Fortnightly, 13 June 2018

Israel’s next government, forecast to take office in 2020, will have to make adjustments to the state budget (either spending cuts or tax hikes) worth some NIS 5.3 billion, the Ministry of Finance estimated in a three-year budget forecast to be presented to the government on 10 June. This amount is almost certain to grow, however, because of exigencies not included in it, chiefly the cost of forming a future government, given that the next election will take place in November 2019 at the latest. Other items that the Ministry of Finance has not taken into account are the cost of expanding the Buyer Price housing program, purchases of additional rolling stock by Israel Railways, paving of additional public transport lanes and a rise in the public transport subsidy, a NIS 700 million grant to Intel for expansion of its Kiryat Gat fab and the cost of staging the Eurovision Song Contest, due to take place in Israel in May 2019.

The Ministry of Finance presented updated budget framework forecasts for 2020, 2021 and 2022 to the government today. They incorporate a new mechanism introduced following the passage of the “numerator law” which prevents the government making any decision with future budgetary consequences unless a budget source covering the planned expenditure is assured. The Ministry of Finance updates its projection twice a year, in June and November, and presents it to the government. The calculations take into account all government spending commitments, whether arising from government decisions, laws, agreements, legal rulings, or budgetary agreements between the Ministry of Finance and other ministries, but not spending to which there is as yet no commitment, even if it is almost certain to be incurred. The current update includes NIS 100 million for holocaust survivors and a similar amount for connecting factories to the natural gas network.

The macro-economic forecast appended to the update shows the annual rate of inflation in Israel remaining below 2% until 2022. It is felt that the rate of inflation will converge on the middle of the target range towards end of the multi-year plan period (2022). The government’s inflation target range is 1 – 3%. The Ministry of Finance has also revised upwards the expected economic growth rate for 2018 from 3.2% to 3.5%, due to positive developments in investment, private consumption and exports. On investment, the Ministry of Finance cites new investment in development of natural gas reservoirs, presumably referring to the recently approved development plans for the Karish and Tanin reservoirs, and Intel’s new investment program for its Kiryat Gat fab, also approved recently. The Ministry of Finance points out that its revised forecast does not include the prospect of gas exports, even though the export of gas to Jordan is due to begin in 2020 – this event will mean a further upward revision of the economic growth forecast. (Globes 10.06)

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1.2 Israeli Government to Fund Autonomous Car and Smart Transport Projects

The Ministry of Transport and the Israel Innovation Authority announced the opening of aid request tracks for smart transportation pilot ventures. The government will offer an array of aid programs totaling NIS 100 million per year for pilots in various technological spheres. The amount of the transportation part now being published will be NIS 30 million a year. The program is for five years, although how much will be invested each year is unknown.

The transportation program, which was drawn up in cooperation with the Alternative Fuels and Smart Transportation Administration in the Prime Minister’s Office, will help finance advanced testing requiring construction of facilities, use of vehicle fleets, fuel, and of course technological development. The companies taking part in are also likely to receive permission to deviate from the current regulatory restrictions and a tax exemption in certain cases.

Government sources report that many requests for tests have been received from industry and startups, many of which have been rejected up until now because of an inability to respond to them. These requests included requests for tests of autonomous and semi-autonomous driving technologies, among them new autonomous cars and accessory equipment for existing cars; new technologies and algorithms for regulating traffic; smart adaption of traffic lights management; fuel saving technologies; and use of environmentally friendly fuels.

Israeli transportation technology companies can obtain monetary support up to 50% of their approved R&D costs in the framework of the program; 75% support will be given for a program with potential for extraordinary influence on streamlining and improving transportation. This track offers sharing of the risk incurred in the development process but does not require sharing of profits or future success. The supported company will repay the money it received from the Innovation Authority through royalties on sales, but only if the venture reaches the commercial stage. (Globes 07.06)

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1.3 Hosting Eurovision Song Contest May Cost Israel NIS 150-190 Million

The total cost of hosting the Eurovision Song Contest in Israel in 2019 will be between €35 – 45 million. Israel will have to transfer €12 million of this amount this August as a guarantee to the European Broadcasting Union (EBU), as the host country is required to do every year. Almost the entire cost of the event will need to be borne by the public purse, with the Ministry of Finance providing funding to the Israeli Public Broadcasting Corporation (IPBC). The EBU itself contributes only a few million euro. The figures derive from the official budget request that the IPBC sent to the Ministry of Finance.

It remains to be decided which city in Israel will host the event. Channel 20 reported that the IPBC will make presentations on four cities to the EBU (Jerusalem, Tel Aviv, Haifa and Eilat). In fact, no such presentations are planned for the forthcoming meeting. The IPBC does intend to draw up a document with detailed criteria in accordance with EBU requirements on such matters as the venue, transport and security arrangements, etc. and to allow any city that meets the criteria and is interested in hosting the event to submit its candidacy. In practice, it is clear that only a small number of cities are actually capable of meeting the criteria, but in any case this matter will be settled only later, and probably within months rather than weeks. (Globes 11.06)

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1.4 Israel Will Invest $8.4 Million in New National Digital Health Plan

The Digital Israel Initiative at the Israeli Ministry for Social Equality, the Israeli Health Ministry, and the Israel Innovation Authority have announced the launch of a Digital Health Initiative, a new pilot program to promote innovation and implement advanced solutions in healthcare organizations across Israel. The groups will invest $8.4 million in the program, which will support digital health-focused research and development proposals from Israeli tech companies focused on medicine and health and pilot facilities. The program is an effort to improve medical treatment and healthcare services for patients and provide solutions to challenges faced by the healthcare system in Israel, a statement from the groups said.

It comes two months after the Israeli cabinet approved some $300 million national digital health plan first announced by Prime Minister Benjamin Netanyahu at the World Economic Forum Annual Meeting in Davos, Switzerland in January. The companies accepted to the program will receive between 20 to 50% of approved R&D expenditures, with funding of up to 60% to 75% for proposals that show potential to significantly advance the public healthcare system in Israel or around the world, or that promise a breakthrough in their field. The program will enable participating to significantly advance commercialization of their product. Selected companies will only return grants to the Israeli Innovation Authority if there are royalties from sales if an initiative is commercialized. (NoCamels 12.06)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 CyberInt Completes $18 Million Funding Round

CyberInt, which addresses cyber, fraud, and brand threats with a unique outside-in approach, has completed a $18 million financing round led by Viola Growth, with the participation of its existing investors. Leading global omnichannel organizations across financial services, retail, eCommerce and gaming rely on CyberInt’s Argos platform, which offers multiple detection modules including Targeted Threat Intelligence, Social Media Monitoring, VIP Protection, Brand Protection, Vendor Risk Management and Email Threat Management. These drive real-time detection of threats to prevent fraud and cyber events, and significantly reduce revenue loss. The platform leverages unique artificial intelligence and machine learning algorithms to drive contextualized and relevant detection.

CyberInt’s ex-CISO, ex-8200 and white-hat hackers team of cyber experts spread across Israel, New York, London, Singapore and Manila support its customers with a deep understanding of how hackers think and act. This unique combination of a leading platform and strong cyber expert team provides CyberInt’s clients proactive detection and response to ever-changing cyber threats in real time. CyberInt will leverage the investment to drive global expansion, expand its Argos platform, and develop additional next-generation Digital Risk Management, Detection and Response solutions.

CyberInt eliminates potential threats before they become crises by looking at all online activities and digital assets from an attacker’s perspective and provides managed detection and response services to customers worldwide. Leveraging Argos real time digital risk protection platform with managed services such as mSOC, threat hunting, deep dive investigations, real time incident response as well as risk and business impact assessments, CyberInt provides a holistic end-to-end protection to digital businesses in retail, ecommerce, gaming and financial industries.

Petah Tikva’s Cyberint was founded in 2010. It has over 50 employees at offices in London, New York, Singapore, and Panama. The company raised $10 million in its Series A financing round in 2014 from private investors including Amdocs veterans, as well as serial entrepreneur Zohar Zisapel. Cyberint has hundreds of customers worldwide including financial institutions, retail companies, and telcos including Asos, the Philippine Islands Bank, Telefonica, NICE Systems, Wix, and Playtika. (CyberInt 30.05)

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2.2 Vulcan Cyber $4 Million Seed Round Helps Fund Mission to Eliminate Vulnerability Remediation Gap

Vulcan Cyber announced $4 million in seed funding for its mission to eliminate the Vulnerability Remediation Gap that unnecessarily exposes enterprises to massive cyber risk. Backing for the technology platform, which lets security teams gain the insight needed and take the action required to continuously eliminate exposed vulnerabilities in their production systems, comes from YL Ventures with participation from additional prominent cybersecurity and enterprise software investors.

The Vulcan Cyber Continuous Vulnerability Remediation platform eliminates the most critical risks caused by vulnerabilities while at the same time avoiding any unexpected impact to business operations. Vulcan reduces dwell time from weeks and months to hours. Vulcan Cyber’s comprehensive data collection aggregates data from dozens of scanning tools while its advanced exposure analytics deliver unprecedented insight into the true risk of existing vulnerabilities in the deployed enterprise stack. Vulcan then automatically prioritizes, plans, orchestrates and validates remediation. Vulcan is the industry’s first remediation orchestration engine that coordinates the teams, tools and tasks needed to successfully and rapidly eliminate exposure and risk. The Vulcan platform is currently in limited availability to qualified customers. General availability will be in late 2018.

Tel Aviv’s Vulcan Cyber is the industry’s first Continuous Vulnerability Remediation solution. Vulcan integrates, automates and orchestrates existing tools and processes, eliminating the most critical risks caused by vulnerabilities while at the same time avoiding any unexpected impact to business operations. Vulcan closes the Vulnerability Remediation Gap, reducing dwell time from weeks and months to hours.

YL Ventures funds & supports brilliant Israeli tech entrepreneurs from seed to lead. Based in Silicon Valley and Tel Aviv, YL Ventures manages $135 million across three funds focused on seed-stage, deep-technology B2B companies in the fields of cybersecurity, enterprise software and autonomous vehicle technologies. YL Ventures accelerates the evolution of portfolio companies via strategic advice and U.S.-based operational execution. (Vulcan Cyber 30.05)

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2.3 ParkWhiz Acquires Tel Aviv-Based CodiPark

Chicago’s ParkWhiz announced that it has acquired CodiPark, a Tel Aviv-based company known for industry-leading solutions that deliver a friction-free parking experience. With the acquisition, ParkWhiz will add drive-up mobile payments to its Parking Platform, which powers numerous third party mobile apps, as well as its own ParkWhiz and BestParking brands. In addition to having the option of pre-booking parking, consumers will now also be able to simply drive up to a lot or garage, pull a ticket and pay by scanning it in whichever ParkWhiz-powered app they are using. Payment and validation are managed without ever visiting a kiosk, or blocking traffic at a gate while fumbling for a credit card or cash.

The company is working collaboratively with parking access control systems and parking operators to offer drivers more seamless ingress and egress options via mobile devices and connected vehicles. The acquisition is part of a broader strategy by ParkWhiz aimed at solving the last mile of connected and autonomous mobility.

With the acquisition, ParkWhiz will maintain an office in Tel Aviv, a city known as a global connected mobility hub with specific heritage in wireless communications and navigation, to continue to develop new mobility solutions for its partners. (ParkWhiz 31.05)

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2.4 Israeli & Canadian Companies Team Up On Breakthrough Spy Drones

Israel Aerospace Industries has partnered with Quebec’s L3 MAS to offer the state-of-the-art Artemis Unmanned Aerial System for the Royal Canadian Air Force’s Remotely Piloted Aircraft System (RPAS) program. Based on IAI’s Heron TP, the Artemis UAS is a Medium Altitude Long Endurance (MALE) UAS with a proven operational track record. While it is not clear if it will be a weaponized UAS, it will be equipped with a wide variety of sensors and other payloads designed specifically to meet Canada’s requirements. Ottawa has been seeking a high-altitude, long-endurance system for surveillance of its vast northern regions as well as an armed MALE UAV for its deployments abroad.

Under the RPAS program, Canada’s Department of National Defense will procure a number of MALE UAS aircraft, with associated ground control stations, sensor suites and support equipment. The contract is scheduled to be awarded in 2021-2022 and will include the acquisition of the equipment and the full spectrum of In-Service Support (ISS) for 20 years. According to IAI, L3 MAS will be the prime contractor and will be building on its extensive ISS, airworthiness, integrated logistics and program management experience.

IAI is a world leader in both the defense and commercial markets, delivering state-of-the-art technologies and systems in all domains: air, space, land, sea, cyber, homeland security and ISR. Drawing on over 60 years’ experience developing and supplying innovative, cutting-edge systems for customers around the world, IAI tailors optimized solutions that respond to the unique security challenges facing each customer. (IAI 04.06)

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2.5 BGU Signs Research Agreement with US Air Force Research Laboratory

A first of its kind three year research agreement has been signed between the US Air Force Research Laboratory (AFRL) and Ben-Gurion University of the Negev to collaborate to improve the health monitoring of aviation engines. The head of BGU’s PHM lab in the Department of Mechanical Engineering has developed advanced diagnostic and prognostic algorithms to monitor engine health and predict materials deterioration and thus reduce accidents and maintenance costs. He continues the work he began in the Israel Air Force in his PHM Laboratory at BGU.

The agreement was signed under the auspices of the Defense Ministry’s Administration for the Development of Weapons and Technological Infrastructure.

Beer Sheva’s Ben-Gurion University of the Negev is one of Israel’s leading research universities and among the world leaders in many fields. It has around 20,000 students and 4,000 faculty members in the Faculties of Engineering Sciences; Health Sciences; Natural Sciences; the Pinchas Sapir Faculty of Humanities and Social Sciences; the Guilford Glazer Faculty of Business and Management; the Joyce and Irving Goldman School of Medicine; the Kreitman School of Advanced Graduate Studies; and the Albert Katz International School for Desert Studies. More than 100,000 alumni play important roles in all areas of research and development, industry, health care, the economy, society, culture and education in Israel. (BGU 03.06)

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2.6 Hailo Raises $12.5 Million to Develop Deep Learning Processor for Embedded AI Applications

Hailo announced the completion of a $12.5 million Series A round. The company’s investors include Ourcrowd.com, Maniv Mobility, the Drive accelerator fund: Next Gear and angel investors. The company will use the funding to further develop its deep learning processor, which will deliver datacenter processing capacity to edge devices. This latest funding round brings the total raised to date by the company to $16 million. Hailo’s breakthrough deep learning processor, whose initial samples are expected to enter the market in H1/19, will be able to run embedded AI applications on edge devices that are installed in autonomous vehicles, drones, and smart home appliances such as personal assistants, smart cameras and smart TVs, alongside IoT, AR and VR platforms, wearables and security products. The Hailo processor radically reduces size, power and cost, making it suitable for local processing of high-resolution sensory data in real time.

Deep Learning is changing the world around us. Tel Aviv’s Hailo is developing a breakthrough specialized deep learning microprocessor to deliver data center performance to edge devices. The automotive industry, which is one of Hailo’s key target markets, is undergoing a major disruption, rapidly adopting deep learning methods to enable advanced driver assistance systems (ADAS) and autonomous driving applications that require continuous sensing of surroundings. (Hailo 05.06)

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2.7 Over 1200 Participants Attend Goforisrael Conference in China’s Foshan City

Hundreds of qualified Chinese investors came from all over the country to meet with the Israeli start-up entrepreneurs at the GoforIsrael conference initiated by the Cukierman & Co. Investment House and Catalyst CEL Fund in Foshan, one of the most upcoming and important financial areas in China. The GoforIsrael Foshan event was home to 1,200 guests, including more than 500 highly qualified Chinese investors. This is the second time that the conference has been held in China, following the September 2016 in Shanghai.

One hundred entrepreneurs from Israeli start-ups and high-tech companies arrived by air to Foshan, where they introduced their technologies to Chinese investors, and held a record number of more than 800 one-on-one meetings with Chinese investors, some with the help of 70 translators. The initiators of the conference were Cukierman & Co. Investment House Investment House, Catalyst CEL Fund, the city of Foshan and Rits Leaguer Group, a financial group in China, which operates an international center for scientific and technological innovation in Foshan City, in conjunction with Tsinghua University.

The event presented the best of Israeli innovation in areas such as artificial intelligence, IT, life sciences, cyber, energy, advanced production, telecom, automotive technologies and more. Among the Israeli companies exhibiting at the conference were: Trax, Orbotech, HearMeOut, Lamina, UBQ Materials, Valcare, Curalife, Check-Cap, PerfAction, NGT3VC, MindUP and more. Among the Chinese investors were senior executives from Chinese traded companies, many funds and financial institutions, including Alibaba, Ping An, the largest insurance and finance company in China, Sailing Capital, GF Securities, Fosun, Haitong and others. (GoforIsrael Conference 06.06)

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2.8 mPrest & Vector Enter Australian Market to Enhance Intelligent Grid Migration

mPrest announced the launch of its entrance into the Australian market together with Vector, New Zealand’s largest power distributer. The joint team will support the local Australian utility market in migrating towards a more intelligent grid.

mPrest’s smart utility applications are based on dynamic and flexible micro-services architecture, combining artificial intelligence and machine learning to asses and predict utility loads, customer demand, capacity, and market dynamics in real time. mPrest’s Grid Modernization “System of Systems” applications address critical areas such as asset management, distributed energy resource management systems (DERMS), Virtual Distribution Automation, and Critical Event Management. Such applications will assist Australian utilities in realizing their renewable energy and grid modernization strategies.

Tel Aviv’s mPrest is a global provider of mission-critical monitoring, control and big data analytics software. Leveraging the power of the Industrial IoT, mPrest’s integrative “system of systems” is a proven catalyst for digital business transformation. Their innovative management solutions have been deployed in next-gen applications for carrier service providers, system integrators, smart cities as well as IoE (Internet of Energy) applications for power utilities, defense and HLS. (mPrest 06.06)

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2.9 VisIC Technologies Raises $10 Million to Speed Up Market Adoption

VisIC Technologies has closed $10 million in a Series D round of financing lead by a private investor. High performance power supplies for telecom systems and datacenters are using GaN power devices to reach new levels of density and efficiency, bringing down the electricity costs of the operators significantly. GaN technology opens a new space in power electronics – from shifting the performance envelope up to the point of new topologies development. VisIC offers specifically rugged GaN devices with negligible fast transient dynamic RDSon. Their insulated thermal pad is another welcome feature enabling the increase of the power stage reliability and density. Ultimately, 1200V rated GaN devices might be an attractive alternative in the 1200V segment dominated by SiC technology today.

VisIC’s technology offering in combination with ongoing R&D designs by large players in the power electronics industry, made it possible to close this round of funding on favorable terms.

Based in Ness Ziona, VisIC Technologies was established in 2010 by experts in Gallium Nitride (GaN) technology to develop and sell advanced GaN-based power conversion products. VisIC has successfully developed, and is bringing to market, high power GaN-based transistors and modules. (GaN is expected to replace most of the Silicon-based (Si) products currently used in power conversion systems.) VisIC has been granted keystone patents for GaN technology and has additional patents pending. (VisIC Technologies 06.06)

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2.10 Tel Aviv Approves Plans for 100 Story Skyscraper

A Tel Aviv municipal committee has given its approval for the construction of a 100 story tower in the city. The Bein Arim Tower will be the tallest skyscraper in the city when it is completed. The Tel Aviv District Planning and Building Commission passed the approval on 4 June. The site for the building is in the center of the city’s metropolitan area and conveniently located to highways and railway entrances. Plans for the site, which is owned by the municipality, also includes more than 140,000 square meters of space for offices, hotels, commerce, and public areas. (JTA 07.06)

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2.11 Cappitech Raises $4 Million

Cappitech has raised $4 million in a Series A financing round led by 83North and joined by the cofounders of Markit. The company has developed compliance and regulation technology (regtech) for banks, brokers and asset managers to solve their reporting needs. Cappitech’s Capptivate platform bridges the gap between financial institutions and the regulators, helping firms meet MiFID II, Emir, Asic, RTS 27, Best Execution and other compliance obligations. Cappitech will use the funding to accelerate product development, expand regulatory reach and provide business intelligence and big data analytics using AI. The Sales and marketing team will also be boosted, with a particular focus on Europe.

Herzliya Pituah’s Cappitech is a leading provider of regulation technology for the financial services industry. Through Capptivate, Cappitech’s regulatory service platform, customers can easily automate submission and analyze their daily trades to comply with international financial transaction reporting obligations. This cross-regulation platform uses state-of-the-art technology to provide a unified experience for all regulatory reporting along with an industry leading analytics dashboard to process and audit review compliance reports. Trusted by leading financial institutions, Cappitech provides superior service and personalized guidance using its vast operational regulatory expertise. (Globes 12.06)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Babson College Expands into Dubai

Massachusetts’ Babson College, a world leader in entrepreneurship education, has announced plans to expand to Dubai to offer graduate and executive education programs for working professionals across the region. The Babson MBA – Dubai, delivered in a blended online and face-to-face format, will launch in January 2019. Babson Executive Education said it will be working with organizations in the region to develop custom programs in addition to offering specialized open enrollment programs as part of the Academy at Dubai International Financial Centre (DIFC). The first open enrollment program – Approaches to Innovation in the UAE – will launch this autumn while additional programs, including one on family entrepreneurship, will be announced this summer. Babson’s in-person programs will be held at DIFC and Babson will be housed in The Academy, the district’s educational hub built to support a knowledge-based economy. The college’s expansion to Dubai adds to its existing hubs in Wellesley and Boston, Massachusetts, San Francisco, California and Miami, Florida. (AB 09.06)

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3.2 Study Finds Most UAE Employees Work Remotely One Day a Week

More than half of UAE employees work remotely every week, with 50% doing so for at least half the week, according to a new study by International Workplace Group (IWG). According to the study, 60% of UAE employees work outside of office for at least one day each week, compared to 10% who do so five days a week. The UAE statistics are similar to global trends. Around the world, 70% of employees spend at least one day each week working remotely. According to IWG, the mobile workforce has is being primarily driven by technological changes, globalization and changes in workforce expectations.

