Fortnightly, 29 November 2017

At a 20 November press conference with Minister of Health Litzman, Histadrut (General Federation of Labor in Israel) chairman Nissenkorn and Deputy Minister of Finance Cohen, Minister of Finance Kahlon presented a new national nursing care plan, which is to be included in the discussion of the 2018-2019 budget.

The plan is to increase the budget by NIS 1 billion, starting in 2019. The allocation for 2018 has not yet been determined. Under the plan, people over 60 will be given coverage from the health funds regardless of their state of health, without the funds having the option to refuse to provide coverage. The health funds’ level will cover from NIS 3,500 to NIS 5,000. When combined, the two levels will completely cover the cost of nursing care for a senior citizen. (Globes 21.10)

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1.2 Knesset Amends Equity Crowdfunding Regulations

The Knesset amended a series of regulations that will help ease fixed-income debt crowdfunding for startups and small businesses. Current regulations allow private companies to raise funds from banks or investors, venture funds, angels, or raise capital and debt financing from a group of up to 35 certified investors. In the past five years, 145 tech companies linked to Israel were funded through equity crowdfunding platforms, according to a report from IVC Research, an Israeli tech research company. Startups linked to Israel raised $173 million through equity crowdfunding in H1/17. (NoCamels 15.11)

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1.3 Israel Tax Authority Makes Claiming Disabled Child Credits Easier

Parents of disabled children in Israel who seek to exercise their rights to tax benefits will henceforth have to overcome fewer bureaucratic hurdles. The Israel Tax Authority has simplified the process of obtaining tax credit points for parents of disabled children under section 45 of the Income Tax Ordinance. Parents who receive a disabled child allowance from National Insurance will no longer need to attach a medical certificate to their application to the Tax Authority and it will be possible to obtain the tax credit points directly from employers, without having to visit an Income Tax Office. The new regulations affect thousands of parents, who will be able to obtain tax benefits with fewer bureaucratic entanglements and less effort.

Minister of Finance Moshe Kahlon has signed an amendment to Income Tax regulations bringing the relaxations into force. Under the Income Tax Ordinance, a parent of a child who is paralyzed, blind or intellectually or developmentally impaired is entitled to two credit points. Up to now, in order to receive these points, parents had to go to an Income Tax Office, complete an application form for tax credits for a disabled child, and attach a medical certificate signed by a medical practitioner specializing in the field of the child’s disability, which meant that the parents had to apply to the relevant doctor every few months or years, depending on the doctor’s finding.

Teams set up by the Tax Authority to examine take-up of tax benefits and improvement of taxation services recommended simplifying the procedure and replacing the requirement for a medical certificate with proof of receipt of a disabled child allowance from National Insurance, and saving parents having to visit Income Tax Offices by enabling employers to give parents the tax credit points on presentation of the confirmation from National Insurance and a declaration that only one parent is claiming the points and that the child has no income in the tax year concerned. (Globes 19.11)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Daimler CEO Inaugurates Tel Aviv R&D Center

Daimler CEO and Mercedes-Benz chairman Zetsche was in Tel Aviv on 16 November to inaugurate Daimler’s Israel research and development center. Zetsche said that the center will focus on the company’s Connected and Autonomous Shared and Service Electric Drive (CASE) strategy, which will form the basis for the new generation of Mercedes-Benz cars from 2020, as well as technologies appropriate for the current generation of vehicles. The new center will have 25 employees in the first stage engaged in the main areas of future transportation including instruments for digital cars, mobility services, connected cars and cyber security. The R&D center will be part of a network of 11 such centers worldwide.

Zetsche said that the German company will also seek to partner with startups and invest in or acquire technologies. In September, Daimler invested $50 million in Israeli smart transportation company Via and led the $60 million investment in battery charging startup Storedot. Daimler has also invested in Israeli startup Gauzy, which is developing smart glass for cars. (Globes 17.11)

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2.2 HARMAN Develops International Cyber Security Smart Mobility Test (SMART) Range in Israel

HARMAN International, a wholly-owned subsidiary of Samsung Electronics Co., focused on connected technologies for automotive, consumer and enterprise markets, in cooperation with Ben-Gurion University of the Negev, CYMOTIVE Technologies, Deutsche Telekom Innovation Laboratories and JVP, announced the launch of the International Cyber Security Smart Mobility Analysis and Research Test (SMART) Range in Israel. The SMART Range will fulfill the vision of an automotive development ‘playground’ in a smart-city environment, an innovation hub serving automakers, Tier 1 auto suppliers and academic research institutions for the testing and the certification of automotive cyber security, autonomous driving and smart mobility technologies.

