Fortnightly, 11 January 2017

At NIS 500 million (almost $130 million), the 2017 national health basket is the largest in a decade. Some NIS 460 million ($119.4 million) of the basket will go toward subsidizing medications, while the remaining NIS 40 million ($10.4 million) will subsidize dental care for children under the age of 16. About half the medication budget will benefit cancer patients, with around 230 million shekels ($59.6 million) subsidizing cancer treatments that include innovative and costly immunomodulatory therapies. In addition, the government will now subsidize some prescription medicines that were not previously covered, including for Parkinson’s disease, HIV, rheumatic diseases and heart failure. Genetic testing for Jews of Bukharan and Ashkenazi descent, Arabs and Druze has also been added to the 2017 basket. The Health Basket Committee authorized an additional 106 medications and prescriptions that will go toward the treatment of over 85,000 patients. Twenty-five of these medications were added to the existing basket at no additional cost. (IH 04.01)

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1.2 Israel Adds 106 New Drugs and Treatments to Healthcare Basket

The Health Ministry announced on 10 January that the 2017 healthcare basket, a list of government-subsidized medicine and medical treatments, has added 106 drugs, chemical preparations and new technologies, benefitting over 85,000 new patients. The healthcare basket committee had a budget of NIS 460 million – NIS 160 million more than the budget in recent years. It was headed by Shaare Zedek Medical Center Director Prof. Jonathan Halevy. It also included the Director of Medical Technology and Infrastructure Administration at the Health Ministry, Dr. Osnat Luxenburg, as well as representatives from the HMOs, the Health and Finance ministries, and representatives of the public.

Over the past few months, the committee discussed some 700 drugs, chemical preparations and new technologies priced at a total of over NIS 2 billion. Part of its budget, NIS 40 million, was allocated to Health Minister Rabbi Yaakov Litzman’s dental care reform, which will include free dental treatments to children until the age of 15 starting next week. The committee’s recommendations will now be submitted to the health minister and to the Health Council, and later be brought to the government for approval. The full list will be available to the general public in several weeks.

Some 50% of the healthcare basket’s funds were allocated to cancer treatment. One of the more significant additions this year is the immunotherapy drugs (which bolster or suppress the immune system) Keytruda and Opdivo for lung cancer patients who have a protein expression indicating the drugs may be useful to them. Keytruda will be given to certain patients as a first option of treatment while Opdivo will be given as a second option of treatment. For some patients, these drugs could replace chemotherapy, which has serious side effects. In addition, the drug Lynparza for treatment of patients with some mutations of ovarian cancer, which costs NIS 1.5 million to add to the healthcare basket, was also included, alongside Avastin to treat cervical cancer patients at moderate and high risk levels, which costs over NIS 3 million. (Various 09.01)

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1.3 Israel to Fund Northern Sector

Finance Minister Kahlon and Minister for the Development of the Periphery, Negev and the Galilee Deri have put forth their plan to develop and strengthen the north of Israel. Approximately NIS 15 billion will be invested in the region over the next two to five years. The money will come from various government agencies, as well as the Jewish National Fund. The money will be used to support infrastructure projects, promote business and industry in the region, fix the public health care system, strengthen local governments, and help improve education. Key IDF bases will also be moving to the north. The deal was facilitated with the coordination of various government ministries, as well as by working with the various regional councils.

According to the plan, NIS 600 million will be invested into getting financial services companies to set up in the north, and will also be used in grants which will increase productivity and growth in the sector. Small and medium sized businesses located in the north will be the recipients of grants and tourism initiatives will be funded as well. Meanwhile, NIS 12 billion will be used on infrastructure projects, including upgrading roads, building a light rail between Haifa and Nazareth, expanding the Metronit bus system in Haifa to outlying areas and more. A further billion shekels will be used to improve the education system in the north. NIS 930 million will be allocated to upgrading health services in the north. (Ynetnews 27.12)

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1.4 Israel Agrees to Take 20,000 Chinese Building Workers

On 4 January 2017, Israel’s construction sector received a boost after an Israeli delegation signed a bilateral agreement with the Chinese Ministry of Trade and the Chinese Association of Contractors to bring more than 6,000 Chinese laborers to Israel in first half of 2017. Israel’s Finance Ministry had long been promising to open Israel’s doors to some 20,000 Chinese laborers, but the government’s efforts have until now been unsuccessful.

In contrast to the agreements signed with Eastern European countries, the agreement with the Chinese government stipulates that the Chinese authorities will be responsible for selecting the workers sent to Israel through special companies established for this purpose. In Eastern Europe, Israeli representatives from both the Ministry of Construction and Housing and the Association of Builders and Contractors have been responsible for this. (Globes 04.01)

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1.5 Bank of Israel Governor Flug Wants Higher Taxes in 2017

Governor of the Bank of Israel Karnit Flug wants higher civilian expenditure to combat growing poverty. On a recent TV show, Dr. Flug said that ultimately Israel needs to collect more taxes in order to increase civilian expenditure in the longer term. She felt that taking into account high growth figures and low unemployment and growing poverty that might see tax hikes in the near future. Flug was ambiguous about the tax on third homes. (Globes 01.01)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Qoros to Establish Smart Car R&D Center in Israel

Chinese auto manufacturer Qoros, controlled by Kenon Holdings and Chinese company Chery, is opening an auto R&D center in Israel aimed at developing a smart car. The measure is part of the company’s recently announced focus on rechargeable electric and hybrid cars and the development of autonomous driving technology. As part of this plan, Qoros recently set up a mobility division headed by its deputy CEO. The announcement in China stated that the R&D center in Israel would develop networks for charging electric vehicles, vehicle sharing, etc.

Qoros plans to launch a fully electric car with a battery range of 350 kilometers in China this year and will launch its second generation of vehicles based on electric propulsion, artificial intelligence, autonomous driving and other innovations in 2020. The measure is part of the global auto industry’s broad focus on Israel and Israeli know-how in smart vehicles and related technologies.

General Motors already has a large R&D center in Israel and Renault, Daimler, and other companies also conduct R&D in Israel. Qoros, which is mired in debt, can meanwhile take comfort in the fact that the important Chinese Autohome auto website rated its Qoros 5 four-wheel drive vehicle in first place in a quality review of dozens of selected models this year, including models made by Toyota, Lexus, Cadillac, BMW, and a series of Chinese brands. The review stated that Qoros’s vehicle had the fewest malfunctions per kilometer. (Globes 29.01)

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2.2 ARTSaVIT Raises $6.3 Million

ARTSaVIT announced that it has completed a $6.3 million Series A round of financing led by Arkin Bio Ventures and Pontifax, with participation of Merck Ventures, Carmel Innovation and Carmel – Haifa University Economic Corporation. ARTSaVIT was co-founded by Carmel, the economic corporation of the University of Haifa, Carmel Innovations Fund and Professor Sarit Larisch from the University of Haifa, Israel. Prof. Larisch has identified and characterized ARTS, a protein which regulates the levels of several important anti-apoptotic proteins by promoting their degradation. Apoptosis is a highly regulated process of natural cell death. Faulty regulation of apoptosis is implicated in many human diseases, including cancer. Moreover, resistance to apoptosis is a hallmark of most human cancers.

The insights gathered by Prof. Larisch and the unique function of ARTS led to the establishment of the company, which is developing small molecule ARTS mimetics designed to selectively induce apoptosis in cancer cells. The company received seed investment from the Carmel Innovations Fund, which supported the research and development of the company to its current stage.

ARTSaVIT will move from its facilities at Carmel, University of Haifa, to the state-of-the-art facilities at the Merck Ventures Israel BioIncubator, which will support the development of the start-up with its infrastructure and a wide range of incubation facilities and services.

Haifa’s ARTSaVIT are developing a cancer drug, using the research of Professor Sarit Larisch from the University of Haifa, Israel. Faulty regulation of apoptosis is implicated in many human diseases, including cancer. Moreover, resistance to apoptosis is a hallmark of most human cancers. (ARTSaVIT 04.01)

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2.3 Gap to Shut Down Operations in Israel

American clothing and accessories retailer Gap announced that it will shut down its stores in Israel in 2017 due to considerable losses. Gap’s Israeli franchise holder Gottex Brands has lost NIS 30 million ($7.8 million) in operating costs. Gap arrived in Israel in late 2009. Opening its first stores in Tel Aviv and Jerusalem, the franchise soon expanded to seven stores nationwide, adding stores in Petah Tikva, Herzliya, Netanya, Ra’anana and Beit Shemesh. Gottex Brands announced it will make efforts to absorb Gap’s employees in its other stores.

The Gap has been plagued by plummeting sales worldwide in the past years, finding it difficult to compete with Zara and H&M. In 2015 the company announced it was closing 175 of its 675 stores in North America. (Globes 02.01)

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2.4 Flytrex Raises $3 Million

Flytrex, which is developing a drone delivery solution, has raised $3 million, “TechCrunch” reported. The round was led by Swiss-based Armada VC, owned by Daniel Aegerter, as well as private angel investors Daniel Gutenberg and Joey Low with the participation of several unnamed private angel investors. Flytrex began by creating a ‘black box’-style flight recorder and cloud service to track drones and is currently working in countries where regulators understand that drone delivery is an inevitability.

Tel Aviv’s Flytrex’ platform designed for delivery companies or large retailers desiring to implement drone delivery. The platform provides a cloud solution for the tracking and management of delivery drones. The company is also developing drone hardware tailored for point-to-point or point-to-area delivery. (Flytrex 04.01)

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2.5 Taboola Doubles Down on Personalization Through Acquisition of Commerce Sciences

Taboola announced the acquisition of Commerce Sciences. This acquisition furthers Taboola’s personalization strategy, as publishers need to be increasingly strategic about what content and experiences they deliver to each consumer. People exhibit an array of behaviors and interests on the web, depending on situational factors such as time of day, device type, location, referral source and more. Rather than grouping people based solely on demographics, Commerce Sciences’ personalization technology is able to analyze the implied characteristics of each visitor, given the particular time and context, meaning that the same person may be more inclined to interact with different on-site experiences throughout the day. Both Taboola and Commerce Sciences have developed powerful personalization products and combining these will provide a best in class personalization offering for publishers. The deal was closed on 01/01/2017. Commerce Sciences employees will join Taboola’s Tel Aviv offices.

Founded in 2012, Israel’s Commerce Sciences, a pioneer in web personalization and on-site optimization, spent five years actually focusing on the commerce industry, helping ecommerce sites customize the entire site experience in real time based on variants they’ve created with the platform. Tel Aviv’s Taboola is the leading discovery platform, serving over 360 billion editorial and video recommendations to over 1 billion unique visitors every month on some of the Web’s most innovative publisher sites, including USA TODAY, Huffington Post, MSN, Business Insider, Chicago Tribune and The Weather Channel. (Taboola 05.01)

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2.6 MySize Launches SizeUp “Measurement from the Air” App

MySize announced the official launch of its SizeUp DIY “measurement from the air” app for iOS. The android version will be introduced in the near future. The new technology enables users to instantly and accurately measure just about any object, flat surfaced or otherwise, by moving their Smartphone, in the air, from the starting point to the end point of an object. Measurements can be taken in either inches or centimeters. MySize’s vast pipeline of smartphone measurement applications are inspiring a paradigm shift in online shopping by empowering customers to always purchase the right size of a product, the first time. SizeUp ‘measurement from the air’ is intended for customers shopping for home furnishings or who need to send a package. Airport City’s href=”http://www.mysizeid.com”>MySize has developed a unique measurement technology based on sophisticated algorithms with broad applications including apparel, e-commerce, shipping and parcel measurement. The technology is driven by several patent-pending algorithms which are able to calculate and record measurements in a variety of novel ways. (MySize 10.01)

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2.7 Air Transat Adds Tel Aviv to its Summer Program

Air Transat announced that it will be offering direct flights from Montréal to Tel Aviv. Also available from Toronto with a connection in Montréal, this non-stop flight between the Montréal–Trudeau airport and the David Ben-Gurion international airport of Tel Aviv will operate twice weekly, on Wednesdays and Sundays, from June 18 until late October. Transat will also be offering an array of packages, guided tours and hotels for discovering Tel Aviv and Jerusalem, as well as the region’s many tourist attractions.