The report found that many UAE businesses recognized a number of benefits to offering flexible working hours to their employees. Of the UAE companies queried, for example, 91% identified business growth as a major benefit of having employees work remotely, 2% above the global average, while 97 said it improved competitiveness, 10% above the global average. Additionally, many employees said that the ability to work remotely was now a key part of their expectations. Of those surveyed, 84% in the UAE said that flexible working hours helps retain top talent, while 44% said it improves job satisfactions. (AB 03.06)

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3.3 World Cup to Negatively Affect Arab World Staff Productivity

A major productivity drop is expected during June and July due to the World Cup according to a new survey by online recruitment firm GulfTalent. One in four employees in the Middle East plan to watch matches during working hours. According to the report, many senior executives plan to watch the games on company TV screens, while subordinates will live stream on their smartphones. Some employees admitted that they plan to leave work early, take annual leave or call in sick, in order to watch the games. The tournament, due to be played in Russia from 14 June to 15 July, will run each day between 14:00h to 01:00 UAE time.

Interest in this year’s World Cup is running high across the region, as an unprecedented four Arab countries have qualified for the competition. The participation of Saudi Arabia has heightened Gulf interest, while Morocco and Tunisia will be joined by Egypt, whose star striker Mohamed Salah has captivated the region.

According to GulfTalent’s survey, 92% of employees in the region plan to watch at least some of the games, with 28% planning to watch some of the games during working hours. Roughly one third of that total expect to be given permission to do so, while a quarter said they will secretly live-stream the games. A further source of productivity loss is late night game watching. Almost two-thirds of professionals surveyed said they will watch the late matches even if it meant sleeping late. The threat to productivity is not confined to the Middle East. During the 2014 World Cup, a survey by employment law specialists ELAS put the potential cost to Britain’s employers at almost $5.6b in lost productivity. (AB 10.06)

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3.4 Cyprus Holding First-Ever Medical Cannabis Conference

The first-ever Cyprus conference on medical cannabis will take place on 13/14 June in Nicosia. Organized by CSB Farms, the two-day event will look at the benefits and challenges facing the new market of medical cannabis. The event will focus on policy issues, law and developments in the legislation of medical cannabis, as well as on the implementation of medical cannabis from a practical point of view. It will also explore the Cyprus medical cannabis policy implementation, the medical cannabis consequences for pharmacists and doctors and medical science and new therapies involving cannabinoids.

A bill allowing the cultivation and provision of medical cannabis in Cyprus has been approved by the government. (Various 12.06)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 GCC Investment in Renewables Could Reach $16 Billion by 2020

Arabian Gulf states show great promise for renewable energy deployment and investment in the region could reach $16 billion in 2020, according to a new study by management consultancy Strategy& Middle East. The report also said a cumulative total of $40 billion could be invested in the GCC between 2016 and 2020, provided the correct decisions and policies are adopted. To unlock this potential, GCC governments must develop a carefully planned framework and make careful decisions.

The study shows that renewable energy continues to attract an increasing share of global investment, with annual investments expected to grow by $130 billion, compared to 2016 figures, reaching around $370 billion in 2020. The global investment cumulative total is estimated at $1.5 trillion between 2016 and 2020.

The report said GCC countries thus far have made little investment in renewables technology – less than $1 billion in 2016 – and are at risk of falling further behind other countries if they do not create a supportive, coherent policy framework to facilitate renewables investment. While several factors in the GCC make rapid deployment of renewables attractive, there are major structural and institutional factors behind current underinvestment in renewable energy. These include generous fuel subsidies, a mindset that prefers building very large conventional plants to meet rapidly growing demand, concerns over transmission and distribution networks and unclear regulatory and policy frameworks that discourage the development of renewables.

Located in the heart of the global sunbelt, the GCC countries have some of the highest solar exposures in the world; solar power plants in the region can expect 1,750 to 1,930 hours of full-load operation a year, compared to 940 hours in Germany. (AB 05.06)

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4.2 Dubai First to Offer Free Parking Slots for Eco-Friendly Vehicles

Dubai’s Roads and Transport Authority (RTA) has provided 70 free parking spaces for environment-friendly vehicles in 40 paid parking zones across the emirate. The move, which represents the first phase of offering free parking to eco-friendly vehicles, contributes to Dubai’s Green Mobility initiative aimed at slashing carbon emissions and encouraging the public to use environment-friendly vehicles. Locations include the Central Business Districts, Trade Centre area, Burj Khalifa, Dubai Marina, Jumeirah Street and Sheikh Zayed Road.

RTA would like to spread this initiative to high-density traffic areas and streets across Dubai with the aim of covering most paid parking zones in vital areas. The parking spaces are marked by green-painted frames with signs showing the maximum allowable use time and the fine applicable on parking violations. Only eco-friendly vehicles are allowed to access these parking slots for a time limit of four hours, which will increase the rotation of using each parking. (WAM 29.05)

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4.3 First Time Halophytic Vegetables Being Grown in the UAE

Scientists at the International Centre for Biosaline Agriculture (ICBA) have successfully started growing halophytic (salt-loving) vegetables in UAE conditions, using reject brine from desalination units treated with fish effluents. It is the first time that halophytic vegetables have been grown without using fresh water in the UAE. The idea behind the research is to save fresh water and introduce these vegetables into the local diet, eventually contributing towards sustainable future food security of the country.

As a pilot study, the center is currently growing six halophytic vegetables at its experimental station in Dubai. The vegetables include Salsola soda (agretti); Crithmum maritimum (rock samphire); Beta maritima (sea beet); Aster tripolium (sea aster); Salicornia bigelovii (samphire); and Portulaca oleracea (common purslane). The overall goal of the project is to produce crops in degraded or barren lands with economic benefits for the local communities. The target is to develop climate-resilient, biodiverse, affordable, easy-to-operate, nutrient-dense farming schemes that increase food and nutrition security in salt-affected areas, desert environments, marginal lands, while providing multifold incomes to farmers. (AB 01.06)

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4.4 Developer Unveils Middle East’s Largest Living Green Wall in Dubai

Dubai Properties has unveiled the Middle East’s largest living green wall at Dubai Wharf, located in the heart of Culture Village overlooking the historic Dubai Creek. Extending 210 meters in length and rising six meters high, the impressive vertical garden spans 1,260 square meters and features over 80,000 plants forming a leaf canopy area equivalent to around 200 trees, capable of offsetting an estimated 4.4 tonnes of carbon dioxide (CO2) annually. The developer said the wall is part of its strategy to promote sustainable living in the emirate.

It added that living green walls are vertical gardens that are particularly useful in urban landscaping, where space can be a constraint. Plants naturally remove carbon dioxide and produce oxygen while filtering the air around them through absorbing pollutants. This beneficial effect is compounded by the sheer number of plants in living green walls.

Developed by landscaping experts Gover Horticulture, the Dubai Wharf Green Wall is made using geotextile grow bags filled with peat substrates enriched with nitrogen, phosphorus and potassium (NPK). This allows for better root growth, irrigation and drainage in the UAE climate that can often get quite harsh during the long summers. (AB 09.06)

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4.5 Morocco’s Plan to Reduce Water Shortages

Morocco’s National Office of Electricity and Drinking Water (ONEE) has made public initial data of a plan to prepare for drinking water shortage emergencies. The plan provides a strategy to cope with the water deficit recorded in some regions in Morocco during the summer. ONEE hopes to secure the water supply in the country by undertaking a short-term action plan for the 2018 summer. Forty-two centers will expected to have a water deficit this summer, and the program will reinforce their potable water supply. In this regard, ONEE is developing new water sources, deepening existing wells, and maintenance existing water sources to allow for more efficient production and distribution.

ONEE will also improve water quality control and sanitation, adapt pumping and drilling power generators, conduct research campaigns, and repair leaks. These measures will eliminate the water deficit in 10 centers by the end of 2018, 15 centers by 2019, and the remaining 17 centers beyond 2019. The office is conducting a campaign to raise public awareness about the conservation of drinking water in parallel with opening a Customer Relationship Center. The center will have a dedicated line for ONEE customers to continuously process their complaints and questions related to the billing and consumption of electricity and drinking water. (MWN 07.06)

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5: ARAB STATE DEVELOPMENTS

5.1 Lebanon’s Trade Deficit Reached $5.3 Billion by April 2018

Lebanon’s trade deficit dropped by 1.8% to $5.3B by April 2018 as a result of a 10.67% increase in exports to reach $1.1B which offset the marginal 0.14% increase in imports to $6.4B. In terms of imports, the mineral products with a weight of (17.24%) saw a decrease of 21.34% Year-On-Year (Y-O-Y) to stand at $1.1B by April 2018. Moreover, machinery and electrical instruments (11.5%) rose by 21.37% to reach $733M Y-O-Y. On the other hand, the vehicles, aircraft, vessels and transport equipment fell by 8.98% to $514M. Lebanon imported products come from China (11%), Italy (9%), Greece (8%) and United States (6%). In terms of exports, pearls, precious stones and metals (27.36%) also increased by 30.22% to reach $293M. The Base metals and articles of base metals (14.09%) rose by 43.53% Y-O-Y to attain $151M. However, prepared foodstuffs like beverage and tobacco (13.6%) saw a decrease by 6.39% to tick at $146M by April 2018. Lebanon’s top export destinations are United Arab Emirates and South Africa with 12% and 10%, respectively of total exports value. (Blom 08.06)

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5.2 Jordan Praises Results of the Mecca Summit

On 11 June, Jordan’s King Abdullah expressed his appreciation for Arabian Gulf countries for supporting Jordan. Senior officials, lawmakers and sector leaders also thanked Saudi Arabia, Kuwait and the UAE for pledging $2.5 billion to help revive Jordan’s economy at summit in Mecca. Prime Minister-designate Razzaz also expressed the Kingdom›s appreciation for the three countries for the economic aid package they have offered to enable Jordan to overcome economic challenges. He also commended the Mecca meeting called for by King Salman to discuss the Kingdom’s economic crisis and means to overcome it. The Lower House highly commended the outcomes of the Mecca meeting, which aimed at providing Jordan with means to overcome the current economic crisis in Jordan. (JT 12.06)

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5.3 After First Third of 2018, Jordan’s Budget Deficit Stands at JOD 378 Million

Jordan’s recorded a deficit of JOD378 million after grants in the first third of this year, compared with JOD146.7 million for the same period of 2017, according to updated Finance Ministry data. The Finance Ministry said in its monthly report that the deficit, before external grants, amounted to about JOD452 million, compared with a deficit of about JOD231.7 million for the same period of 2017. Total public revenues (domestic and grants) in the first half of this year amounted to approximately JOD2.464 billion, compared with JOD2.366 billion for the same period of 2017.

Meanwhile, the total public debt at the end of April this year amounted to JOD27.721 billion, constituting 96% of the GDP at the end of April, compared with JOD27.269 billion or 95.3% of the GDP in 2017.

The debts of the National Electricity Power Company (NEPCO) and the Water Authority amounted to about JOD3.7 billion in the first third, the report said. The net public debt at the end of April of this year showed a rise of JOD756.9 million, compared to the end of 2017. The ministry explained that the funds were borrowed to offset the deficit and cover guaranteed loans for NEPCO and the Water Authority. (JT 08.06)

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5.4 Jordan Receives First Upgraded Cobra Attack Helicopters

Jordan has received back into service the first of 12 Bell AH-1F Cobra attack helicopters that are being put through an extensive upgrade process. Northrop Grumman, which as a subcontractor to Science and Engineering Services (SES) is updating the avionics of the 1980s-vintage helicopters, announced on 7 June that the first have now been shipped from Huntsville, Alabama, to Jordan for weapons testing and final acceptance by the Royal Jordanian Air Force (RJAF). The aircraft are being rewired and reconditioned by SES to ensure their quality and integrity, before Northrop Grumman integrates the new avionics solution. Further to SES and Northrop Grumman, Bell is helping with the refurbishment of the airframes while Honeywell is involved in upgrading the helicopters engines. As noted by Northrop Grumman, its avionics solution comprises a digital Integrated Mission Equipment Package (iMEP) made up of a commercially available FlightPro Gen III mission computer, a full suite of liquid-crystal display units, an embedded software digital map and navigation controls. (Jane’s 08.06)

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►►Arabian Gulf

5.5 UAE Non-Oil GDP Growth Forecast at 3.9% in 2018

The UAE’s Central Bank has raised its forecast for non-oil GDP growth in 2018 to 3.9% from 3.6%. The stronger forecast comes as non-oil economic activity in the UAE grew by 3.1% in the first quarter, slowing slightly from 3.4% in the final quarter of 2017. Overall economic activity, which includes oil output, grew by 1.2% in the first quarter. For 2019, the central bank said it expects overall GDP to expand 3.1% on the back of 4.3% growth in the non-oil economy and a 0.1% rise in oil GDP. The central bank also noted that the UAE’s residential real estate market continued to decline in Q1/18, with prices dropping 4.2% from a year earlier in Dubai and 7.8% in Abu Dhabi. (AB 29.05)

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5.6 Abu Dhabi to Invest $13.6 Billion to Stimulate Economy & Provide Jobs

Abu Dhabi will spend $13.6 billion over three years to stimulate its economy, the emirate’s crown prince said. The government will take steps to support new industries, encourage tourism and make it easier to do business, Mohamed Bin Zayed al-Nayhan said. He added officials have been instructed to “draw up a working plan for allocations within 90 days.”

The crown prince said he’s “ordered the provision” of at least 10,000 jobs for Emiratis in the public and private sectors over five years. A new council for advanced industries will be created “to attract and support value-added investments,” while the settlement of outstanding payments due to private contractors will be accelerated.

Abu Dhabi’s stimulus plan follows the announcement last month of a package of measures by Dubai’s ruler and the prime minister of the United Arab Emirates, Sheikh Mohammed Bin Rashid. Abu Dhabi and Dubai are the largest of the seven emirates that make up the UAE. (AB 06.06)

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5.7 Abu Dhabi Non-Oil Foreign Trade Exceeds $10 Billion in First Quarter

Abu Dhabi’s non-oil foreign trade rose to nearly AED38 billion ($10.3 billion) in Q1/18, according to official figures. The Statistics Centre – Abu Dhabi said the value of exports increased to AED6 billion, while imports stood at AED26.34 billion and re-exports at AED5.58 billion from January through March. The statistics cover the value of non-oil foreign trade which entered or exited the territory of Abu Dhabi through the emirate’s air, sea and land points of entry.

During Q1, industrial accessories made up the majority of Abu Dhabi non-oil exports, amounting to around AED5.4 billion, accounting for 90% of the total, with F&B exports reaching AED262 million. Non-oil merchandise worth AED10.4 billion, including industrial accessories, was imported, comprising 39.5% of the emirate’s total imports during Q1, with transport equipment and accessories imports nearing AED8 billion. In terms of re-exports, transport equipment and accessories accounted for 44.8% of total re-exports during the same period.

For March, the total non-oil foreign merchandise trade grew 2.5% compared to the same period in 2017 as a direct result of a 3.8% rise in the value of imports, a 1.5% increase in non-oil exports. Re-exports fell by 2.1%. (AB 02.06)

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5.8 Dubai Government Shines in Global Competitiveness Study

The Competitiveness Report 2018 issued by the Swiss-based International Competitiveness Centre of the International Institute for Management Development (IMD) also placed Dubai first in the Arab world for government budget as a percentage of GDP. Government efficiency, as evaluated in the report, was measured on economic performance, efficiency of the business environment and infrastructure.

Globally, Dubai ranked seventh in government efficiency and tax system, and third as a global financial hub, ahead of Singapore, Switzerland and all EU countries except Iceland. In terms of the adaptability of government policy to changes in the economy and the extent of implementation of government decisions, Dubai ranks third globally. The emirate also ranks first in terms of population growth and number of internet users (906 users per 1,000 inhabitants) in addition to being third globally in low dependency rates.

Globally, Dubai stands second in the openness of the local culture to new ideas as well as in terms of the efficiency of economic and social reforms while the emirate ranks fourth worldwide in productivity in the service sector, ahead of Singapore and Hong Kong. The average number of working hours per year in Dubai is the fifth highest globally. (AB 09.06)

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5.9 Unemployment Rate in Dubai Drops to 0.5% in 2017

Dubai recorded an unemployment rate of 0.5% in 2017, significantly lower than the global average, according to the Dubai Statistics Centre. Total employment in Dubai reached 2,778,000 last year, out of which emirate’s resident workforce numbered 2,077,603 while its non-resident workforce – residing outside Dubai – totaled over 700,000. Over the last three years, Dubai’s labor market has added an average of 110,000 people annually to its resident workforce. The 2017 survey results show that the overall economic participation rate -%age of employed people in the total working-age population – increased in 2017 by nearly 1% to reach 83.1%.

Female workers accounted for the largest share of the increase in the economic participation rate, rising 4.3% to reach 53.6% in 2017. The economic participation rate of Emiratis increased by 3% to reach 51.1%, the figures also showed. The survey results revealed that the composition of the Emirati workforce is markedly different from that of non-Emiratis. A quarter of employed Emiratis work as technicians and associate professionals (25.7%), while about a quarter of employed non-Emiratis are craftsmen (24.1%). Some 63.3% of the total workforce hold a secondary education certificate or higher qualification while 34.1% hold a bachelor’s degree or higher qualification. The survey highlighted that the vast majority of unemployed people in Dubai – 98.8% – are in the age group of 20 to 39 years. (AB 30.05)

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5.10 Saudi Economy Returns to Growth Based on Oil Price Rises

The Saudi economy pulled out of recession in Q1/18 thanks to oil price rises. Capital Economics said the oil-dependent Saudi economy grew by 1.5% in the first quarter, after having contracted by 0.7% in 2017. Oil prices surged to around $80 a barrel last month from under $30 a barrel in early 2016 after OPEC and non-OPEC producers struck a deal to cut output.

As a result of the crash in prices, the economy dipped into negative territory last year for the first time since 2009, a year after the global financial crisis. Saudi Arabia posted a budget deficit in the past four years and it has borrowed from domestic and international markets and hiked fuel and power prices to finance the shortfall. It also introduced a 5% value-added tax from the start of 2018.

Riyadh-based Jadwa Investment said that Saudi fiscal reserves rose by $13.2 billion in April, marking its largest monthly increase since October 2013. The reserves stood at $506.6 billion in April, down from $732 billion at the end of 2014. Since 2014, Saudi budget deficits have totaled $260 billion and the government is projecting a 2018 shortfall of $52 billion. (AB 05.06)

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►►North Africa

5.11 Egypt’s Annual Urban Consumer Price Inflation Decreases to 11.4% in May

Egypt’s annual urban consumer price inflation fell to 11.4% in May, down from 13.1% in April, CAPMAS announced on 10 June, a bigger drop than the International Monetary Fund (IMF) had predicted. The IMF said in a report in January it expected inflation to fall to 12% by June and to single digits by 2019. It warned against a premature rate cut and urged the Central Bank of Egypt to remain vigilant.

Inflation surged in 2017 on the back of economic reforms tied to a $12 billion IMF loan program Egypt signed in late 2016 that includes deep cuts to energy subsidies and tax hikes. Prices soared in particular after the import-dependent country floated its pound currency in November 2016, reaching a record high of 33% in July 2017, though inflation rates have since gradually eased. (CAPMAS 10.06)

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5.12 Egypt Parliament Begins Discussion of 2018/19 Budget

On 2 June, Egypt’s parliament began discussing the country’s new state budget for fiscal year (FY) 2018/19. The county’s five-year sustainable socio-economic development plan (2017-2022) will be also discussed. An initial debate on the new budget and development plan was held on 15 April, where Minister of Finance Amr El-Garhy and Minister of Planning, Administrative Reform and Follow-up Hala El-Saeed delivered two statements before parliament. Salah Eissa, said that a report prepared by the committee on the 2018/19 budget and development plan would be submitted to parliament for discussion.

This budget comes within the framework of an economic reform program that began in November 2016 and has yielded very positive results, Eissa said, adding that inflation has dropped from 33% to 12%, foreign exchange reserves rose from $15 billion to $44 billion, unemployment has fallen to 10%, and the budget deficit was cut to 8.4%. The committee’s report recommends that the government continue with implementing the second stage of the IMF-inspired economic reform program.

The report also recommends that the government adopt a new package of social protection that can help poor and limited-income citizens cope with the expected harsh economic measures such as phasing out fuel and power subsidies. Eissa said that the committee report notes that large budgetary allocations were earmarked to the sectors of education, health, culture and transport. Eissa said the committee report also recommends that the government stop foreign borrowing. (Al Ahram 03.06)

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5.13 Egypt’s International Trade Worth $42.86 Billion in Second Half

The value of trade exchange between Egypt and the world from July to December 2017 amounted to $42.86b, according to the Central Bank of Egypt (CBE). The CBE stated that imports in that period reached $30.8b, while exports scored $12.06b. According to the CBE, 14 countries accounted for 59.43% of Egypt’s total foreign trade, registering $25.47b. It pointed out that the value of Egyptian exports to these countries reached $7.52b, which accounts for about 62.41% of Egypt’s total exports. Egyptian imports from these countries reached $17.95b, accounting for 58.26% of Egypt’s total imports between July and December 2017.

The UAE ranked first in terms of Egypt’s most important trading partners, as the scale of trade exchange amounted to about $3b, including $1.84b in imports and $1.17b in exports, followed by China with an exchange of goods worth $2.6b, including $2.5b worth of imports and $160.4m of exports. The US came in third with a trade exchange estimated at $2.3b in total, of which about $1.3b was imports and $985.5m was exports. Saudi Arabia then followed in the fourth spot, having exchanged $2.3b worth of goods in the same period. That included $1.8b in imports and $508m in exports.

Italy followed in fifth, bearing a trade exchange totaling $2b, including $958.6m in imports and $1.08b in exports. The value of trade exchange between Egypt and Germany was about $1.99b, including $1.4b in imports and $502.3m in exports, while trade with the UK reached a total of $3.7b, including imports of $1.1b and exports worth $856.7m.