The SMART Range will function as a living lab within a smart-city environment encompassing all aspects of future mobility systems, including public transportation, private vehicles and personal mobility devices. The range will simulate a complex reality and enable effective testing of advanced technologies, assessment of human-machine-environment interfaces, evaluation of transport solutions in a future networked reality and operability and robustness testing of software and hardware systems against cyber threats. The Range will feature the unique ability to combine the highest-level practical knowledge possessed by leading commercial firms together with advanced academic research. (HARMAN 14.11)

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2.3 Bagir Doubles in Value as Chinese Textile Group Takes Majority Stake

Bagir Group doubled in value as a major Chinese textile group took a majority stake and agreed to help it to win business with global clothes groups. Shangdong Ruyi Technology, one of China’s top 100 multi-national enterprises with listed subsidiaries in China, France and Japan, will invest $16.5m for a 54% holding. Having Shandong Ruyi Group as a key shareholder and partner would enable Bagir to exploit the opportunity presented by its Ethiopian manufacturing base far quicker and with more certainty than it could independently. The money will be used to expand the suit trouser business and establish the jacket production lines in Ethiopia.

A global innovative tailoring provider, Kiryat Gat’s Bagir Group specializes in developing, manufacturing and marketing of high quality men and women’s tailored fashions. Bagir Group leverages their Global Presence, Vertical Structure & Innovation in order to provide consumers with the ultimate wearing experience combining fashion, comfort, performance and value. (Various 23.11)

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2.4 ReWalk Robotics Issues Follow-on Public Offering of Ordinary Shares

ReWalk Robotics announced that it has priced its underwritten public offering of 6,857,000 ordinary shares at a price to the public of $1.05 per ordinary share. All of the ordinary shares in the offering are to be sold by ReWalk. National Securities Corporation, a wholly-owned subsidiary of National Holdings Corporation, is acting as sole book-running manager of the offering. ReWalk has granted the underwriter a 45-day option to purchase up to 1,028,550 ordinary shares sold in the public offering on the same terms and conditions. The offering closed on 21 November 2017, subject to customary closing conditions.

ReWalk intends to use the net proceeds from the offering for (i) sales, marketing and reimbursement expenses related to market development activities and broadening third-party payor coverage and (ii) research and development costs related to developing its lightweight “soft suit” exoskeleton technology for various lower limb disabilities, including stroke and other indications affecting the ability to walk.

Yokneam Illit’s ReWalk Robotics develops, manufactures and markets wearable robotic exoskeletons for individuals with spinal cord injury. Their mission is to fundamentally change the quality of life for individuals with lower limb disability through the creation and development of market leading robotic technologies. (ReWalk 17.11)

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2.5 Missbeez Raises $4 Million

Israeli beauty and lifestyle services company, Kibbutz Shefayim’s Missbeez, completed a $4 million financing round led by Ourcrowd, 500 Startups, iAngels, Global Target Ventures and notable angel Gigi Levi.

Missbeez is a mobile platform providing a variety of lifestyle and beauty services to busy entrepreneurs, offering direct consumer services by a mobile beauty therapist, at home or the office, 24/7. The platform offers a solution to entrepreneurs that aim to become more successful at effectively managing their personal lives. By implementing a set of time-saving algorithms that manage the platform’s bookings and user database, Missbeez has created an organized and empowering space that meets beauty and lifestyle needs.

The $4 million investment will contribute to the platform’s technological growth, developing its algorithms that enhance the Missbeez experience by personalizing the user experience for frequent customers, and tracking the availability of requested mobile beauty therapists and their services. The funds will also contribute to the platform’s mobile beauty therapists; Missbeez provides their treatment providers with professional training, financial aid, and professional support, as they help them grow their businesses and increase their income. (Missbeez 18.11)

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2.6 At-Bay Raises $6 Million

Tel Aviv’s At-Bay, an Israeli digital insurance company, has closed a $6 million seed funding round, led by LightSpeed Venture Partners, with the participation of Shlomo Kramer and LocalGlobe. At-Bay, which is striving to redesign insurance, with cyber security expertise at its core, is backed by The Hartford Steam Boiler Inspection and Insurance Company (HSB), part of Munich Re, seeks to enable organizations and brokers to confidently confront today’s dynamic risk landscape. At-Bay actively monitors client risk year-round and works with them to control it. Together with its cyber insurance policy and risk insights, At-Bay allows clients and brokers to better manage and control cyber risk.

