Israeli Military Construction: The Financial Aspect

The Israeli political leadership has traditionally paid serious attention to financing the national military establishment. Evidently, it is maintaining a high alert level that enables the Israeli to quickly respond to emerging challenges and national security threats.


Israel’s Military Budget

According to “The Military Balance”, the annual review of countries’ military potential, the Israeli military budget in 2018 amounted to $15.69 billion, which is 3.4% more than in 2017 (and 20% more than at the beginning of the period in question). In 2018, the Ministry of Defense accounted for 85.9% of the expenses of the military budget, while other ministries and establishments accounted for 14.1%.

The total amount of the state expenses for military purposes is characterized by total military expenditure (TME). In 2018, Israel’s total military expenditure amounted to $17.9 billion. In general, an increase in total military expenses was observed in 2014–2018. They were estimated at $18.8 billion in 2019 and $19.9 billion in 2020. On average, military expenditure accounted for 4.9% of the country’s GDP during 2014–2018. Total military expenditure accounted for 12.8% of the state budget of that period on average.

Besides its own military financing sources, Israel has fairly large foreign ones. The major foreign resource has been the annual non-repayable military aid granted by the USA. Since 1999, the funds have been provided on the basis of the “Memorandum of Understanding” between the USA and Israel governments, in a decade cycle format. In particular, a new package for $38 billion (for 2019–2028) was signed in September 2016 (with regard to the regular agreement expiry in 2018).

Since these funds are targeted, received from a foreign country within the framework of military-technical cooperation, they are not included in the total military expenses. Along with that, they can be considered for estimating the total amount of funds for the construction and maintenance of the Israeli armed forces.

According to the Stockholm International Peace Research Institute (SIPRI), US military aid is provided to Israel according to two main programs: Foreign Military Financing, FMF, administrated by the US Department of State, and Israel Missile Defense, IMD, through the American Department of Defense. Some part of the funds – 25–30% – is used for financing R&D activities and military product procurement from the Israel defense industry, the other part is used for direct deliveries of weapons and military equipment and other military products from the USA. These deliveries are carried within the framework of the following programs:

– Foreign Military Sales, FMS;

– Direct Commercial Sales, DCS;

– Excess Defense Articles, EDA.

The amount of military aid to Israel from the US government for the last five years is estimated at $18.5 billion.

Taking into account these amounts, allocated on a de facto legislative basis, and at the same time coming from external sources, in regard to Israel we can talk about such a concept as combined financial resources for military purposes. The use of this indicator is necessary for estimating the real amounts of funding for the construction of the country’s forces. SIPRI experts think that Israel’s combined financial resources for military purposes amounted to $22.6 billion in 2018 and were increased by $1.1 billion in 2020 (Table 1).

Table 1. Military Construction Funding In Israel (USD billion)

Structure of Military Expenditure

Research materials of the Strategic Studies Institute (USA) allow to argue that a number of peculiarities is typical for the targeted expenses structure of the Israeli Ministry of Defense. Military personnel expenditures increased by 15.1% in 2014–2018, amounting to $5.5 billion. Civil personnel expenditures increased by 15.2%, amounting to $1.1 billion in 2018. Also, the percentage of military and civil staff expenditures in the Ministry of Defense budget grew consistently during this period. This trend will be maintained in the nearest future, which is a result of the implementation of armed forces development plans.

Military training and logistic support costs increased by 4.8% during the period in question, amounting to $5.4 billion in 2018; military facility construction expenses grew by 9.1%, reaching $0.3 billion. At the same time, their percentage in the Ministry of Defense budget remained unchanged throughout the entire period. The Israeli Armed Forces technical equipment expenses (the sum of weapons and military equipment procurement costs and R&D expenses) in the Ministry of Defense budget amounted to $3.1 billion in 2018. Along with that, the total amounts of funds for these purposes reached $6.2 billion, and the USA military aid accounted for a large part of that sum – 50.2% ($3.1 billion). This trend, with insignificant fluctuations, remained during the period in question. The percentage of the costs of technical equipment of the Armed Forces in the Ministry of Defense budget somewhat decreased during this period.