This new Montréal-Tel Aviv flight on Airbus A330-300 aircraft consisting of 345 seats will allow travelers to enjoy an unparalleled flight experience with Air Transat, named Best North American Leisure Airline five years in a row. The cabin comfort, personal entertainment system accessible via individual touch screens, complimentary checked baggage allowance and attentive crew are just some of the reasons flying Air Transat is so enjoyable. Travelers passing through the Montréal –Trudeau airport can also feel the joy of vacations in the new Espace Air Transat section, offering an immersive multimedia experience designed by Moment Factory, among other features. Flights to Tel Aviv will soon be available for booking on the Air Transat website and at travel agencies. (Air Transat 10.01)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 OriginClear Responds to New Water Mandates in North Africa With Strategic Alliance

Los Angeles’ OriginClear, a leading provider of water treatment solutions, announced that it has responded to EU-level water infrastructure mandates by North African governments by working with French engineering company UltraEpur. OriginClear Technologies entered a technology license agreement and UltraEpur purchased a laboratory demonstration unit, which it plans to exhibit at the SIEE Pollutec trade show in Algiers in February. UltraEpur is active in France, where it is headquartered, but also in North Africa and French-speaking Western African countries such as Ivory Coast. While UltraEpur is not relying on government funding for its commercial activities, development of the country’s water supply system is a high priority for the Algerian government in its new five-year plan. (OriginClear 05.01)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Israel’s Plastic Bag Law Brings Sharp Decline in Disposable Bag Usage

On 1 January, Israel joined a host of countries worldwide seeking to dramatically reduce the use of lightweight plastic bags, as its Plastic Bag Law came into effect. The law bans the free distribution of thin plastic bags in large grocery chains entirely and consumers will now have to pay a 10 agora (3 cent) fee for thicker ones. Under the law, bags that come in direct contact with food, such as those provided in supermarket produce sections or delis, are still available for free. Already the law has already had a significant impact on the country’s use of disposable plastic bags.

According to the Environmental Protection Ministry, alongside damage the plastic bags cause to the environment, there is also economic damage, because the stores pass the cost of the disposable bags on to consumers through products pricing. (IH 03.01)

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4.2 Haifa Port Company Hit with Hefty Fine for Air Pollution Violations

The Environmental Protection Ministry on Monday fined the Haifa Port Company NIS 2.2 million (about $570,000) due to air pollution violations. The violations include unloading materials not in accordance with directives, in such a manner that could cause a dust hazard; failure to install equipment to monitor dust; and failure to implement dust sampling as required.

At the end of September and beginning of October 2014, the Haifa Port Company unloaded a ship carrying solid bulk cargo in a manner not complying with instructions it had received and without installing the required means to prevent air pollution due to the dispersion of dust. Additionally, the company failed to install cameras connected to a control center by the necessary date as a means to visually and electronically monitor the production of dust as a result of loading and unloading. In contravention of directives received, the company failed to present a sampling plan and did not take environmental samples during 2013 and 2014.

The Environmental Protection Ministry reduced the fine by 40% in accordance with regulations for the reduction of sanctions and fine payment plans as the company has, among other things, taken steps to prevent the recurrence of violations and to reduce the damage. (IH 04.01)

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4.3 Solar Power Installed in Tripoli Hospital

In a first for Libya, solar power panels have been installed at the Abu Sleem Accidents and Emergency hospital in the capital Tripoli, to offer steady electricity for the hospital’s Intensive Care unit. Similar installations will be offered to three other hospitals in Tripoli: Ali Omar Askar Neuro Surgery, Tripoli Medical Centre and Cordoba Centre for Services and Renal Hemodialysis. When all are up and running, the panels will help boost the health sector in the country because about 50,000 Libyans will be able to go to hospitals where there are no electricity problems and can enjoy proper health care. The clean source of energy will enable hospitals to continuously operate vital medical equipment such as dialyzers, medicine refrigeration, surgery rooms and ICUs. The installations for the Tripoli hospitals are funded by the United Nations Central Emergency Response Fund (CERF) which supports rapid humanitarian response. (UNSMIL 09.01)

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5: ARAB STATE DEVELOPMENTS

5.1 Lebanon’s Trade Deficit Widens by 6.3% y-o-y by November 2016

Data from the Customs reveal the Lebanese trade deficit spiraled by 6.3% y-o-y to reach $14.4B by November 2016 as exports increased by a yearly 3.47% to $2.81B and imports rose by 5.81% y-o-y to $17.2B. In terms of imports, Mineral Products constituting 20.33% of total imports increased in value by 23% y-o-y to $3.5B despite the fall of average oil prices from $54.97/barrel by November 2015 to $44.26/barrel by November 2016. This is justified by the 27% y-o-y surge recorded in the volume of mineral products to 8.19M tons. Similarly, Products of the Chemical or Allied Industries grasped 10.85% of the total value of imports and rose by a yearly 4.77% to $1.9B. However, Machinery and Electrical Instruments, which constitute 10.01% of total imports, declined by 6.98% yearly, to stand at $1.72B by November 2016.

By November 2016, Lebanon imported mostly from China, Italy, USA, Germany and Greece, with the respective shares of 11.17%, 7.4%, 6.37%, 6.21%, and 5.48% of total imports. In terms of Exports, Pearls, Precious stones and Metals constituting 30.46% of total exports rose by 91.7% y-o-y to reach $780.7M by Nov. 2016. However, Prepared foodstuffs, beverages, tobacco which make up 15.45% of total exports fell by a yearly 8.62% and settled at $406.32M by Nov.2016. Machinery and electrical instruments (12.66% of total exports) also declined from $378.9M by Nov.2015 to $324.4M by Nov. 2016. Similarly, Products of the chemical or allied industries (10.72% of total exports) decreased most by 26.42% y-o-y to stand at $274.8M by Nov.2016. The main destinations for Lebanon’s exports over the same period were: South Africa, Saudi Arabia, UAE, Syria and Iraq with respective weights of 22%, 9%, 8%, 6%, and 5% of the total value of exports. (CAE 03.01)

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5.2 Lebanon Ranked 63rd out of 137 Countries in the Global Entrepreneurship Index

The Global Entrepreneurship Index (GEI), released by the Global Entrepreneurship and Development Institute (GEDI), is an annual index that measures the health of the entrepreneurship ecosystems in 137 countries. The index is divided into 14 pillars including start-up skills, opportunity perception, internationalization, and networking. As such, Lebanon ranked 63rd out of 137 countries in the GEI for 2016-2017, as compared to the 50th rank a year earlier. With a score of 29 out of 100, Lebanon ranked 10th of 15 in the MENA region, with Israel claiming the first place, followed by the United Arab Emirates, Qatar and Saudi Arabia. On a different note, Lebanon’s strongest area among the pillars was Start-up skills, while its weakest area was risk acceptance. Moreover, according to the report, if Lebanon were to improve the conditions for entrepreneurship by 10%, this could be translated by an additional $13B to the economy. (GEI 29.12)

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5.3 Jordan’s Budget Deficit Declines to JD803 Million After Grants

Jordan’s overall budget deficit stood at JD803.3 million at the end of November 2016 after adding foreign grants, compared to JD1.25 billion in the same period of 2015, according to the Ministry of Finance. The deficit before foreign grants stood at JD1.209 billion, compared to JD1.47 billion in the same period last year. Domestic revenues and foreign grants reached JD6.187 billion compared to JD5.735 billion, a rise of JD452 million. Foreign grants stood at JD404 million compared JD448 million in the same period of 2015. Government spending at the end of November 2016 reached JD6.99 billion compared to JD6.76 billion in the same period of 2015. (AMMONNEWS 09.01)

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5.4 Amman Plans to Hike Fuel Prices & Unify Sales Tax at 16%

The Jordanian government plans to raise the prices of fuel derivatives by JD0.07 per liter starting from next month, Finance Minister Malhas told members of the Lower House Finance Committee, in the presence of Prime Minister Mulki. He said that the price of the gas cylinder used for cooking and heating would also be raised by JD1.5 Malhas also said that the government also plans to unify the sales tax at 16%, cancelling the zero tax on certain items. The minister noted that the price and tax hikes are part of a plan to collect JD3 billion in the coming years, including JD450 million in 2017, JD520 million next year and JD570 million in 2019.

Fuel prices in Jordan are set by a government committee which meets monthly and adjusts fuel prices to correspond with changes in oil prices on the international market. Prices of oil derivatives on the local market are calculated based on international prices, with the addition of other costs such as shipment, handling and taxes, including the new hike. Before adding the new seven-piasters increase, overall taxes on oil derivatives were as follows: 22% on 90 octane, 40% on 95-octane, and 6% for all other fuel products, except heavy oil. In June, the government also decided to impose a fixed Treasury allowance on fuel amounting to 25 fils per liter, in line with Jordan’s agreement with the International Monetary Fund, and in implementation of the Cabinet’s decision to add 25 fils to fuel prices to support the budget. (Petra 09.01)

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5.5 Jordanian Public Transport Fares to be Raised by 10%

Jordanian public transport fares were raised by 10% as on 5 January, under a decision taken by Land Transport Regulatory Commission (LTRC). The decision covers medium and heavy transport buses and all taxis; the increase is based on inflation and the prices of fuel. The last increase in transport fares was in 2012 — a 10% increase for gasoline fueled vehicles and 11% for diesel fueled vehicles. The LTRC will give taxi drivers a two-week duration to rectify their status and adjust their meters in accordance with the new tariff.

The LTRC is responsible for the transport sector and providing incentives to operators, as well as boosting investments, and there is a discussion of a potential 75% income tax exemption for investors. The transport sector accounts for 26% of the GDP. The LTRC has been urging individual transport business owners to form coalitions. (AMMONNEWS 29.12)

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5.6 Aqaba Received 532,000 Tourists During First 10 Months of 2016

During the first 10 months of 2016, Aqaba city hosted around 532,000 tourists, most of whom came through direct charter flights. Russian tourists topped the list, with around 60,000 visitors, followed by Saudi Arabians (around 13,000) and Americans (around 9,000), with significant numbers of German, Arab Israeli and French visitors. The majority of tourists visited between July to October, registering “outstanding” numbers.

In the first 10 months of 2015, the King Hussein International Airport in Aqaba received 96,000 passengers. It received 154,000 in 2014, and 160,000 in 2013. A key contributor to the rise in the number of visitors to Aqaba in 2016 was receiving a large number of charter flights. While direct charter flights started off in modest numbers at the beginning of the year, they picked up towards the end of the year, with 140 charter flights arriving in Aqaba, with some 18,000 passengers in September and October alone. (AMMONNEWS 31.12)

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►►Arabian Gulf

5.7 Qatar’s GDP Growth Set to rebound in 2017 on World Cup spending

Qatar’s real GDP growth is expected to moderate to about 2.7% in 2016 but is projected to reach 3.4% in 2017 as the country effectively adjusts to the new reality of sustained lower energy prices, according to the International Monetary Fund (IMF). In a new research note, the IMF said the rise in 2017 growth reflects an expansion in the non-hydrocarbon sector due to World Cup-related spending and supported by added output from the new Barzan gas project. It added that during 2017–18, the Gulf state will see further subsidy cuts, increase in public fees, a moderate recovery in global commodity prices and the implementation of a VAT which will drive inflation, which is expected to moderate back to low levels over the medium term.

