) have lower levels of productivity than the same industries in other advanced economies. focusing on the manufacturing industries indicates that productivity in these industries has increased relatively rapidly – reflecting, over time, the increase in the weight of high - productivity industries that are human capital and physical capital intensive, and a decline in the share of low - technology manufacturing. against this background, there was no long - term increase in employment in manufacturing. what are the main factors in the relatively low productivity of the business sector in israel? the first factor is the low capital inventory per employee, which reflects a low rate of investment in product compared to other advanced economies. here too, there is obviously a gap between various industries : in those that are technology intensive, investment grew relatively rapidly, and with it human capital and productivity, while in other industries – such as agriculture, trade and services, and low - technology manufacturing – where most of the output is intended for the domestic market, investment is relatively low, which is reflected in a slight increase in labor productivity. productivity is obviously also affected by the amount of innovation, which relies on research and development. the national expenditure on research and development in israel is higher than in other countries, reflecting the relatively high weight of technology - intensive industries, which are obviously also research and development intensive. however, over time, the government ’ s share of investment in r & d has declined, and it is lower than in other countries. there are naturally large differences between various industries in expenditure on research and development. however, we can see that internationally as well, the gaps in expenditure on innovation among the manufacturing sub - industries in israel are particularly large. while the communications industry and the medical devices industry invest much more in r & d than their peers in the oecd ( and we have also seen that productivity in these industries is higher when compared internationally ), the plastics and food industries invest far less, in international comparisons as well. alongside low investment in physical capital and in research and development, the low investment in professional training, and to a certain extent in technological education, is also prominent. effective and focused professional training is tremendously important for the ability to provide manufacturing with the human capital it requires, and a public discourse is currently taking place regarding how to most appropriately provide this training. another factor that negatively impacts business sector productivity is the business environment, as reflected in the world bank ’ s doing business index. according to this index, we fell two more places in the rankings in the past year

karnit flug : challenges facing manufacturing and bank of israel ’ s policy to deal with them remarks by dr karnit flug, governor of the bank of israel, at the manufacturers ’ association conference, eilat, 21 november 2014. * * * i was asked to open my remarks by sharing with you the answer to the question, “ what manufacturing means to me? ” i spend a lot of time visiting manufacturing plants throughout israel. each time i make such a visit, i am deeply moved by the industry creativity, initiative, innovation and the ability to continue creating even during periods of missiles and sirens. manufacturing for me is first of all an important source of employment and economic growth. manufacturing operates in a changing world, and in order to continue succeeding, it needs to adapt to changes in the global competition environment, in the financial environment, in the regulatory environment, and also to adjust to changes in the public discourse which, in recent years, has placed a heavier emphasis on economics, consumerism, the cost of living, and other things. it is important for me to emphasize that in order for manufacturing to success, it must be profitable, since no one establishes a plant out of the goodness of their heart, and certainly not over the long - term. in order for industry to succeed, it must be competitive, and its employees must enjoy the proper fruits of that success. the success of israeli manufacturing is the success of the israeli economy, and the success of us all. i would like to discuss the challenges facing manufacturing in the short term in a challenging global environment, and to outline how the bank of israel ’ s policy acts to encourage growth at this time. in the longer term as well, there are significant challenges facing us, including the need to increase productivity, so that manufacturing can compete in the global world. i will also discuss what policy is required in order to deal with these challenges. the short - term challenges, and the bank of israel ’ s policy to encourage growth in recent years, growth in the israeli economy has been slowing, in parallel with the slowdown in growth worldwide, both in advanced economies and in emerging economies. the decline in gdp during the third quarter is obviously also a result of operation protective edge, and we can expect that the figures for the final quarter of the year will already show a return to the growth rates that have characterized the economy in recent years, of slightly below 3 percent. the main factor in the moderate growth is moderate global