The CBE added that Russia was the seventh most important trading partner for Egypt in the period between July and December 2017, as imports amounted to $1.5b and exports reached $83.6m, totaling $1.6b worth of trade. Switzerland followed with a total trade exchange of $1.4b, including $1b in imports and $455.2m in exports. France ranked next on the list with a total trade value of $1.35b, including $1.06b in imports and $296.3m in exports, then Turkey with a total exchange of $1.3b, including $805.3m in imports and $518.4m in exports. (CBE 05.06)

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5.14 Egypt’s Fuel and Petrochemicals Exports Increase

The total value of Egypt’s fuel exports increased by $260 million year-on-year (YOY) in Q1/18. Official statistics show that the country exported $1.225 billion worth of oil in Q1/18, compared to $964 million during the same period in 2017. The figures, published by the Central Agency for Public Mobilization and Statistics (CAPMAS), also show that Egypt’s oil exports fell from $554 million to $476 million in the same period – a $77.9 million YOY decrease. Exports of petroleum products almost doubled in Q1/18, rising from $47.2 million to $93.6 million YOY. (CAPMAS 10.06)

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5.15 Russia Lifts Ban on Egyptian Potato Exports from 8 Regions

Egyptian Minister of Trade and Industry Qabeel said that the Russian authorities have agreed to lift the ban on Egypt exports of potatoes from 8 agricultural areas and to allow the export of these crops starting from 6 June. The minister said that the decision comes as a culmination of the negotiations held in Russia on the sidelines of the activities of the Egyptian-Russian Joint Committee held in Moscow in late May, during which both parties discussed the restrictions on the export of Egyptian potatoes from the eight regions since 2015.

During the meeting, officials discussed the technical problems that hinder the process of agricultural exports and imports between the two countries, including potatoes. For his part, head of the Egyptian trade office in Moscow said that the Russian side issued its decision after the Egyptian side supplied it with the results of the potato quality analysis, which were made at the request of the Russian side about the brown rot in some farms from which potatoes were exported to Russia. The Federal Veterinary and Phytosanitary Monitoring Service of Russia reviewed the procedures for the cultivation and export of Egyptian potatoes assuring that they meet the requirements and specifications of Russian authorities. (Al-Masry Al-Youm 02.06)

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5.16 Future of the Moroccan Defense Industry 2018 – 2023

The “Future of the Moroccan Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2023” report has been added to ResearchAndMarkets.com‘s offering. Morocco is enhancing its military capabilities in response to the recent developments in the Middle East and North Africa (MENA) region. The country has seen a steady increase in its defense budget over the historic period due to its military modernization plans. In addition, the country also faces insurgency in the Western Sahara region as the local insurgent outfit, Polisario Front, recently issued a threat to restart an armed struggle over its occupation of the area.

Moroccan defense expenditure increased steadily during 2015-2017, in the wake of the current security situation in the MENA region, along with its efforts to modernize its army in order to match the military strength of its neighboring rival, Algeria. A dip in the budget in 2015 was attributable to the lower exchange rate in the same year. Between 2014 and 2018, Morocco’s defense expenditure decreased from $3.8 billion in 2014 to $3.7 billion in 2018, at a CAGR of -0.66%.

Moroccan homeland security (HLS) expenditure increased from around $2.4 billion in 2014 to about $2.7 billion in 2018, registering a CAGR of over 2.4%. The need to protect the country from internal disturbances, and growing threats from human and drug traffickers, are expected to drive HLS expenditure over the forecast period. In order to counter these threats, the country is expected to invest in surveillance and intelligence technologies such as electronic identification documents, automated border crossing systems, and CCTV (closed circuit television) systems.

Morocco’s defense sector is plagued by wide-spread corruption across all bureaucratic levels which act as a roadblock for foreign defense companies interested in entering into arms contracts with the nation. Dishonest procurement proceedings and unethical workings lead to the misappropriation of public funds, aggravating the risk of internal conflicts. The preeminence of US and French firms within the Moroccan industry, due to the strong business ties between the countries, also makes it difficult for firms from other countries to enter the market. (R&M 08.06)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1 Turkey Completed Simplification of its Monetary Policy

Turkey has completed a normalization and simplification of the country’s four interest rates, Deputy Prime Minister responsible for the economy Mehmet Şimşek said on 12 June. At the end of last month, the Central Bank of the Republic of Turkey (CBRT) announced its intention to complete the simplification process for the operational framework of its monetary policy after two years of work amid falling Turkish lira. Şimşek also revealed that Turkey withdrawn all of its gold holding from the U.S. Federal Reserve.

Şimşek’s remarks came a day after the Turkish Statistical Institute (TurkStat) revealed that the country’s economy expanded by 7.4% in the first quarter of this year compared with the same period last year. The three-month gross domestic product (GDP) at current prices climbed to around TL 792.7 billion (nearly $207.5 billion). Şimşek forecasted growth will be re-balanced after the second half of the year and the domestic demand will ease.

Turkey’s current account deficit hits $5.43 billion in April, marking an increase of $1.7 billion, year-on-year, Turkish Central Bank (CBRT). The minister added the inflation stemmed from the loss in the value of the Turkish lira against other currencies and the increase in the oil prices. The country’s annual inflation rate was 12.15% in May, up from 10.85% in April, according to the TurkStat. (Various 12.06)

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6.2 Turkey’s Auto Production Drops 2% Between January – May

Turkey’s automotive production from January to May dropped 2% on an annual basis, according to the Automotive Manufacturers Association (OSD) on 9 June. Automakers in Turkey produced 711,999 vehicles (including automobiles, light commercial vehicles, and tractors) in the first five months of 2018, according to the monthly report. The report showed that automobile production also fell 7% during the same period, to reach 471,634. The Turkish market for auto sales (including light trucks and other vehicles) narrowed 4% annually, standing at 311,566 between January and May.

Turkey’s automotive exports dropped 3% to 577,820 in the first five months of 2018, compared with the same period last year. However, the export value rose to $14.1 billion, up 18% during the same period, due to high level of the dollar-lira parity, it said. The five-month average U.S. dollar/Turkish lira exchange rate this year was around 3.99, while last year one dollar traded for 3.65 liras on average. (AA 09.06)

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6.3 Cypriot Economy Expands by 4% in First Quarter

Cyprus’s economy expanded by 4% in Q1/18 over that in Q1/17 and by 1% compared to Q4/17, Cystat announced. From January to March, economic output rose a seasonally adjusted 4% compared to the respective period of 2017. On 15 May, Cystat announced its preliminary estimate of an annual growth rate of 3.8% and a quarterly 0.8%. The increase in output was in the areas of hotels and restaurants, retail and wholesale trade, construction, manufacturing, professional, scientific and technical activities and administrative and support service activities. (Cystat 08.06)

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6.4 Cyprus Defense Minister Visits Israel

Cyprus Defense Minister Angelides is heading to Israel on his first official visit, where he will meet with his counterpart to discuss military training cooperation between the two countries. Angelides will meet Israeli Defense Minister Lieberman on 13 June, where the two men are expected to assess bilateral relations between Cyprus and Israel in the area of military cooperation.

Cyprus has maintained friendly relations with Israel over recent years, which have been strengthened following meetings between President Anastasiades and Prime Minister Netanyahu. The meeting between Angelides and Lieberman will pave the way for a trilateral meeting with Greece, where all three defense ministers will meet in Nicosia in late June.

Last year, Israeli commandos took part in a large land-based joint drill on Cypriot soil, during a weeklong exercise in Troodos mountains. Israel was also the place for the launching ceremony of the first ever offshore patrol vessel “Commodore Andreas Ioannides” for Cyprus, with at least two more in pipeline as part of a bilateral agreement. This year, Israeli jets flew over Cyprus to test Cypriot air defense during the Onisilos-Gideon joint military exercise between the two countries. (Kathimerini Cyprus 06.06)

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6.5 Greece’s Annual Inflation Rate Rises by 0.8% in May

Greece’s annual EU-harmonized inflation rate accelerated in May, statistics service ELSTAT data showed on 1 June. The returns for May was 0.8% from 0.5% in April. The data showed the headline consumer price index rose to 0.6% year-on-year from zero% in the previous month.

Greece had been in a protracted deflation mode since March 2013 based on its headline index, as wage and pension cuts and a multi-year recession took a heavy toll on Greek household incomes. Deflation in the country hit its highest level in November 2013 when consumer prices registered a 2.9% year-on-year decline. The economy emerged from deflation in June 2016. (Reuters 01.06)

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6.6 Eurozone Holds Off on €1 Billion Tranche for Greece

The Eurozone bailout fund ESM decided on 1 June to hold off the disbursement of a €1 billion loan tranche for Greece to wait for confirmation from Athens it fulfilled the condition of arrears clearance for the release of the money. An ESM spokesman said Greece made satisfactory progress to meet the conditions for the release of the loan but not quite. The money is available until 15 June. (Reuters 08.06)

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6.7 Greece Submits Reforms to Parliament Aimed At Unlocking Last Bailout Loans

A draft bill submitted to parliament late on 8 June outlines reforms in the energy, pension and labor sectors as the government races to secure the last loans from its international bailout program. Athens is keen to pass a final review by its creditors ahead of a Eurogroup meeting on 21 June, where it is also hoping for progress on a deal on further debt relief to be implemented after the current bailout program expires in August. If it gets approval from the review and Eurogroup, it will receive about €12 billion of new loans.

Greece’s current loan program, its third since 2010, is worth up to €86 billion. So far, Athens has received €46 billion in aid and the Eurogroup has yet to decide on what it will do with the remaining funds, once it has paid out the final €12 billion of loans.

Among other reforms, the bill includes measures to expedite privatizations in the energy sector, the reduction of state spending on pensions and labor market reforms including arbitration when there is a dispute between employers and staff. It also outlines measures for the post bailout period such as extra pension cuts in 2019 and lowering the tax exempt threshold in 2020. The government also submitted to parliament its fiscal plan for 2019-2022, projecting higher than targeted primary surpluses on an annual basis. (Reuters 09.06)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Eid Al Fitr Holiday Marking the End of Ramadan Likely to Start on 15 June

The International Astronomical Centre (IAC) announced that Eid Al Fitr is expected to start on Friday, 15 June in most Islamic countries, signaling the end of the holy month of Ramadan. The IAC said that on 14 June the moon’s crescent is likely be seen through a telescope from the east and southeast of Asia and Europe while it will be seen with the naked eye with difficulty from all Arab countries, except in the far west. (WAM 06.06)

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7.2 Israel’s Hebrew University Listed in Times Higher Education Top 100 Global Ranking

United Kingdom-based Times Higher Education magazine, which publishes an annual ranking of global universities, placed the Hebrew University of Jerusalem among the top 100 most powerful global university brands for 2018. It was the first time since 2014 that an Israeli university ranked in the top 100.

The World Reputation Rankings 2018 surveyed over 10,000 leading academics from 137 countries, a statement from the university said. Hebrew University placed in the 91-100 range, along with Boston University, University of Copenhagen, France’s Ecole Polytechnique, the University of Helsinki and the India Institute of Science, among others. Harvard University took the top spot for the eighth consecutive year, and 43 other U.S. institutions rated in the top 100. The Massachusetts Institute of Technology and Stanford University were ranked second and third respectively. (IH 01.06)

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7.3 Microsoft Leads Tel Aviv Gay Pride Parade

On 8 June, an estimated 250,000 people attended the Gay Pride Parade in Tel Aviv. Tourists from all around the world came to Israel to watch and participate in the event. The theme of this year’s event is “The Community Makes History” — a reference to the LGBT community in Israel.

Multinational tech giant Microsoft led the annual Tel Aviv Pride Parade with a truck designed to mark 20 years of community heritage in the city. The concept of the Microsoft truck was also centered on the city’s first pride parade, which was called the Tel Aviv Love Parade in 1997. It was also designed to pay homage to the colorful bird feather Jean-Paul Gaultier costume worn by popular Israeli transgender singer Dana International after she won the Eurovision Song Contest in 1998.

Tel Aviv has long billed itself as a gay tourism hub and last July, a joint survey by GayCities.com and American Airlines ranked Tel Aviv as the world’s top LGBTQ travel destination. In Israel, members of the LGBTQ community serve openly in the IDF and in the Knesset, and many popular artists and entertainers are gay. (Various 07.06)

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*REGIONAL:

7.4 Eid Al Fitr Private Sector Holiday Announced in UAE

The UAE Ministry of Labor has declared that the Eid Al Fitr holiday, as an official paid holiday for all private sector employees in the UAE, will be on Friday, 15 June and Saturday, 16 June. The Federal Authority for Government Human Resources has declared that Eid Al Fitr holidays for federal entities in the UAE will begin from Thursday, 14 June, the 29th Ramadan. If Eid Al Fitr falls on Friday, 15 June, then the holiday will last until Sunday, 17 June. (AB 12.06)

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7.5 Sharjah University Has Highest Percentage of International Students of Any University Worldwide

American University of Sharjah (AUS) has led the Times Higher Education list of universities with the highest percentage of international students globally. With international students comprising 84% of its student community, AUS surpassed the other 199 universities included on the list, which represent countries including the United States, the United Kingdom, Ireland, Luxembourg, Switzerland and Australia. The list is widely regarded as one of the most reliable indicators of international student numbers, a statement said.

AUS is a popular choice for students from all around the world, with its academic programs based on the American liberal arts model. The university’s location between Europe and Asia is also cited as reasons for the popularity of AUS among international students. AUS currently welcomes students from more than 95 countries. (AB 09.06)

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7.6 Saudi Arabia Starts Issuing Driving Licenses to Women

On 4 June, the General Directorate of Traffic started replacing international driving licenses recognized in the kingdom with Saudi licenses, replacing international driving licenses. The move comes as Saudi Arabia, the only country in the world where women are not allowed drive, prepares to lift its decades-long ban on female drivers on 24 June. Authorities started swapping international licenses for Saudi ones in multiple locations across the kingdom, with women applicants made to undergo a “practical test”. It did not specify the number of licenses issued.

The move is part of Crown Prince Mohammed bin Salman’s far-reaching liberalization drive as he seeks to modernize the conservative petro-state. The self-styled reformer, who recently undertook a global tour aimed at reshaping his kingdom’s austere image, has sought to break with long-held restrictions on women and the mixing of the genders. (Various 05.06)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Keystone Heart Enrolls for REFLECT Phase II with TriGUARD 3 Cerebral Embolic Protection Device

Keystone Heart launched Phase II of the REFLECT trial to evaluate the safety and efficacy of the next generation of Keystone Heart – TriGUARD 3 Cerebral Embolic Protection device. This third-generation device is being assessed for its ability to protect the brain from emboli during trans-catheter aortic valve replacement (TAVR), minimizing the risk of stroke and cerebral damage.

The REFLECT trial is a multicenter, prospective, randomized, clinical study designed to assess the safety and efficacy of comprehensive cerebral protection from emboli released during cardiovascular procedures. Phase I of this trial, which remains blinded, enrolled 258 subjects and utilized the TriGuard HDH, an earlier generation device that has CE Mark in the European Union. According to the REFLECT study chairman, Jeffrey Moses, MD, phase II of the trial, using the next generation TriGUARD 3 device, is now initiating enrollment of up to 275 additional patients. This trial is designed to definitively address the role of comprehensive cerebral embolic protection in improving the safety of the TAVR procedure. Trial completion is targeted for October of this year with FDA submission shortly thereafter.

Caesarea’s Keystone Heart is a medical device company developing and manufacturing cerebral protection devices to reduce the risk of stroke, neurocognitive decline and dementia caused by brain emboli associated with cardiovascular procedures. The company is focused on protecting the brain from emboli to reduce the risk of brain infarcts during TAVR, surgical valve replacement, atrial fibrillation ablation and other cardiovascular procedures. The TriGuard product pipeline is designed to help interventional cardiologists, electrophysiologists and cardiac surgeons to preserve brain reserve while performing these procedures. (Keystone Heart 31.05)

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8.2 BioTime Announces $1.9 Million Grant for Continued Development of OpRegen for Dry-AMD

BioTime has been awarded a new grant for 2018 of up to NIS 6.9 million (approximately $1.9 million) from the Israel Innovation Authority (IIA). The grant provides funding for the continued development of OpRegen, and to date the IIA has provided annual grants totaling over $13 million. OpRegen is currently in a Phase I/IIa clinical study, which in March 2018 received authorization from the Data Safety Monitoring Board (DSMB) to move forward with enrollment of cohort 4. The DSMB approval was based on the safety observed throughout the first three cohorts. Safety will remain the primary focus of cohort 4. The fourth cohort will include better vision patients than the previous three cohorts. These better vision patients will likely be in earlier stages of the disease and allow for a wide range of preliminary functional assessment measurements. These earlier stage patients will likely be the target patient population for this therapy and BioTime expects to share initial data from cohort 4 in the coming months.

OpRegen, which is being studied for the treatment of the dry form of AMD, consists of a suspension of retinal pigment epithelial (RPE) cells that are delivered subretinally during a simple intraocular injection. RPE cells are essential components of the back lining of the retina, and function to help nourish the retina including photoreceptors. A proprietary process that drives the differentiation of human pluripotent stem cells is used to generate high purity OpRegen RPE cells. OpRegen® RPE cells are also “xeno-free,” meaning that no animal products are used at any point in the derivation and production process. The avoidance of the use of animal products eliminates some potential safety concerns. Preclinical studies in rats have shown that following a single subretinal injection of OpRegen, the cells can rapidly organize into its natural monolayer structure in the subretinal space and survive throughout the lifetime of the animal. OpRegen is designed to be an “off-the-shelf” allogeneic (non-patient specific) product.

BioTime is a clinical-stage biotechnology company focused on degenerative diseases. Its clinical programs are based on two platform technologies: cell replacement and cell/drug delivery. With its cell replacement platform, BioTime is producing new cells and tissues with its proprietary pluripotent cell technologies. These cells and tissues are developed to replace those that are either rendered dysfunctional or lost due to degenerative diseases or injuries. BioTime’s cell/drug delivery programs are based upon its proprietary HyStem cell and drug delivery matrix technology. HyStem was designed, in part, to provide for the transfer, retention and/or engraftment of cellular replacement therapies. (BioTime 29.05)

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8.3 BrainQ Raises $5.3 Million to Treat Neurological Disorders with the Help of AI

BrainQ has raised a $5.3 million funding round on top of the $3.5 million the company previously raised. The company’s investors include Qure Ventures, crowdfunding platform OurCrowd.com, Norma Investments, IT-Farm and a number of angel investors, including Valtech Cardio founder and CEO Amir Gross. BrainQ is working on two human clinical trials for stroke patients in Israel.

The general idea behind BrainQ is to use the patient’s brainwaves to generate a tailored treatment protocol. No AI company would be complete without data — it’s what drives these algorithms, after all — and the company says it owns one the largest Brain Computer Interface-based EEG databases for motor tasks. It’s that database that allows it to interpret the patient’s brain waves and generate its treatment protocol.

Jerusalem’s BrainQ is developing Artificial Intelligence-powered technologies to treat neuro-disorders in innovative ways. (BrainQ 15.05)

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8.4 Zebra Medical Vision Raises $30 Million – Unveils AI based Radiology Chest X-Ray Reader

Zebra Medical Vision has raised $30 million in C round funding, bringing the total investment in the company to $50 million. In addition, the company is unveiling its Textray chest x-ray research today, the most comprehensive AI research conducted on chest x-rays to date, which provides a glimpse into a future automated chest x-ray analysis product being developed by the company. This round of investment is led by aMoon Ventures with the participation of strategic healthcare investors Aurum, Johnson & Johnson Innovation JJDC Inc. and Intermountain Healthcare and leading global AI experts. These new investors are joining a list of top existing investors Khosla Ventures, NVIDIA, Marc Benioff, OurCrowd and Dolby Ventures who also participated in this C round.

The chest x-ray AI analytics product was trained using nearly 2 million images to identify 40 different common clinical findings. The results of the study establish a new bar for AI research in medical imaging, demonstrating high rates of agreement between the algorithm and human radiologist experts. This publication continues Zebra’s mission to drive a higher standard of care across the radiology domain and collaborate with the medical community to improve patient care.

Kibbutz Shefayim’s Zebra Medical Vision uses deep learning to create and provide next generation products and services to the healthcare industry. Its Imaging Analytics Platform gives healthcare institutions tools to potentially identify patients at risk of disease, allowing them to improve patient care. Headquartered in Kibbutz Shefayim Israel, the Company was founded in 2014 and funded by Khosla Ventures, Marc Benioff, Intermountain Investment Fund, OurCrowd and Dolby Ventures. (Zebra Medical 07.06)

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8.5 Philips Acquires Image-Guided Portfolio Developer EPD Solutions

Royal Philips has signed an agreement to acquire EPD Solutions, an innovator in image-guided procedures for cardiac arrhythmias (heart rhythm disorders). EPD’s cardiac imaging and navigation system helps electrophysiologists navigate the heart by generating a detailed 3D image of the cardiac anatomy, while also pinpointing the location and orientation of catheters during the diagnostic and therapeutic procedures for cardiac arrhythmias. This breakthrough technology has the potential to simplify navigation and treatment, immediately assess the treatment result and ultimately enhance procedure efficacy.

The acquisition will complement Philips’ portfolio of interventional imaging systems, smart catheters, planning and navigation software, and services, and will allow the company to introduce new solutions in the +€2 billion market for image-guided treatment of cardiac arrhythmias, which is growing at a double-digit rate. Philips will acquire EPD for an upfront cash consideration of €250 million and deferred, milestone dependent payments. In connection with these contingent payments, the company expects to recognize a provision of approximately €210 million upon completion of the transaction. The transaction, which is subject to customary closing conditions, is expected to be completed in July 2018.

Caesarea’s EPD Solutions (EPD), a member of the Hobart Group companies, is dedicated to improving the efficacy and efficiency of minimally invasive catheter-based procedures performed to treat cardiac arrhythmias. (Royal Philips 05.06)

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8.6 White Dog Labs Israel & AdvanceBio Collaborate on a New Clostridia Based Technology

Rehovot’s White Dog Labs Israel, a subsidiary of WDL, and Ohio’s AdvanceBio have received a grant from BIRD Energy, a BIRD Foundation (Israel-US Binational Industrial Research and Development Foundation) program, to further develop CelZyme, a cellulosic hydrolysis technology developed by WDL Israel using the microorganism Clostridium thermocellum (Ctx). In the wild, Ctx is nature’s best cellulosic degrader, and since it is anaerobic, the technology has the potential of lowering enzymes costs via onsite CelZyme production, using part of the biomass as its feedstock.

WDL, based in New Castle, DE, has developed a core competency for the isolation, selection, cultivation and engineering of Clostridia. Clostridia is a long known but less understood class of bacteria, with promising applications in nutrition, health and biochemicals and fuels. With its synthetic biology tools for Clostridia, WDL is coupling boundless natural diversity with directed innovation. In Delaware, WDL has developed ProTyton, a Single Cell Protein ingredient for aquaculture that exhibits upwards of 85wt% crude protein and over 35wt% essential amino acids, while WDL Israel has focused on industrial applications. (WDL 07.06)

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8.7 Strategic Partnership Between CannAssure and Hadassah Medical

Direct Capital Investments announced that CannAssure signed a strategic distribution agreement with Hadassah Medical. CannAssure will be Hadassah Medical’s exclusive supplier of GMP approved, medical cannabis oil. Hadassah will distribute CannAssure’s high quality medical cannabis products under Hadassah’s own proprietary brand, throughout their distribution channels in Israel and abroad.