Among different armed forces, a large part of the military budget is allocated for land forces maintenance – 48% in 2018. Air Force expenses amounted to 45%. In general, during the period in question, the land forces and air forces percentages, as well as expenses not classified by armed force types, remained unchanged with slight fluctuations. In 2018, 6% of the budget was allocated to the Navy, a certain decrease of their percentage is observed during the period in question (Table 2).


In general, Israel’s military and political authorities pay significant attention to national armed forces development. Annual increase of military construction financing can be an indicator of purposeful implementation of the tasks specified in the Gideon Plan (“The Plan of Armed Forces Development in 2016–2020”) by the Israeli leadership. The tasks are as follows:

  • Optimization of Israeli armed forces staff numbers – provides for cutting of contract enlistees, non-combat units’ manpower, conscription service term from 36 to 32 months, with simultaneous increase in the number of annual conscriptions from three to four; the personnel of staff and command structures of the Israeli armed forces by 6%;
  • Assistance to American-Israeli interaction on the matters of Israel’s national defense industry complex development, as well as participation in joint projects for the development and implementation of state-of-the-art armament types in both countries’ armies;
  • Establishment of cyberdefense forces;
  • Procurement of the multipurpose 5th generation aircraft F-35 and establishment of two fighting and bombing squadrons on their basis;
  • Procurement of four К-130 project Braunschweig corvettes and establishment of a combat corvette squadron on their basis, with the home station at the main Navy base Haifa; besides that, acceptance of a sixth Dolphin-type diesel electric submarine into the Israeli Navy active inventory;
  • Transition to an in-depth missile defense system including the Iron Dome, David Sling and Arrow-3 complexes.

Military Industry

Thanks to a stable military budget, Israel formed a military industry that not only has state-of-the-art R&D and high-tech production base for the manufacture of weapons and military equipment, but is also an important component of the Israeli economy.

The country has over five hundred military product manufacturers, with a total staff number of approximately 140 thousand persons. Along with that, about 130 companies act as direct suppliers of armaments and military equipment for the country’s armed forces, as well as for export. Most manufacturers of military products are small and medium enterprises (up to 100 persons) mostly owned by commercial companies with various state participation percentages. The military production sector also includes design bureaus, research institutes, and laboratories. By forms of ownership, the enterprises are divided into state- and private-owned ones and joint ventures with participation of Israeli and American private capital.

Israel’s defense industry complex is characterized by an effective management system, a high level of production facility management, predominance of development, manufacturing high-tech and science-intensive products, as well as by export oriented military products.

The structure of Israel’s military industry management system provides for direct participation of the Ministry of Defense at all stages of the armaments and military equipment life cycle, starting with terms of reference development, R&D arrangement, mass production, and ending with delivery control and military equipment operation in the field. Besides that, MoD structures perform functions of export products package content and quality control, have the right to carry out negotiations with foreign customers, to issue export licenses, to interact with the Ministry of Foreign Affairs in consideration of political aspects in the armaments export area. The list of terms of reference for the development and production of new weapons and military equipment types has to be approved by the Ministry of Defense.

Due to a shortage of raw materials and limited material and logistic base possibilities for production of heavy arms, the Israeli military industry is mostly oriented at the development and manufacture of high-tech science-intensive products, first and foremost radio and electronic equipment. The availability of a well developed R&D base and sufficient amounts of highly skilled personnel, in both civil and military industry, helps a lot.

Defense Industry Enterprises

For a long period of time, three state corporations were included in the main military product manufacturers, by the number of their employees, production and sales volumes: Israel Aerospace Industries (IAI), Israel Military Industries (IMI), Rafael Advanced Defense Systems, as well as the largest private corporation Elbit Systems. These corporations also supplied the most products to meet the demand of Israel’s national armed forces and exports.

However, in 2018, as a result of a provatization process, the main part of the facilities of the state corporation IMI was purchased by the private corporation Elbit Systems, which significantly expanded its production capabilities and strengthened its position at the armaments market. Some of production facilities (manufacturing aircraft, missiles, and firearms) was included in other corporations and companies. In particular, missile weapon production was transferred to the Rafael corporation and the firearms division Magen Light Weapons Division was purchased by SK Group and renamed to become the Israel Weapons Industries (IWI). The transfer of some state-owned production facilities to private corporations and redistribution of production facilities among the leading defense industry complex corporations allowed to optimize their activities and ensure more efficient functioning of each military products manufacturer, while keeping the production range and scope.