At-Bay has partnered with HSB to bring to market a product to insure and defend organizations against cyber risks. At-Bay believes historical data has limited ability to predict future risk, because technology and attackers change too quickly. Instead, At-Bay leverages its deep data collection, discovery and enrichment technology to enable security experts to augment the model with heuristics on expected future risk. Risk insights are pushed into decision making in hours, so that prospective and existing portfolio companies receive an updated and future looking assessment of risk. For brokers, At-Bay offers one intuitive, digital platform which combines its insurance product with risk insights that help brokers foster a more insightful conversation with their clients, including security and financial exposure, case studies and benchmark data. Fast, digital and collaborative applications make for a low-friction sales process. (Globes 17.11)

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2.7 Michigan Israel Business Accelerator Promotes Israel Business Connection

The Michigan Israel Business Bridge (MIBB), which has been a cornerstone of the Michigan Israel business agenda for the past ten years, is transitioning to a more robust economic growth bridge between Michigan and Israel. With this new transition comes a new name: The Michigan Israel Business Accelerator (MIBA). Through the assistance of the Michigan Economic Development Corporation (MEDC) and private support, MIBA will elevate the scope and scale of the Michigan Israel relationship, targeting the convergence of technology, industry and research in such sectors as advance manufacturing, mobility, cyber, defense, water, health and life science and agriculture.

The Michigan Economic Development Corporation is the state’s marketing arm and lead advocate for business development, job awareness and community and talent development with the focus on growing Michigan’s economy. The Michigan Israel Business Accelerator connects the Israeli business community to the Michigan community. The MIBA hosts trade missions, networking events, economic development seminars, and facilitates business to business meetings and investments. (MIBA 20.11)

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2.8 Coneuron Announces a $4 Million Pre-Seed Investment

Idan Plotnik, Ex-Founder and CEO at Aorato (acquired by Microsoft in 2014), founded and invested $4m pre-seed in a new AI start-up: Coneuron. The company’s goal is to provide a tool that will allow the current generation to control their virtual lives. The main problem is that the current generation hides behind ‘a screen and a keyboard’. From a physiological standpoint, their behavior makes sense because no one provides them with any type of physical reaction after “posting” something, such as facial expressions and/or intonation. Therefore, this situation makes the current generation feel invincible, with no regard for the consequences of their actions.

Literally translated, the meaning of the company’s name is ‘shared neuron’. The company develops a platform based on a unique patent-pending technology that combines AI (Artificial Intelligence) and the expression of human feelings regarding individuals’ activities in the virtual space.

Herzliya’s Coneuron currently operates in stealth-mode and focuses on improving the way humans behave in the virtual space. (Coneuron 21.11)

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2.9 SCADAfence Secures $10 Million to Protect Smart Manufacturing from Cyber Attacks

SCADAfence announced $10m in funding with the closing of a Series A round. Investors include JVP, NexStar Partners, 31Ventures Global Innovation Fund, GB-VI Growth Fund Investment Limited Partnership managed by Global Brain, iAngels and DS Strategic Partners. The investment will be used to expand the company’s R&D center in Tel Aviv and global business development teams to meet growing market demand across North America, Asia and Europe.

As part of the Industrial IoT or Industry 4.0 revolution, industrial operational technology (OT) networks are being increasingly connected to external networks, making them more productive, easier to manage and more cost-effective. However, this new reality exposes them to cybersecurity risks that can result in operational downtime, process manipulation, theft of intellectual property and ransomware attacks. Manufacturers from various industries have reported losses of hundreds of millions of dollars in profits due to halts in production caused by ransomware attacks such as WannaCry and Petya. These recent incidents indicate just how vulnerable OT networks are, and that cyber attacks are already significantly affecting the bottom line of industrial companies.

Tel Aviv’s SCADAfence is a pioneer in securing industrial networks, in the smart manufacturing and critical infrastructure sectors, from cyber threats. In such industries, traditional security solutions are inadequate due to the unique requirements, technologies and components found in industrial networks. SCADAfence’s solutions provide visibility of day-to-day operations, detection of malicious cyber-attacks as well as non-malicious operational threats, and risk management tools. (SCADAfence 21.11)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Active GCC Oil & Gas Projects Worth $331 Million

The Oil and Gas Construction Analytics report issued by BNC Network said the hydrocarbon sector represents 30% of the GCC economy and 60% of the total exports value. It added that the construction projects constitutes 2% of all active projects in the region while accounting for 14% of the total estimated value.