The IMF said the main risks to the economy are related to the possibility of lower hydrocarbon prices compared to the baseline assumption and to the public investment program. In addition, the prospects of further rises in the US interest rates may complicate efforts to bolster economic growth. It noted that spillovers to the non-oil sector would be transmitted through slower government spending and declining liquidity in the banking system. The report said financial risks in the banking sector are moderate as banks’ balance sheets remain strong. However, the loan-to-deposit ratio has risen, possibly implying increased credit risk.

The drop in international oil and gas prices has put considerable pressure on Qatar’s fiscal and external positions. However, the IMF said the authorities’ policy response has been adequate, underpinned by cuts to current expenditures and renewed efforts towards increasing non-oil revenues. The authorities’ plan to implement excises on tobacco and sugary drinks starting in 2017 in line with a GCC-wide agreement will yield additional revenue. The IMF said complementary revenue measures should be explored, including broadening the corporate income tax base to include GCC companies. Additional measures are needed to further strengthen the business environment, including by enhanced contract enforcement, and improved education quality, said the research note. (AB 07.01)

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5.8 UAE Nuclear Power Plant Reactors are 75% Complete

The Emirates Nuclear Energy Corporation (ENEC) said construction of units 1 to 4 at Barakah Nuclear Energy Plant are 75% complete. The plant’s four reactors are scheduled to come online in 2020, with construction having started in 2012. The facility will deliver up to 25% of the UAE’s electricity needs and save up to 12 million tonnes in carbon emissions every year. According to the company, it has successfully set in place of unit 3’s reactor containment building (RCB) liner dome section, effectively installing the roof of the structure which now houses the reactor vessel (RV). Further, unit 4’s turbine generator operating deck and the last reactor containment liner plate rings have been achieved. The work has been done in collaboration with Korean Electric Power Corporation, a prime contractor and joint venture partner. With the setting of unit 3’s RCB liner dome section, it is now more than 62% complete. The completion of RCB is expected in the first quarter of 2017, while the construction of unit 4 is 35% complete, the company said. (AB 08.01)

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5.9 Sharjah Sets Largest Ever Budget of Nearly $6 Billion for 2017

Sharjah has set its 2017 budget at AED22 billion ($5.99 billion), the largest in the emirate’s history, as it focuses spending on infrastructure. Sheikh Mohammed bin Saud Al Qasimi, chairman of the Central Department of Finance in Sharjah, said about 30% of total government expenditures have been allocated to infrastructure next year. Last year, Sharjah approved its government budget for 2016 which included a two% rise in spending to AED20.3 billion. He added that although the budget will fund economic, social, scientific and cultural sectors, the highest priority remains investing in the infrastructure of the emirate, along with providing social support to its citizens.

Dr Tariq bin Khadem, chairman of the Human Resources Department, estimated that the budget will enable Sharjah to provide 3,500 more jobs to Emiratis. Some 41% of the total budget would be spent on the economic development sector as the government aims to make the emirate more competitive. In September, Sharjah launched a new initiative to encourage business people across the world to invest in the emirate. The brand is also in line with the strategy of Sharjah Investment and Development Authority (Shurooq) to position Sharjah as a strategic investment destination. Invest in Sharjah will reach out to local, regional and global investors to explore investment opportunities in the emirate. (AB 03.01)

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5.10 Saudi Arabia Mulling Cancellation of $20 Billion Projects

Saudi Arabia is reportedly working with PricewaterhouseCoopers on plans to cancel about $20 billion of projects as the Gulf kingdom battle with lower revenues amid lower oil prices. Bloomberg reported that the Ministry of Economy and Planning has appointed PwC to review $69 billion of government contracts with a view to cutting about a third of them, citing two people familiar with the matter. It said that projects under review include contracts awarded by the ministries of housing, transport, health and education.

Last month, Saudi Arabia said it had successfully cut into its huge state budget deficit this year and will increase government spending in 2017 to boost flagging economic growth. The deficit shrank to 297 billion riyals ($79 billion) in 2016. That was well below a record 367 billion gap in 2015, and below the government’s projection in its original 2016 budget plan of a deficit of 326 billion riyals. The financial challenges for Saudi Arabia stem largely from the fall in the global price of oil. Riyadh slashed spending on infrastructure and perks for civil servants to get its finances under control. For the first time in years, it kept its spending below its original budget projection in 2016; actual spending was 825 billion riyals compared with a projection of 840 billion riyals. (AB 09.01)

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5.11 Saudi Private Sector Growth Rebounds After Hitting Record Low in October

Saudi Arabia’s non-oil private sector strengthened again in December after touching record lows in October, according to data from the Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI). This showed that output rose at the sharpest rate since August, while new orders increased at a marked, albeit slightly slower, rate. Companies responded to increased requirements by raising their purchasing activity and boosting inventories amid positive growth projections, the survey said. However, with the rate of expansion in new work remaining below its long-run trend, staffing levels continued to be increased only slightly, it added. The survey said that underpinning overall growth was an acceleration in the rate of expansion of output to a four-month high. Latest data marked the second month in a row that production growth has risen following the record low pace of expansion seen in October. Despite evidence of modest pressure on capacity, staffing levels in the Saudi non-oil private sector increased only marginally and at the slowest pace in a year during December. Just 2% of the survey panel reported an increase in staffing levels over the month. (AB 06.01)

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►►North Africa

5.12 Egypt’s Annual Core Inflation Jumps to 25.86% in December

Egypt’s annual core inflation jumped to 25.86% in December from 20.73% in November, the central bank said on 10 January. The core consumer price index that the Central Bank of Egypt (CBE) uses to measure the level of prices – after excluding the volatile cost commodities such fruits and vegetables – started to hit the double-digits in May 2016, when it recorded a seven-year-high rate of 12.2%. Egypt’s annual headline inflation jumped to 24.3% in December compared to 20.2% in the previous month, weeks after the country freely floated its currency in November. The CBE decided in early November to float the pound against the dollar and raise key interest rates. (CBE 10.01)

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5.13 Moroccan Domestic Demand Grows by 4.2% in Third Quarter

Domestic demand grew in Morocco by 4.2% in the third quarter of the year 2016, against 0.1% year on year, according to Morocco’s High Planning Commission (HCP). Domestic demand contributed by 4.5% to economic growth in the third quarter of 2016, instead of 0.1% in the same period a year earlier. In this context, households’ final consumption expenditure increased by 2.9% instead of 2.5% in the same period of the previous year, contributing by 1.7% in the growth instead of 1.5%. Final consumption by public administrations posted a slowdown in its growth rate from 1.5% to 1.1% in the third quarter of 2016, with a contribution to growth of 0.2% instead of 03% year on year. (MWN 31.12)

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5.14 Morocco’s GDP to Increase by 3.9% in 2017’s First Quarter

Morocco’s economy will post a 3.9% growth in the first quarter of 2017, compared to 1.7% a year earlier, the High Commission for Planning (HCP) announced. This performance is the result of an 11.1% rise in agricultural added value. This year will be marked by a 3.2% increase in global demand for Morocco, which will boost the profits of several exporting industries, including the automotive, electronics and textile industries. Morocco’s economy posted a 1.2% growth in the fourth quarter of 2016, compared to 0.8 % in the previous quarter. During this period, revenues from Moroccans living abroad posted an increase of 1.8%, the HCP said. (HCP 05.01)

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5.15 Car Sales in Morocco Registers a New Record in 2016

Car sales in Morocco registered a record in 2016 with more than 163,000 new registrations, 30,000 more than in 2015. The statistics for FY2016 highlight a new record in Morocco in the sale of new cars, which includes the sale of 152,324 passenger cars, adding around 30,000 more units than in 2015. Morocco’s Association of Importers of Motor Vehicles (AIVAM) released its statistics, showing that dealers sold a total of 163,110 units in 2016. This represents an increase of more than 25% compared to 2015, which held the previous record. 152,324 passenger cars were sold in addition to 10,786 light commercial vehicles.

Despite a difficult 2015-2016 agricultural season exacerbated by droughts, commercial vehicles were able to maintain sales above the symbolic mark of 10,000 units. This was due to the optimism that resulted from the last rainfall. As expected, Dacia registered the highest sales with 42,279 cars sold in 2016, capturing a market share of over 27%. The second biggest share of the market (11%) went to Renault, with 17,121 units sold last year. Both brands are owned by the group Renault Maroc, which possesses two assembly sites in Tangiers and Casablanca. (MWN 08.01)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1 Turkey’s Inflation Rate Rises More Than Expected After Hikes in Tobacco & Alcohol Prices

Turkey’s inflation rate rose more than expected in December mainly due to hikes in prices of tobacco products and alcoholic beverages, a data from the Turkish Statistics Institute (TUIK) showed on 3 January. The annual inflation rate rose to 8.53% in December from 7% in November. On a monthly basis, consumer prices rose by 1.64% in December, following a 0.52% gain in the prior month. An increase by 0.9% was initially expected. The government also raised its forecasts for consumer price inflation in October. It predicted an inflation rate of 7.5% at the end of 2016 and 6.5% in 2017, raising the forecast for the next year from a previous 6%.

The highest monthly and annual increases were seen in alcoholic beverage and tobacco product prices. While the prices of these products saw a monthly increase of 7.3%, the highest annual increase in these products was recorded at 31.6%. In December 2016, the indices for food and non-alcoholic beverages rose by 3.29%, 1.97% for transportation, 1.42% for recreation and culture, and 1.28% for furnishing and household equipment. Transportation with 12.36% of annual increase, miscellaneous goods and services with 11.08%, health services with 9.73%, and education with 9.47% were the other main groups that experienced high annual increases. (TUIK 03.01)

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6.2 Turkey’s Exports Decreased to $142.6 Billion in 2016

Turkey’s exports declined to $142.6 billion in 2016 with a 0.8% decrease compared to 2015, according to officials, who expected a better year for exports thanks to a number of fresh measures. The Turkish Exporters’ Assembly (TIM) said Turkey completed 2016 with a 0.8% of year-on-year decrease, but this shrinkage was not a big deal considering its difficult year. The value of Turkey’s exports in U.S. dollar per kilogram regressed to 1.37 in 2016 from 1.44 in 2015. This regression costs $3.5 billion of loss in exports.

In addition to Turkey’s crisis with Russia, the ongoing conflicts in Iraq, Syria and Libya constituted another key factor that hit exports. Turkish exports to these countries decreased $3.7 billion in 2016 compared to the previous year. Another key factor that hit exports was the loss of value of the Turkish Lira and the British pound against the dollar. This loss due to the parities was $1.5 billion in 2016. All of these equaled to $8.7 billion in loss.

The automotive sector was the biggest exporter last year with around $23.9 billion in exports, up from $21.3 billion in 2015. The second largest exporting sector, which was textiles, also witnessed a slight increase in exports last year compared to the previous year, closing 2016 at almost $17 billion. (AA 03.01)

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6.3 Foreign Tourist Arrivals to Turkey Drop 21% During November

The number of foreign arrivals to Turkey dropped by 21.3% to 1.35 million in November, compared to the same month in 2015, preliminary data from the Tourism Ministry showed on 29 December. This was the smallest shrinkage in foreign arrivals in the last eight months, as Turkey’s tourism industry struggles amid political and security concerns. However, the plunge in arrivals from Europe continued in November.

