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Restoring Israel’s lead in AI requires strategic investment and attracting the best talent

In recent months, a worrying trend has emerged in Israel’s technology landscape: a noticeable decline in investment in AI. This shift, which was highlighted in a recently published Calcalist Article Describing how investment increased tenfold in the US and quadrupled in Europe while Israel’s investment in AI fell to 2018 levels suggests a potential weakening of Israel’s position as a global technology leader. Understanding the factors contributing to this downturn is critical as we strategize our path forward.

From 2020 to 2023, investment in AI increased tenfold in the US and fourfold in Europe. In contrast, Israel’s investment in AI fell to 2018 levels in 2023. This alarming decline underscores the urgency of addressing several key issues.

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Yaniv LoolYaniv Lool

lool Ventures co-founder Yaniv Golan

(Photo: Mariana Stevaneva)

Global competition and rapid progress

The rapid advances of global AI giants, especially OpenAI, were a key factor. Israel, like many other countries, was surprised by the speed and scale of these developments. However, our geographic and operational distance from major AI hubs such as the US and China only compounded this challenge. The rapid pace of AI innovation requires constant commitment and agility, which was difficult for us to maintain given our current focus and resources.

Domestically, Israel is busy with a range of political and social issues, as well as a war raging on two fronts. These distractions have diverted attention and resources from technological advances, including AI. This focus on things has hindered our ability to respond quickly and efficiently and to allocate resources to AI innovation. While other countries were rapidly improving their AI capabilities, Israel was and continues to struggle with internal challenges that limited our ability to innovate quickly.

Skills gap and talent shortage

In addition, there is a critical skills gap that we need to fill. Developing AI requires world-class expertise in computer science and data science. Although Israel has a strong pool of technical talent, we lack sufficient numbers of experts at the forefront of AI research and development. Our educational institutions and training programs must produce more experts to be globally competitive. The lack of skilled AI professionals hinders our ability to develop cutting-edge AI technologies and solutions. Currently, Israel ranks first in the world in the concentration of human capital in the AI ​​field, but struggles with a significant shortage of advanced degree graduates in AI-related fields.

Financial constraints and infrastructure

Financial constraints also play a important role. Competing with AI heavyweights like OpenAI requires significant financial resources. The investment required to develop competitive AI models, including the cost of hardware and training, far exceeds the capabilities of most Israeli startups and investors. This financial barrier limits our ability to scale AI innovations and compete with well-funded international competitors.

In addition, the necessary infrastructure for AI development represents another hurdle. Building sophisticated AI models requires cutting-edge hardware and extensive computing resources, which are expensive and often inaccessible to many Israeli startups. Without sufficient investment in these areas, our ability to develop and train competitive AI models is severely limited.

One of the most profound consequences of AI advances is its potential impact on the labor market. As AI technologies become more powerful, demand for many traditional jobs that generate a significant portion of our GDP could fall dramatically. This shift brings both challenges and opportunities:

  1. Job losses: AI and automation are likely to displace certain jobs, especially those with routine tasks. Jobs in manufacturing, customer service, and even some areas of engineering may be less in demand.

  2. Creation of new jobs: Conversely, AI will also create new jobs in areas such as AI research, development and maintenance. Roles that require a combination of AI expertise and domain-specific knowledge will become increasingly important.

  3. Reskilling and upskilling: To prevent job losses, it is imperative to invest in reskilling and upskilling the workforce. Educational institutions, in collaboration with the government and the private sector, must develop programs that equip workers with the skills required for the AI-driven economy.

Rethinking education for the younger generation: We need to fundamentally rethink the way we educate our young generation. The education system needs to evolve to incorporate AI literacy, coding and data science as core components from a young age. The focus should be on critical thinking, problem-solving and adaptability – skills that will be invaluable in an AI-dominated future.

Strategic initiatives to reverse the trend

To reverse this trend and ensure that Israel remains a leader in AI, several strategic initiatives are essential:

  1. National priority for AI: AI must be made a national priority. The government must recognize the strategic importance of AI and allocate resources accordingly, including funding for research, development and infrastructure. Policies that encourage innovation and investment in AI are critical to our growth.

  2. Attract and retain talent: We need to attract and retain the best AI talent to lead in the AI ​​field. Our talent is being poached by companies outside Israel and by countries that see the opportunity. The offers they receive are very generous, especially given that Israel has recently offered so little in terms of quality of life and prospects for a better future. We need to create programs that offer competitive salaries, research opportunities, and a supportive ecosystem for AI experts. This will help retain the talent we have and bring more specialists to Israel to ensure we have the expertise needed to lead in AI development.

  3. Developing Hebrew-specific AI models: With this talent, we need to focus on developing Hebrew-specific AI models. English-centric models dominate the global AI landscape, and there is a significant gap in AI’s understanding and processing of Hebrew. Without adequate Hebrew support, Hebrew speakers will not benefit as the world moves to intelligent, chatbot-based interfaces for many commercial and other services. The government should provide incentives for technology companies to focus on developing AI that effectively understands and processes Hebrew to ensure our linguistic and cultural needs are met.

  4. Strengthening financial support and infrastructure: Both the private sector and the government should increase their financial support for AI companies by providing funding and mentorship and fostering partnerships with international AI leaders. Improving our AI infrastructure, such as high-performance computing and advanced research labs, will enable startups to develop and train sophisticated AI models locally. Without a concerted effort, we will continue to lag behind, the gap between us and them will continue to widen, and it will become difficult to retain the talent needed to advance our position in the AI ​​landscape.

The decline in AI investment in Israel is a wake-up call. We must act quickly to prioritize AI and leverage our unique strengths to remain competitive on the global stage. By making AI a national priority, attracting and retaining talent, developing Hebrew-specific AI skills, preparing our workforce for future changes, and rethinking education for the younger generation, we can ensure that Israel remains a beacon of innovation in the AI ​​era.

Yaniv Golan is co-founder of lool Ventures, a VC that invests in Israeli startups

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