitalization in Israel which would rank among world leading countries.