The number of foreign people visiting Turkey declined to 24.05 million in the first 11 months of 2016, a 30.8% drop compared to the same period of 2015, after a series of bomb attacks, a diplomatic crisis with Russia, and the failed 15 July military coup attempt. The number of Russian tourists visiting Turkey saw a 77.3% decline in the first 11 months of the year, plummeting to 822,159. However, a visible increase has been seen in arrivals since normalization started in bilateral ties between the two countries. Georgia became the leading tourist source to Turkey, with more than 173,968 tourists visiting the country in November. Germany followed Georgia, with more than 131,217 Germans visiting the country in November, with an average 49% fall in arrivals from this country. (HDN 30.12)

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6.4 Number of Foreign Tourists Visiting Istanbul Plunges for First Time in 16 Years

The number of foreign tourists visiting Istanbul declined to 9.2 million in 2016, a 26% decrease compared to the previous year, data from the Istanbul Culture and Tourism Directorate has shown. This was the first year-on-year decrease in the number of foreign arrivals to Istanbul since 2000, amid escalating security concerns. The highest monthly plunge was seen in June, as the number of foreign arrivals saw a 35.2% decline compared to the same month of 2015. While 4.45 million foreigners visited Istanbul, the country’s top tourism destination, in the first half of the year, this figure rose to 4.76 million in the second half. While arrivals by air declined 23% in 2016 compared to 2015, arrivals by sea plunged 89%.

Greatest drop was seen in arrivals from the United States, Iraq and Russia in 2016 compared to the previous year. While the number of U.S. tourists visiting Istanbul saw a year-on-year decrease of 43.2%, this was 43% for Iraqi tourists. The number of arrivals from Russia also decreased by 39.2% in 2016 compared to 2015. The largest number of foreign tourists came from Europe with 3.9 million arrivals and the Middle East with 2.3 million. These were followed by Asia, Africa, North America, Latin America and Oceania. Germans topped the list by taking 10.9% of the share in total arrivals in 2016, followed by Iranians at 7%, Saudi Arabians at 5.2%, Britons at 4%, French tourists at 3.9%, Americans at 3.5% and Russians at 3.2%, according to official data.

The number of foreign arrivals into the Mediterranean resort of Antalya, another top tourism destination, also plummeted to their lowest since 2004. The number of foreign arrivals to Antalya declined to 6 million in 2016, a 43% decrease compared to 2015, mainly due to the Russian crisis and rising security concerns. The number of Russian arrivals decreased to 500,000 in 2016 from around 3.5 million, while German arrivals fell from 3 million to 1.9 million, according to data from the local tourism authority. Germany was the top tourist source for Antalya, taking 32% of the share in total arrivals in 2016, followed by Ukraine. Russia ranked third on the list, thanks to a dramatic rise in arrivals from the country after a normalization of bilateral ties started in late summer. (HDN 06.01)

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6.5 Turkish Lira Falls to New Record Low Against Dollar

Turkey’s currency weakened 1% to a record low of TL3.7250 against the dollar on 9 January as the U.S. dollar strengthened after payrolls data showed strong underlying wage growth, boosting the case for more rate increases in 2017. The Turkish lira has been hit by domestic political, security and economic concerns for the recent months. The dollar gained broadly against major currencies after the U.S. non-farm payrolls report on 6 January showed a slowing in hiring in December but an increase in wages, setting the economy up for further interest rate increases from the Federal Reserve this year. (HDN 09.01)

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6.6 Cyprus’ November Jobless Rate Rises to 14.2%

Cyprus’s unemployment rate rose to 14.2% in November, from 13.2% in the respective month of 2015, and 13.8% in October, Eurostat announced on 10 January. The number of people out of job in November was 61,000, compared to 55,000 a year before, and 59,000 in October. Figures are seasonally adjusted. The average jobless rate in the European Union was 8.3% while that of the euro area was 9.8%. In November, Cyprus had the third highest unemployment rate in the EU after Greece and Spain, which recorded 23.1% and 19.2% respectively, Eurostat said. The unemployment rate among males stood in November at 14% and among women at 14.4%, Eurostat said. (Eurostat 10.01)

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6.7 Greek Exports Continued Their Recovery in November

The rise in Greek exports continued in November, coming to 4.2% on a monthly basis or 11.1% not including fuel products. This was the fourth consecutive month with a rise in the value of exports, which has reduced to just 2.1% the total decline on an annual basis recorded in the first 11 months of 2016. Data analyzed by the Panhellenic Exporters’ Association showed that the total value of exports came to €2.21 billion in November, up from €2.12 billion in October. The sum of exports in the year to end-November came to €23.1 billion against €23.6 billion in the first 11 months of 2015. Exporters’ association sources say that the figures collected make it possible that a new exports record could be recorded in 2016 for a second year in a row, when the December figures come in too.

At the same time, an improvement of the climate in commerce has also resulted in the rise of imports, which increased 2.9% in November from October 2016 and taking the rise of 2016 (in the January-to-November period) to 0.5%, or 6.4% not including fuel products. Consequently the country’s trade deficit expanded by 4.3% year-on-year to €16.9 billion including fuel, or by 11.8% excluding fuel products. (EKathimerini 10.01)

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6.8 New Year Brings Fresh Challenges for Over-Burdened Greek Households

The new year is expected to bring fresh challenges for Greek households struggling to make ends meet, with new taxes and price hikes on a number of consumer products. For salaried workers and pensioners, 2017 will see the introduction a new tax scale with a lower tax-free threshold and a higher so-called solidarity tax levied from all of their incomes for 2016, while property owners with tenants will pay as much as 36.4% more tax on the rent they receive. The excise tax on petrol will increase by 3 cents per liter, from 0.67 to 0.70 euros, while diesel will rise by 8 cents per liter, from 0.33 to 0.41, and propane will go up 10 cents a liter from 0.33 to 0.43. This will push up retail prices, which are expected to reach an additional 5 cents per liter on petrol, 8 cents on diesel and 0.12-0.13 cents on liter for propane.

A hike also went into effect on 1 January on the special consumption tax on cigarettes and other tobacco products, pushing retail prices up by between 20 and 26%, while a new excise tax is also being levied on imported and domestically produced coffee, nudging up the price per kilo by €2-3 for roasted coffee and €4 per kilo for instant. Vapers will not be spared either, as a special consumption tax is being introduced on the liquids used in electronic cigarettes. Meanwhile, consumers will also have to pay more their telecoms with the introduction a 5% tax on flat rates. (EKathimerini 02.01)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Israel’s Population Grew by 2% During 2016

At the end of 2016, the population of Israel numbered 8.63 million, the Central Bureau of Statistics reported. Over the past year, the country’s population has grown by 2%, totaling 167,000 additional people. The Jewish population has reached 6.45 million (74.8%), the Arab population 1.796 million (20.8%), while 384,000 (4.4%) are defined as others. The population should surpass 9 million in the first quarter of 2019 and 10 million by 2025. Over the past year, 181,000 babies were born, and 36,000 new immigrants came to the country including 24,000 Jewish immigrants. Some 18% of the Jewish new immigrants came from France, 22% from Ukraine, 27% from Russia and 10% from the US. (CBS 01.01)

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7.2 Israel Sees Record Number of Organ Transplants In 2016

A record 504 organ transplants were performed in Israel in 2016, a significant increase from the 433 in 2015, according to data from the National Transplant Center. The transplanted organs were taken from both the deceased and the living, giving new life and hope to terminally ill patients. Despite the rise in organ donations and transplants in Israel, the center said that on the first day of 2017, 1,116 patients were still waiting for organs: 847 for a kidney, 104 for a liver, 63 for a heart, 89 for a lung, six for a heart and a lung, and seven for a kidney and a pancreas. In 2016, 122 patients, 11% of the patients on the waiting list, died before receiving the organs they needed. According to the data, 274 operations were conducted in 2016 to harvest organs from the deceased, an increase of 12% over 2015 and an Israeli record.

The number of live donor transplants also jumped, with 222 kidney transplants in 2016, compared to 174 in 2015. Ninety-three kidney donors were relatives of the recipients, while 129 donors decided to give one of their kidneys to friends or strangers. A further eight liver lobe transplants from living donors were performed, in most cases parents who donated to their children. Also in 2016, Israeli hospitals carried out 707 corneal transplants, with 923 patients still waiting for corneas. (IH 09.01)

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7.3 Mekorot Digs 13 Kilometer Water Tunnel to Jerusalem

In order to meet the demand for water in Jerusalem and the surrounding area for the next 50 years, Mekorot National Water Company and Austrian company Zublin Spezialtiefbau began digging in January a fifth system for Jerusalem. The system consists of a 13 kilometer tunnel through which water will flow from the Eshtaol area near Beit Shemesh to Ein Kerem. When the work is completed in three years, it will be the longest tunnel in the world for transporting water under pressure. The TBM machine, built specially for mining the limestone in the Jerusalem hills, has a 3.9 meter diameter and is 240 meters long. This machine is equipped with a 170 ton mining head, arms that support the machine during mining, and devices for early detection of hollow spaces along the route. This “tunnel mole” is expected to work 24/7 and finish 24 meters a day. Jerusalem’s fifth water supply system is part of a project for building the new national water carrier promoted by Mekorot in recent years to connect the five desalinization facilities built along the coast to the national water system, and from there to other parts of Israel. (Globes 01.01)

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*REGIONAL:

7.4 Dubai Eyes Zero Food Waste Status with Launch of UAE Food Bank

On 3 January, Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum launched the UAE Food Bank project, as part of the UAE’s Year of Giving initiative. The UAE Food Bank, a non-profit charitable organization committed to distributing food to those in need while eliminating food waste, aims to make Dubai the first city in the Middle East to achieve zero food waste. It will collaborate with local authorities as well as local and international charities to introduce a comprehensive ecosystem improving the efficiency of food storage, packaging and distribution. It will partner with food producers such as hotels, restaurants and supermarkets and farms to store and package excess fresh food effectively. It will then work with volunteers and partners to distribute the well-packaged food within and outside of the UAE. The Food Bank’s operations will begin in Dubai and will expand to other underdeveloped communities in the region and around the world, a statement said.

The initiative, which has been launched under the Mohammed bin Rashid Al Maktoum Global Initiatives Foundation (MBRGI), will also benefit Dubai’s economy as the UAE currently incurs about AED13 billion annually in food loss, which can be redirected to benefit other social sectors. (AB 03.01)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Neuronix Reports Positive Results From Its Multi-Center Alzheimer’s Study

Neuronix announced positive results from its pivotal double-blind, placebo-controlled, multi-center clinical study for the assessment of the safety and efficacy of the neuroAD Therapy System in the treatment of mild to moderate Alzheimer’s disease. The Study enrolled 131 patients at nine medical centers in the United States and one in Israel. The Study evaluated the safety and efficacy of the neuroAD Therapy System in comparison to placebo, following six weeks of treatment and additional six weeks of follow-up, using the cognitive and behavioral standard scales for the evaluation of patients with Alzheimer’s disease – ADAS-Cog and CGI-C, respectively.

Positive efficacy results were reported for patients with milder disease as determined by the Baseline ADAS-Cog. In that group of patients, which represented 85% of the enrolled population, a positive and statistically significant difference of -1.8 points in ADAS-Cog was noted between treatment group and placebo group, at the 12 week follow-up. In the entire Study cohort, including those with more severe disease at baseline based on the ADAS-Cog, results did not reach statistical significance. In addition, results showed a favorable safety profile, with no patients experiencing seizures or other persistent, serious adverse events. Patients also showed a high degree of adherence to the treatment, with few discontinuations and a high rate of treatment completion.