Recently, Direct Capital Investments announced its proposed merger with CannAssure. CannAssure is set to start producing in the first half of 2019. With their newly received GSP permit from the Ministry of Health and the Israeli Medical Cannabis Agency, they are now developing new cannabis extraction methods in their analytical lab at Solbar to create standardized medical cannabis products of the highest quality, in large scale supply. CannAssure’s development of innovative cannabis extraction methods is supported by the Israel Innovation Authority.

Ashdod’s CannAssure was founded in order to address an unmet need in the medical cannabis market- the supply of superior safety profile cannabis extracts and their derivatives. Their products offer fully labelled, consistent, and standardized cannabis extracts and Active Pharmaceutical Ingredients (APIs). CannAssure is built upon the vast experience of Solbar Food Technologies. For over 50 years Solbar has perfected the science of extractions from botanical sources and developed APIs for the nutraceutical industry.

Jerusalem’s Hadassah Medical is a wholly owned company of Hadassah Medical Organization, and serves as Hadassah’s business development division. The company operates on behalf of Hadassah’s medical centers in Israel and abroad. (CannAssure 07.06)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Xioami Integrating Mantis Vision’s Structured Light Technology in Their Mi8 Front 3D Camera

Mantis Vision announced a strategic partnership with Chinese electronics company, Xiaomi. As part of the collaboration, Xiaomi will integrate a 3D camera, operated by Mantis Vision, as the 3D front camera in the company’s flagship device Mi8. Xiomi’s new Mi8 flagship device is the world’s first Android device with integrated 3D imaging and scanning capabilities. Mantis Vision’s technology will enable these capabilities in Android devices for the first time ever, which will allow to scan face scanning and recognition, face 3D capturing for a secure ePayment and other features that have so far only been available with 2D image analysis software. Moreover, the new technology will enable Augmented Reality features both for end users as well as for developers.

Mantis Vision’s technology is based on its proprietary and patented structured light and a smart decoding algorithm which produce the largest number of depth points with the best quality existing on the market today. The coupling of Mantis Vision’s sensor with the internal phone RGB camera makes the sensor the perfect solution for a variety of mobile utilizations such as modeling (AR) that can serve both the end users and professional application developers.

Petah Tikva’s Mantis Vision brings high definition 3D content to everyday experiences. Mantis vision empowers consumers, application developers, and industry professionals to instantly capture and share high-quality 3D content. From 3D cameras on mobile devices to professional handheld 3D scanners and 3D engines for OEMs, our technology easily transforms objects, places and live people into high-resolution 3D digital content, in real-time. (Mantis Vision 30.05)

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9.2 Georgia Farm Bureau Mutual Insurance Company Choses Sapiens P&C Insurance Platform

Sapiens International Corporation announced that the Georgia Farm Bureau Mutual Insurance Company, the largest domestic Property & Casualty insurer in Georgia with over 490 million in direct written premium, has selected the Sapiens Property and Casualty Insurance Platform for North America and signed a five-year agreement for continuous implementation and support of the platform for all of its product lines. The Georgia Farm Bureau Mutual Insurance Company is a subsidiary of The Georgia Farm Bureau Federation, Georgia’s largest voluntary agricultural organization with almost 300,000 member-families.

Georgia Farm Bureau originally partnered with StoneRiver (now a fully-owned Sapiens’ subsidiary) in 2008 to implement an enterprise insurance suite containing an integrated claims, policy and billing system based on their J-Product suite. Sapiens acquired StoneRiver in early 2017 and continues to strengthen the strategic and long-term partnership with Georgia Farm Bureau. The Sapiens Property and Casualty Insurance Platform is comprised of fully integrated, yet standalone, components: Policy, Billing and Claims (those components are based on the former Adaptik, StoneRiver Stream products, respectively, but have been integrated into a unified platform). The mature platform is cloud and API-based, and features a strong core, advanced analytics and data enablement capabilities, plus full digital engagement capabilities.

Holon’s Sapiens International Corporation is a leading and global software provider for the insurance industry, with a 30-year track record of delivering to more than 400 organizations. The company offers software platforms, solutions and services, including a full digital suite, to satisfy the needs of property and casualty/general insurers, and life, pension and annuity providers. Sapiens also services the reinsurance, workers’ compensation, financial and compliance, and decision management markets. (Sapiens 30.05)

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9.3 Fundbox Wins Prestigious Israeli Atlas Award for Best Fintech Startup

Fundbox has won the coveted Israeli Atlas Award for Best Fintech Start-Up. For a third year in a row, the 2018 Israeli Atlas Award event was held in cooperation with the Ayn Rand Center, The Marker and such leading partners as, BDI, IVC, Bank HaPoalim and Israel Aerospace Industries. The prize is awarded to those Israeli startups that have created a technology, idea or product of exceptional value in Israel over the past year.

Tel Aviv’s Fundbox seeks to simplify and improve the way that small businesses pay and get paid. The company uses cutting-edge technology, data science, and common sense to give small businesses greater access and choice to financial solutions that are intuitive, fast, and transparent so the business owner can remain focused on running their business. Fundbox provides credit limits up to $100,000 and can transfer funds as soon as the next business day. Because of it, small businesses across the U.S. have more control over their finances and are better able to succeed and grow.

Fundbox is funded by leading Silicon Valley entrepreneurs, finance veterans, and venture capitalists, including Spark Capital Growth, Bezos Expeditions, General Catalyst Partners, Khosla Ventures, SV Angel, former CitiGroup CEO Vikram Pandit, and other prominent investors. Fundbox was recognized as a Billion Dollar-Startup to watch in 2017 by Forbes. (Fundbox 31.05)

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9.4 Epsilor & Kissling Feature Lithium-Ion 6T NATO Battery on a Mercedes-Benz Command Vehicle

Epsilor-Electric Fuel, together with Kissling Service, a German industry leading integrator of vehicle mounted defense systems, will showcase Epsilor’s 6T NATO battery (ELI-52526) on a Mercedes-Benz command vehicle at Eurosatory 2018. The high energy, high power density battery will be used to generate power for different users onboard the vehicle, providing it with all of its energy needs within a small volume and weight footprint. It will be presented at the Mercedes-Benz Defense Vehicles outdoor exhibition at area DE-240. Epsilor will also present a wide range of batteries and charging solutions designed for different military vehicles.

Epsilor’s 6T batteries are currently being tested and evaluated by a number of leading defense vehicle manufacturers and military customers, for various missions such as long-shift silent watch, start-stop applications, high power mission applications and more. Realizing that modern armies need to store and generate more energy in lighter and smaller batteries, Epsilor is also offering an innovative line of 12V Lithium vehicle batteries. The company’s lithium Iron Phosphate Vehicular Battery family of products offers 100% more energy than similar Lead Acid batteries. Offering over 3,000 duty cycles, this technology is designed to serve a wide range of vehicle, marine and industrial applications and is designed to fit military vehicles and marine vessels, where service conditions are tough, volume and weight are important, and clean reliable energy is required.

Dimona’s Epsilor is a globally recognized developer and manufacturer of custom and standard batteries, chargers and mobile power systems for the defense, medical, aerospace, industrial and marine markets. The company offers a wide variety of electro-chemistries, smart electronics and sophisticated battery management systems (BMS). The company’s products have won several awards for their innovation and smart operational approach. (Epsilor 31.05)

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9.5 ThunderSoft & InfinityAR Announce Strategic Cooperation for Reference Design for AR Glasses Vendors

Beijing’s ThunderSoft, a world-leading intelligent platform technology provider, and InfinityAR announced a strategic cooperation. As part of this cooperation, the two companies will jointly offer a comprehensive solution for AR OEMs/ODMs. This one-stop-shop solution will span from system design guidelines, SW/HW architecture, and integration, to high-level applications. This joint solution will help AR companies to lower development costs, shorten development cycles and promote rapid growth and commoditization of mobile AR. AR glasses will be applied in a wide range of business applications such as manufacturing, educational and retailing.

The newly announced partnership between ThunderSoft and InfinityAR is designed to solving technical challenges, thus boosting the expansion of the AR industry. As a leading and smart platform technology provider, ThunderSoft has an outstanding accumulative experience and technological innovation in smart operating systems. Its Thundersoft TurboXAR software and hardware solution includes a system on module, operating system, algorithm, and SDK. InfinityAR’s proven technology converts AR glasses into powerful platforms of augmented content with the most accurate simultaneous localization and mapping (SLAM) solution, giving app developers the freedom to create unparalleled hybrid experiences.

Ramat Gan’s InfinityAR‘s vision is about creating a new digital environment that will allow people to naturally interact with augmented content in their physical surroundings, all by creating a new Mixed Reality platform that will digitally enhance every person’s physical world. InfinityAR’s technology turns AR glasses into a powerful content augmentation platform with the most accurate inside-out Simultaneous Localization and Mapping (SLAM) solution, allowing application developers to bring unmatched mixed reality experiences. (InfinityAR and ThunderSoft 31.05)

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9.6 Epsilor To Supply Battery Chargers For Canada’s Integrated Soldier System

Epsilor has been chosen by the Canadian Armed Forces to supply a battery charging solution for Canada’s Integrated Soldier System (ISS) program. The $3 million contract will see Epsilor develop and deliver 400 multi-channel chargers, spares, and services, with an option for an additional 350 chargers, over the next four years. The ISS program seeks to equip thousands of personnel with soldier-borne C4I systems, including battle management, intelligence, surveillance, and reconnaissance systems, all of which require battery supplies for lengthy field operations.

The new charger supports the LI-145/LI-80 family and BB-2525/U conformal wearable batteries used by the Canadian forces, as well as by various NATO armed forces. Epsilor’s 12-channel charger is packed in a rugged case that will enable soldiers to charge large numbers of batteries in depot as well as in the field and in moving vehicles. The charger, which is designed to receive power from different sources, such as an electric grid and different vehicle sources, is intended to improve tactical flexibility and the energy independence of its users.

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9.7 Foresight Completes Successful Trial of Cellular-Based Eye-Net Solution

Foresight Autonomous Holdings announced, in collaboration with the city of Ashdod and NoTraffic, that is has successfully completed a controlled trial of its Eye-Net accident prevention solution. Eye-Net is a V2X cellular-based accident prevention solution, designed to provide pre-collision alerts in real time to pedestrians and vehicles by using smartphones and relying on existing cellular networks.

The trial was conducted at a central intersection in Ashdod, a city in the center of Israel, and was carried out in collaboration with NoTraffic, which develops traffic management systems for cities based on a network of sensors deployed at intersections with traffic lights. Supervision was provided by BWR (Blue and White Robotics) as part of the Ashdod Smart Mobility Living Lab project, and the trial was carried out with the support of the Ministry of Transport and the Ayalon Highway company as part of the national plan to promote smart transportation. The purpose of the trial was to integrate innovative technologies designed for smart cities, while creating a reliable communication channel between road users and smart infrastructure. During the trial, Foresight tested its Eye-Net system in various scenarios and integrated it with the NoTraffic smart system installed at the intersection.

In all scenarios, Foresight met all the pre-defined objectives and indicators for the real-time use of the Eye-Net system in a manner that enabled all road users to brake safely and on time. During the trial, the information was streamed in real time to the control center onsite and displayed the location and time of occurrence of the simulated collisions on a map, as well as the classification of the road users involved.

Ness Ziona’s Foresight Autonomous Holdings, founded in 2015, is a technology company engaged in the design, development and commercialization of stereo/quad-camera vision systems and V2X cellular-based solutions for the automotive industry. Foresight’s vision systems are based on 3D video analysis, advanced algorithms for image processing and sensor fusion.

Tel Aviv’s NoTraffic. develops a traffic management platform that optimizes traffic lights in real-time based on smart sensors, and prepares the road infrastructure for the connected and autonomous era. The platform is powered by integrating data from proprietary computer vision algorithms and data collected through vehicle-to-infrastructure (V2I) communication. (Foresight 04.06)

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9.8 Innoviz & HiRain Partner to Bring High Performance LiDAR to Chinese Auto OEMs

Innoviz Technologies Beijing’s HiRain Technologies, a leading Tier 1 solution provider for the automotive market in China, announced a partnership to bring Innoviz’s groundbreaking LiDAR and computer vision technology to Chinese automakers through HiRain’s extensive sales channels in the country. The addition of Innoviz’s LiDAR to HiRain’s offering enables Chinese OEM’s to access the automotive industry’s most comprehensive mass-market LiDAR solution available today, as an integrated component of their overall autonomous driving systems. In addition, Innoviz’s advanced solution provides a complete computer vision software stack and algorithms to turn 3D vision into critical driving insights.

Innoviz’s unique, solid-state LiDAR solution leverages a proprietary MEMS-based design to deliver the highest automotive standards for safety, performance and reliability — all at the affordable prices required for mass market adoption. The availability of Innoviz’s LiDAR within HiRain’s autonomous driving system gives HiRain customers access to Innoviz’s long-range scanning and superior object detection capabilities for self-driving vehicles. Innoviz LiDAR enables autonomous vehicles to sense their surroundings with unparalleled clarity and accuracy, even at long distances, in varying weather and light conditions, and in multi-LiDAR environments.

Kfar Saba’s Innoviz is a leading provider of cutting-edge LiDAR remote sensing solutions designed to enable the mass commercialization of autonomous vehicles. The company’s LiDAR products deliver superior performance at the cost and size required for mass market adoption. Available now, InnovizPro offers unrivaled angular resolution at the highest frame rate of any LiDAR solution currently on the market. (Innoviz Technologies 06.06)

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9.9 Alcide Announces Coupling Its Native Integration with Amazon’s EKS

Alcide is to be part of a select number of vendors selected for the Amazon Elastic Container Service for Kubernetes (EKS). Amazon EKS is a managed Kubernetes service that enables it to easily run Kubernetes on AWS without the need to install and operate any additional Kubernetes clusters.

EKS does all the heavy lifting of cluster provisioning, life-cycle management, availability, resiliency updating and upgrades. By seamlessly integrating with EKS, whether running one or dozens of EKS clusters, customers can benefit from an unparalleled visibility and deep network security monitoring of all running workloads, across multiple accounts and regions. With Alcide, EKS customers can monitor changes and visually explore Kubernetes Network Policies and how they are layered on top of Amazon Security Groups, enabling policies to be easily tuned and refined through application labeling and apply to the relevant tier in the organization. Alcide Security Groups integration aims to help security teams with a simple management and control of their entire AWS assets.

Alcide was purpose built to protect hybrid, and cloud ops environments by providing a simplified viewpoint and controls to manage and secure the complex cloud, at any scale. This includes policy enforcement and workload supervision with an unprecedented breadth and depth of visibility – offering the best possible defense against the risks of running cloud workloads.

Tel Aviv’s Alcide‘s Data Center & Cloud Ops Security Platform protects any combination of container, serverless, VM and bare metal. Offering real-time, aerial visibility, threat protection and security policies enforcement, Alcide secures the cloud infrastructure, workloads and service mesh against cyber-attacks, including malicious internal activity, lateral movement and data exfiltration. (Alcide 05.06)

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9.10 BDO UK & Secret Double Octopus Partner to Eliminate Passwords in the Enterprise

Secret Double Octopus announced its strategic partnership with BDO UK, a leading global accountancy and business advisory firm, to provide BDO’s clients with the most advanced authentication technology available to protect against data breaches and cyber attacks. This collaboration enables BDO UK to deliver and support Secret Double Octopus’ products to enterprises globally.

Enterprise passwords are costly to maintain, are repeatedly compromised, and create unnecessary friction for users. Secret Double Octopus’ authentication technology uses Secret Sharing algorithm in lieu of passwords, increasing security while offering a seamless user experience. The Company’s leading product – Active Directory Authentication – replaces AD passwords altogether with a high assurance, password-free authentication paradigm. With a stronger, more secure alternative to passwords, the security posture of the AD domain is dramatically improved, users are happier and more productive, and password management costs go away.

Tel Aviv’s Secret Double Octopus offers password free, high assurance authentication for critical business applications and networks. Unlike password and key based solutions, the Company’s technology leverages Secret Sharing, algorithms originally developed to protect nuclear launch codes. Secret Double Octopus is a Gartner Cool Vendor, Business Insider ‘Startup that will boom in 2018’, PwC game-changer for Global Financial Services Innovation, and Frost and Sullivan ‘Technology Innovation Award’ recipient. (Secret Double Octopus 05.06)

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9.11 Argus & Phantom Partner to Increase the Security of Teleoperation Safety Technology

Argus Cyber Security and California’s Phantom Auto, the leading provider of teleoperation safety technology for automated vehicles (AVs), have partnered to ensure the security of teleoperation safety technology in vehicles. Argus Connectivity Protection, integrated in Phantom Auto’s teleoperation safety technology, will detect and block attacks in real-time and prevent them from proliferating to the in-vehicle network.

Tel Aviv’s Argus, a global leader in automotive cybersecurity, delivers multi-layered, end-to-end solutions and services to protect connected cars and commercial vehicles against cyber-attacks. Argus also provides OEMs an over-the-air (OTA) software update solution that enables them to quickly and cost-effectively improve performance and security as well as deploy new features throughout the vehicle lifespan. Ranked number one in third-party evaluations, Argus technologies are built on dozens of granted and pending automotive patents and rely on decades of experience in both cyber security and the automotive industry. (Argus Cyber Security 05.06)

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9.12 SuperCom to Deploy National Domestic Violence EM Project in Sweden

SuperCom plans to launch a national domestic violence EM project with the Swedish Police. The customary waiting period on the award has been completed and SuperCom is expecting to deploy the initial order shortly and start generating recurring revenues within three months. This marks the second national Electronic Monitoring project that SuperCom won in Sweden within the past couple of months. The nationwide program with the Swedish Police is set to cover domestic violence cases within the country and the initial deployment will include certain PureSecurity offerings, including continuous GPS tracking and monitoring of domestic violence related offenders. Once PureSecurity is deployed for domestic violence, victims will receive a PureProtect device which will alert them if the offender, under a restraining order, is too close in range to them.

SuperCom’s PureSecurity Suite is a best-of-breed electronic monitoring and tracking platform, which contains a comprehensive set of innovative features, including smart phone integration, secure communication, advanced security, anti-tamper mechanisms, fingerprint biometrics, voice communication, unique touch screens and extended battery life.

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 secure Multi-ID documents and robust digital identity solutions to its citizens and visitors. (SuperCom 06.06)

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9.13 Telenet Chooses AudioCodes for Its SIP Trunking Services

AudioCodes announced that its Mediant multi-service business routers (MSBR) have been selected by Telenet for its all-IP SIP trunking services offering. Telenet is Belgium’s largest cable operator and is promoting all-IP solutions via the cable infrastructure. Telenet will offer SIP trunking services to its business customers for any telephony system, whether they be legacy PBXs or IP- PBXs, using the AudioCodes enterprise SBC application running on the MSBR. The service will be available throughout Belgium, using cable or DSL infrastructure.

The AudioCodes Mediant MSBR family includes a range of scalable devices that offer VoIP connectivity, data routing and security together with a range of WAN interface options, all housed in a single, compact platform. The MSBRs’ integrated session border controller functionality delivers extensive SIP interoperability, ensuring that virtually any customer IP-PBX (including Microsoft Skype for Business/Lync) can connect seamlessly with Telenet’s infrastructure. It also enables voice quality monitoring for better SLA enforcement utilizing AudioCodes’ VoIPerfect technology. AudioCodes’ MSBRs support a range of WAN interfaces including Gigabit Ethernet, ADSL and VDSL2 (including vectoring), as well as BRI and PRI ISDN interfaces for customers with legacy PBX equipment. Voice encryption is supported across all of AudioCodes’ voice connectivity platforms, including MSBR, to ensure secured communications for Telenet’s business customers.

Lod’s AudioCodes is a leading vendor of advanced voice networking and media processing solutions for the digital workplace. AudioCodes enables enterprises and service providers to build and operate all-IP voice networks for unified communications, contact centers, and hosted business services. AudioCodes offers a broad range of innovative products, solutions and services that are used by large multi-national enterprises and leading tier-1 operators around the world. (AudioCodes 06.06)

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9.14 Major Asian Navy Orders Orbit’s Maritime Satcom Systems Totaling Some $1.1 Million

Orbit Communications Systems announced that a major Asian Navy ordered Orbit’s maritime satcom systems totaling approximately $1.1 Million. The order includes several new Ku-band OceanTRx 4 systems, as well as spare parts for existing Orbit systems. OceanTRx 4 is a 1.15m (45″) maritime stabilized VSAT system supporting X, Ku and Ka bands. Due to its outstanding RF performance, system availability and dynamic response under virtually any sea conditions, it fully addresses the advanced broadband communications needs of modern naval fleets.

Netanya’s Orbit Communications Systems is wholly-focused on precision tracking-based communications – in the areas of satcom, telemetry and remote sensing – and provides an innovative solution for airborne audio management. With certification by defense, government and commercial agencies, we deliver tailor-made, turnkey solutions at sea, on land and in the air. (Orbit 06.06)

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9.15 Audi Adopts Stratasys Full Color Multi-Material 3D Printing to Innovate Automotive Design

Stratasys announced that the Audi Pre-Series Center with its Plastics 3D Printing Center in Ingolstadt, Germany, will leverage the world’s only full-color, multi-material 3D printer – the Stratasys J750 – to innovate its design process and accelerate design verification. For the production of tail light covers, Audi expects to reduce prototyping lead times by up to 50%.

Before a new vehicle goes into production, the Audi Pre-Series Center in Ingolstadt builds physical models and prototypes for the brand to evaluate new designs and concepts thoroughly. In the case of tail light covers, the team traditionally used milling or molding to produce individual parts. Streamlining the process, the Audi Plastics 3D Printing Center will use Stratasys’ J750 full-color, multi-material 3D printing. This will enable production of entirely transparent, multi-colored tail light covers in a single print, eliminating the need for its previous multi-step process. With over 500,000 color combinations available, the team can 3D print transparent parts in multiple colors and textures that meet the stringent requirements of the Audi design approval process.

