Economy

An Israeli Pitch On The Benefits Of "Patriotic" High-Tech Investing

Workers at Intel's plant in Kiryat Gat
Workers at Intel's plant in Kiryat Gat
Kobi Shimna*

-OpEd-

TEL AVIV — Israel's high-tech industry has experienced a major boost in recent years. The 2014 numbers are notable: a record $3.4 billion in investments and mergers and acquisitions valued at $7 billion. There was also an increase in venture capital funds raised, totaling approximately $914 million.

None of this is by chance. The forces at play are tightly linked, reflecting a willingness among entrepreneurs and investors to take greater risks. This requires patience and the ability to resist early acquisition offers that might reap immediate profit but that don't reflect potential maximum value.

It's important to note that in the world of business, those who enjoy the most success are the investors who risk their money, time and energy to launch companies and guide their subsequent development.

The chain of investors in the high-tech world starts with venture capital investors who raise their money from institutional investors such as pension funds that can include taxpayer money. Profit-sharing policies and pension funds will benefit most from subsequent exits and from the rising value of companies.

Unfortunately, the numbers show that a significant number of Israeli institutions have chosen not to invest in local high-tech companies in the past. They are therefore not profiting from today's boom.

It's logical

The point is that we must take into account other considerations at the national level when deciding whether to invest in public funds in the local high-tech industry or in other investment channels abroad.

We must understand that when we invest our money abroad, we basically fund other economies — in Europe, Asia or elsewhere. Our money supports endeavors that create jobs somewhere else, and taxes that people pay in other countries. That money goes to buying goods and services from foreign companies in different markets. All of this happens there instead of here.

This way of thinking could be called patriotic, but the fact is that buying and investing locally is really just simple financial logic. It is better not only for the state and the population of a country, but also for its investors.

*Kobi Shimna is the CEO of the Israeli IVC research company specialised in High-Tech and Venture Capital.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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