“Companies have realized that it is possible to work with Ukraine despite the war.” Interview with Ambassador of Israel

Israel accounted for 4% of $6.8 billion of Ukraine’s IT exports in 2021. In an interview with Israeli Ambassador Michael Brodsky for AIN.Capital, we talked about why the cooperation of the Israeli tech sector with Ukraine is almost 8 times as big as with Russia, why the offices of sanctioned Russian IT companies are still operating, and whether there is such a phenomenon in Israel as the incorporation of local IT in other countries.

How is the Embassy doing now, especially after October 10? There was a lull since June.

We reopened the Embassy in Kyiv back in May. On average, we spent half of our time in Kyiv and half in Warsaw. This is due to security issues and the fact that, unfortunately, the embassy staff was significantly reduced after the outbreak of war, and we simply do not have enough diplomats. Today, the Embassy has two diplomats who are engaged in political work. That is my deputy and me, and several other diplomats who handle administrative issues.

What do you think will change in Ukraine-Israel relations with the victory of Benjamin Netanyahu in the elections?

I don’t think there will be drastic changes, and any head of government, any coalition will be guided primarily by the interests of Israel and Israel’s security.

Unfortunately, we live in a very volatile region. The Middle East has never been calm, and recent years are no exception. We live in a situation of the constant threat of war, terror from our neighbors, and terrorist groups that are at our borders. First of all, that is Hezbollah in southern Lebanon, Hamas, and Islamic Jihad in the Gaza Strip.

We know that these terrorist groups are backed primarily by Iran, and we also know that Russia plays a very serious role in the Middle East, especially in recent years after Russian troops were sent to Syria. We feel the presence of Russia in the Middle East, and we cannot ignore it. That’s why Israel has certain limitations, certain red lines, and quite a lot of sensitivity to everything concerning relations with Russia and the supply of arms, especially to the armed conflict zones.

We will support Ukraine while not crossing the existing red lines. First of all, it is humanitarian support, support of Ukraine in international organizations. I want to remind you that at the beginning of the war, and then a few more times, Israel voted in support of Ukraine in the UN and other international organizations. Not just voted: Israel was a co-author of the resolution condemning Russian aggression. And Yair Lapid, the Minister of Foreign Affairs at that time and later as Prime Minister, also condemned the Russian aggression several times, condemned the war, and spoke in support of Ukraine. Israel’s position on this will not change.

According to the High-Tech Human Capital Report, among Israeli IT companies that have an office somewhere outside Israel, 41% have it in Ukraine and only 7% in Russia. Why is Ukraine so popular among Israeli IT companies? And why do those 7% not close their overseas offices?

You are correct that Ukraine has been the main destination for Israeli outsourcing in recent years. The number of specialists who worked for Israeli companies in Ukraine was constantly growing and was estimated at 15,000-20,000.

Some companies hired a small number of specialists, that is, 5, 10, 15 people, but there were companies that worked with hundreds of Ukrainian specialists. Some of them continue to work despite the military situation, and some of them, as far as I know, have relocated to other countries, not necessarily to Israel, Poland, Cyprus, Emirates, and so on. Mostly these are girls who could leave, and guys usually stay in Ukraine and continue to work remotely.

In my opinion, currently, there is a new interest in Ukraine as an outsourcing destination for Israeli companies, despite the war. Many companies have realized that it is possible to work with Ukraine despite the war, that it is possible to work remotely, and people are ready to work, ready to work efficiently, as it has always been with Ukraine. I think that there are prospects and potential here.

As for the work in Russia, unfortunately, I am not familiar with this matter, and I don’t know whether Israeli companies work there. There were much fewer of them, as you said, which is explained by the peculiarities of the IT market in Russia and Ukraine; it is a fundamentally different market. For the most part, as far as I know, the Russian market worked for the needs of the domestic market. In contrast, Ukraine mainly worked for European, American, and Israeli companies and was engaged in outsourcing, so Ukraine was a significant business destination.

Besides, I think it is the trust that has been developing over the years, the similar mentality, cultural codes, and the ability to speak the same language. But I think there are also other reasons: the same time zone and many convenient things that made very close cooperation possible. It has been developing very well for many years and, especially before the war with the introduction of “Diya” and other changes in the legislation of Ukraine, there were talks about the potential of Israeli investments. Not only outsourcing but investments. But, unfortunately, the war has pushed these plans to a longer term.

Israel eagerly opens R&D centers here and outsources, but does not invest venture money in Ukraine. What do you think is the reason for this?

Firstly, Ukraine is not so well known to Israeli venture funds. Perhaps it is about advertising, PR, and image. I think there is something to work on. There were and are many exciting companies in Ukraine that Israeli venture funds could invest in.

Secondly, I know that Israeli venture funds primarily invest inside the country, and there are so many exciting companies in Israel. And it is pretty clear that it is easier for them to work with Israelis; they understand the mentality, and it is easier for them to understand the DNA of the company.

I think more can be done to attract Israeli venture funds and capital to Ukraine. I don’t know to what extent it can be done now, but I would not say that the war is an insurmountable obstacle. High-tech operates under different laws, and I think even now, we can talk about it.

Before the war, many companies, not only Israeli ones, were actively relocating employees from Ukraine. But, for example, the Israeli Wix not only did that but also made an absolutely inappropriate PR out of it. Do they do the same in Israel, a country with the constant war in one form or another?

First of all, the situation in Ukraine today and the situation in Israel cannot be compared, these are different threats, and they are perceived differently. In Israel, the threat of war exists as long as Israel exists, and they are used to living in a state of constant threat and have found ways to deal with the threat. And most companies stay in Israel or open R&D centers not because they love Israel so much and are such great patriots but because Israel today is the country that is undoubtedly the leader of innovation, new ideas, technologies, startups, and so on.