Rehovot’s Stratasys is a global leader in additive technology solutions for industries including Aerospace, Automotive, Healthcare, Consumer Products and Education. For nearly 30 years, a deep and ongoing focus on customers’ business requirements has fueled purposeful innovations — 1,200 granted and pending additive technology patents to date — that create new value across product lifecycle processes, from design prototypes to manufacturing tools and final production parts. The Stratasys 3D printing ecosystem of solutions and expertise — advanced materials; software with voxel level control; precise, repeatable and reliable FDM and PolyJet 3D printers; application-based expert services; on-demand parts and industry-defining partnerships — works to ensure seamless integration into each customer’s evolving workflow. (Stratasys 07.06)

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9.16 Unbotify Named Gartner 2018 Cool Vendor in Advertising

Unbotify was named 2018 Gartner Cool Vendor in Advertising by Gartner Inc. This industry accolade follows Fast Company’s recognition of Unbotify as “Israel’s most innovative company 2017” and 1st prize at the TAU Cyberstorm competition. Unbotify was founded to disrupt the stagnant bot detection market. It stops sophisticated fraudulent bots and restore online trust and transparency.

Ramat Yishai’s Unbotify uses advanced machine learning to analyze behavioral biometric data. Sensor input from mouse interactions, keystroke timings, touch events and device orientation are collected to detect anomalies in real time. This new capability prevents bot related attacks and abuses such as ad fraud, affiliate marketing fraud, account takeover (ATO), and new account fraud. Solutions focusing on IP’s, browser/device features and browsing patterns can be easily faked. The human-device interaction is the one data point which machines cannot consistently spoof. Unbotify’s solution is currently deployed on Fortune 500 websites and mobile apps across e-commerce, social media, airlines and gaming industries. (Unbotify 07.06)

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9.17 Foresight Announces First Sale of QuadSight Prototype

Foresight Autonomous Holdings announced the first sale of a prototype of its breakthrough QuadSight quad-camera vision system targeted for the semi-autonomous and autonomous vehicle market, designated to allow near 100% obstacle detection under any weather and lighting conditions. The first system was ordered by a truck division of a large European vehicle manufacturer in order to evaluate the system and its performance on the manufacturer’s trucks. Revenue from the system sale is expected to total tens of thousands of dollars.

This and any future sale of QuadSight prototypes is expected to provide Foresight with important customer feedback and a deeper understanding of the customers’ main requirements, while also allowing Foresight to modify the system to the customers’ needs within a short period of time. In addition, Foresight believes that sales of QuadSight prototypes will strengthen its relations with potential customers. Customer satisfaction at the end of the evaluation process is expected to lead to a large order of QuadSight systems by the vehicle manufacturer for mass production.

Ness Ziona’s Foresight Autonomous Holdings, founded in 2015, is a technology company engaged in the design, development and commercialization of stereo/quad-camera vision systems and V2X cellular-based solutions for the automotive industry. Foresight’s vision systems are based on 3D video analysis, advanced algorithms for image processing, and sensor fusion. The company develops advanced systems for accident prevention which are designed to provide real-time information about the vehicle’s surroundings while in motion. (Foresight 12.06)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israeli Startups Raised Over $500 Million in May

IVC-ZAG announced that Israeli startups raised over $500 million in May, according to press releases issued by companies that have completed financing rounds. The figure may be more as some companies prefer not to publicize the investments they have received.

This sum can be added to the more than $1.52 billion that Israeli startups raised in the first quarter of 2018, according to IVC-ZAG, and the $400 million raised in April, also according to press releases issued by the companies. The country’s startups have raised nearly $2.5 billion in the first five months of 2018 and are on course to beat last year’s record of $5.24 billion.

The large sum of money raised was by invoice factoring fintech company BlueVine, which raised $200 million in debt financing from Credit Suisse on the first day of the month. The second largest financing closed was by cybersecurity company KELA Group which raised $50 million from Vector Capital. Other major financing rounds included $26.4 million raised by big data company SQream Technologies in a round led by Alibaba, while ultra-fast battery charging technology developer StoreDot raised $20 million from BP. (IVC-ZAG 31.05)

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10.2 High Tech Pay Boom Boosts Israel’s Average Salary

On 7 June, the Central Bureau of Statistics released figures showing that the average monthly employee salary (excluding foreign workers) reached NIS 10,867 in March this year, up nearly 6% from the February figure of NIS 10,255. The three month trend figures show that the rate at which pay is rising in the Israeli economy accelerated in the first quarter of this year. According to the data, the average salary rose by an annualized 5.2% (in real terms) in the January-March period, which compares with an annualized rise of 3.9% in October-December 2017.

The outstanding sector is IT and communications, covering most of the high-tech industry. The average monthly employee salary in these industries shot up by an annualized 12.6% (in nominal terms) in the period January-March 2018, following on from an annualized rise of 5.8% in October-December 2017. Pay also rose sharply in the real estate industry in the first quarter of this year, by an annualized 12%. The sharpest fall in pay was in central and local government and the National Insurance Institute, where average pay fell by an annualized 4.6% in January-March, following a 68% annualized fall in October-December 2017. (Globes 07.06)

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11: IN DEPTH

11.1 ISRAEL: Israel’s Banking System Annual Survey for 2017

The Bank of Israel observed that banking in Israel and abroad has changed dramatically in recent years, influenced by the rapid technological changes in the financial world and due to the many regulatory measures currently being implemented. In the coming years, we can expect the rapid changes to continue.

Globally, assessments are that by 2025 technology will replace a large proportion of the banking workforce. Even now there are areas of banking where technology has rendered many employees superfluous. To illustrate, banking applications have replaced many of the payment actions that had been executed by employees in the areas of transfers and checks, and these changes are lowering the fees paid by the public, as well as banks’ revenue from the payments field. There is significantly less need for tellers in the interface with customers thank to the expanded field of banking transactions that can be executed by automatic means and the entry of user-friendly banking applications. The banks are making investment counseling and portfolio management fully or partially robotic, which is reducing the need for employees and making it possible to provide investment counseling at a lower cost to a much broader population, including customers with few financial assets. A trend to replace manpower with technology has also begun in the banks’ backroom operations, including automation and artificial intelligence. Lastly, there is increasing use of statistical models in the provision of credit to households and small enterprises, which dramatically shorten the work process. Technology is having an impact, and will continue to influence, the banks’ expenses and income, and it is changing the face of banking. Consumer demand for more convenient and faster digital services is spurring these changes, and technology is making them possible.

In view of the changes in the banks’ operating environment, the Ban of Israel’s Banking Supervision Department has been acting in recent years to reach additional goals alongside its continuing work to maintain the banks’ stability. Following the Global Financial Crisis, the Department has placed special emphasis on strengthening the banks’ stability and on implementing the insights gained from the Crisis. In the past three years, the Department has also emphasized the need to adjust the banks’ business models to the changing world of technology, while encouraging the assimilation of technology and innovation, improved efficiency and increased competition. At the same time, the Department is adjusting the requirements to strengthen management of the large risks derived from the changing world of technology (cyber risks, business continuity, and information leakage), compliance risks, and the increasing risk in the field of household credit.

The banks’ results for 2017 and the beginning of 2018 show that the banking system is undergoing a deep change, and the goals being advanced by the Banking Supervision Department are already being reflected in the field. In addition to the continuing growth of capital and liquidity and the high quality of the credit portfolio:

The banks are showing a continued improvement in their efficiency – as a result of reduced manpower, branches and real estate, and of changes in organizational structures and procedures, following a directive issued by the Banking Supervision Department and incentives that it provides for streamlining. The number of employees in the banking system declined in 2016/7 by about 3,200. These changes are not easy for the banks’ managements or employees – people who have contributed much to banking in recent decades – but they must be made so that the banks will be able to adjust their business models to the new technological-competitive world, and so that the customers will be able to receive more competitive service.

The banks are investing in innovation and digital transformation in order to improve their service to the customers. In the past year, advanced payment applications and new and more convenient digital tools were offered for remote consumption of banking services. These provide customers with a means of responsible financial management, and allow them to save time (going to branches and waiting in line) as well as money. The banks have lowered fees for services provided through digital means, following a requirement published by the Banking Supervision Department that came into effect in November 2017. Some of the innovation is developed in cooperation with fintech companies.

Retail banking competition is increasing, which is already being reflected in a number of aspects, chiefly in consumer credit. The number of alternatives open to the public has expanded, and consumers can already take out consumer credit from all banks – not just the bank where the customer’s current account is managed – as well as from credit card companies and other nonbank entities, some of which are new. As a result, the banks’ weight in the provision of consumer credit is declining, and today, about 20% of consumer credit is not taken from banks. In addition, competition between the mid-sized banks and the large banks is intensifying. There is lively competition over digital innovation, as a result of which service to the customer is improving, and competition in the payments area is also increasing, which is reflected in lower fees paid by business in the settlements area among other things. Competition in household and small enterprise banking is expected to continue intensifying in the coming years, based on technology and in view of large projects currently being advanced.

In addition to these major changes, the data show that in 2017 and the beginning of 2018, the banks continued to expand credit issued to the business sector, thereby supporting economic growth. They focused on small and medium enterprises, and expanded credit to construction and real estate (by about 10.5%), while credit to households grew at a slower pace than in previous years. The credit spreads in consumer credit and in credit to small businesses increased slightly in 2017, due to an increase in risk and credit losses in this area. In contrast, the interest rate on mortgages declined.

2017 was also characterized by an increase in dividend rates to shareholders of the banks, most of whom are among the broad public, and in an increase in the value of bank shares. In 2017, dividends increased the wealth of the broad public by NIS 1.6 billion. This development was made possible after the banks reached their capital adequacy targets set by the Banking Supervision Department, and this factor, alongside the transformation that the banking system is undergoing, contributed to a significant increase in the banks’ market value relative to book value (MV/BV), with the average value in the banking system reaching 0.96.

In terms of mortgages, an issue that concerns many households, the Banking Supervision Department took a number of steps intended to make it easier for borrowers. The Department enacted leniencies for mortgage borrowers in “Buyer’s Price” projects throughout the country by recognizing the assessor’s evaluation of the property value. The Department then further eased matters for mortgage borrowers in the periphery, deciding that State grants will be considered part of the customer’s equity. At the beginning of 2018, the Department made it easier for customers to take out mortgages with an LTV of between 60 and 75%, by lowering the banks’ capital requirement against such loans. In parallel, the mortgage interest rates for all these mortgages declined by about 0.5%age points over the course of the year.

The Banking Supervision Department handled significant banking issues that were bothering the public. The salaries of senior bank officials declined greatly as a result of the Senior Officials Wage Law, and it is now significantly lower than the wages of officers in public companies of similar size. Credit to large and leveraged borrowers declined significantly, and the banks internalized the lessons from the credit failures of such borrowers. Bank fees were lowered significantly in recent years, and banking service in general is now not as expensive as it was in the past or as it is in other countries. In addition, the lessons derived from the tax evasion investigations conducted against the banks by the American authorities were implemented. However, the investigations are still on-going in some cases, and once they are complete, the Banking Supervision Department will make sure that the implementation of the lessons is completed.

There were a number of issues that intensified during the year, which created difficulties for customers: The banks are imposing strict demands on customers concerning the opening of accounts, transfer of funds, and management of accounts with multiple beneficiaries, and are requiring them to present copious documentation. These demands are derived from legislative changes such as the inclusion of tax evasion as a predicate offense in the Prohibition of Money Laundering Law and from the lessons derived from the American investigations – events that led the Banking Supervision Department to impose stricter requirements intended to ensure that the banks and their customers comply with foreign laws as well. It is important that the broad public understand that the legislative changes and the increased enforcement are the reasons for the banks to demand more information and documentation before making certain transactions, and that the banks have no interest in making it more difficult for the public make those transactions.

The banks are closing branches and teller windows. In Israel, as in much of the rest of the world, a large portion of basic banking services are transitioning to direct means – ATMs, mobile applications, internet, and telephone call centers – and customers come to the branches less often. This makes it necessary for the banks to reduce and reorganize their branch network, and some customers encounter this when the bank notifies them that the branch where they managed their account is closing and they are being moved to a different branch. Most customers get accustomed to the change quickly and see the advantages involved. But there are customers, mainly senior citizens, who have difficulty getting accustomed to the change, and the Banking Supervision Department is therefore guiding the process in order to minimize the difficulties. It is requiring the banks to take measures in order to make it easier for customers with low digital literacy – placing ushers in the branches to help customers use digital tools, holding methodical training programs, operating mobile bank branches that come to seniors’ residences, and more. In 2018, the Department, in conjunction with the Association of Banks, will lead a national initiative intended to provide digital education to senior citizens.

In the coming year, the Banking Supervision Department will continue to advance the following goals:

Further streamlining of the banks: The Banking Supervision Department will continue to monitor the implementation of streamlining programs, and will require the banks to adjust to the changing environment, including through wage agreements that are being formulated.

Adjusting the business model to the new technological environment: The Banking Supervision Department will continue incentivizing the adjustment, and will promote digital transformation and automation both within the banks (in their operating systems, service, and risk management and control) and in their interface with customers.

Increasing competition: The Banking Supervision Department will continue encouraging the many initiatives in the field. Chiefly, it will guide the process of separating two credit card companies from the banks, and will support their solidification as competitive independent actors. It will also promote “open banking” through the publication of an API standard, which will enable customers to transfer information and compare alternatives. Competition will also be encouraged by the credit data sharing system currently being established by the Bank of Israel. The Banking Supervision Department will advance all of these tasks while conducting on-going examinations, maintaining stability, and continuing to require the banks to strengthen their management of the new and intensifying risks.

In order to deal with the large changes in their operating environment, and with the aim of ensuring the existence of a stable and competitive banking system over time to benefit the broad public, the banks and bankers must continue to act to adjust their business models decisively and with a forward-looking vision, by assimilating innovation to benefit the customers and in order to streamline internal processes, continued significant streamlining and adjustment of existing labor agreements, and increasing their competitive ability. Banks that implement the changes slowly and continue to operate along traditional methods will increase their risk of becoming uncompetitive and irrelevant in the not-too-distant future. (BoI 30.05)

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11.2 LEBANON: Pressing Economic Challenges for Lebanon’s New Government

The parliamentary elections are over, but the economic challenges facing Lebanon are still there waiting for the new government to handle them. In reality, Lebanon has been struggling over the decade from a sluggish economic performance, which was exacerbated in 2011 with the emergence of the Syrian war that severely deterred foreign investments in the country. In line with a rising number of Syrian refugees, economic burdens seem to worsen amid an expanding public debt, an ongoing power crisis and recurring political deadlocks. According to the International Monetary Fund, real gross domestic product is estimated to grow at an incremental 1-1.5% between 2016 and 2018.

Lebanon’s BLOM Purchasing Managers’ Index also confirms the sluggish economic performance over the same period given that it is a leading indicator for economic growth in Lebanon since GDP data is scarce and delayed. A recent Daily Star study revealed that a zero GDP growth rate in Lebanon correlates to a PMI threshold of 45 rather than 50. Therefore, the index for 2016, 2017 and the first quarter of 2018 corresponded to weak growth rates of 0.6%, 1.3% and 1.5%, respectively.

Aside from the current situation, 2018 may be the year of hope that the future will be better. So far, the first five months of 2018 seem to be optimistic: In Rome last March, the global community acknowledged the military needs of the Lebanese Army and Internal Security Forces, and announced remarkable donations to support both security forces. The third month of 2018 also saw the approval of the year’s state budget, for the second time in a row since 2005.

As important, April witnessed the occurrence of the donor conference CEDRE (Conference economique pour le developpement par les reformes et avec les entreprises) in Paris, also referred to as Paris IV, which aimed at revamping the country’s infrastructure. During the conference, an overall amount of $11.8 billion was pledged in soft loans and grants from the international community. Global interest in the Lebanese situation extended to the Syrian refugee crisis with the second Brussels conference, during which funding was promised to relieve some of the burdens.

In addition, Lebanon managed in early May, and after nine hard years of political disagreement and protraction, to elect a Parliament under a new electoral law that secured an overall agreement.

Despite these positive vibes, and besides the fact that political talks to form a new Cabinet are now dominating the local news’ headlines, the resulting government has a list of long-standing economic challenges to address.

This could be a window of opportunity for preserving Lebanon’s economic sustainability, which needs to be, now more than ever, put in place. Hence, embarking on a firm recovery plan to restore the economic health of the country is, at this time, crucial. However, specifying the primary step in the path of reforms is debatable: Some expert economists believe that tackling Lebanon’s fiscal situation should be a priority, while others reveal the importance of significantly boosting economic growth as it is the key to overcome the country’s economic challenges.

This report echoes the opinions of three economists on the matter: Joseph Gemayel, dean of the faculty of economics at Saint Joseph University; Marwan Mikhael, head of the research department at BLOMINVEST Bank; and Mazen Soueid, chief economist at BankMed.

With public debt surpassing the $80 billion mark (around 150% of GDP), there’s a question of sustainability of Lebanon’s fiscal situation. According to the IMF’s latest statement on the CEDRE conference, if no macroeconomic policy changes are put in place, economic performance and financial inflows are expected to remain weak. Following this baseline scenario, the Lebanese GDP growth rate stood at 1% in 2016 and government debt-to-GDP ratio at 151%, which are expected to increase to 2.9% and 178%, respectively, in 2023. Under this same scenario, debt is unsustainable and inflation is projected to drop to 2.5%, with the current account deficit remaining large.

However, addressing the government’s debt problem requires immediate measures to reduce the chronic fiscal deficit. Lebanon suffers from recurrent fiscal deficits that are mostly due to government’s revenues barely covering debt service and the wages of public sector employees. In the same context, these fiscal deficits are holding back the government from executing necessary infrastructure investments. In detail, around 50% of the public debt is held by the Central Bank, while the gross fixed capital formation of the public sector represents only 1% of GDP as opposed to 20% of GDP for the private GFCF.

According to Gemayel, “Lebanon suffers from a substantial debt-to-GDP ratio that requires either boosting the economic growth rate or decreasing interest rates. However, the second strategy could shake the confidence in the country, which means that the government should work on creating a solid ground capable of providing a sustainable economic growth rate that, in consequence, will reduce the risk premium on interest rates.”

This can be done by solving Lebanon’s power crisis, which dates back to the Civil War. Increasing fiscal revenues through additional taxation will definitely cause social outrage, especially after the hike in tax rates that went into effect in January this year to finance the rise in the public sector salary scale, including a rise in the value added tax. Hence, there is no escape from reducing the government’s expenditures by pulling the plug on Electricité du Liban, the main producer of electricity in Lebanon, and which is costing the government between $1 billion and $2 billion on a yearly basis (around 9.4% of government budgetary expenditures in 2017).

In this context, all three economists agreed that Lebanon’s 24/7 electricity “dream” should become a reality, in addition to reducing the burdens on the country’s public finances. According to Soueid, “the new Cabinet currently has two avenues to face Lebanon’s economic challenges: first, profiting from the CEDRE conference to prove to the global community its commitment to reform Lebanon’s economy and rebuild its infrastructure, and second, urgently solving the electricity issue that has the utmost priority. A long-term plan should be implemented to put an end to the power crisis in order to reach a state where the increase in prices is linked to the increase in production. This plan should be phased over the next three years and will be able to reduce the fiscal deficit by almost 4% yearly.”

Mikhael highlighted that “the quick formation of a new Cabinet is a must right now in order to be able to benefit from the CEDRE outcomes as soon as possible. “The first main challenge that the new government must address is the power crisis, by increasing production through power barges or any immediate solution to be able to increase the tariffs and reduce the fiscal deficit. At the same time, bring foreign investors to build the power plants over the coming three years, which will also boost capital inflows.” Mikhael added that “resolving the electricity problem does not prevent the government from setting up, at the same time, a policy to fight corruption and improve the business environment, which are also of high importance.”

Aside from the power crisis, boosting production and improving the investment climate remains fundamental to overcoming the existing and upcoming economic challenges in Lebanon. In fact, the country’s economic issues are not restricted to the fiscal situation, but also extend to the external sector and the deteriorating investment climate that are also holding back economic prosperity. Therefore, Gemayel urges the new government to adopt a comprehensive new economic vision over the next four years.

Within this proposed strategy, Gemayel argues: “Besides the necessary changes to the current legal framework to become more encouraging for foreign and local investments, the new Cabinet should seriously explore the competitive advantages of the Lebanese economy and target the existing opportunities, human capital for instance, which can boost economic growth. In addition, improving the quality of Lebanese products in some fields to meet international standards and become more competitive can also be beneficial, especially as reducing the cost of production can sometimes be impossible given the considerable costs of energy and telecommunications.” After all, the Lebanese economy is surprisingly still able to survive all the internal and external headwinds.

However, with economic indicators reaching alarming levels, immediate action is required. Now that the first half of the year is coming to a fruitful end, the political will and determination of the new Cabinet, yet to be formed, will determine the path of Lebanon’s economy for the next few years. (The Daily Star 31.05)

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11.3 JORDAN: Jordan’s Days of Rage Force Prime Minister’s Resignation

Osama Al Sharif posted in Al-Monitor on 5 June that Jordan’s King Abdullah II has accepted the resignation of the prime minister in a bid to appease the Jordanians who have been protesting IMF-backed austerity measures.

The first week of June was like no other week in the recent history of Jordan, with massive public demonstrations leading to the forced resignation of the prime minister. Spontaneous protests broke out on 31 May after the government approved a sharp hike in fuel prices by an average of 5%. The day before, thousands of Jordanians observed an unprecedented general strike called for by the kingdom’s powerful professional associations to protest a controversial income tax bill. The government of outgoing Prime Minister Hani al-Mulki, which had sent the legislation to parliament without allowing public debate, had been under public pressure for months since it passed a contentious 2018 state budget, lifted subsidies on bread and imposed a sales tax on essential goods.

Since 31 May, Jordanians, mostly young men and women, have been taking to the streets in Amman and other cities across the kingdom, demanding the sacking of the government and rejecting its austerity measures. Largely peaceful in nature, with few injuries and arrests, thousands of protesters were prevented from heading to the Prime Ministry in west Amman by anti-riot police who were lauded by citizens on social media for their discipline. While the state-run media avoided coverage of the mass protests, protesters took to Facebook and Twitter to broadcast live scenes of the nightly rallies.