The Israeli government regards privatization and restructuring of defense complex enterprises as an acceptable way to enhance military production efficiency. The question of optimizing the activiities of the state corporations IMI, IAI and Rafael through their privatization and establishment of two large holdings has already been discussed earlier. The first of these holdings was to join the production facilities of IAI and Elbit Systems for manufacturing of missile/space and aircraft systems, while the other one was to combine IMI and Rafael and focus on the manufacture of armored vehicles, artillery weapons, and firearms, as well as ammunitions.

To enhance the effectiveness of defense industry enterprise functioning, Israel’s government aids to broad participation of companies in joint defense projects with foreign manufacturers and armament manufacturers.

The restructuring did not introduce any significant changes in the structure of the leading weapon manufacturers of the Israeli defense industry complex. Now, it is represented by two largest state corporations and one private corporation. The same corporations provide up to 90% of deliveries according to export contracts.

The state corporation Israel Aerospace Industries is the largest company of the Israeli defense indiustry complex. Its area of activities includes development, manufacture, overhaul and modernization of missile/space systems, UAV, a large assortment of electronic, optical and electrooptical equipment, as well as land-based and shipborne missile defense and anti-aircraft systems. The corporation is a leader at the global market of modernization of various types of foreign aircraft and has a staff of approximately 16,000 employees.

The state corporation Rafael is a joint-stock company, in 1948 it was known as Israel's National Research and Development Defense Laboratory, and was renamed as Rafael Advanced Defense Systems Ltd. in 2007. The corporation enterprises develop and manufacture a wide assortment of armaments, including state-of-the-art near- and medium-range anti-missile and anti-aircraft systems, shipborne missiles, airborne weapons, electronic warfare equipment, electrooptical systems, night vision devices, computer and telemetry systems, as well as active defense systems for AFVs. The corporation’s staff includes about 6,500 employees. The company has foreign branch offices practically in all the regions of the world.

The private corporation Elbit Systems is the second leading Israeli manufacturer and exporter of armaments and military equipment. The company produces a large assortment of military and dual purpose products, including long-, medium- and low-range state-of-the-art UAVs; aircraft and ship simulators; navigation equipment; electrooptical systems for civil and military aviation; and communication equipment. The corporation has about 20 subsidiaries operating abroad. The corporation’s staff includes about 12,000 employees.

Israel’s military-industrial complex has a completely industry-based structure. The missile and space, radioelectronics, armored vehicles, as well as artillery and firearms industries are the most important.

Missile and Space Industry

The industry base of the Israeli missile and space industry includes five enterprises – four are for production and one, for overhaul.

The plant of the IAI Systems Missiles and Space Group division in Lod manufactures the operational/tactical missiles Jericho and LORA ( Long-Range Artillery Missile), medium-range ballistic missiles Jericho-3, anti-ship missiles Gabriel-3, anti-tank guided missiles (ATGM) LAHAT and Nimrod, antimissiles Arrow-3. Besides that, the three-stage space launch vehicles Shavit are produced, used for delivering the Ofeq and TecSar satellites (also manufactured at this facility) to the orbit.

The Haifa-based plant belonging to the Rafael corporation produces aerial guided missiles Python-5 and Derby, various modifications of the ATGM Spike, missiles Tamir for the missile defense system Iron Dome and Stunner, as well as the shipborne near-range vertical launch system Barak. The other plant of this corporation in Yodefat has facilities for manufacture of aerial guided missiles Popeye, established in cooperation with the American Lockheed Martin Corporation.

Elbit Systems’ plant in Ramet-Hashiron manufactures tactical missiles LAR-160 for artillery rocket systems, as well as the launchers. The plant has also facilities for the production of the ATGM MAPATS and cruise missiles Delilah.

Aviation Industry

The aviation industry base is formed by 20 enterprises, 16 of which deal with production, and the rest with the products’ overhaul. Eight production enterprises assemble armaments and military equipment, while seven manufacture the needed components. One plant specializes on aircraft engine production.