Although there is indeed a military threat and a security threat, Israel provided a sufficient level of security, and personal comfort, including for the IT sector. Therefore, companies are not running away from Israel, but, on the contrary, there are more and more companies, more and more interest.

As for the individual case, I can’t say anything. Maybe this PR was inappropriate; you know better. But this is a private company; they can do what they want and work according to the laws of the market. Suppose investors say that it is dangerous in Ukraine, and it is necessary to relocate. In that case, the company will do so because they are primarily guided by business interests and look at these things through the prism of business. If there are some companies in Israel that, for some reason, prefer to move to other countries, Israel reacts to this normally. It is not a disaster. Other companies and other investors will come. It is absolutely normal.

I am confident that after the war, subject to certain conditions, companies will not only return to Ukraine but there will be more and more of them, in particular, more product investments. By all accounts, the reforms that have been launched were appropriate, necessary, and understandable for investors.

There are offices of Russian technology companies in Israel, among which the Israeli “Yandex” is of particular interest — heavily sanctioned. You know how they are connected to the Kremlin, their owners, and so on. Why does Israel not consider it a danger?

As far as I know, I am not well-versed in the subject. These companies started working in Israel before the war, some of them long before the war. We are talking about private property. It is not so easy to shut down a company in Israel. Any company. And, as far as I know, this is not done in any country in the world, so Russian companies completely cease to exist due to some administrative decision. There are laws, and any decision of the authorities can be appealed in court. I do not know at what stage the relations between the state of Israel and these companies are, and I do not know whether there were any attempts to impose sanctions on them.

First, these companies’ management must have the right to live in Israel. Apparently, they have Jewish roots and came to Israel under the Law of Return. No sanctions and persecution can prevent a person from obtaining Israeli citizenship if they have the right to do so under the Law of Return. As for business, this is such a specific topic in which I am not an expert, and I cannot say precisely how it happens.

As for the sanctions, I can say Israel has not formally joined the sanctions because there is no such possibility in Israeli legislation. Still, informally Israel fully complies with the restrictions that have been imposed. Including in favor of Israeli companies because most of them are in the markets of Europe and the United States, and if they are accused of the absence of sanctions, it threatens them with loss of business.

Arkady Volozh, the owner of 45% of Yandex shares, is also a developer of Infinet software for the Russian Federal Security Service. In spring, Yandex was going to move its headquarters to Israel. A month ago in Finland, Volozh’s assets were arrested, and the Mäntsälä data center, which belonged to Yandex through a subsidiary, was seized and suspended. I read in your interviews that Israel does not impose its own sanctions, but there are American sanctions.

Regarding the American sanctions, without going into details, I can say that the Americans and we have an ongoing dialogue on this matter, and, as far as I know, the Americans had no complaints against Israel.

They had their concerns about “Yandex.”

Perhaps you are right, and I just did not notice it.

Since 2019, Ukraine has been trying to obtain Israel’s consent to purchase Pegasus software. By the way, Hungary received this software and used it to spy on independent journalists, who are now suing it. My question is, can you please tell me more about the red lines? Is the software also beyond these red lines?

Specific software requires the permission of a special commission for defense exports. I do not know whether this particular software is subject to these requirements, but such a license applies to weapons and defense technologies. I cannot say anything about this specific issue, and I do not know at what stage it is now. I cannot even comment on whether there was such a request. And we are unlikely to find out because such things are discussed through back channels.

I know Ukraine and Israel had intense cooperation on cybersecurity, at least before the war. Israeli companies wanted to work in Ukraine, and some started working. We need to examine each case individually. Regarding security, not everything is explained by red lines; sometimes, there are just business processes that we are unaware of. Perhaps we did not agree on the price or format of business cooperation, which can happen not only in cooperation with Ukraine. In general, this happens in business, so we should not attribute everything to some red lines or restrictions imposed by Israel.

Is there such a phenomenon in Israel as the incorporation of IT companies in other countries, how massive is it, and how does Israel view it?

Every company tries to optimize its taxes, which is normal. As far as I know, Israeli companies registered in Israel all pay taxes in Israel and get the preferences that companies that pay taxes in Israel enjoy. It is a business decision based on the desire to maximize profits and pay fewer taxes, which is typical for businesses.

There is, of course, an element in Israel that is not present in other countries: it is an element of patriotism, an element of desire to help the country to prevent the company from emigrating. It should be understood that Israeli entrepreneurs have such a particular mentality; they all served in the army and are all great patriots of their country. If there is a choice to register a company in Israel or somewhere offshore, many Israeli companies prefer to do it in Israel, even sometimes sacrificing profits or business interests.

What about this year’s Ukraine-Israel summit?

The summit to be held in Warsaw on December 14 is the fifth Ukrainian Israeli Innovation Summit. This year, unlike previous years, when it was held in Kyiv, it will be held in Warsaw. It is the first attempt to discuss how Israel can participate in the post-war recovery of Ukraine. President Zelenskyy has said several times that Ukraine should become a great Israel with its own face and distinctive features. At this summit, we will discuss how Ukraine can become a great Israel with its own face. It means using Israeli experience, using Israeli technologies in Ukraine, and in what areas it can be used and in what format.

I think the main areas are agriculture, water, security, and healthcare, which Israel is well known for in Ukraine. I believe that the Israeli experience can be very actively used here. And in general, the conversation is about how a country that has to live in conditions of military threat throughout its existence can develop the economy and high-tech. 

Will there be any Ukrainian officials?

Yes, but I can’t say yet because the list of speakers is not final. But Ukrainian and Israeli leaders and businesses will definitely be there.