King Abdullah II intervened on 31 May, ordering the government to freeze the fuel price hikes. Chairing a National Policies Council meeting on 2 June, he called on the government and parliament to lead a comprehensive and rational national dialogue to reach a consensus on the income tax draft law that does not drain the public, combats evasion and improves efficiency of tax collection. He also said that it is unfair to force citizens to bear the burden of financial reform.

But the leaderless protests continued, with many thousands joining every night, insisting that the government be fired and the proposed law withdrawn. By 3 June, it became clear that the political crisis has deepened. The speakers of the bicameral legislature, which was not convened, sought to provide the royal court and the government with a way out. They suggested that an extraordinary session be convened within days so that both chambers can reject the proposed bill.

Until he was asked to resign, Mulki rejected calls to withdraw the draft law. It said that it was under pressure from the International Monetary Fund (IMF) to introduce a new income tax law that would broaden the base of taxpayers and limit tax evasion. A three-year agreement with the IMF signed in 2016 stipulated that the government adopt certain austerity measures in exchange for a $700 million credit line.

By the late evening of 3 June and as protesters resumed their nightly rallies, it became clear that the king had to defuse the crisis. News that he had summoned Mulki to meet him the next day spread like wildfire. On 4 June, he accepted Mulki’s resignation and a day later, he asked former Minister of Education Omar Razzaz to form a new government. Razzaz, a long serving civil servant, enjoys both credibility and integrity in the public eye, but he is assuming office at a time when the economy is in dire straits. He will face a huge challenge in meeting the IMF demands while attempting to appease an angry citizenry. Unemployment has increased to 18%, the poverty rate to 20% and government debt has reached almost $40 billion or 95.6% of the country’s gross domestic product, raising fears that the kingdom is sliding toward insolvency.

After he accepted Mulki’s resignation, the king met with the local press and said that he has always stood by his people and will always do so. In a prepared statement, he cited regional conflicts as a contributor to Jordan’s challenges but added, “We have to admit that there has been failure and slackness on the part of some officials regarding decision-making.” He said that he had worked hard for a parliamentary government, but that poor performance by political parties had impeded its success. Despite Mulki’s resignation, the nightly protests continued on 4 June with protesters now demanding the dissolution of parliament. There were scuffles with the police near the Prime Ministry but no arrests were reported.

The crisis has underlined the need to carry out a review of political and economic policies as Jordan calls for a new election law that would allow for the formation of parliamentary governments. Jordanians now want full transparency that would expose public corruption and mismanagement, which many blame for the piling up of foreign debt.

The latest crisis has offered a glimpse of a fast-changing political landscape in Jordan. As political parties have become marginalized as a result of policies by successive governments, professional associations and workers unions have emerged as the only viable vehicles for political mobilization. That the vast majority of protesters are young and unaffiliated politically heralds the arrival of a new player on the scene, one that has been marginalized for years.

Finally, the crisis has reset the political agenda for the kingdom, with key players such as political parties, professional associations, retired military officers and a former prime minister now calling for the resumption of the political reforms that have faded with the waning of the Arab Spring. The new prime minister will be expected to engage the public in debates that will center on the separation of powers and the rehabilitation of political life in the kingdom.

As young Jordanians become empowered and motivated, thanks to social media and the grim economic outlook, they will be expected to play a leading role in pressuring the system for genuine reforms. One thing is for sure at this stage: Jordan is at a historic milestone and the coming weeks will be crucial in determining the future of the country.

Osama Al Sharif is a veteran journalist and political commentator based in Amman who specializes in Middle East issues. (Al-Monitor 05.06)

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11.4 JORDAN: Pentagon Set to Enhance Jordan’s Counterterror Troops

On 20 May, Jack Detsch posted in Al-Monitor that the Pentagon is sending more than $22 million to help Jordan outfit its emerging special operations command and quick reaction force.

The Trump administration is set to boost Jordan’s special forces after financial pressures led the US ally to hollow out elite units last year. The Pentagon notified Congress last month of a new $22 million plan for Jordanian special forces, according to congressional notifications reviewed by Al-Monitor. The United States is expected to provide night-vision goggles and American-made sniper and assault rifles to Amman’s recently formed quick-reaction force.

The move is set to cement Jordan’s role as a hub in the Pentagon’s expanding fight against Islamic State networks and homegrown radicals after Amman inked a five-year, $1.275 billion a year memorandum of understanding with the United States earlier in 2018. It comes as Defense Secretary Mattis seeks to refocus US military strategy on major geopolitical rivals such as Russia and China. “Jordanian units should be capable of performing those missions even if US presence draws down,” said Melissa Dalton, a senior fellow at the Center for Strategic and International Studies, a Washington think tank. “It is a gradual and long-term process to build that capability, which the US and Jordan have been cultivating over a number of years.”

A spokesperson for Jordan’s embassy in Washington acknowledged the aid from the Pentagon’s in-house train-and-equip fund but did not respond to requests for additional comment. Some 2,800 US troops remain in the country to train Jordanian forces.

Jordan, heavily indebted and dependent on foreign aid, is also working to reform its fledgling special operations to meet budgetary constraints. In February, Jordan’s debt-to-GDP ratio ballooned to 95% as Gulf donors declined to renew a five-year assistance program.

Last summer, Jordan deactivated its special operations command headquarters and stripped down the number of elite troops to a little more than 1,000, while putting an effective aviation unit back under control of the regular air force. The Pentagon aid provided in April also allows for $1 million in training on fixed-wing and rotary-wing aircraft for Jordan’s special forces. “These reforms are about cutting the wheat from the chaff,” said William Wechsler, a former deputy assistant secretary of defense. In lieu of self-sufficient elite units, he said, the refinements are aimed at “forcing collaboration within the military so special operations has to go to conventional units for lift support as well as encouraging coordination with law enforcement and intelligence.”

Despite financial uncertainty, Jordan has used its special forces as a public relations tool to trumpet its military strength. On Instagram, the military advertises the new 6,000 acre King Abdullah II Special Operations Training Center as a full-scope facility where elite trainees practice helicopter insertions, skidding on dirt bikes and extracting dummy hostages from a full-size mock-up Airbus. Speakers pipe in the sounds of gunfire and screaming civilians, while recruits try to duck simulated explosions.

Jordan’s struggles are not out of the ordinary. Building sustainable special operations forces is still largely a process of trial and error, even for wealthy countries such as the United States, experts say. “Our whole modern approach to US special operations started with our failure at Desert One going into Iran in 1980. The need to make wider reforms of the US military became clear given the range of problems that we encountered in Grenada in 1983,” said Wechsler, now with the Middle East Institute. “Unfortunately, too often it seems like you need to have these kinds of visible mistakes before people have the political will to fix things.”

Jordan holds major non-NATO ally status, making it a leading destination for excess US military equipment. Between 2016 and 2017, however, so-called green-on-blue slayings of US trainers by Jordanian troops outnumbered similar friendly fire deaths in Afghanistan.

Jordanian officials even initially blamed American soldiers for failing to follow security protocols after a guard gunned down three US special forces troops involved in the CIA’s Syria train-and-equip program at King Faisal Air Base in November 2016. A military court later found the soldier guilty of murder.

Elite troops also have a mixed track record in weeding out homegrown terror. A recent report from the Center for American Progress in Washington found that Jordanian special forces suffered serious communication breakdowns during a 12-hour raid on an Islamic State-linked residential building in the southern city of Irbid in March 2016.

Jordan’s special forces were once led by King Abdullah himself. Experts say that in order to sustain its growing counterterrorism force against financial headwinds, Jordan’s military will now have to connect the reforms to a larger strategy. “Remember, before he became king, Abdullah commanded Jordanian special forces,” said Wechsler. “This is very much associated with him personally. So people have questions as to why there isn’t a clear statement by him about the future of Jordanian special operations.” The Pentagon also notified Congress of nearly $30 million in April for Jordan’s border guards and a battalion of marines.

Jack Detsch is Al-Monitor’s Pentagon correspondent. Based in Washington, Detsch examines US-Middle East relations through the lens of the Defense Department. Detsch previously covered cybersecurity for Passcode, the Christian Science Monitor’s project on security and privacy in the Digital Age. Detsch also served as editorial assistant at The Diplomat Magazine and worked for NPR-affiliated stations in San Francisco. (Al-Monitor 29.05)

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11.5 GCC: U.S. and Arabian Gulf States Call Truce on Open Skies Airline Dispute

On 4 June, Justin Alexander posted in the Arab Gulf States Institute in Washington that recent aviation agreements between the United States and the United Arab Emirates and Qatar have ended a bitter dispute over alleged anti-competitive practices. In the aftermath of the agreements, Delta announced plans to relaunch its nonstop route to India, three years after it cancelled the flights, blaming competition from Gulf airlines. However, the agreements are unlikely to fundamentally change the landscape for aviation links with the Gulf states and other changes, such as newer planes able to fly longer routes more economically are arguably more important drivers for the industry.

The rapid rise of the three Gulf “super-connector” airlines – Emirates, Etihad, and Qatar Airways – has been a source of concern for many global airlines for a decade. They have leveraged advantages ranging from flexible labor markets to the locations of their modern hub airports – at the intersection of Europe, Africa and Asia – to capture a growing share of transcontinental traffic, including both passengers and cargo. Competitors have lost business and some, in particular the U.S. legacy carriers – American, Delta and United – have fought back. They launched a campaign in 2015 accusing the Gulf states of providing excessive support to their airlines, allegedly violating commitments in their bilateral Open Skies agreements with the United States (U.S. – UAE agreement in 2002 and U.S. – Qatar agreement in 2001). They called for bilateral discussions on the agreements and for a suspension of new landing rights for the Gulf airlines (provocatively, Qatar Airways began flying to Delta’s hub of Atlanta in 2016).

The legacy carriers’ lobby group, the Partnership for Open & Fair Skies, claims that the UAE and Qatar have provided $52 billion in subsidies and unfair benefits to their airlines, mainly in the form of financing assistance (interest-free loans, loan guarantees, and equity infusions) as well as advantages such as the low cost of expatriate labor in these countries, reduced airport charges at their hubs and government assumption of losses from fuel price hedging. These forms of alleged support are open to some interpretation: The data is fairly limited and the value calculations are heavily laden with assumptions. The claim is that the alleged subsidies have facilitated the growth of the Gulf airlines, harming the U.S. airlines and leading to job losses.

However, the Gulf states retort that it is very common for countries to support their national airlines in various ways. This includes the U.S. government, which bailed out airlines after 9/11 and provides regular support, at both federal and local levels, through investment in infrastructure, official travel procurement and lenient regulation. Moreover, several smaller U.S. airlines – including JetBlue, Hawaiian and FedEx – have expressed support for the Gulf airlines, arguing that the international connectivity the Gulf carriers bring is beneficial to the U.S. economy and not in violation of the Open Skies agreement. Some already have partnerships with Gulf airlines. In fact, they call for greater liberalization of the aviation sector, as the status quo tends to benefit the legacy carriers. They launched a rival campaign, U.S. Airlines for Open Skies, to lobby for this perspective. A significant point they make is that even if the Gulf states have provided subsidies, the Open Skies agreements only permit retaliation if this leads to artificially low prices, and there is no strong evidence that the Gulf airlines have systematically underpriced their flights. Although Boeing has not intervened directly in the dispute, the fact that the Gulf airlines are among its largest customers is certainly a factor in the debate.

The legacy carriers made little progress in lobbying the administration of former President Barack Obama. The Justice Department appeared to view the campaign as an antitrust push by the legacy airlines. The State Department held informal discussions with Qatar and the UAE in July 2016, but not the formal treaty talks that the campaign had pushed for and took no retaliatory actions. The legacy carriers were hopeful for a second push following the 2016 presidential election, seeing links between their arguments and President Donald J. Trump’s protectionist rhetoric. These hopes were raised when Trump met with airline executives within a few weeks of his inauguration and seemed to express sympathy. In March 2017, Emirates launched a “Fifth Freedom” flight, linking Dubai and Newark via Athens. Airlines have a right to stop and pick up passengers in a third country between their home country and final destination, but such flights are controversial because they are seen as a way for airlines to muscle in on routes that don’t involve their home country. Congressional supporters of the legacy airlines tried to lobby Trump to block the route, however they were unsuccessful.

The Gulf dispute that divided the UAE and Qatar also spurred both countries to strengthen their bilateral relationships with the United States. This has included trying to resolve areas of tensions, such as the aviation issue. Qatar has particularly prioritized its relationship with the United States; a key moment was the U.S.-Qatar Strategic Dialogue in January. Alongside this event, Qatar and the U.S. State Department reached a set of understandings, including a commitment to publish audited financial reports and disclose any transactions with government-related entities. The CEO of Delta, the fiercest critic of Qatar Airways, welcomed the understandings as a “strong first step” toward transparency. A deal with the UAE took longer, in part because, unlike Qatar Airways, Emirates utilizes the controversial Fifth Freedom flights. However, a similar set of understandings on transparency was reached in May, with a commitment from Etihad to publish annual financial statements after its ongoing restructuring. Although Breitbart News claimed a victory for the America First agenda, the understandings do not seem to impose excessively onerous conditions on the Gulf airlines and are unlikely to substantially change the dynamics of competition between the United States and Gulf airlines, notwithstanding Delta’s relaunch of its India route. The Economist, among others, counted the agreements as a victory for the Gulf airlines. However, the concessions that were made provided a face-saving outcome for the legacy carriers and U.S. government.

The deals come at a time when the Gulf airlines look somewhat less formidable than they did a few years ago. Etihad’s strategy of expansion through direct investments in partner airlines has come adrift after the bankruptcies of Air Berlin and Alitalia, its two largest investments, forcing it to restructure. Emirates has remained profitable but has seen some recent retrenchment in routes, slower growth, and restructuring in staff and aircraft deliveries (although it did see profits double for 2017-18). Finally, Qatar Airways has been hard hit by the regional boycott, which meant that 18 routes to the UAE, Saudi Arabia, Bahrain and Egypt were blocked and many other routes are now longer (and therefore more expensive) owing to restrictions on access to the airspace controlled by its boycotting neighbors. Its CEO, Akbar al-Baker, has warned that this will result in a “substantial loss” for the 2017-18 financial year. Nonetheless, Qatar Airways has remained aggressive in opening new routes and also making new partnerships and investments (most recently in JetSuite a startup airline for regional jets on the West Coast of the United States).

There have been related disputes between the Gulf states and other countries, one in 2010-12 over landing slots in Canada for the UAE airlines, which escalated into a political row including reprisals such as a brief period of high visa fees for Canadian visitors to the UAE. Some European Union flag carriers, such as Air France, have complained about competition from the Gulf carriers. The EU is in the process of revising legislation covering commercial aviation in the bloc to address concerns about unfair competition. However, the current proposals are relatively soft, excluding the options of revoking flying rights or limiting the scope of investigations into the commercial threats posed to EU carriers. The proposals still need endorsement by member states in June and then negotiations with the European Parliament over a compromise text. It seems unlikely that the final legislation will pose a serious threat to the Gulf airlines.

There is also growing cooperation with the Gulf airlines. Qatar Airways led the way in 2013 when it joined oneworld, one of the three big international airline alliances, subsequently deepening the relationships by buying stakes in four oneworld airlines – British Airways, Iberia, LATAM and Cathay Pacific – and following these up with various degrees of operational cooperation. It even considered buying a stake in another oneworld member, American Airlines, in 2017; however, it dropped this plan after fierce opposition from American’s management, which used the proposed unsolicited investment as one justification for ending their code-share arrangement (it also ended its code-share with Etihad). However, this incident is an outlier, and another fierce critic of the Gulf airlines, Germany’s Lufthansa, forged code-share and other agreements with Etihad in 2016-17. Australia’s Qantas went further in 2013, forging a 10-year partnership with Emirates, which saw it shift its hub for flights connecting to Europe from Singapore to Dubai.

Looking ahead, the Gulf airlines face new competitive threats, notably the rising Chinese airlines (which are also a threat for the U.S. legacy carriers) as well as technological disruption. A new generation of fuel efficient ultralong distance jets, such as the Boeing 787 Dreamliner and Airbus A350, are facilitating direct connections between Europe and Australia or the United States and East Asia – indeed Singapore Airlines has just announced a 10,400-mile direct flight to New York, 15% longer than the previous scheduled flight record (held by Qatar Airways). This reduces the need for transcontinental hubs such as Dubai for some of the most profitable routes. However, the decades of operational life remaining for the existing global fleet and the cost of ultra-long-haul flights means that the super-connector hubs will have a role to play for many years.

Justin Alexander is an economist and a political risk analyst. (AGSIW 04.06)

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11.6 BAHRAIN: IMF Staff Completes 2018 Article IV Mission to Bahrain

An International Monetary Fund (IMF) mission visited Manama from 30 April– 15 May 2018 to conduct discussions for the 2018 Article IV consultation. The mission will submit a report to IMF management and Executive Board, which is tentatively scheduled to discuss the Article IV Consultation in July 2018.

At the conclusion of the visit, the IMF issued the following statement:

“Output remained resilient in 2017, growing at around 3.8%. This was underpinned by the non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. Inflation remains subdued. On the back of higher oil prices – increasing hydrocarbon revenues by 15% – and authorities’ fiscal consolidation measures, the overall fiscal deficit is estimated to have declined to 14% of GDP, from around 18% in 2016. Public debt increased to 89% of GDP, while the current account deficit remained unchanged at 4.5%. Reserves remain low, covering only 1.5 months of prospective non-oil imports at end 2017.

“Overall growth is projected at 3.2% in 2018, with a recovery in oil production, continuation of GCC-funded projects, and rising refinery and aluminum production capacity. Announced fiscal policy would reduce somewhat the overall fiscal deficit, to 11% of GDP in 2018. Over the medium term, the deficit is projected to remain sizable, with a rising interest bill as public debt continues to increase. Without further measures, non-oil revenue is expected to stagnate and growth to slow.

“The decline in oil prices since 2014 and absence of buffers have led to a rise in fiscal and external vulnerabilities. Notwithstanding notable measures implemented since 2015, a credibly large fiscal adjustment is a priority. Such a plan should comprise revenue and expenditure measures, while protecting the most vulnerable. The implementation of a value-added tax, as planned, would be important. Additional revenue measures – including consideration of a corporate income tax – would be welcome. Consideration should also be given to better targeting subsidies and addressing the large wage bill. Reforms to strengthen the fiscal framework, including by operationalizing the debt management office, would be crucial.

“The banking system remains well capitalized and liquid. Continued efforts to strengthen the regulation and supervision of the financial sector would further bolster the system. Fintech presents opportunities for Bahrain, where global experience can be brought to bear in addressing possible risks. Fiscal consolidation would support the peg to the U.S. dollar, which continues to provide a clear and credible policy anchor.

“Especially given fiscal constraints, sustained structural reforms remain key to supporting growth and diversification. Legal reforms to streamline regulations should reduce costs of doing business and catalyze private investment. Improving access to financing for small and medium enterprises and further reforming the labor market would help further diversify the economy and make the non-hydrocarbon sector more resilient. (IMF 30.05)

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11.7 BAHRAIN: S&P ‘B+/B’ Ratings Affirmed; Outlook Remains Stable

On 1 June 2018, S&P Global Ratings affirmed its ‘B+/B’ long- and short-term foreign and local currency sovereign credit ratings on Bahrain. The outlook is stable. The transfer and convertibility assessment on Bahrain remains at ‘BB-‘.

Outlook

The stable outlook reflects the balance between the risk that the central bank would be unable to meet a surge in demand for foreign currency over the next 12 months and potential financial support from neighboring sovereigns.

We would raise the ratings if Bahrain’s net external asset position improves, perhaps due to a significant inflow of foreign currency, or the government undertakes additional steps to improve its public finance position in order to slow or reverse further increases in government debt.

We would lower the ratings if fiscal and external pressures intensify, the coverage of external liabilities by liquid external assets falls more sharply than expected, or we reassess our assumption that support for Bahrain’s exchange rate arrangement from neighboring sovereigns would be forthcoming.

Rationale

Our ratings on Bahrain are supported by the country’s net external asset position and modest level of economic wealth. The ratings are also supported by our opinion that financial support for Bahrain’s exchange rate arrangement from neighboring sovereigns would be forthcoming, if needed. The ratings are constrained by our view of Bahrain’s continued budgetary dependency on oil revenues, its rapid accumulation and high stock of government debt and its unresolved domestic political tensions, which in our view hamper the effectiveness of the sovereign’s economic policy. The ratings are also limited by the economy’s weak trend growth in real GDP per capita.

Flexibility and Performance Profile: Central bank’s international reserves are very low

Government access to international capital markets has proven crucial in supporting the central bank’s low level of foreign currency reserves. However, in our view, the central bank is currently meeting demand for foreign currency from the domestic market and there is no apparent strain in the domestic economy.

Large fiscal deficits exacerbate external imbalances and are driving up the government’s debt stock.

Bahrain’s gross international reserves are low, covering less than one month’s current account payments and about 40% of the monetary base over the first quarter of 2018, according to our estimates. They have also been volatile, in the absence of a substantial and sustained net inflow of foreign currency. Government external bond (and sukuk) issuance has been the main support for the Central Bank of Bahrain’s (CBB’s) gross international reserves in 2017 and continuing into 2018. This funding was followed by an average $280 million drain on reserves in the subsequent months. The base level of reserves has been trending lower after each sustained decline before the government issues more bonds.

Gross international reserves were about $2.8 billion at the end of 2017. As of April 2018, we estimate reserves at about $2.5 billion. We assume this includes proceeds from the $1 billion sukuk issued in April. Our forecasts for the CBB’s gross international reserves at year-end over 2018-2021 are broadly flat with a slight drain, as we expect the Bahraini authorities will continue the strategy of raising external government debt for fiscal deficit financing purposes, which at the same time supports CBB reserve levels. We note that the government has relatively limited foreign currency spending needs, and that this policy further worsens Bahrain’s net external asset position. We expect that the coverage of external liabilities by liquid external assets (narrow net external debt) will continue to fall. Deducting Bahrain’s monetary base from reserves – because we view currency convertibility into foreign currency as a requisite for pegged arrangements – results in negative usable reserves.

In our view, monetary policy flexibility is limited because the Bahraini dinar is pegged to the U.S. dollar. In addition, we view the credibility of the CBB to maintain its exchange rate arrangements as weak, given its low and volatile level of gross international reserves.

