Israel: Who Knew?

This column was originally published on RealMoney on Feb. 7 at 12:57 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

"Israel, Who Knew?" is the slogan for a new commercial airing on TV in America put out by Israel's Ministry of Tourism. This commercial is significant as there has not been a televised advertisement for Israel in America for some time now.

In economic terms, it didn't make sense to advertise in prior years because Israel was perceived to be a war zone and nobody would come anyway. But according to Israel's Central Bureau of Statistics, tourism to Israel increased by 26% in 2005, so in light of that, I decided it was time to go with the slogan Great Investments in Israel, Who Knew?

While I have invested in Israel for many years, many people have an aversion to investing there. Before I give you my picks for an Israeli index, I'm going to lay down the foundation of why Israel is a great place to invest.

First, Israel is a democracy, which is a necessity in the capitalist system and even more important when it comes to the markets.

Second, education is valued greatly in Israel. The country has an estimated literacy rate of 99.5%. Also, 24% of Israel's workforce hold university degrees ranking it third in the industrialized world, after the U.S. and Holland and 12% hold advanced degrees. (Notably, many Israelis speak English, while I don't know the statistics I estimate it to be above 65% of the population.)

Many of Israel's universities have joint programs with top American schools such as the Kellogg-Recanati International Executive MBA Program, a joint program through which students earn an MBA from Kellogg Graduate School of Management at Northwestern University and the Recanati Graduate School of Business at Tel Aviv University.

Economically, Israel is on sound footing. The country has an excellent credit rating from all three major ratings agencies, and 2005 was a great year for the Tel-Aviv Stock Exchange; the TA-25 (Ma'of), which is made up of the 25 largest stocks by market capitalization, climbed 25%.

Unemployment is trending lower. The short-term interest rate is 4.91%, which is very business friendly. The chart below illustrates a declining unemployment rate, which bodes well for the labor market, which in turn improves the general economy. The more people working, the more vibrant an economy can become.

Also, Stanley Fischer took over as the Governor of the Bank of Israel this past May. Previously, Fischer was vice chairman of Citigroup and former deputy managing director of the IMF. In regards to a recent IMF report on Israel, which has shown significant improvement over time, Fischer stated: "In my past role in the Fund I saw many of the IMF's reports and even represented the Fund on the other side of the table. I am therefore in a position to state that this is one of the Fund's best reports."

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Source: Ministry of Finance

For further proof, take a look at the chart below. Investors are beginning to pour money into Israel once again.

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Source: Ministry of Finance