The construction update comes at a time when the average oil price has recovered to $51.82 per barrel year-to-date in 2017, from the 13 year lowest average price per barrel of $42.55 in 2016, this is less than half of the $111.63 per barrel recorded in 2012. In Q3/17, 17 projects with a combined estimated value of $22.05 billion were announced in the GCC’s oil and gas sector, despite a low-oil price environment where oil price has been hovering around the psychological mark of $50 per barrel. It added that the number of oil and gas projects in the GCC increased by 6% in Q3 compared to the previous quarter while the total estimated value of these projects increased by 5%.

A total of 10 oil and gas projects with a combined estimated value of $5.6 billion moved to construction from other stages during Q3/17, the largest contract awarded being phase 1 of Duqm Refinery and Petrochemical Complex located in Oman worth $2.75 billion. A total of 15 oil and gas projects with a combined estimated value of $9.9 billion were completed during the third quarter of 2017.

Pundits feel that although the UAE and other Gulf countries are investing in non-oil energy projects – such as renewable and nuclear power projects – the oil and gas industry is here to stay for a long haul till the alternative fuel consumption, such as battery and solar-powered vehicles, grows worldwide. BNC tracks 25,324 live construction projects with a value exceeding $7.7 trillion. (BNC 16.11)

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3.2 Raytheon Authorized to Establish Saudi Business Unit

On 15 November, Raytheon announced the completion of the official commercial registration requirements for its new Riyadh-based business unit. The decision by the Saudi Ministry of Commerce and Industry allows Raytheon Saudi Arabia to accelerate its localization strategy in support of the Gulf kingdom’s Vision 2030. Earlier this year, Raytheon announced a memorandum of understanding with Saudi Arabia Military Industries. Raytheon Saudi Arabia is now officially a local Saudi company bringing Raytheon’s technology and innovation to the kingdom. Raytheon Saudi Arabia will be based in Riyadh and is expected to include in-country program management, supply and sourcing capabilities, improved customer access and centralized accountability. (Various 16.11)

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3.3 Chevrolet Remains Top-Selling Brand in Egypt With 22.3% of the Market

The Automotive Marketing Information Council (AMIC)’s October report showed that Chevrolet continued its lead in selling rates in the Egyptian car market from January until the end of September 2017. The American carmaker holds 22.3% of sales, at 21,468 cars, despite a 34.7% drop in its sales compared to the same period in 2016, when it recorded 32,890 cars. In the first eight months of this year, the company made 23% of car sales and sold 19,200 cars, compared to 29,500 in 2016.

Nissan came second, with 15,847 vehicles, accounting for 16.5% of total sales during the first nine months of 2017. Hyundai was third with 13,613 vehicles, accounting for 14.1% of total sales for the same period. Toyota sold 7,930 cars with a market share of 8.2%. Mitsubishi came in fifth place with 4,804 sold units and 5% of the market, followed by Chery in sixth position, with 4,419 cars accounting for 4.6% of car sales. Renault ranked seventh, selling 4,282 units, accounting for 4.4% of total sales in the Egyptian market during the same period. Kia sold 4,135 units to take eighth place with a 4.3% market share, while Opel sold 3,813 units accounting for 4% of total car sales, coming in ninth place. Meanwhile, Suzuki sold 3,330 units to come in tenth place with 3.5% of total car sales.

AMIC’s report stated that sales dropped since the beginning of the year and until the end of September by 38%, registering sales of 96,248 units in that period, compared to 155,129 units in 2016. Private car sales alone dropped by 37%, registering 69,543 units only, down from 110,201 units in the same period. Buses saw 44% fewer sales, at 9,721 buses in the first nine months of 2017, compared to 17,317 buses in 2016. Truck sales also dropped by 38%, to reach 16,984 units, down from 27,611 units during the period of comparison.

The report found that demand on locally assembled cars declined by 32.1% to settle at 53,627 units in the first nine months of 2017, compared to 78,969 units in the same period of 2016. Imported cars sales also dropped by 44% to 42,621 units, down from 76,160 in that period of 2016. (AMIC 21.11)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Jerusalem Initiates 1,600 MW National Rooftops Solar Project

Israel’s Minister of National Infrastructure, Energy, and Water Resources Steinitz published on 26 November a new policy that will add a 1,600 MW quota to the Israeli electricity sector. The Public Utilities Authority (electricity) has prepared a plan for implementing the new policy. The new quotas will be allocated to solar energy facilities, mostly on rooftops, but also on the ground.