Yokneam’s Neuronix develops, manufactures and markets novel breakthrough medical-device technologies for treatment of Alzheimer’s disease. The neuroAD Therapy System is a patent-protected, non-invasive medical device, uniquely combining transcranial magnetic stimulation (TMS) with cognitive training, to concurrently target brain regions affected by Alzheimer’s disease. This dual-stimulation is designed to improve cognitive performance of patients, following an intervention protocol, which lasts for six weeks, five days per week, with one hour-long session per day. In the United States, the neuroAD Therapy System is an experimental device and is not available for sale. (Neuronix 04.01)

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8.2 XTL’s Studies Demonstrate Therapeutic Potential for Sjogren’s Syndrome Treatment

XTL Biopharmaceuticals announced the company intends to pursue Sjogren’s syndrome as the second indication for its lead drug candidate hCDR1. Currently in development for the treatment of systemic lupus erythematosus (SLE), hCDR1 has been tested in over 400 patients, and is set to enter a global Phase 2 trial for SLE. New in-vitro data from studies evaluating cells obtained from serum samples of patients with Sjogren’s syndrome demonstrate that incubation with hCDR1 resulted in a significant reduction of gene expression of three cytokines considered to be pathogenic in Sjogren’s syndrome. These data correspond to some of the in vitro data obtained in studies testing serum samples from patients with SLE.

Sjogren’s syndrome impacts more than twice the number of people as SLE does in the U.S. and represents a significant unmet therapeutic need. While there are currently only a handful of drugs in clinical trials to treat Sjogren’s syndrome, there is no specific FDA approved therapy to treat the systemic manifestations of the disease. Given the similarities of the disease manifestations between Sjogren’s syndrome and SLE, these new in-vitro data further support the clinical results achieved in the prior Phase 2 trial of hCDR1 in SLE. A patent application has been filed with the U.S. Patent and Trademark Office for hCDR1 in the treatment of Sjogren’s syndrome.

hCDR1 is a novel compound with a unique mechanism of action and clinical data on over 400 patients in three clinical studies. The drug has a favorable safety profile, is well tolerated by patients and has demonstrated efficacy in at least one clinically meaningful endpoint.

Ra’anana’s XTL Biopharmaceuticals is a clinical-stage biotech company focused on the development of pharmaceutical products for the treatment of autoimmune diseases. The Company’s lead drug candidate, hCDR1, is a world-class clinical asset for the treatment of autoimmune diseases including systemic lupus erythematosus (SLE) and Sjogren’s Syndrome (SS). The few treatments currently on the market for these diseases are not effective enough for most patients and some have significant side effects. hCDR1 has robust clinical data in three clinical trials with 400 patients and over 200 preclinical studies with data published in more than 40 peer reviewed scientific journals. (XTL 05.01)

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8.3 Yiling Pharmaceuticals to Invest $20 Million in HealthWatch

HealthWatch, an Israeli company that has developed the world’s first medical-grade smart clothing technology, announced today that Yiling Pharmaceuticals, traded on the China Shenzhen Stock Exchange, will invest $20 million in HealthWatch. Out of the proceeds, $15 million will be used to purchase a 23% share in HealthWatch, to support the continued development of its healthcare IoT smart clothing technology and product range. A further $5 million will be paid for Chinese distribution rights, with Yiling Pharmaceuticals forming and further investing into a local subsidiary company to oversee the product commercialization process and expedite entry into the Chinese market.

HealthWatch has developed the only CE/FDA-approved, medical device garment that continuously monitors ECG and wider vital signs, to a quality before not achievable outside the hospital setting. The wearer’s processed medical data is sent in real-time to a smartphone and/or remote medical professional for review and action. Based on patented textile-sensing technology, HealthWatch’s comfortable, machine-washable garments are intended to help wearers stay healthy and gain peace of mind, without affecting their lifestyle.

Kfar Saba’s HealthWatch is a healthcare IoT company that has developed the world’s first medical-grade smart clothing technology. Harnessing patented textile technology, HealthWatch’s FDA/CE-approved, machine-washable, comfortable garments, monitor ECG and other vital-sign signals to a quality before not achievable outside the hospital setting. The medical data is transmitted to a smartphone application and to the Cloud, where physicians can remotely track patients’ conditions. The delivery of actionable data in real-time, empowers both patients and caregivers to identify severe health conditions earlier, before they become life-threatening. (HealthWatch 09.01)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 SuperCom Awarded $9 Million Secure Web Land System Contract in South America

SuperCom announced that it, together with its local partner, has been awarded by a new large Latin America government customer a contract to migrate and implement nationwide SuperCom’s proprietary state-of-the-art, secured web-based Land and Geographical Registration and Information Management System. The project was won through a formal competitive bid process with other established industry players. The project is and to be completed by July 2018. SuperCom expects to recognize the majority of the contract value in 2017. The first stage of the contract, migration and software customization of SuperCom’s web-based LIS (Land Information System) and GIS (Geographical Information System) platform is expected to commence today. According to project timelines, within 8 months the next stage will commence consisting of a full nationwide implementation and deployment of the cloud-based system together with our local partner.

Since 1988, Herzliya’s SuperCom has been a global provider of traditional and digital identity solutions, providing advanced safety, identification and security solutions to governments and organizations, both private and public, throughout the world. Through its proprietary e-Government platforms and innovative solutions for traditional and biometrics enrollment, personalization, issuance and border control services, SuperCom has inspired governments and national agencies to design and issue secured Multi-ID documents and robust digital identity solutions to its citizens and visitors. (SuperCom 30.12)

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9.2 Autotalks & RoyalTek Join Forces to Defend Pedestrians from Accidents

Autotalks and Taiwan’s RoyalTek, a leader in global positioning systems (GPS) and satellite navigation technology announced their cooperation at CES 2017. The two companies joined forces to improve road safety by developing an innovative solution for vehicle to pedestrian (V2P) use-case. Vehicles equipped with Autotalks’ V2X chipset will be able to “talk to” RoyalTek’s OMEN, also equipped with the chipset, using 5.9GHz WAVE/DSRC technology. The OMEN is designed as a phone case to be used by pedestrians, bicyclists, motorcyclists and people with disabilities. The OMEN’s software is developed by ITRI (Industrial Technology Research Institute), a Taiwan based R&D organization that has been active in V2X software development since 2008. This unique product, using Autotalks truly secure technology with multiple defense layers to protect against hackers, is enabling consumer-grade unsecure mobile phone to be part of a safety-critical network. It gives pedestrians road safety without compromising privacy, reliability or security.

Kfar Netter’s Autotalks, founded in 2008, is a V2X-chipset market pioneer and leader providing OEMs, Tier 1 and Tier 2 customers with comprehensive V2X solutions. Autotalks chipsets enable the V2X communication revolution by providing the most advanced, truly secure V2X solution created for autonomous vehicles. The chipsets are pre-integrated and designed to shorten development schedules and reduced costs. Autotalks’ cutting-edge technology addresses all key V2X challenges: communication reliability, security, positioning accuracy and vehicle installation. (Autotalks 05.01)

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9.3 Mellanox Ethernet Solutions Selected to Accelerate Baidu’s Machine Learning Platforms

Mellanox Technologies announced that Spectrum Ethernet switches and ConnectX-4 100Gb/s Ethernet adapters have been selected by Baidu, the leading Chinese language Internet search provider, for Baidu’s Machine Learning platforms. The need for higher data speed and most efficient data movement placed Spectrum and RDMA-enabled ConnectX-4 adapters as key components to enable world leading machine learning platforms. With the Mellanox solutions, Baidu was able to demonstrate 200% improvement in machine learning training times, resulting in faster decision making.

In 2013, Baidu established the Institute of Deep Learning, IDL, with the goal of better leveraging Machine Learning as it applies to image recognition, voice recognition and search, and advertising CTR forecast (i.e., Click Through Rate prediction, pCTR). To support IDL networking requirements, the Baidu RDMA solution guarantees businesses can transfer with no disruption or downtime. Even if RDMA encounters problems, the network can automatically switch over to TCP in order to guarantee continuous system operation. Baidu RDMA application solutions and Mellanox RDMA technology will continue to support Baidu’s IDL to drive future innovation and breakthrough technology solutions.

Yokneam’s Mellanox Technologies is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage. Mellanox interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance capability. Mellanox offers a choice of fast interconnect products: adapters, switches, software and silicon that accelerate application runtime and maximize business results for a wide range of markets including high performance computing, enterprise data centers, Web 2.0, cloud, storage and financial services. (Mellanox 10.01)

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9.4 Radiflow’s New Smart Agent Enables Using Centralized Industrial Intrusion Detection Systems

Tel Aviv’s Radiflow introduced a new Smart Agent for centralized Industrial Intrusion Detection Systems (IDSs). By sending compressed, filtered industrial information to a centrally-installed IDS, the Smart Agent overcomes the innate problem of network overloading usually associated with using a centralized IDS for protecting multiple ICS-based sites. Radiflow’s patent-pending Smart Agent enables companies in a wide range of industries-power generation, oil and gas, water treatment, manufacturing, hospitals and other-to secure their distributed assets. The Smart Agent, a plug-and-play product, overcomes one of the major challenges in implementing centralized IDS: network overloading, caused by the vast amounts of data sent from distributed sites for analysis. To do so, a Smart Agent at each remote site receives a copy of all network traffic at the site. The network traffic is compressed and filtered locally using an advanced algorithm (patent pending) developed by Radiflow. The compressed data from multiple remote sites is in turn sent to a central industrial IDS for analysis. As a large number of Smart Agents at multiple remote sites can be used in parallel, infrastructures are able to implement a single central IDS to protect the entire ICS network, rather than an IDS at each remote site. This provides a huge advantage for operators of distributed ICS-based operations with multiple remote sites. (Radiflow 10.01)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel’s Economy Grew by 3.5% in 2016

Israel’s economy grew by 3.5% in 2016, the Bank of Israel’s Research Department announced on 28 December. Bank data indicated that the standard of living in Israel grew by 2.9%, private consumption rose by 5.9% and per capita growth increased by 1.5%. In addition, unemployment fell to a record low of 4.8%. The Bank of Israel’s had originally predicted a 0.5% per capita growth in 2016.

Overall investments jumped by 10% — double the original projection. Imports, excluding defense imports, rose by 10.2%, and overall consumption, excluding defense consumption, grew by 4.3%. Nevertheless, 2016 was a weak year for exports, which rose by only 2.2%, attributable to the depreciation in dollar and euro exchange rates. While 2016 is expected to see a negative 0.3% inflation rate, the bank projects 1% inflation in 2017 and a 1.5% inflation rate in 2018. Economic growth is forecast at 3.2% for 2017 and 3.1% for 2018. (Various 02.01)

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10.2 Israel’s Budget Deficit Down to 2.15% in 2016

State revenues exceeded the forecast by nearly NIS 9 billion in 2016, making the budget deficit 2.15% for the year, according to an initial estimate for the implementation of the state budget published on 9 January by the Ministry of Finance Accountant General department. The budget deficit target was 2.9% of GDP, but the actual deficit was much less than the target for the second straight year. The 2015 deficit was also 2.15%, compared with a 2.7% of GDP target. The difference between the actual deficit and the target in 2015 resulted from revenues exceeding the forecast by NIS 3.6 billion and spending falling NIS 3.3 billion short of the amounts allotted in the budget. In 2016, on the other hand, the different is almost completely attributed to revenues in excess of the forecast by no less than NIS 8.8 billion, while state spending was only NIS 300 less than the budgeted amount.

In view of these revenue figures, Minister of Finance Moshe Kahlon said that he would consider another tax cut towards the end of the first quarter of 2017. State revenues totaled NIS 321.1 billion in 2016, compared with a NIS 312.3 billion forecast. Tax receipts totaled NIS 283.2 billion, 5.6% higher than in 2015 in nominal terms. In retrospect, the 2016 revenue figures justify Kahlon’s decision to cut taxes at the end of 2015, against the Bank of Israel’s professional opinion. According to the figures, without Kahlon’s decision to cut VAT by 1% starting on October 1, 2015 and corporate tax by 1.5% starting on January 1, 2016, state tax revenues would have been NIS 4.3 billion higher (a total of more than NIS 10 billion higher than the forecasts). The tax revenue figures indicate a continuation of the accelerated rise in state tax revenues at a rate of 6-7% a year.