Increased disbursements from Gulf Cooperation Council (GCC) funds pledged to support the Bahraini economy in 2011 could boost the CBB’s reserve position in the short term, but only as long as they are not utilized, for example, to pay for imports in the development of their assigned projects. In this context, we do not expect the $2.5 billion from Qatar to be forthcoming, given regional political tensions, likely reducing the overall amount of pledged GCC funds to $7.5 billion (21% of Bahrain’s 2017 GDP).

About $1.4 billion (4%) has been disbursed from the funds since 2013, with a sharp increase in disbursements taking place in 2016 ($675 million) and 2017 ($530 million). We expect about $870 million to be disbursed over 2018 and further annual disbursements of close to $1 billion over the next five years.

We expect a modest narrowing in Bahrain’s current account deficit this year and the next compared with the past two years, based on our assumption of higher oil prices. According to our current forecast, the Brent oil price will average $65 per barrel in 2018 and $60 in 2019. Budgetary consolidation should support a narrowing in the current account deficit and alleviate the strain on gross international reserves to some extent. We also note that the CBB receives daily foreign currency inflows from the sale of oil (through the national oil companies).

With no indication of lower private sector demand for foreign currency from the domestic economy, we believe weak demand for foreign currency at the central bank could lead to a parallel increase in financial sector external liabilities as banks search for alternative nonresident foreign currency lines to fund domestic assets. This could include lines from Bahrain’s large wholesale banking system. We could reassess the risk of contingent liability that wholesale banks pose to the government if the interlinkage between the wholesale banks and the domestic economy were to increase. However, we do not expect that the CBB would act as a lender of last resort for offshore banks.

For our banking sector contingent liability assessment, we refer only to the resident retail banks because, in our view, the cost of the wholesale banks’ potential financial distress would not be fully borne by the government, given the high share of foreign ownership. This is not the case, however, in our external risk analysis, where the international investment position contains both resident retail and resident wholesale banks. Despite Bahrain’s large financial sector (domestic retail banks) with gross assets estimated at 236% of GDP and a large number of companies majority owned by the government, we consider the government’s contingent liabilities to be limited. On average, banks display high regulatory capital positions, and our Banking Industry Country Risk Assessment for Bahrain is ‘7’ (on a scale of 1-10, with ‘1’ being the lowest risk and ’10’ the highest).

Bahrain’s retail banks, the main domestic intermediators, appear in our view healthy in terms of liquidity, capitalization, and leverage, with a loan-to-deposit ratio of 65%. Asset quality is on an improving trend, but the system wide nonperforming loan ratio is still in the high single digits according to our estimate and some large banks carry high amounts of restructured exposures. The wholesale banking sector (Bahraini and non-Bahraini registered) has about 10% of its total assets in Bahrain, but as a proportion of Bahraini GDP, these exposures represent just over 30%. We understand that most of these exposures are funded by domestic liabilities and are to large industrial exporters, but also reflect interbank lending. Excluding the external assets and liabilities of the wholesale sector, Bahrain’s narrow net external asset position would likely turn to a liability position in the region of 30% of current account receipts, rather than the creditor position we currently present.

We expect Bahrain’s fiscal imbalances to moderate, from close to 10% of GDP in 2017 to around 7% by 2021. The government has introduced numerous measures since 2015 to control public finances in response to the revenue side shock of lower oil prices. Total government expenditures in 2017 fell compared with 2016, due to a reduction in project expenditures and transfers. We expect expenditures to remain broadly flat in 2018, versus 8% average annual growth over 2011-2014. The main contributor to the slight decline in expenditures since 2014 has been the reduction of sometimes politically sensitive transfers, which have been reduced to about 22% of total expenditures from 29% in 2014. However, government interest payments have increased to almost 14.0% of total expenditures, up from around 6.5% in 2014. In nominal terms, the burden of consolidation in our forecasts falls on the revenues side, which we expect to improve, given our increased oil price assumptions and our assumption that the government will introduce a value-added tax (VAT) in 2019. We assume VAT would have a gross government revenue raising impact of 1.8% of GDP.

We project the government’s gross debt stock will increase toward 100% of GDP by 2021, or about 75% on a net basis, which we view as a constraint for the sovereign’s fiscal flexibility. Our government debt forecasts include an additional 1% of GDP in annual debt accumulation, in relation to the government’s historical off-budget spending on defense and the Royal Court. Currently, the government has a legislated debt ceiling of about 102% of GDP. To derive net government debt, we net off cash and available-for-sale securities at the social security system and the Future Generations Fund from gross debt. We no longer net off cash and available-for-sale securities from the National Oil and Gas Authority (NOGA) and Mumtalakat (the government holding company), nor do we consolidate the liability position of these entities within the general government accounting framework.

Institutional and Economic Profile: Economic growth is weaker when controlling for labor supply growth

The upcoming elections in late 2018, in our view, could exacerbate existing religious and political tensions. Political decision-making remains centralized. We expect real economic growth to average 2.5% over 2018-2021, supported by GCC-funded infrastructure investment. However, we estimate trend growth in real per capita GDP at -0.6% over 2012-2021, below that of peers at similar levels of development.

Bahrain’s economy and financial system continue to perform well, with the economy expanding by 3.9% in 2017, despite the government’s weak fiscal position and low level of gross international reserves at the CBB. Our forecast for average real GDP growth over 2018-2021 is 2.5%. In addition to the boost provided by GCC-funded infrastructure investment, Bahrain’s relatively diversified economy benefits from its proximity to the large market of Saudi Arabia, strong regulatory oversight of the financial sector, relatively well-educated work force, and low-cost environment. We expect population growth to average around 3% a year over the forecast period. When GDP performance during 2012-2021 is adjusted for population levels, real growth is negative. This suggests that labor supply is a key driver of growth.

We anticipate that Bahrain’s political tensions will continue, with the risk of potential security incidents. The upcoming elections could act as a focal point, increasing political violence and protests. In our opinion, these risks illustrate the entrenched polarization between the Shia and Sunni communities, and internal communal divisions. We consider that the implementation of sensitive fiscal austerity measures has the potential to stoke unrest, thereby constraining the government’s policy choices. We note, however, that fiscal consolidation measures already introduced have not had any security-related repercussions. Given these sensitivities, in our view, the overall transparency of policy-making is also constrained and accompanied by variable disclosure of information.

Bahrain is a member of the coalition of Arab states, which has imposed a boycott on Qatar, cutting diplomatic ties as well as trade and transport links with the country, on June 5, 2017. In our view, the impact of the boycott may not be confined to within Qatar’s borders. We expect political tensions within the GCC countries to persist over the next few years. (S&P 01.06)

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11.8 SAUDI ARABIA: Fitch Affirms Saudi Arabia at ‘A+’; Outlook Stable

On 11 June, Fitch Ratings affirmed Saudi Arabia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook.

Key Rating Drivers

Saudi Arabia’s ratings are supported by strong fiscal and external balance sheets, including exceptionally high international reserves, low government debt, significant government assets and commitment to an extensive reform agenda. These strengths are balanced by oil dependence, weak World Bank governance indicators and elevated geopolitical risks. The fiscal break-even Brent price, which we estimate at around $80/bbl, is higher than for many regional peers, and growth is projected to stay below the ‘A’ and ‘AA’ medians.

We expect the central government deficit to narrow only gradually, to 6.4% of GDP in 2019 (SAR180 billion), from 8.3% in 2017, as renewed growth in spending offsets sharp increases in both oil and non-oil revenue. This is under our current baseline Brent price assumption of $57.5/bbl in 2018 and 2019, in line with Fitch’s March 2018 Global Economic Outlook. The 2018 budget deficit, which we forecast at 8.4% of GDP, indicates a shift of focus from austerity towards a more growth-supportive fiscal policy, particularly when taken together with the postponement of the target year for fiscal balance to 2023 from 2020. Central government spending already rose in 2017 after two years of consecutive declines.

The immediate budgetary impact of structural non-oil revenue measures is being offset by additional spending to soften their social impact. This year started with the introduction of a 5% value added tax (VAT), a 130% hike to petrol prices, increases to household electricity tariffs, as well as an increase in levies on expatriates. However, in the 2018 budget, revenue from VAT and energy price reforms will largely be offset by means-tested allowances from the new SAR32 billion Citizen’s Account. The 2018 budget also earmarks SAR72 billion of central government spending for a private sector stimulus program focused on infrastructure, SME and export financing. Another SAR50 billion stimulus package was announced shortly after the publication of the 2018 budget (to be funded by receipts from last year’s anti-corruption campaign and savings elsewhere).

Amid persistent deficits, we expect that the government will continue to issue domestic and international debt and draw down on its deposits at the Saudi Arabian Monetary Authority (SAMA). We see the central government debt ratio rising to around 27% of GDP in 2019 from a little over 17% in 2017, by which time debt net of general government deposits at SAMA could turn positive. Our fiscal forecasts imply net financing needs of around SAR230 billion in 2018 and SAR180 billion in 2019.

We assume no proceeds from privatization in 2018-19. The government’s privatization program unveiled in April this year targets proceeds of SAR40 billion by 2020 from selling or otherwise handing over to the private sector various government assets. The IPO of a 5% stake in Saudi Aramco would be in addition to this but has been delayed until at least 2019 and in any case the authorities intend for any eventual proceeds to be transferred to the Public Investment Fund (PIF).

Saudi Arabia’s current account swung to a surplus of 2.2% of GDP in 2017 from a deficit of 3.7% in 2016 as a result of a bounce back of hydrocarbon receipts and continued compression of merchandise imports. However, SAMA reserves still fell as a result of capital outflows (partly related to PIF investments abroad). We expect SAMA reserves to fall by a further $22 billion in 2018 and $11 billion in 2019, amid continued capital outflows and a narrowing of the current account surplus (reflecting recovery in domestic demand, capital spending and imports). This takes into account some support for the capital account from a gradual pick-up in inward FDI (from a low of $1.4 billion in 2017) and inward portfolio equity investment (related to Saudi Arabia’s inclusion in major equity indices).

If Brent averages $70/bbl (as it has year to date), assuming no further increases in spending beyond what we forecast, the central government deficit could be 4.1% of GDP in 2018, the financing requirement would shrink by more than 50%, government drawdowns from SAMA would become unnecessary and 2018 could see a build-up of SAMA foreign reserves to the tune of $16 billion. SAMA net foreign assets have already increased by $9 billion in the first four months of 2018.

We expect a pick-up of growth to 1.8% in 2018 and 1.9% in 2019. The fiscal expansion will accelerate non-oil growth, although, in our view, it is still likely to be held back by elevated domestic uncertainty and uncertainty over the regional environment (tensions with Iran and the war in Yemen). Real GDP contracted 0.7% in 2017 on the back of a 4.8% decline in crude output (in excess of Saudi Arabia’s commitment to OPEC but offset somewhat by higher refining activity). Non-oil GDP grew 1% (up from no growth in 2016), likely helped by the clearance of arrears in the private sector and generally improved confidence as a result of higher oil prices. Structural reforms under the Vision 2030 program could boost growth over the medium term.

In our view, political risks are elevated compared with peers and historical norms, due to Saudi Arabia’s prominent role in a volatile region, the country’s increasingly assertive stance in foreign affairs and the rapid pace of political and social change domestically. In particular, tensions between Saudi Arabia and Iran have increased over Yemen, Iran’s nuclear program and its influence across the region. There is a growing risk, albeit still small, that these tensions could escalate into a more direct conflict between Saudi Arabia and Iran. Houthi missile attacks from Yemen into Saudi Arabia, which Saudi Arabia believes are being supported by Iran, have increased in frequency and range. Even in the absence of interstate conflict, an expansion of the military campaign in Yemen would entail significant fiscal and economic costs.

RATING SENSITIVITIES

The following factors could, individually or collectively, trigger negative rating action:

-Erosion of the fiscal or external positions, for example as a result of a failure to implement fiscal consolidation or due to a renewed fall in oil prices; and

-Spill-over from regional conflicts or a domestic political shock that threatens stability or affects key economic policies or activities.

Fiscal consolidation or an extended rise in oil prices that generate a sustainable fiscal surplus and reverse the decline in the government’s net creditor position could, individually or collectively, trigger positive rating action. (Fitch 11.06)

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11.9 SAUDI ARABIA: Saudi Defense and Security Reform

Neil Partrick posted in Sada on 31 May that Saudi Arabia’s efforts at reforming its armed forces may be more about politics and PR than substantive change.

Saudi Arabia’s changes to its defense and security sector that have so far included new military leadership, a planned recruitment of new officers, and a proposed joint operational command headquarters, are ostensibly aimed at addressing operational incapacity. However, political considerations drive these changes as Crown Prince Mohammed bin Salman consolidates his control over the country’s military and security apparatus, which will likely impede desirable operational improvements.

Mohammed bin Salman, also minister of defense, named the commander of the (limited) war effort of the Royal Saudi Land Army (RSLA) in Yemen, HRH Prince Lieutenant General Fahd bin Turki bin Abdulaziz, joint forces commander in February. According to one of the unpublished ‘operational targets’ of the Saudi Ministry of Defense (SMoD), a Joint Operational Command (JOC) headquarters is also planned. Fahd bin Turki is, like the new army and air defense chiefs who were also appointed at the same time, a three-star general but still junior to all the separate service chiefs. However, the concomitant appointment of the well-regarded Fayyad al-Ruwaili as chief of the general staff (CGS) could help establish a substantive JOC as he may be able to encourage the rest of the senior Saudi military to back reform.

In addition to changes to some of the top brass, the 800 new officer appointments planned over the next eighteen months are expected to improve the country’s military capabilities. In the Saudi military, however, having the four-star rank of CGS provides armed forces oversight but not centralized military command. Furthermore, the top brass all report directly to the defense minister, the crown prince himself. At present, there is no deputy defense minister and just one relatively old assistant minister. Potentially assisting the proposed changes, five new SMoD officials (two assistant defense ministers and three undersecretaries), most of whom will have dedicated responsibilities, are expected to be appointed over the summer. Interviews for five assistant minister positions have already been conducted.

In practice however, these reforms seem to be more about trying to project a convincing battlefield capability in advance of the next war, and less about achieving a decisive victory in Yemen. Saudi armed forces have only limited and quite disastrous on-the-ground battlefield experience, as evidenced when the RSLA conducted a ground invasion of Yemen over the winter of 2009–2010. Furthermore, the Saudi navy is widely regarded as a joke due to it having been politically undervalued and under-resourced, an absurd situation given that the greatest threat to Saudi national security is maritime.

There are political and practical reasons for the crown prince to continue avoiding an extensive deployment of Saudi armed forces on the ground in Yemen. Saudi military and civilian casualties from this war are much more significant than officially admitted. Mohammed bin Salman, like previous Saudi leaders, also fears a potential coup if there are too many soldiers under arms. This fear was one reason why the still tribally based Saudi Arabian National Guard (SANG) was founded by Prince Abdullah bin Abdulaziz (later King Abdullah) over fifty years ago as a dedicated regime security force that continues to be totally separate from the armed forces that make up SMoD. Until November 2017, SANG was run by Abdullah’s son, Miteb.

SANG is now formally headed by Khaled al-Muqrin, a minor royal who is respected in SANG as a former battalion commander. Unlike Miteb, al-Muqrin is an unlikely source of resistance to the crown prince should he wish to encroach on the Guard’s autonomy. This autonomy is currently preserved by keeping SANG and SMoD separate as two ministries: a useful situation in case of a threat to Mohammed bin Salman’s authority from within. Furthermore, Mohammed bin Salman might be wary of pushing a privileged tribal body with residual Abdullah family loyalty too far.

SANG is more capable than the RSLA, but like the Border Guard which is run by the Ministry of Interior (MoI), they are also “getting hammered” in Yemen, according to a well-placed western observer. SANG, like the Border Guard and RSLA, engages in “skirmishes” across the Yemen border, as well as more regular interventions in north Yemen. While effective in guarding the Saudi (and Bahraini) regimes, SANG’s lack of battlefield experience, coupled with Yemeni guerrilla capabilities, weakens its capacity in Yemen, as it does other Saudi armed forces.

In Saudi Arabia talk about jointery – all branches of the armed forces working in sync in theory and practice – raises the question of what Mohammed bin Salman will do with SANG and whether the commitment to a meaningful JOC is actually a pretext for stripping SANG of much of the rival military power it has built up. However, if Mohammed bin Salman had intended to wholly absorb SANG into SMoD, then November, when Miteb was removed, would have been an opportune time to do it. SANG arguably needs significant reform, yet apart from routine retirement and indications that some middle-ranking SANG officers have departed, the top brass and even Miteb’s civilian administrator remain in place. Still SANG – regardless of who heads it – could be stripped of some of its prized kit including Apache and Black Hawk helicopters.

At present, SANG is still replicating some of SMoD’s functions, with strategic spending continuing unabated, including building up SANG’s five armored vehicle brigades and its three air-wing brigades that would be more useful for warfare if they were transferred to SMoD. This spending continues despite the fact that any major procurement needs a Ministry of Finance sign-off as part of Mohammed bin Salman’s declared anti-corruption drive. This, and the wide-ranging set of organizational and personnel changes throughout the Kingdom, means that authority has become highly centralized under Mohammed bin Salman’s almost exclusive leadership.

Like SANG, the MoI has military capabilities but stands outside of SMoD and of current JOC proposals. In a smart bit of royal politics, Prince Abdulaziz bin Saud replaced his uncle, Mohammed bin Naif, as interior minister when the latter was deposed as crown prince in June 2017, while Abdulaziz’s father, Mohammed bin Naif brother Saud, was kept on as Eastern Province governor. However, the MoI’s all-important counterterrorism (CT) role was given to the Presidency of State Security (PSS), a body Mohammed bin Salman created in June 2017 that answers directly to King Salman. Its head, General Abdulaziz al-Howeirini, worked closely with Mohammed bin Naif at the MoI on their counterterrorism efforts. His appointment and reporting line likely indicate his loyalty to Mohammed bin Salman, but the choice was apparently at the insistence of the CIA, disgruntled by Mohammed bin Salman so upsetting the carefully cultivated CT structure they had played a major part in shaping.

PSS is made up of the powerful Mubaheth (General Investigations Department) – the eyes and ears of the MoI and now of the PSS as well. PSS spokesman Brigadier General Bassam al-Attiya argues that corruption can be more damaging than terrorism in weakening the state. The Mubaheth likely played an active role in the November 2017 Ritz Carlton Hotel detentions. PSS also has three Special Forces branches, including an aviation wing that, not least given the proposed military reorganization, would be better off in the regular armed forces under SMoD. General al-Attiya explained that PSS’s dedicated CT role requires it to have such a wide range of forces, even though he pointedly implied that change might be coming. The PSS also has an advanced cyber operation, just one of three within the overall Saudi military and security infrastructure.

Despite the recent reshuffling, grand plans for fundamental restructuring to give the Kingdom a credible and self-reliant battlefield capacity, are still on the drawing board. Promoting relatively young military men – compared to those they have replaced – is one thing. But in practical and political terms, the game plan to make a reality of ambitions that need both time and will is unclear. Mohammed bin Salman’s centralization of power paradoxically makes fundamental military change both possible to get underway and more difficult to complete. Without a Saudi leader devolving power to a truly empowered military general in real operational command of all Saudi forces with a military role, the meaning and substance of a joint and capable Saudi armed force will be elusive.

Neil Partrick is the editor and lead contributor to Saudi Arabian Foreign Policy: Conflict and Cooperation (IB Tauris, second edition, April 2018). (Sada 31.05)

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11.10 TUNISIA: IMF Statement on Tunisia

An International Monetary Fund (IMF) staff team visited Tunisia from 17 – 30 May to discuss the authorities’ policy plans under the Third Review of Tunisia’s economic reform program supported by a four-year IMF Extended Fund Facility (EFF) arrangement:

“The Tunisian authorities held constructive discussions with the IMF team on the policies needed to complete the Third Review under Tunisia’s EFF arrangement. The discussions progressed significantly. The Tunisian authorities expressed firm commitment to act swiftly on urgent economic reforms to pave the way for the consideration of the Third Review by the IMF’s Executive Board, tentatively scheduled for early July. Completion of the review would make available SDR 177 million (about $257 million), bringing total disbursements under the EFF to about $1.2 billion.

“The Tunisian economy showed signs of recovery in the first quarter of this year. Economic growth at 2.5% (year-on-year) was the highest since 2014, based on strong agricultural production and exports. The current account deficit improved somewhat, helped by a more flexible exchange rate. Inflows of foreign direct investment have also picked-up and the new one-stop shop for investors “Tunisia Investment Authority” will further improve the business climate. Planned reforms to reinforce governance and improve access to finance will help the recovery to create more jobs in the private sector.

“Nevertheless, risks to macroeconomic stability have become more pronounced. Inflation reached 7.7% (year-on-year) in April, the highest level since 1991. Monetary and credit aggregates continue to grow rapidly and will put additional upward pressure on prices in the months ahead. Foreign exchange reserve coverage of imports has declined further. In addition, Tunisia’s external environment has become less favorable in recent months due to the increase in international oil prices and greater risk aversion in international financial markets.

“Decisive action is necessary this year to fight inflation, reduce the fiscal deficit, and protect the poor – prerequisites for creating more economic opportunity for Tunisians and shielding the young from an excessive debt burden in the future. The IMF team agrees with the central bank that more tightening of monetary conditions is necessary to reduce the gap between interest rates and inflation. On the budget, three priorities stand out in the near term: (i) pressing ahead with efforts to reduce energy subsidies that disproportionately favor the better-off; (ii) containing the public-sector wage bill, which is among the highest in the world as a share of GDP; (iii) and adopting the pension reform bill to improve the financial viability of social security. Increased transfers to the most vulnerable families to shield them from the impact of higher prices will accompany the reforms efforts.

“The IMF team met with the Minister of Finance Chalghoum, Minister of Investment Laâdhari, Minister of Major Reforms Rajhi, and Central Bank Governor El Abassi. It also had discussions with representatives of Union Générale Tunisienne du Travail (UGTT), Union Tunisienne de l’Industrie, du Commerce et de l’Artisanat (UTICA), and civil society.” (IMF 30.05)

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11.11 TUNISIA: Fitch Revises Tunisia’s Outlook to Negative; Affirms at ‘B+’

On 27 May 2018, Fitch Ratings revised the Outlook on Tunisia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at ‘B+’.

Key Rating Drivers

Tunisia’s rating is weighed down by high and growing public and external debt, reflecting wide twin deficits, subdued economic growth and sluggish reform momentum against a background of social and political tensions. This is balanced against strong structural features relative to ‘B’ peers, including high GDP per capita and governance indicators and a clean debt service record.