Israel is lagging substantially behind the targets its set in renewable energy. Only 3% of all electricity in Israel is produced from renewable energy sources, compared with a 10% target for 2020. 1,000 megawatts of the 3,600 MW total has already been built (the vast majority of which consists of solar energy facilities), and projects under construction amount to another 700 MW. The project, which consists of privatization of electricity production, enables home consumers, local authorities, and businesses to produce solar electricity. The project is designed to produce 1,600 MW.

Approval of solar energy quotas has been approved in small increments of a few dozen megawatts to date. This time, the state is planning to add an enormous amount within a relative short time three-year period. According to the Public Utilities Authority (electricity), most of the new quota will be for solar facilities on rooftops of households and businesses. Solar panels require a great deal of space, and Israel is a relatively crowded country. Rooftop facilities therefore have great potential, which have not yet been utilized. Solar facilities have been installed on only 6,000 of Israel’s two million rooftops. There were many reasons for this: bureaucratic problems pertaining to the installation, taxation, a high price, financing problems with the banks for building facilities, and lack of awareness among the public. One of the important innovations in the plan that makes building a facility more worthwhile is the possibility of receiving payment for electricity produced beyond what is consumed by the owners according to a predetermined rate.

The rate for all types of facilities (small and large roofs and ground facilities) will be fixed, and will be paid throughout the 20 – 25-year lifespan of the facility. This will make it easier to obtain bank financing for building a facility. (Globes 26.11)

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5: ARAB STATE DEVELOPMENTS

5.1 Lebanon’s Average Inflation Rate Up by 4.35% by October 2017

According to the Central Administration of Statistics (CAS), Lebanon’s average inflation rate rose by 4.35% by Oct. 2017, compared to an average deflation rate of 1.42% by Oct. 2016. The average costs of Housing and utilities (including: water, electricity, gas and other fuels), which grasped a combined 28.4% of the Consumer Price Index (CPI), rose by 5.37% year-on-year (y-o-y) by Oct. 2017. In details, Owner-occupied rental costs constituted 13.6% of this category and increased by 3.79% y-o-y. As for the average prices of Water, electricity, gas, and other fuels (11.8% of the Housing & utilities component), they rose by an annual 11.25% over the same period. In turn, the average prices for Food and non-alcoholic beverages (constituting 20% of the CPI) and Education costs (6.6% of CPI) registered yearly upticks of 3.61% and 2.07% by Oct. 2017. The average price of Transportation (grasping 13.1% of the CPI) gained an annual 5.55%, which can be attributed to the continuing recovery in the average international price of oil to $53.05/barrel by Oct. 2017 compared to $43.95/barrel by Oct. last year.

Average health costs (7.7% of the CPI) which recorded decreases in the past months, slipped by 0.11% y-o-y over the same period. In Oct. 2017, the CPI grew at a rate of 4.62% compared to October last year. The increase was driven by the recorded annual upticks of 3.98% and 4.54% in the two largest CPI components Housing and utilities and Food and non-alcoholic beverages. Moreover, Clothing and Footwear, Transportation, and Health components of the CPI also added 15.81%, 4.35% and 2.8%y-o-y, respectively, during the month. (CAS 23.11)

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5.2 Lebanon’s Trade Deficit Narrowed to $11.77 Billion by Third Quarter

According to the Lebanese Customs, Lebanon’s trade deficit narrowed by 2.04 % to $11.77B by September 2017, as exports increased by a yearly 4.86% to $2.12B, and imports fell by 2.48% y-o-y to $13.89B. For imports, the value of total imported mineral products fell by 13.71% y-o-y to $2.67B, on the back of a drop in volume from 7.14M tons by Q3/16 to 6.49M tons this year. Moreover, products of the chemical or allied industries, which grasped 12.4% of the total value of imported goods increased by a yearly 1.97% to $1.56B. As for machinery and electrical instruments, they grasped a share of 11.39% of the total value and increased by 2.71% from Jan- Sept 2016 to stand at $1.43B by September 2017. The top countries Lebanon imported from during the first nine months of the year were China, Italy and Greece with respective shares of 10%, 9% and 7%.