The lower-than-expected budget deficit enabled the government to sharply cut back its debt raising in the domestic capital market. Government debt issues totaled NIS 19.7 billion in 2016, compared with a planned NIS 26.2 billion. (Globes 08.01)

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10.3 Tourism to Israel Increases by 3.6% in 2016

The Ministry of Tourism announced in 9 January that Israel’s incoming tourism in 2016 totaled 2.9 million tourists, up 3.6%, compared with 2015. Tourism hit an all-time high in September-December 2016, with 250,000 tourists arriving in Israel in December alone. The Ministry of Tourism’s budget reached NIS 500 million this year. Most of its marketing was aimed at specific targets with potential, with an emphasis on new markets, such as India and China (the beginning of direct flights to Beijing by Chinese carrier Hainan Airlines was stressed). In addition to pilgrimage tourism, Israel was also marketed as a destination for city break leisure and entertainment vacations, a winter campaign for Eilat (including grants to airlines conducting direct flights to Ovda), and cooperation with influential websites, such as Expedia and TripAdvisor.

The countries from which tourism to Israel grew the most substantially in 2016, compared with 2015, were China (69%), Croatia (62%), Belarus, Latvia and Georgia (41%), Malaysia (35%), Philippines (27%) and India (13%). The US and Russia continue to lead in the number of tourists arriving in Israel, followed by France, the UK, Germany and Ukraine. The winter campaign of direct flights to Eilat from nine European countries is in progress. Every airline flying directly to Eilat receives a €45 subsidy per passenger. The cost of the project is NIS 18 million.

In addition to the NIS 35 million spent on the campaign to bring tourists from India and China, campaigns are also being conducted for the first time in many years in the Netherlands, Scandinavia and Spain. A new NIS 80 million comprehensive campaign is currently promoting a city break vacation in Tel Aviv and Jerusalem simultaneously in eight countries. US tourists are also being exposed to campaigns through large-scale activity among religious communities, at a cost of NIS 50 million. (Globes 09.01)

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10.4 Record Numbers Flood Ben Gurion Airport in 2016

According to the Israel Airports Authority, 17,387,971 international travelers passed through Ben Gurion Airport in 2016, representing an 11% rise over 2015. Including domestic travel, more than 18 million people utilized the country’s main airport last year. Leading destinations for travel to and from Israel included Turkey (1.6 passengers, most of whom were in transit), the United States (1.45 million), Germany (1.2 million), Italy (1.5 million). One million passengers travelled to both Russia and France.

Top airlines included Israel’s national carrier El Al (5.5 million passengers), Turkish Airlines (932,000), easyJet (719,000), Aeroflot (704,000), Arkia (650,000) and Israir (548,000). Currently, more than 100 airlines fly out of Israel to 135 international destinations – numbers that are unusual for an airport of Ben Gurion’s size. Some 36% of travelers check in for flights online from home and 9% use kiosks in the departures hall. Ninety percent of passengers on low-cost airlines checked in online and printed boarding passes at home. (IAA 09.01)

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11: IN DEPTH

11.1 ISRAEL: IVC-Meitar Announces 2016 High-Tech Exits Up 12%

Globes announced that IVC-Meitar reported Israeli high-tech companies closed 104 deals in 2016 worth $10 billion.

Israeli high-tech companies closed 104 deals in 2016 worth $10 billion, up 12% from 2015, according to the IVC – Meitar High-Tech Exits Report. The figure includes 93 M&A deals worth nearly $8.8 billion including the $4.4 billion Playtika acquisition, eight buyouts that generated $1.22 billion and three small IPOs totaling $15.1 million.

By far the largest acquisition in 2016 was of Playtika by Chinese online gaming company Giant Interactive Group, for $4.4 billion, following the $160 million acquisition by Caesars Entertainment in 2011. According to the report editors, since the two mega deals, Playtika in 2016, and NDS in 2012, each accounted for about 50% of M&As in their respective years, this skews the data, and they were left out of the M&As and IPOs analysis.

Meitar Liquornik Geva Leshem Tal partner Adv. Alon Sahar said, “Following several years of growth both in terms of deal numbers and their proceeds, 2016 presents an obvious slowdown. The analysis excluding the Playtika deal yields figures that are substantially lower than in previous years. It’s impossible to tell whether this is the beginning of a new trend or a natural correction due to significant hikes in previous years. We will need to wait a few quarters to see whether or not the market is facing a profound change.”

Looking at the majority of exit deals (excluding buyouts and the two megadeals), the average exit deal was $46.3 million, 31% below 2015’s average, which was $67.2 million, and 21% below the five-year average.

IVC Research Center CEO Koby Simana said, “2016 was by no means sub-par. In fact, it proved better than the previous year in terms of the average exit multiple, and was one of the best in multiples overall. This, coupled with the relatively lower volume of deals compared to 2015, suggests to us that entrepreneurs and investors may not be pushing for exits as they once did. Instead, it seems investors are looking closely into other alternatives. An opportunity to sell requires positive returns and substantial multiples, otherwise companies and investors choose to wait patiently, opting for company growth.”

Meitar Liquornik Geva Leshem Tal partner Adv. Dan Shamgar added, “Generally speaking, the low interest environment and high cash balance of strategic acquirers, as well as the growth demands of young companies, justify buyers’ continued interest in deal-making. We should hope that part of the explanation lies in the readiness of entrepreneurs and investors, against the backdrop of a certain slowdown on the buyers’ side, to show patience and implement a long-term growth strategy to establish more profitable companies and get higher valuations in longer periods. The availability of capital, especially this year, allowed companies to raise unprecedented amounts and somewhat undermined their readiness to sell companies.”

The second largest deal in 2016 was the $811 million acquisition of EZchip by Mellanox Technologies. This deal, along with the Leaba acquisition by Cisco and Sony’s acquisition of Altair, established the semiconductors sector as a clear leader in 2016 exits, with an all-time record of $1.39 billion, 32% of exits and over twice its average in the past five years.

As an acquisition where both acquirer and acquired companies were Israeli, the EZchip-Mellanox deal highlights another important trend in local M&As. According to the report editors, two sided Israeli deals have been gaining prominence over the past three years, with 27% of the M&As performed in 2016 involving local high-tech companies as both acquirer and acquiree. Like Mellanox, nearly 50 other Israeli companies have recognized the importance of corporate M&As as an inorganic growth mechanism and made at least one M&A deal in 2016, either in Israel or abroad. The result was an all-time record of $3.28 billion in M&A expenditures by Israeli companies, in addition to over $45 billion in M&A deals made by Teva Pharmaceutical Industries alone in 2016.

This year, the IVC-Meitar High-Tech Exits Report includes a new analysis focused on three prominent technology clusters – adtech, cyber security and automotive – chosen for their importance in understanding some of the trends in Israeli high-tech in general and their exits in particular.

According to the IVC-Online Database, there are nearly 420 Israeli high-tech companies operating in the adtech cluster in Israel, although numbers have been gradually dropping, due to market changes. In the past three years, 35 companies have been acquired or merged, five held IPOs (four in 2014) and one was acquired in a buyout, resulting in $1.89 billion in exits. The largest deals during that period include the $200 million acquisition of Exelate by Nielsen and the $150 million acquisition of SuperSonic by ironSource, both of which took place in 2015. According to the report, the adtech cluster is losing momentum, as demonstrated by the drop in capital raising for adtech companies, making the cluster a prime candidate for further exits – particularly M&As.

Cyber security is one of the strongest technology clusters in Israel, and numbers suggest it will continue to be so. While capital raising for cyber security reached a record number – with nearly $700 million raised in 2016 – the number of exit deals and their proceeds have dropped. Fourteen Israeli cyber security exits were closed in 2016, garnering a total of $662 million, a sharp 48% drop, compared to 2015’s $1.27 billion in 20 deals. Average exit multiples for the cluster have also dropped, from 6.93x in 2015 to 5.54x in 2016, although still far above the industry average. The largest cyber exit in 2016 was the $293 million acquisition of CloudLock by Cisco, slightly below 2015’s Adallom acquisition by Microsoft, which closed at $320 million. The fact the cluster continues to generate superb returns, and the obvious interest from investors – including growth rounds and late-stage capital – means companies are not pressured to make exits, and that deals are closed only when they benefit both investors and entrepreneurs. With over 450 active Israeli cyber security companies today, this sector is likely to continue to expand, while producing individual exits.

The automotive cluster has been receiving much media attention over the past few years with companies like Gett on the local scene, and Uber on the global scene, making a splash, as the first autonomous cars are roaming the roads around the globe. While Israel’s automotive cluster is smaller than the other two mentioned above, with a little over 260 companies operating, it has generated some serious interest worldwide. The cluster’s local leader is MobilEye, which logged both the largest buyout deal of $400 million in 2013, and the largest IPO, generating over $1 billion in 2014 while its market cap nearly doubled since. Another high profile automotive exit was the Waze $1.2 billion acquisition by Google in 2013. In 2016, six exit deals earned $205 million. (Globes 03.01)

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11.2 ISRAEL: Israeli Startups Raise Record $4.8 Billion in 2016

Israeli high-tech companies raised a record $4.8 billion in 2016, up 11% from $4.3 billion in 2015, the latest IVC – ZAG (Zysman Aharoni, Gayer & Co. law firm) survey has found. The average financing round, which has been constantly growing over the past five years, reached $7.2 million in 2016, 19% above the $5.1 million five-year average.

However, the fourth quarter of 2016 saw $1.02 billion raised in 151 transactions, down 8% from $1.11 billion in 202 deals in the corresponding quarter of 2015, but up 9% from $933 million raised in 140 deals in the preceding quarter. The average financing round stood at $6.7 million in the fourth quarter of 2016, similar to the past two-year quarterly average of $6.6 million.

IVC Research Center CEO Koby Simana said, “As expected, 2016 ended as a record year in Israeli high-tech capital raising. However, despite the higher total amount, it was characterized by a smaller number of financing rounds, along with a higher average capital raising per round. When we looked into the numbers to try and explain the trend, we found what I would call a ‘B Crunch’ – a 30% drop in the number of second rounds closed in 2016 compared to 2015, while the number of earlier rounds slightly increased. This is a troubling trend for the Israeli VC funnel, since the majority of capital goes into later rounds – if there are no companies lined up for later investments, there could be a more serious issue later on.”

The IVC-ZAG Survey reveals that, while capital-raising reached new heights in 2016, the number of financing rounds were fewer than expected, with 659 deals closed in 2016, marginally above the five-year average of 657 deals and 7% below 2015’s record 706 deals. While the number of early rounds (seed and A rounds) increased slightly (5%), the number of B rounds dropped 30% and the number of later rounds – C or higher – was responsible for more than 60% of the capital, down 11% from 2015. B rounds’ share of capital raising also decreased, falling from 25% in 2015 ($1.07 billion) to 16% in 2016 ($743 million), while early rounds and later rounds generated more capital and took up larger shares than the year before.

The IVC-ZAG Survey also reveals an upsurge in large deals (above $20 million) in 2016, both in terms of deal number and capital raised – with 76 deals and $2.68 billion, respectively – a 22% increase from the $2.19 billion raised in 68 deals in 2015.

Adv. Oded Har-Even, ZAG-S&W partner responsible for its US office, offers a possible explanation, “The increase in capital raising in mid- to late stages could imply a growing use of mezzanine funding in mature companies, gearing towards a possible M&A or IPO (preferably on NASDAQ). If this is indeed the case, then it’s a very welcome trend, revealing a mature market considered to be on the ‘quick exit route’ following early stage investments.” Adv, Shmulik Zysman, founding partner of ZAG-S&W agrees, adding: “We expect the uptrend in capital raising activity to continue in 2017, though possibly at slower rates.”