Israel’s aviation industry does not have facilities for combat aircraft manufacture, only for their overhaul and modernization. At the same time, the industry enterprises develop and produce unmanned aerial vehicles, by the manufacture of which Israel holds leading market positions among the world’s manufacturers.

Thus, Aeronautics Defense Systems in Yavne develops and produces the Aerostar, Orbiter and Dominator series UAVs and security systems. Its plant employs 680 persons.

The Malat division of Israel Aerospace Industries in Lod produces the UAV Ranger, Hunter, Heron, etc. The attack UAV (loitering ammunition) Harop and Harpia are produced at the IAI Systems Missiles and Space Group plant at the same location. Mini-UAVB are designed by Bluebird Aero Systems Ltd.

Another priority area for Israel’s aviation industry enterprises is manufacturing of aircraft components, as well as aircraft overhaul and modernization. The enterprises of this industry mainly specialize in the modernization of Soviet (Russian), American, and French aircraft operated by Eastern European, Asian, and African countries.

Thus, Israel’s aviation industry has limited capabilities. The existing facilities allow the companies of the industry to carry out aircraft overhaul and modernization for the national Air Forces and foreign clients. The priority area of production activities of Israel’s aviation industry is development and manufacture of a wide range of unmanned aerial vehicles. Their production volumes meet the national armed forces’ demand, as well as large export demands.

Armored Vehicles Industry

The armored vehicles industry base is formed by fourteen enterprises, four of which deal with overhauls. Elbit Systems’ enterprise in Lod produces various modifications of the tanks Merkava and armored heavy infantry vehicles Namer. The Carmor plant manufactures the Wulf series armored personnel carriers.

The facilities of the armored vehicle overhaul plants allow to carry out overhaul and modernization of the АМХ13, АМХ30, М41, М47, М48, М60, PT-76, Т-54, Т-55, and Т-62 tanks; М3, М113, V100 and V150, BTR-50 armored personnel carriers; and BMP-1 armored infantry vehicles. Conversion of vehicles including the Т-54 and Т-55 tanks to armored personnel carriers is being carried out.

In general, Israel’s armored vehicles industry has sufficient capabilities for manufacture of state-of-the-art armored vehicles, it meets the demand of Israeli armed forces and successfully promotes its products at export markets.

Artillery Industry

The manufacturing of artillery armaments and firearms is one of the most advanced areas of Israel’s military industry: it includes eight plants, two of which specialize in overhauls.

The main manufacturer of artillery armaments is Soltam Systems’ plant in Yokneam, which produces 155-mm self-propelled and towed howitzers, anti-tank guns, 60-, 81-, 120- and 160-mm mortars (including automated systems based on the 120-mm mortar (Computerized Autonomous Recoil rapid Deployed Outrange Mortars, CARDOMs)), 120-mm tank guns for the main combat tanks and 60-mm guns for armored combat vehicles.

The main manufacturer of firearms in Israel is the private company Israel Weapons Industries (IWI). Since 2005, after privatization of the IМI Magen Small Arms Division, the company became part of the private corporation SK Group. So, 5.56 and 7.62 mm machine guns, 9-mm pistols/machine guns, 5.56 and 7.62 mm attack rifles, semi-automatic sniper rifles SR-99 and 9-mm pistols are produced at this company’s plant in Ramat. At the present time, a modern production complex with 560 employees has been built in Kiryat Gat. The overhaul plants in Ashdod and Jerusalem allow to overhaul a wide range of artillery weapons and firearms for the national armed forces.

Ammunition industry

The ammunition industry includes fourteen enterprises. The Israel Military Industries (IMI) corporation’s plants manufacture all necessary types of firearms and artillery weapon ammunition for the national armed forces: 5.56 mm, 7.62 mm, 9-mm and 12.7 mm cartridges, 20-, 30-mm shells for anti-aircraft guns; 75-mm shells for the tank guns М50; 76-mm shells for ship guns; 90-, 105-, 106-mm shells for non-recoil guns; 120-mm armor-piercing shells; 130-, 155- and 175-mm artillery shells; 52-, 81-, 120- and 160-mm mortar mines.