As for exports, pearls, precious stones and metal products, grasping the largest share of exported goods (21.79%), plunged by 30% by Q3 to reach $460.85M. As for prepared foodstuffs, beverages and tobacco, they constituted 15.81% of the exported goods’ value amounting to $334.32M by September 2017, compared to $325.92M by September 2016. Moreover, exports of machinery and electrical instruments, that take up to 11.11% of the total exports, fell by 5.21% y-o-y to $234.93M by September 2017. The top export destinations for the same period were South Africa, the UAE and Saudi Arabia, with respective shares of 12%, 9% and 8%. (Lebanese Customs 14.11)

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5.3 Total Number of Registered New Cars in Lebanon Stagnates by October 2017

According to the Association of Lebanese Car Importers, the total number of newly registered commercial and passenger cars rose slightly from 33,317 in October 2016 to 33,596 cars in October 2017. Specifically, the number of registered commercial cars increased by 4.41% y-o-y to 2,272 and the number of registered passenger vehicles rose by 0.59% to reach 31,324 cars during the first ten months of the year. In terms of brands, Kia maintained lead with the largest share of 20.46% of newly registered passenger cars, followed by Hyundai, Toyota and Nissan with respective shares of 13.13%, 11.92% and 8.98%. As for sales per importer, Natco acquired the largest stake of newly registered cars with 19.09% of the total, followed by RYMCO with 13.86%, Century Motor Co. and BUMC with 12.50% and 12.34%, respectively. (ALCI 13.11)

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5.4 Safe Ports Regional Gateway Launches at Crossroads Site in Jordan

Safe Ports Regional Gateway, a 1,000 acre site in Jordan intended to serve as a thriving hub for global businesses looking to become involved in the growing opportunities available throughout the Middle East, was announced at a signing ceremony in Amman including leaders of its three partners – Mafraq Development Corporation (MDC) of Jordan; Safe Ports, a U.S. company with expertise in logistical operations; and the Jordanian Air Force (JAF). Founded in 2005, Safe Ports is both a U.S. federal contractor and a commercial business based in Charleston, SC.

Safe Ports Regional Gateway, a secure and economical inland port to begin initial operations in 2018, will be a trans-shipment, distribution, warehousing and business hub facility. Located near the town of Al Mafraq within a Special Economic Zone, the master-planned site surrounds the King Hussein Air Base, with access to a 9800-foot runway, air traffic control tower and host of airfield support services.

In exclusive partnership with MDC and the JAF, Safe Ports is responsible for promotion, development and operations of this new regional logistics hub, located at the intersection of major trade routes connecting Jordan with Iraq, Syria, Saudi Arabia and Israel. Safe Ports has successfully run logistical operations for the U.S. Department of Defense within the continental United States, and across the globe, including the MENA region and the Pacific Rim.

The site of Safe Ports Regional Gateway is approximately 75km north of Amman, Jordan, and 3km from the Syrian border crossing, with direct road access to the Port of Haifa (Israel) and the Port of Aqaba (Jordan). Safe Ports Regional Gateway will benefit from extensive modern infrastructure developed for road networks, electricity, water supply and waste water, as well as fiber-optic connectivity. (Safe Ports 27.11)

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5.5 Iraq to Resume Paying War Reparations to Kuwait in 2018

Iraq is to resume paying war reparations to Kuwait at the start of 2018, in UN-endorsed compensation for Saddam Hussein’s 1990 invasion of the emirate, the president’s office announced on 24 November. It said the two countries had agreed during a visit to Kuwait City by President Fuad Masum for Iraq “to resume payment of the five-percent tax on oil sales and to try to settle border disputes”. Iraq in October 2014 suspended payment of the tax imposed on its oil exports as war reparations by the UN Security Council at the height of an offensive by the Islamic State jihadist group that has now been rolled back. The outstanding amount of $4.6 billion from a total reparations bill of $52.4 billion is to be paid by the end of 2021, the president’s office said. A US-led international coalition evicted Iraqi troops from Kuwait in February 1991 after a seven-month occupation. (IN 25.11)

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►►Arabian Gulf

5.6 Bahrain Sees Non-Oil Growth of 4.7% in First Half of 2017

The Bahrain Economic Development Board Growth announced Bahrain’s non-oil sector reached 4.7% in H1/17, ahead of the 4% growth recorded during 2016 as a whole. The latest Bahrain Economic Quarterly showed that robust non-oil growth was almost entirely due to activity in the private sector. EDB said the positive momentum at a time of fiscal consolidation and minimal oil output growth underscores the dynamism of the kingdom’s economy. It added that non-oil growth in H1/17 was broad-based with particularly strong momentum in hotels and restaurants, social and personal services and financial services, which all expanded more than 7% year-on-year. The figures also showed solid growth in the transport and real estate sectors. Overall real economic growth in the kingdom reached an annual pace of 3.4% for the first half of the year, which marked a small improvement over the 3.2% pace of growth posted during 2016 as a whole.