Fifteen deals above $20 million reached a total of $573 million, or 56%, of all capital raised in the fourth quarter of 2016. This compares with $430 million (38%), raised in 14 deals in the corresponding quarter of 2015, and $517 million (55%) raised in 18 transactions in the preceding quarter of 2016.

Israeli VC Fund Investment Activity

Israeli venture capital funds invested a total of $634 million in Israeli high-tech companies in 2016, slightly up from $627 million invested in 2015. In the past five years, Israeli venture capital fund investments steadily increased, from $482 million in 2012 to the current level. At the same time, their share of total capital invested has been decreasing gradually, from 26% in 2012 down to 13% in 2016, the lowest yet.

In the fourth quarter of 2016, $111 million was invested by Israeli venture capital funds in local high-tech companies, 44% below the $198 million invested in the corresponding quarter of 2015 and 20% below the $139 million invested in the preceding quarter of 2016. Israeli venture capital funds’ share was down to 11% in the fourth quarter of 2016, from 18% and 15% in the corresponding quarter of 2015 and the preceding quarter of 2016, respectively.

Capital Raised By Sector

Software companies led capital-raising in 2016 with $1.7 billion, up from 2015 when the sector attracted $1.4 billion (32%), also placing first. Internet capital raising has noticeably decreased in 2016, when the sector attracted only $744 million or a mere 16% of total capital, compared with $1.12 billion raised in 2015, when Internet placed second with a 26% share.

Zysman observed that there was a 14% fall in life science capital raising in 2016. “Despite the decrease in life science capital raising in 2016, we remain optimistic with regards to the industry’s potential in Israel, due to three major reasons: the continuous interest shown by Chinese investors, good chances for the return of European and US investors to Israeli life science investments, and Donald Trump’s imminent presidency. According to his campaign, Trump is expected to ease price control on drugs and medical services, bringing an optimistic note to the industry, which may increase the appetite for investments, Israel included.” (IVC 10.01)

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11.3 QATAR: IMF Staff Concluding Statement of the 2016 Article IV Mission

Qatar is effectively adjusting to the new reality of sustained lower energy prices. The drop in international oil and gas prices has put considerable pressure on the fiscal and external positions. However, the authorities’ policy response has been adequate, underpinned by cuts to current expenditures and renewed efforts towards increasing non-oil revenues. Tariffs of some utilities (water and electricity) have been increased from October 2015 and the increase in gasoline prices in January 2016 was followed in May by the implementation of a regular price adjustment mechanism.

Despite the availability of substantial buffers, the reduced hydrocarbon prices have adversely affected macroeconomic performance. Growth slowed to 1.7% (year-on-year) during the first half of 2016 and inflation picked up, reaching 2.2% in October 2016 (year-on-year), in part due to higher domestic energy costs. The central government surplus fell from 12.3% of GDP in 2014 to 1.2% in 2015 and government debt as a ratio of GDP moved from 32.3 to 34.9% of GDP during the same period. The authorities, unlike many other hydrocarbon exporting countries, financed the fiscal deficit mainly through domestic and foreign borrowing without drawing down their sovereign wealth fund. Qatar has already raised a total of $14.5 billion of external debt and issued $ 2.6 billion of domestic bonds and Sukuk (Islamic bonds). The decline in energy prices has reduced Qatar’s current account surplus, from 24% in 2014 to 8.4% of GDP in 2015. While bank credit to the public sector has increased private sector credit growth, though moderating in recent months, remains robust. Despite tightening liquidity in the banking system, banks remain sound and well capitalized, with a non-performing loan ratio of about 1.2%, the lowest in the GCC region.

Macroeconomic performance is expected to remain resilient under the baseline. Real GDP growth is expected to moderate to about 2.7% in 2016 and is projected to reach 3.4% in 2017, reflecting expansion in the non-hydrocarbon sector due to World Cup-related spending and supported by added output from the new Barzan gas project. In 2016, average inflation is expected to inch up to 3%. The fiscal adjustment planned in 2017 by the authorities is moving in the right direction. [1] During 2017–18, further subsidy cuts, increase in public fees, a moderate recovery in global commodity prices and the implementation of a VAT will drive inflation, which is expected to moderate back to low levels over the medium term. Fiscal and external balances are projected to persist in the near term, though improvements are projected for the medium term, as hydrocarbon prices recover slightly and fiscal adjustment advances.

The main risks are related to the possibility of lower hydrocarbon prices compared to the baseline assumption and to the public investment program. The main external risk remains the possibility of persistently lower energy prices. In addition, the prospects of further rises in the US interest rates may complicate efforts to bolster economic growth. Spillovers to the non-oil sector would be transmitted through slower government spending and declining liquidity in the banking system. Domestic risks are related to the ongoing public investment program. While crucial for further economic development and diversification, it could bring about over-heating in the near term, potential resource misallocation and reduced expenditure efficiency in the medium term. Overall, financial risks in the banking sector are moderate as banks’ balance sheets remain strong. However, the loan-to-deposit ratio has risen, possibly implying increased credit risk. Moreover, the expansion strategy of some banks into riskier foreign jurisdictions could potentially increase downside risks for their asset quality.

Economic Policies

Fiscal consolidation should be well-sequenced and take into consideration the potential impact on growth:

-The pace and the composition of the adjustment should strike a balance between revenue increases and expenditure restraint in the medium term. Containing the wage bill, public service benefits, subsidies, and goods and services expenditure are some avenues to rein in public spending, while preserving growth-promoting public investment.

-The GCC agreement on the introduction of VAT by 2018 is a welcome development, and Qatar is already taking actions to ensure its smooth and timely implementation.

-The authorities’ plan to implement excises on tobacco and sugary drinks starting in 2017 in line with a GCC-wide agreement will yield additional revenue.

-Complementary revenue measures should be explored, including broadening the corporate income tax base to include GCC companies.

-Deficit financing should remain supportive of private sector credit growth without jeopardizing external debt sustainability. Financing the deficit mainly through external borrowing as well as asset drawdown seems appropriate, taking into consideration the risk-return tradeoff between the cost of external borrowing versus the return on accumulated assets.

The authorities have made good progress in public investment management. A new tender law and public finance law were recently approved. Building on these developments, further efforts to enhance monitoring of public expenditures will help improve efficiency and better management of investment spending.

The authorities need to carefully manage liquidity pressures. Increasing transparency of T-bill auctions and improving communication with respect to the QCB’s liquidity operations would allow banks to better anticipate liquidity conditions in the interbank market and strengthen their liquidity management.

The fixed exchange rate regime remains appropriate. The peg to the U.S. dollar continues to serve Qatar well. Nevertheless, given that the Qatari economy is evolving towards more diversification, the pegged exchange regime should be periodically assessed over the medium term to ensure it remains the best option.

Deepening domestic financial markets will promote saving and offer borrowing and investment opportunities. Investment projects increase the need for diverse sources of funding with long-term maturities and reduced cost of borrowing. Qatar has continued to develop its domestic debt market, deepest in the GCC region, by issuing bonds and Sukuk in September 2016, even though secondary trading is very limited. Building on Qatar’s strategic plans, the deepening of domestic financial markets should be actively pursued.

Banking supervision and regulation, including the macro-prudential framework, are being strengthened. Progress has been made in implementing Basel III and related regulations, including liquidity ratios, counter-cyclical buffers, and buffers for systemically important domestic banks. An Early Warning System is being developed. Efforts to enhance the AML/CFT framework are underway. However, potential financial stability risks could include continued liquidity pressures, concentration risks, construction sector exposure, cross-border lending, and foreign currency exposure. Further extending and strengthening the early warning indicators should be a priority to improve financial sector monitoring.

Qatar’s competitiveness indicators are the strongest in the GCC region, but there is scope for improvement compared to non-GCC peers. The authorities have implemented a number of measures to boost diversification, including strengthening the private sector, promoting SMEs, and incentivizing nationals to work in non-government jobs. They are accelerating efforts toward ensuring contract enforcement and simplifying business registration. Additional measures are needed to further strengthen the business environment, including by enhanced contract enforcement, and improved education quality.

The vast infrastructure spending has put a spotlight on labor market conditions for expatriates. The authorities are addressing reports about working conditions of certain expatriate workers. Committed to improving the situation, the authorities have put in place a new labor law abolishing the Kafala, which came into effect in December 2016. The law makes it easier for workers to switch jobs and exit the country.

The authorities should continue efforts to further improve macroeconomic statistics. The authorities have started publishing quarterly GDP by expenditure and finalized the compilation of the Foreign Investment Survey. They are contemplating a new investment survey with a view to addressing the remaining gaps and improving the IIP and BOP statistics. Progress is being made on compiling fiscal data according to the GFSM 2001 and in subscribing to the SDDS. (IMF 03.01)

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11.4 OMAN: Fitch Publishes Oman’s ‘BBB’ IDRs; Outlook Stable

On 03 January Fitch Ratings published Oman’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of ‘BBB’ with a Stable Outlook. Fitch has also published the Country Ceiling of ‘A-‘, and Short-Term Foreign and Local Currency IDRs of ‘F2’.

Key Rating Drivers

Oman’s ratings reflect its low public and external debt, strong balance sheet and high GDP per capita, balanced against its double-digit fiscal deficit and a very hydrocarbon-dependent budget and economy. Its World Bank governance indicators are at the ‘BBB’ median level but are held back by low scores on ‘Voice and Accountability’.

Fitch expects that external debt issuance and draw-downs from wealth funds to finance budget deficits will result in sovereign net foreign assets falling to 28% of GDP by 2018 from 48.5% of GDP at end-2016. Fitch forecasts the government’s net domestic assets (mostly bank deposits minus local debt) will remain above 10% of GDP. At those levels, the government would still have a stronger balance sheet than most countries in the ‘BBB’ rating category.

The earlier sharp fall in oil and gas prices has hit Oman hard. We expect hydrocarbon revenues to fall by 22% in 2016, after a 41% drop in 2015, but they will still make up around 70% of government revenue. We expect current spending to fall by 5% in 2016, after a 15% cut in 2015, mostly due to a drop in subsidy expenditure as a result of lower oil prices and the removal of subsidies. Nevertheless, the government budget deficit will still have widened to 17.2% of GDP in 2016 from 16.5% of GDP in 2015. Outturns for the first 10 months of 2016 indicate that the deficit will overshoot the budget target of OMR2.7b (our forecast is OMR4.5b).

We expect deficits to decline as oil prices recover and fiscal measures take effect, to 14.4% of GDP in 2017 and 6.4% of GDP in 2018. Electricity tariffs will be hiked for large consumers in 2017, further lowering the subsidy bill. Increases to various fees and levies, removal of corporate tax exemptions and an increase in corporate tax rates could boost non-oil revenue by 1% of GDP in 2017. In 2018, the introduction of VAT could add around 1% of GDP, an increase in oil prices by $10/bbl could add 5% of GDP, and more gas production could add another 1% of GDP to revenue in 2018. Risks to this fiscal adjustment are skewed to the downside, with oil prices expected to stay well below our estimates of fiscal breakeven levels for Oman ($80/bbl in 2016, dropping to $69/bbl by 2018).

The government is using its reserve funds for deficit financing, having built them up in years of higher oil prices. In 2016, the government made a $4b withdrawal from the State General Reserve Fund (SGRF), the value of which peaked at $25b or 36% of GDP in 2015 and which is mostly invested abroad. We expect the value of the SGRF to decline to 23.3% of GDP by 2018. The government also took an $800m loan from its Infrastructure Projects Financing Account (IPFA), following withdrawals of around $7.8b since 2014. As a result the IPFA value will fall to around $300m (less than 0.5% of GDP) from nearly $9b (13% of GDP) in 2014. The government also financed some of its 2015 deficit by depleting its accumulated surplus account.