The revision of the Outlook to Negative reflects increased pressures on external finances and the high uncertainty surrounding the government’s capacity to advance the required policies to reduce macroeconomic imbalances amid social discontent, political tensions and busy electoral agenda. Slow progress on largely unpopular fiscal reforms and continued upward pressures on wages will lead to a persistently wide saving-investment gap. Thin external and fiscal buffers exacerbate the economy’s susceptibility to exogenous shocks. The rebound in oil prices and tightening US dollar financing conditions on international markets raise downside risks for Tunisia’s external and public finances.

Greater pressures on external finances are mitigated by strong official creditor support for Tunisia, reflecting the international community’s backing for the country’s democratic transition and its strategic importance in a precarious regional context. We expect Tunisia to meet the quantitative performance criteria of its current arrangement with the IMF for the upcoming review of Q1/18 in June. Official lending will cover the bulk of external financing needs in 2018, although we also expect the government to also tap the international market. Tunisia’s performance under the arrangement with the IMF was weak in 2016 and 2017, leading to recurrent delays in disbursements of the Fund’s loans. This is a source of liquidity risk given that portions of official financing are directly or indirectly tied to meeting the milestones of the IMF program.

Inflation surged to a 26-year high of 7.7% in April. We project it to remain well above its long-term average of 4% for the foreseeable future, reflecting Banque Centrale de Tunisie’s (BCT) gradualist approach in tightening its policy stance and the broad nature of price pressures in the economy. The central bank has raised its policy rate three times by a cumulative 150bp over the last 12 months, causing an increase in the cost of financing with the money market rate fluctuating close to the upper bound of the interest rate corridor. However, real interest rates are still negative and money supply growth is buoyant, at 12% in March.

The current account deficit (CAD) will remain wide, averaging 9.5% in 2018-2019 based on our forecasts, down from 10.4% in 2017 and against a ‘B’ median of 4.2%. Non-energy imports are stabilizing in volume, while exports are gathering pace. However, the energy import bill is swelling due to rising oil prices and the durable drop in domestic production of hydrocarbons.

The upsurge in inflation and the rise in unit labor costs are aggravating the overvaluation of the dinar. BCT’s interventions and the wide CAD have resulted in a fall in foreign-currency reserves to the equivalent of 72 days of imports in May down from 111 days at end-2016 and 93 days at end-2017. We project net external debt to rise to 75.6% of GDP in 2019, almost double its level five years earlier and well above the ‘B’ median of 24%.

GDP growth is gradually picking up momentum and will average 2.7% in 2018-2019, up from 1.5% in 2016-2017, under our baseline. Tourism is rebounding from the slump that followed the 2015 terrorist attacks, aided by an improved security environment. Agricultural output is expected to achieve strong growth and the revival of external demand is supporting manufacturing activity. Over the medium term, the tightening of the policy mix, pressures on purchasing power and rising costs of inputs will increasingly constrain domestic demand.

The government enacted significant permanent direct and indirect tax increases in 2018, despite social protests against the provisions of the budget law taking place early January. It notably increased several VAT rates by 1%, introduced a 1% social solidarity contribution on corporate and individual income and raised custom duties and other direct and indirect taxes.

Fiscal consolidation is yet to be entrenched on the spending side of the budget. The government plans to gradually phase out energy subsidies by 2021, but incremental increases to gas and electricity tariffs will not be sufficient to offset additional cost pressures due to rising oil prices. Budget transfers to bridge the pension funds’ liquidity shortfall will continue as the pension reform has been further delayed. The strain on liquidity faced by the two pension funds has led to the accumulation of arrears to the national health insurance fund, which has in turn accumulated unpaid bills to the health sector.

The public payroll is a key constraint for consolidation efforts as it absorbed 68% of tax revenues, equivalent to 15% of GDP in 2017. The government’s plans to reduce the headcount in the civil service through a restrictive hiring policy will only bear fruit over the medium term. Participation in the negotiated redundancy scheme targeting 10,000 departures in 2018 has been weak, according to preliminary results.

We project the central government (CG) deficit narrow from 6% of GDP in 2017 to 5.6% in 2018, against a budget projection of 4.5% (4.9% excluding grants), and further to 5% in 2019. This will result in an improvement in the general government (GG) deficit (including social security and local government balances) to 5.4% from 6.3% in 2017. GG debt will continue rising albeit at a slower pace than in previous years, reaching 75% of GDP in 2019, up from 70% in 2017, under our baseline. With 70% of CG debt denominated in foreign currencies, the debt trajectory is highly vulnerable to shocks on the exchange rate.

The financial health of several major state-owned enterprises (SOEs) is undermined by governance shortcomings, low autonomy and their quasi-fiscal roles resulting in under-pricing of services and ballooning payroll. Transfers to ailing SOEs are a burden for the budget and the restructuring of several loss-making public companies, including the national carrier Tunisair, are a source of contingent liabilities for the sovereign. Government guarantees on SOE debt were 13% of GDP at end-2016.

The banking sector is currently reliant on BCT financing, as the growth in loans has outpaced deposit inflows. The sector’s financial health metrics are below ‘B’ medians. Profitability is relatively weak and might be further eroded by the expected monetary tightening. The ratio of non-performing loans (NPL) to total loans receded to 13.8% at end-2017 from a peak of 16.6% two years earlier, reflecting a decline in public sector banks’ NPL ratio from 26% to a still high level of 20%. A new law to facilitate the resolution and write-off of NPLs in public bank has recently been approved. Contingent liabilities for the sovereign arise from the protracted litigation over Banque Franco-Tunisienne (BFT).

Party positioning ahead of the 2019 legislative and presidential elections is a source of policy risk and could lead to renewed government instability. The signatories of the current government coalition pact are expected to reach an agreement on a new common platform of economic policies in the coming days, probably leading to a cabinet reshuffle. The new pact and the composition of the new cabinet will be key for the government’s ability to advance the reform agenda over the coming 18 months.

Rating Sensitivities

The main factors that may individually, or collectively, lead to a downgrade:

-Continued weakening in external finances, such as widening of the current account deficit and further drawdown in international reserves, leading to pressures on external liquidity.

-Failure to narrow the fiscal deficit or materialization of contingent liabilities, for example from the weak state-owned enterprises, leading to a faster rise in government debt/GDP than our current projections.

-Instability at the government level or social unrest hindering further progress on macroeconomic adjustment policies and reforms or resulting in the IMF program going off-track.

The current Outlook is Negative. Consequently, Fitch does not currently anticipate developments with a material likelihood of leading to an upgrade. However, the main factors that may individually, or collectively, result in the Outlook being revised to Stable include:

-Stronger implementation of adjustment policies and reforms supporting macroeconomic stability and reducing downside risks for the economy.

-Reduction in budget deficits consistent with stabilizing the public debt/GDP ratio over the medium term.

-A sustainable improvement in Tunisia’s current account deficit, leading to lower external financing needs and stronger international liquidity buffers. (Fitch 27.05)

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11.12 ALGERIA: IMF Executive Board Concludes 2018 Article IV Consultation

On May 30, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Algeria.

Algeria continues to face important challenges posed by the fall in oil prices four years ago. Despite a sizeable fiscal consolidation in 2017, the fiscal and current account deficits remain large. Real GDP growth slowed sharply, mainly driven by a contraction in hydrocarbon production, although growth in the nonhydrocarbon sector was stable. Unemployment increased to 11.7% in September 2017 from 10.5 in September 2016 and remains particularly high among the youth (28.3%) and women (20.7%). Average inflation declined from 6.4% in 2016 to 5.6% due to slowing inflation for manufactured goods and services, and stood at 3.4% year-on-year in April 2018. Reserves, while still ample, fell by $17 billion to $96 billion (excluding SDRs). External debt remains negligible, while domestic public debt has increased significantly since 2016 but remains moderate.

Executive Board Assessment

Executive Directors noted that Algeria has faced significant challenges related to lower oil prices since 2014 and slower economic activity. While welcoming the authorities’ efforts to manage the adjustment process, Directors encouraged sustained fiscal consolidation and wide-ranging structural reforms to facilitate a more diversified growth model and support private sector development.

Directors noted that the authorities’ policy mix includes increased fiscal spending in 2018 followed by a resumption of fiscal consolidation over the medium term, monetary financing of fiscal deficits and temporary restrictions on imports as well as structural reforms aimed at diversifying the economy. While a few Directors were sympathetic to the authorities’ approach, most Directors considered that it may bring short-term respite for the economy, but may entail significant risks to the economic outlook. These Directors emphasized that it will likely exacerbate fiscal and external imbalances, raise inflation, accelerate the loss of international reserves, heighten financial stability risks and eventually, lower growth.

Directors recommended an approach that would likely achieve better outcomes while being more sustainable. They generally agreed that a gradual fiscal consolidation starting in 2018 could be achieved without central bank financing, relying on a broader range of financing options, including external borrowing to finance well-chosen investment projects. A gradual exchange rate depreciation, combined with efforts to eliminate the parallel foreign exchange market would support the adjustment efforts.

Directors concurred that monetary policy should be independent and aimed at containing inflation. In this regard, they encouraged the authorities to stand ready to tighten the monetary stance if inflationary pressures arise. While discouraging monetary financing of the deficit, Directors underlined the need to put in place safeguards, including time and quantity limits, to contain its negative impact should such financing continue. In this context, they welcomed the central bank’s commitment to sterilizing liquidity resulting from monetary financing as needed.

Directors supported the efforts to raise more nonhydrocarbon revenue, improve public spending efficiency and management, and expand the subsidy reform while protecting the poor. They welcomed the authorities’ intention to advance reforms to foster private sector development by improving the business environment, enhancing access to finance, and strengthening governance, transparency and competition. Directors also saw merit in taking steps to reduce skills mismatches, improve the functioning of the labor market, foster greater labor market participation of women, and further open the economy to trade and foreign direct investment.

Directors noted that the banking sector continues to perform relatively well. They highlighted that, given macroeconomic risks and financial linkages in the public sector, the macro-prudential framework should be strengthened, including through more frequent stress tests, and development of a crisis management framework. (IMF 01.06)

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11.13 TURKEY: Moody’s Places Turkey’s Ba2 Ratings on Review for Downgrade

On 1 June 2018, Moody’s Investors Service (MIS) placed the government of Turkey’s Ba2 long-term issuer ratings, the Ba2 senior unsecured bond ratings and (P)Ba2 senior unsecured shelf ratings on review for downgrade. Concurrently, Moody’s has placed on review for downgrade the Ba2 senior unsecured bond rating of Hazine Mustesarligi Varlik Kiralama, a special purpose vehicle wholly owned by the Republic of Turkey from which the Turkish Treasury issues sukuk lease certificates.

Moody’s decision to place the current rating under review reflects mounting uncertainty regarding the future direction of macroeconomic policy, in the context of the country’s already vulnerable external position, that will, if sustained, raise the risk of severe pressures on Turkey’s balance of payments to a level that is no longer consistent with the current rating.

Turkey’s long-term country ceilings are not affected by this announcement. The foreign currency bond ceiling remains at Baa3; its foreign currency bank deposit ceiling remains at Ba3 and its local currency country ceilings for bonds and bank deposits remain at Baa2. The short-term country ceilings also remain unchanged at Prime-3 (P-3) for foreign currency bonds and Not Prime (NP) for foreign currency bank deposits.

Ratings Rationale

Driver for the Decision to Place Turkey’s Ba2 Rating on Review for Downgrade

On 7 March 2018, Moody’s downgraded Turkey’s ratings by one notch to Ba2 from Ba1. At that time, the rating agency stated that Turkey’s sovereign rating would likely be downgraded further if there was a material increase in the probability and proximity of severe pressures on the country’s balance of payments, relative to what is implied by the Ba2 rating.

Today’s decision to place Turkey’s Ba2 rating on review for downgrade is driven by Moody’s expectation that the recent erosion in investor confidence in Turkey will continue if not addressed through credible policy actions following the June elections, leading to a sustained increase in the probability and proximity of severe balance of payments constraints. The erosion of confidence was triggered in part by the advancement of presidential and parliamentary elections to 24 June, 17 months ahead of schedule. That decision exacerbated existing investor concerns regarding the negative credit impact of the economic, fiscal and monetary policy settings, and heightened concerns that the next administration would move further down the path of policy options detrimental to economic and financial stability.

The increase in the country’s external vulnerability resulting from that confidence shock can be seen in a number of indicators. Most visibly, the Turkish lira has depreciated by roughly 20% in the past three months. The current account deficit has widened to an estimated 6.5% of GDP on a twelve-month rolling basis as of the end of the first quarter and reserves have dropped further since their recent peak in October 2017 due to seasonally high debt repayments in recent months. In March alone, the $4.7 billion outflow of central bank foreign exchange reserves roughly matched the $4.8 billion current account deficit. In the same month, the roll-over ratio for banks’ long-term external funding fell to only 64%, compared to 88% for the whole quarter. Also since then, the cost of bank funding has risen sharply.

The negative shift in investor sentiment is a significant challenge for a country that is deeply dependent on net capital inflows to finance annual gross external borrowing requirements in excess of $200 billion, reflecting the large current account deficit and sizeable short-term debt and maturing long-term debt maturities. The country’s reserves are already low – the central bank’s foreign exchange reserves (including gold) cover less than half that amount. Even if the current account deficit narrows in the second half of the year due to the impact of the weaker lira and a slowdown in domestic demand, the deficit will remain large in absolute and relative terms.

The authorities have made limited progress in addressing Turkey’s structural economic problems, most notably its structural external deficits, in recent years. The period since the failed coup in 2016 has seen increasingly expansionary fiscal policy that has stimulated growth to unsustainable levels. Longer term economic reforms intended to raise potential growth and to reduce external vulnerabilities to a large extent have been sidelined, given the political focus on the several election cycles the country experienced in recent years.

Most recently, although not for the first time, the focus has been on monetary policy. For a number of years, the credibility of Turkey’s policy institutions has been undermined by the ineffectiveness of monetary policy, in part reflecting political interference in the policy-making process. The 5% (±2%) inflation target is regularly exceeded – inflation is currently in double digits and will probably rise given the falling exchange rate. The President’s recent suggestion that monetary policy would be loosened rather than tightened if he is re-elected further aggravated the lira’s weakness, which did not subside despite an emergency 300 bps hike in the Late Liquidity Window (LLW) interest rate by the central bank on 23 May.

The central bank had to take additional steps in the subsequent days to take the pressure off the lira, which culminated in the credit-positive simplification of the monetary policy regime to take effect on 1 June, a reform that had been pledged in the past but never implemented. The latter move involved more than doubling the various policy rates that had gone unused for more than a year and also included another hike in the LLW rate to 19.5%. The bank will now return to using the one-week repo rate, which it hiked from 8% to 16.5%, as its main policy rate, around which it established a ±150 bps corridor. The currency firmed marginally on the news, with market attention still focused on the next MPC meeting on 7 June.

Turkey has seen and has managed serious economic and financial shocks before. These circumstances partly reflect fundamental credit strengths derived from a large and diversified economy and a still relatively strong fiscal position. At present, the fact that economic and financial vulnerabilities are rising in parallel with an increasingly unpredictable political situation and rising global interest rates heightens the threat. The outcome will mainly rest on the coherence and predictability of the policies that are pursued after the upcoming elections and beyond and the extent to which an improved policy framework will restore adequate financing and refinancing of Turkey’s large external borrowing requirements.

Moody’s will therefore use the review period to gain a better understanding of the likely policy direction post-election, and the extent to which it is likely to weaken or support domestic economic and financial stability. Moody’s will also use the review period to monitor indicators of stress and assess their implications for Turkey’s resilience to shocks and the country’s balance of payments position. Finally, the agency will seek to understand the policy-formulation process, given that after the elections the person elected president will have significant authority over the legislative and judicial branches of government, and could potentially also exert greater influence over the legally independent central bank.

What Could Change the Rating Down/Up

Moody’s would likely downgrade Turkey’s ratings if it concludes that policymaking is unlikely to be able to prevent further deterioration in Turkey’s external position, leading to a sustained rise in the risk of a balance of payments crisis. Moody’s might reach that conclusion either because it determined that monetary, financial or economic policies are likely to undermine financial stability and sustainable growth; or because it concluded that, in the absence of clarity as to future policies, the risk of a further rise in refinancing risk and damaging capital flight remains high.

Given the review for downgrade, an upgrade is highly unlikely in the near future. Moody’s would consider confirming the current Ba2 rating if it were to conclude that the country would likely be able to strengthen its ability to meet its large external funding requirements by pursuing credible macroeconomic policies supportive of financial stability and sustainable growth within an adequately transparent and predictable policy-making environment. (MIS 01.06)

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11.14 TURKEY: Turkey’s Steel Wars Heat Up

Mehmet Cetingulec posted in Al-Monitor or 1 June that while gearing up for countermeasures against US steel tariffs, Turkey faces a fresh challenge from regional steel producers who are increasingly targeting its own market.

US President Donald Trump shows no intention of stepping back from his steep steel tariffs; on the contrary, he is forging ahead to expand them. Turkey, which was hit by Trump’s tariff blow in March, has geared up to respond in kind, contemplating levies on various US products. However, a fresh challenge has emerged under its nose – regional steel producers are targeting Turkey’s own market.

According to the Turkish Steel Producers Association, a 9.7% decrease in Turkish steel exports in March is the first sign of the impact of Trump’s 25% tariff and “corresponding protectionist measures arising in other countries.” Turkey’s efforts to win an exception have failed to bear fruit thus far, prompting Ankara to outline retaliatory measures. According to Hurriyet, Ankara estimates that Washington’s new levies on steel and aluminum have added a $266.5 million tax burden on Turkish exporters. Turkey plans to reciprocate with tariffs on various imports from the United States, including cars, cosmetics, whiskey, walnuts, tobacco, coal, paper, machinery and petrochemical products.

Ankara has sought a solution through diplomacy to avoid an “economic war” on top of simmering political tensions with Washington, which have already strained ties, especially in Syria. President Erdogan, Economy Minister Zeybekci and Deputy Prime Minister Simsek have all raised the issue in talks with US counterparts, but to no avail. “Our president brought up the issue several times in telephone conversations with Mr. Trump. This [state of affairs] is not what we desire in our ties with the United States,” Zeybekci said on 20 May. The minister stressed that the steel and iron trade between the two countries was already in the United States’ favor, with Turkey’s exports amounting to $1.18 billion against more than $1.3 billion worth of imports.

Earlier in May, Zeybekci said Ankara had undertaken “some initiatives” at the World Trade Organization (WTO) and informed Washington of its intention to retaliate. “We told them we could take countermeasures on the products we import from them, putting forth the same arguments that they put forth. And we can do this very quickly,” the minister said.

Most recently, Deputy Economy Minister Fatih Metin traveled to Washington in mid-May. “Absent any change in Turkey’s favor in the near future, we will go to the WTO to notify that we will undertake countermeasures,” he said. Several days later, public broadcaster TRT reported that Turkey had notified the WTO of its intention to levy tariffs amounting to some $260 million on 22 products from the United States.

Ufuk Soylemez, a former state minister for the economy, believes Washington’s inclusion of Turkey in the scope of tariffs is politically motivated. “There is no other explanation, given that the steel the United States buys from Turkey is cheaper and of higher quality than those of other countries. This is something bad for American consumers, too,” he told Al-Monitor. US steel importers have also vouched for their trade partners in Turkey. In early March, the head of the American Institute for International Steel, John Foster, sent Trump a letter, praising Turkey’s “fairly priced and high-quality steel” and urging exemption for Turkish mills.

Soylemez said the US tariffs had laid the ground for “an unnecessary trade war” that could affect bilateral trade in general “on top of the political crisis in Turkish-American ties.” He likened Washington to “an elephant in a china shop” over the policies it pursued in both the economic and political realm. “The tariffs the United States applies on its steel imports from Turkey are a perfect example of bad protectionism,” Soylemez said. “As a nation that consumes the most from the world’s resources and is economically obese, the United States is the last country that can practice financial nationalism.”

The overall trade between the two countries is also in the United States’ favor. In 2017, Turkey’s imports amounted to $11.9 billion, while its exports were worth $8.6 billion.

In a rare show of support for the government, the main opposition Republican People’s Party (CHP) agreed that Ankara should retaliate for the steel tariffs, despite the risk of a fallout on bilateral trade in general. “The United States might continue to put such barriers to our commercial ties in the coming period. Turkey should respond with its own measures,” CHP lawmaker Didem Engin, who sits on the party’s trade and industry commission, told Al-Monitor. “The US policy is not on the right course. Trade wars will lead to nowhere,” she said. “The United States should seek an environment that aims to expand its trade with other countries rather than constricting it.”

Turkey’s steel troubles, however, do not end there. Turkish steel producers face mounting foreign competition at home, which, ironically, has prompted calls for protective measures. Struggling to compete in the American and European markets, Russia, Ukraine and Iran appear to be increasingly targeting the Turkish one.

In March, Turkey’s steel imports rose 7.5% from the previous month to more than 1.5 million tons. In the first quarter of the year, the imports were up by 4.4%, reaching about 4.1 million tons. According to Gazi Bilgin, the secretary-general of the Turkish Steel Producers Association, the trend requires urgent measures.

What he means by measures is exactly what Washington is doing — that is, imposing tariffs on imported steel to shield local producers. The Turkish Economy Ministry has launched an inquiry into steel and iron imports, Bilgin told Al-Monitor, grumbling especially about imports from neighboring Iran, which, he said, enjoy tariff-free entry. “Zero-tariff imports are causing unfair competition,” Bilgin said. “At a time when we are struggling on the export front, the domestic market at least should belong to Turkish steel producers.”

To retain the domestic market, however, local manufacturers need to beat the prices of foreign competitors, which they are apparently struggling to do. The influx of cheaper steel products from regional countries is now emerging as an additional threat. Hence, Turkey is facing a two-front battle in the steel sector — which could lead to new tariffs on steel imports from countries such as Iran, Russia and Ukraine, in addition to countermeasures against the United States.

Mehmet Cetingulec is a Turkish journalist with 34 years professional experience, including 23 years with the Sabah media group during which he held posts as a correspondent covering the prime minister’s and presidential offices, economy news chief and parliamentary bureau chief. For nine years, he headed the Ankara bureau of the daily Takvim, where he also wrote a regular column. He has published two books. (Al-Monitor 01.06)

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Fortnightly, 13 June 2018

Fortnightly, 13 June 2018

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