The report also showed that Bahrain’s tourism industry is growing steadily. According to the Bahrain Tourism & Exhibitions Authority, the aggregate total number of tourists visiting Bahrain during the first three quarters of 2017 was 8.7 million – up 12.8% on the same period last year. It added that Bahrain has development projects worth approximately $10 billion under construction across the kingdom as well as infrastructure projects worth over $32 billion either under construction or scheduled for the near future. (AB 23.11)

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5.7 UAE Food Consumption Set to Rise to 59 Million Tonnes by 2025

The UAE Food Industry Report 2017 said the UAE is on course to meet both consumer demands and UAE Government mandates for a more sustainable, zero-waste future. A growing population, increasing tourist numbers and rising incomes will all contribute to pushing UAE food consumption to 59.2 million tonnes annually by 2025. Food is the second biggest sector in the UAE. The total food sales figure in the UAE for 2016 was AED121 billion ($329 billion) and will only continue to grow. Food consumption is forecast to rise from 48.1 tonnes last year to 59.2 million by 2021, due to a rising consumer base and growth in income.

The report added that with the UAE’s population estimated to hit 10 million by 2025 and tourism numbers poised to reach 20 million by 2020, food manufacturing industry players face a range of challenges. Rising consumer health awareness is combining with other such challenges as the impending implementation of VAT and rising costs.

Dubai is currently home to more than 16,000 food outlets and restaurants, including 2,074 new restaurants that opened between the middle of 2015 and the end of 2016, according to latest figures from Dubai Municipality. (FIR 16.11)

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5.8 Dubai Plans New Sewer System to Operate for Next 50 Years

Dubai Municipality has begun exploratory work for a major new sewage treatment system as part of its infrastructure drive to accommodate continued population growth. The Dubai Strategic Sewer Tunnel Project, for which Dubai Municipality has engaged Parsons Overseas Limited as engineering consultant, will involve construction of more than 70 km of tunnels supported by approximately 140 km of link sewers and key pumping stations. It will serve the city for at least the next 50 years.

When completed in 2022, the project will eliminate over 100 pump stations around the city that currently transfer sewage to treatment plants in Al Warsan and Jebel Ali. Dubai Municipality, which has commenced a geotechnical investigation for the project, said the key objectives are to reduce the cost of treating sewage, reduce carbon emissions through the use of gravity systems and reduction in power demand. Upon completion of field work, the results of testing and laboratory analysis will be evaluated to provide advice on appropriate construction methodologies for the tunnels. (AB 21.11)

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5.9 Saudi Arabia Tax Authority Confirms Imposition of VAT on Petrol

Saudi Arabia will impose VAT on petrol from 1 January, the General Authority of Zakat and Tax (GAZT) confirmed. GAZT said the 5% tax will be applied when it’s implemented in January 2018. The body overseeing its implementation also confirmed that international transport of passengers and goods is zero-rated, in accordance with the ‘Unified VAT Agreement for the Cooperation Council for the Arab States of the Gulf’ and the VAT Implementing Regulations. In contrast, GAZT said the local transport of passengers and goods within the kingdom will be subject to the standard 5% VAT rate, with businesses expected to collect the tax from the traveler when selling the travel ticket. Saudi tax authorities and the Ministry of Municipal and Rural Affairs are set to sign off on a new agreement to help local businesses register to pay new taxes. Businesses with annual revenues between $50,000 and $100,000 are eligible to reclaim VAT if they register, while businesses with annual revenues below $50,000 are exempt from registration. (AB 19.11)

5.10 Nearly 1,300 Additional Keys (Rooms) Added To Saudi Hotel Market in Third Quarter

Nearly 1,300 additional keys were added to Saudi Arabia’s hotel market as a new of internationally branded hotels were opened in the kingdom in Q3/17, according to a newly released market review from Colliers International. In Riyadh, two branded hotels – Swiss Spirit and Centro Waha – were opened, adding another 370 keys in the market. According to Colliers, the city’s hotel market saw a third consecutive year-on-year percentage decline in RevPAR performance, which is attributes to new supply and lower demand. The trend is expected to continue for the next three months.

In Jeddah, the opening of the Radisson Blu Jeddah Al Salamah saw the addition of 142 keys to the city’s hotel market, in which 5-star hotels account for more than 55% of the city’s total branded hotels. Collier notes that despite expected delays in hotel openings of one or two years, Jeddah remains one of the fastest growing markets in Saudi Arabia, with branded hotel supply expected to increase at a compound annual growth rate of 34% between 2017 and 2019. Upcoming projects such as the Jeddah Waterfront, Jeddah Economic City, Haramain High-Speed Railway and the expansion of the city’s airport are all expected to induce hotel demand.