The government is planning to meet two-thirds of its financing need through external debt issuance and the remainder through reserve draw-downs. We assume a further $2.5b of international issuance by the government in 2017-18, accompanied by $1.5b of withdrawals from the SGRF. In 2016, the government issued $4.5b in bonds and sukuk, and received $2b in export financing, and Petroleum Development Oman has borrowed $4b to finance the government’s contribution to its expenditures. The government has also built up arrears to contractors and postponed recapitalization payments to pension funds.

Fitch forecasts real GDP will grow 3% in 2016, mainly due to strong increases in oil and gas production. We assume hydrocarbon production will be flat in 2017 but will increase in 2018 as the Khazzan gas field comes on stream, potentially adding up to 25% or $5b to gas production. However, we expect non-oil activity growth to slow to 2.5% in 2016 and 2% in 2017, with risks tilted to the downside. Non-oil GDP contracted by 1.5% yoy in nominal terms in H1/16. High-frequency indicators show a more mixed picture of economic activity, with employment and hotel activity numbers up but new vehicle registrations falling.

We expect bank credit to the private sector to grow by nearly 11% this year, well in excess of deposit growth. The ratio of total loans to deposits reached 107% in October 2016, up from 102% in 2015 but interest rates did not evidence liquidity stress. Liquidity was supported by measures to allow banks to count their holdings of government securities as part of required reserves. Capital adequacy and loan quality ratios are high, thanks to the conservative regulation.

Uncertainty remains surrounding the succession to 76-year old Sultan Qaboos, who recently underwent extensive medical treatment abroad but has not publicly designated a successor. The constitution stipulates that the ruling family must choose a new Sultan within three days of the post becoming vacant; otherwise a letter is opened with the Sultan’s recommendation.

Rating Sensitivities

The main factor that could lead to negative rating action would be a failure to reduce the large budget deficit, leading to depletion of fiscal and external reserves and build-up of public and external debt.

The main factors that could lead to positive rating action are:

– A reduction of the budget deficit and a stabilization of the government debt/GDP ratio at moderate levels, either through active fiscal measures or a sustained increase in oil prices.

– Improvement in structural factors such as reduction in hydrocarbon dependence, and a strengthening in governance and the business environment.

Key Assumptions

Fitch assumes that Brent crude will average $45/bbl in 2017 and $55/bbl in 2018.

Fitch assumes that an eventual transition of power from Sultan Qaboos will be smooth and ensure broad policy continuity.

Fitch assumes no change to the peg of the Omani rial to the US dollar. (Fitch 03.01)

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11.5 SAUDI ARABIA: What Has King Salman Achieved in his Two-Year Reign?

Bruce Riedel posted in Al-Monitor on 5 January that in his two years on the throne, King Salman bin Abdul-Aziz Al Saud has been an innovative leader who has addressed some of Saudi Arabia’s most pressing concerns. His foreign policy is more confrontational toward Iran than any of his predecessors. His signature policy is the war in Yemen, which has not been a success.

Salman just celebrated his ascension as measured by the Islamic calendar. The Saudi leader has been touted as a “paradigm shift” in the management of the country. Perhaps his most significant decision was to advance change in the succession process and turn to a younger generation of royals to lead it. At the age of 81, the king has focused on the choice of his successor from his first day in office.

Salman appointed Prince Mohammed bin Nayef to be deputy crown prince shortly after gaining the crown and then deposed his half-brother Prince Muqrin two months later, elevating the 57-year-old Nayef to be crown prince. If Nayef does ascend to the throne he will be the first Saudi monarch who is not a son of the modern kingdom’s founder King Abdul-Aziz Al Saud, who died in 1953. It will be a generational change in leadership.

Crown Prince Mohammed bin Nayef is unquestionably the most qualified prince of his generation. He has been at the front of the kingdom’s war against terrorism for over a decade. He has survived four assassination attempts by al-Qaeda. He has developed extensive contacts with security chiefs and services around the world. As crown prince, he has the opportunity to broaden his experience and competence.

The king’s son, Deputy Crown Prince and Defense Minister Mohammed bin Salman, has developed a creative plan to transform the kingdom by 2030. Salman has placed unprecedented powers in his son’s hands, including command of the economy. The son’s Saudi Vision 2030 recognizes that the Saudi welfare state is unsustainable with low oil prices. Much of the program remains to be implemented, but it is crucial that the kingdom recognize the imperative of change. This year, 2017, is the one where the vision needs to be fleshed out and implemented in its initial stages.

The king followed through on the promise of his predecessor King Abdullah to allow Saudi women to vote and run for office in the country’s municipal councils. It is an important symbolic step for the monarchy. Harder decisions about women’s rights will be crucial if Saudi Vision 2030 is to work.

Abdullah’s foreign policy was risk averse and cautious. During the Arab Spring, the kingdom became the leader of counterrevolution in Bahrain and Egypt. In Yemen it sought to replace Ali Abdullah Saleh with a compliant regime that would accept Saudi dominance. In Syria the kingdom saw an opportunity to unseat Iran’s oldest ally in the Arab world.

Salman has been much more aggressive and confrontational than his brother. Relations with Iran have been severed, preventing Iranians from attending the hajj. A 40-member Islamic military alliance (led by the Saudi defense minister) has been created, excluding Iran and Iraq. Last month Oman, which has long sought to cool tensions in the Gulf, officially joined the Saudi military alliance. An aggressive intelligence campaign has been launched against Iranian proxies such as Hezbollah. Money has been sent to the rebels fighting Syrian President Bashar al-Assad.

Saudi relations with Washington deteriorated on Abdullah’s watch. Riyadh was appalled that President Barack Obama urged Egyptian President Hosni Mubarak to give up office. American pressure on Bahrain’s Sunni monarchy to accommodate the Shiite majority’s demands for change prompted Abdullah to send troops across the King Fahd causeway to support the Sunnis and repress the Shiites. Almost six years later they are still there.

Salman shared his predecessor’s skepticism about Obama. He snubbed an invitation to Washington. The kingdom has been quietly critical of the Iran nuclear deal and the lifting of sanctions on Tehran. Nonetheless the Obama administration has sold over $110 billion in arms to the Saudis in eight years.

Only two months after ascending to the throne, Salman intervened in Yemen in response to the takeover of the capital by loyalists of Saleh and the Zaydi Shiite Houthi rebels. Riyadh feared that the Iranians were on the verge of creating a satellite state on their southern border. A Saudi-led coalition has blockaded Yemen and installed a friendly government in Aden.

Two years later, a Yemeni child starves to death every 10 minutes, according to UNICEF. Millions of Yemenis are malnourished and without medical care. All the warring parties bear blame for this humanitarian catastrophe. But the reality is that the richest countries in the Arab world have attacked the poorest country in the Arab world. The international community has done virtually nothing to stop the carnage. The United States and United Kingdom have provided the aircraft, munitions, logistics and intelligence that facilitate the war. The Saudis have been given the assistance essential to waging war with only occasional constraints, which are mostly due to congressional pressure and outrage.

Salman needs to find an honorable end to the war. Saudi Vision 2030 is likely to be a mirage if the kingdom remains bogged down in a quagmire in Yemen. The king is planning a visit to Oman this year. Omani Sultan Qabos can be a credible intermediary between the warring Yemeni parties. It’s time to end the bloodshed. (Al-Monitor 05.01)

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11.6 EGYPT: Egypt Considers Blocking Doctors from Working Abroad

Khalid Hassan posted on 28 December in Al-Monitor that Dr. Shadia Thabet, a member of the Egyptian parliament’s health committee, is determined to advance a bill that bans doctors from traveling abroad unless they spend 10 years serving in public hospitals. Critics call it a clear violation of the rights of doctors and health specialists, as well as a violation of constitutional guarantees for citizens’ freedom of movement and emigration.

In a press statement on 6 December, Thabet said the law will soon be submitted to parliament for approval in the next few days as soon as all its articles are completed. Thabet gave her reasoning for the bill. She said, “We have a shortage of doctors and nurses in the emergency rooms of most public hospitals. Besides, we do not have enough medical staff and engineers, among other specialists capable of developing the state. Therefore, legislation to curb this phenomenon must be put forth.”

Thabet said she had just finished six articles for the bill, including unattainable conditions for doctors who wish to travel abroad. For instance, they would have to pay 20% of their monthly salary earned outside Egypt to the Egyptian treasury in foreign currency, not Egyptian pounds, and also repay the costs of their education. Another article limits the emigration of specialized staff such as engineers, with the state determining the need for them.

As soon as Thabet disclosed these details, the doctors’ syndicate, of which she is a member, responded by saying the bill is unreasonable. They claim the bill aims to obstruct doctors and stands in the way of their ambition because it deprives them of their right to travel to improve their standards of living, as opposed to the little money they earn in Egypt.

The doctors’ syndicate was not the only professional organization to attack Thabet. The council of the engineers syndicate issued an official statement voicing its rejection of the bill and its provisions. The council promised to protect engineers’ right to travel and work under the constitution, and warned that such a bill would only breed more social tension and serve the interests of parties that want to “destroy the country.”

Article 62 of Egypt’s constitution guarantees Egyptians’ freedom of movement, residence and emigration. It states, “No citizen may be expelled from state territory or banned from returning thereto. No citizen may be banned from leaving state territory, placed under house arrest or banned from residing in a certain area except by a causal judicial order for a specified period of time, and in cases specified by the law.”

Article 92 of the constitution notes, “The rights and freedoms of individual citizens may not be suspended or reduced. No law that regulates the exercise of rights and freedoms may restrict them in such a way as infringes upon their essence and foundation.”

Doctors in Egypt face tough living circumstances due to their low incomes, the lack of medical equipment in hospitals and their constant feeling that the state ignores them and dedicates resources to military officers, police officers and judges. They are tempted to travel abroad as soon as they graduate to improve their living standards and continue their education. Their situation is the same as that of engineers and other highly educated individuals.

In general, a doctor in a public Egyptian hospital earns around EGP1,500 ($78) per month from the Ministry of Health, while another in a private hospital might earn EGP3,000 ($157). While salaries vary according to specialization and experience, the highest paid doctors in Egypt work in private clinics.

Thabet added, “I proposed the bill because we have a serious shortage of doctors in Egypt. There are 377 public hospitals that have been shut down in the country due to lack of doctors and specialists. Villagers are suffering from a lack of services in their provinces, and it is hard for them to head to Cairo to receive treatment due to the cost involved. “We have 24 ERs in Imbaba Fever Hospital [a public hospital in Cairo]. We are only able to keep 10 of them open. The 14 that remain are closed due to the medical shortage. So I had to take quick action to end the crisis.”

Tarek Kamel, a member of the doctors’ syndicate, told Al-Monitor, “What will Thabet do with judges who leave for Arab states? What about teachers who go to the Gulf countries as part of educational missions? What about other professionals whom the state invested in educating, be they lawyers, journalists or media staff? Why is Thabet insisting on discriminating between doctors and other social groups? The principle is wrong, and it is unacceptable that a parliamentarian representing the people in parliament would utter it.”

He added, “Didn’t Thabet ask why doctors are leaving their country as soon as they graduate? Doesn’t she see their deteriorating financial situation? Doesn’t she know that a doctor earns 1,200 pounds [$62] per month as soon as he graduates? Is this sum enough to provide a good life for them?” “The main problem is not a shortage of doctors, but rather the bad geographical and specialization-based distribution of medical staff. Doctors need to be reassigned to resolve the crisis, rather than be forced to work in Egypt.” (Al-Monitor 28.12)

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Fortnightly, 11 January 2017

Fortnightly, 11 January 2017

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