Besides the plants, ammunitions are produced at artillery and firearms industry plants. Thus, Soltam Systems’ plant in Haifa produces ammunitions for the howitzers and mortars manufactured there. Private companies manufacture explosives and gunpowders for ammunition, make igniters and detonators.

In general, the ammunition industry enterprises have sufficient production facilities capable of completely meeting the national armed forces’ demand.

Shipbuilding Industry

Israel’s ship-building industry is represented by three production enterprises and one specialized ship-overhaul plant. The 500-strong shipyard belonging to the Israel Shipyards company forms the foundation of this industry. This is one of the largest ship-building and ship-overhaul yards in the Eastern part of the Mediterranean Sea. The yard is capable of building guard ships (corvettes), missile and patrol boats. Ramta Division’s plant manufactures small guard boats, and a small enterprise belonging to Elbit Systems produces unmanned underwater craft.

In the nearest future, it is evident that the shipbuilding production base will not undergo any significant changes in its structure due to the absence of need to build large ships and watercraft for Israel’s Navy. Navy’s demand for necessary military watercraft will be met by imports.


The radioelectronic industry has 28 enterprises, most of which are independent companies based on a single enterprise. This industry, along with the missile, space, and aviation industries, is one of the leaders of Israel’s military industry.

The largest enterprise of the radioelectronic industry is Elta Systems’ plant in Ashdod, with approximately 3,500 employees. The plant manufactures a wide range of radar equipment, communication means, and electronic warfare equipment, such as the airborne electronic warfare and radar systems EL/L-8300, external jamming pods EL/L-8222, etc.

The other plant, Tamam in Yahud, produces gyrostabilized pods for UAV and aviation, radio communication equipment, night vision devices, and navigation equipment.

The leading manufacturers of the equipment in question also include Elisra Electronic Systems (part of the Elbit Systems corporation), employing over 1,500 people. The company develops and produces communication equipment (radio stations CNR 900/9000, GRC-400, etc.), shipborne and airborne navigation systems, airborne long-range phased-array detection systems, as well as land electronic warfare stations.

One of important areas of activity of the enterprises of this industry is development and manufacture of optical and optoelectronic equipment. Thus, Opgal Optronic Ind Ltd. specializes in production of optical equipment for armed forces, including periscopes, sights, etc.

The radioelectronic industry is one of the most advanced and promising industries of Israel’s defense industry complex, its products are highly competitive at the global market. In order to concentrate the financial and production resources necessary for development of new types of military products, increasing export volumes and expanding sales markets, this industry underwent various structural changes as a result of mergers and acquisitions of certain production divisions.


The research of Israel’s armed forces financing allows to come to the following conclusions and generalizations:

  1. The main goal of plan implementation is to bring the national armed forces in line with the present-day requirements of the changing military and political environment in the Middle-East region.
  2. Thanks to stable financing, Israel’s defense industry complex is capable of manufacturing high-tech and science-intensive military products in virtually the entire range of armaments necessary for meeting the demand of the national armed forces and export deliveries. A favorable environment has been created in Israel for further defense industry development. Besides that, the present-day military industry is the leading branch of Israeli economy, that nets a considerable export profit to the state.
  3. It should be expected that in the foreseeable future Israel’s leadership, based on economical feasibility and for the sake of political ambitions, will support and develop the national military industry, take measures for enhancing the armaments and military equipment export system, diversifying its sector and geographic structure, searching for new market niches, strengthening its effort for redivisioning the market for its own benefit.
    Further increase of defense industry complex effectiveness, particularly in the state sector, implies carrying out organizational reforms, changing forms of property, including privatization of individual industries and production types. Stakes will be placed on expanding own capabilities in the development and manufacture of high-tech types of weapons and military equipment.
  1. A significantly export-oriented advanced military industry has been established and is successfully functioning in Israel. The country’s leadership makes all the efforts necessary to preserve and enhance the military industry potential. Dual purpose technologies and civil developments are actively used in the production, the industrial and research base is being actively developed in the strongest sectors, predominantly in the radioelectronic, aviation, as well as missile and space industries. In short and medium terms, further advancement of Israel’s national military industry is expected; it can be predicted that it will preserve its status at the global market of armaments and military equipment.

Author: Roman Koshkin
©New Defence Order. Strategy  №4 (69) 2021


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