In Mecca, the introduction of the M Hotel Makkah saw the addition of an additional 785 keys. The city, Collier notes, has one of the largest hotel project pipelines in the country, which various operators – including Jumeirah Group, Emaar Hospitality and Four Seasons – having recently announced signings for future hotel developments.

The review also examined the hotel markets in Medina – where no internationally branded hotels opened in Q3 – and found an 8% decline in RevPAR. The city’s position as a hub for price-sensitive pilgrims, however, leads Collier to forecast a 0.3% increase in full-year RevPAR. Lastly, the market outlook found a sharp decline in performance in RevPAR in the Greater Dammam area, with full year RevPAR performance expected to fall by 17%. However, Colliers notes that the area has “great potential” or leisure travel, particularly from the domestic market and the rest of the GCC. (AB 19.11)

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►►North Africa

5.11 Egypt’s CBE Lifts Foreign Currency Caps on Importers of Non-Essential Goods

On 28 November, the Central Bank of Egypt (CBE) lifted the monthly cap on foreign currency deposits and withdrawals imposed on importers of non-essential goods.

In October 2016, Egypt’s Chamber of Commerce banned the import of more than 50 types of nonessential goods before the CBE introduced caps on importers in November 2016. Deposits were capped at $50,000 and withdrawals at $30,000 per month, with a $10,000 a day limit, in an attempt to eradicate the foreign currency black market and tackle the country’s foreign exchange crisis. According to the chamber, non-essential goods include processed fruits, oils, chocolate and dairy products, cosmetics, detergents, home appliances, furniture cloth, dental care products, stationery, mineral water and soft drinks.

In March 2017, the CBE removed caps on individuals withdrawing or depositing foreign currency at banks.

In November 2016, the CBE floated the pound and raised key interest rates as part of a set of reforms aimed at alleviating the dollar shortage. At the end of October 2017, Egypt recorded the highest foreign reserves in its history at $36.703 billion, the Central Bank of Egypt announced in a statement earlier this month. (CBE 28.11)

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5.12 Egypt Sees 55% Rise in Tourists in Third Quarter

The number of tourists coming to Egypt increased in the third quarter of 2017 by 55% compared to the same period last year, in keeping with an upward trend, according to CAPMAS. In its report, CAPMAS stated that the number of tourists during the third quarter in 2017 exceeded 2.3 million, compared to just over 1.5 million tourists in the previous year’s third quarter. Egypt’s tourism revenues jumped 211.8% year-on-year to $5.3 billion in the first nine months of 2017.

The tourism and hospitality industry in Egypt took a blow when Russia, once responsible for a large portion of visitors to Egypt’s popular Red Sea resorts, banned flights to the country following a plane crash over Sinai in 2015 that killed over 200 people. Tourism revenues in 2016 reached $3.4 billion in comparison. (Ahram Online 26.11)

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5.13 Egyptian Exports to Arabian Gulf Countries Worth $3.5 Billion Over 8 Months

The Central Agency for Public Mobilisation and Statistics (CAPMAS) announced that Egypt’s total exports to the Arabian Gulf countries during the period from January to August 2017 was worth $3.5b. On the other hand, the total value of exports to those countries during the same period of 2016 was $3.4b. CAPMAS’ latest foreign trade report, for the period from January to August 2017, stated that the UAE ranked the first among six Gulf Cooperation Council (GCC) countries, which exported goods and products, during the period mentioned, of high export value. The report showed that Egypt’s total exports to the UAE, in the first eight months of the current year, amounted to $1.9b of the total value of exports to the Gulf countries.

CAMPAS pointed out that Egypt’s exports to Saudi Arabia reached about $1b during the period from January to August 2017, compared to$1.1b in the same period last year, while exports to Bahrain amounted to $40.6m dollars, compared to $35.5m in the same period last year. Egypt’s exports to Oman during the first eight months of this year amounted to $117m, compared to $90.8 m during the same period last year, while the value of exports to Qatar reached $208.4 m, compared to $184.3m in the same period last year. Finally, Egypt’s exports to Kuwait amounted to $238.5 m during the mentioned period of this year, compared to $240.2 m in the same period of 2016. (CAPMAS 18.11)

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5.14 Morocco’s Consumer Price Index Dropped by 0.1% in October 2017

The High Commission for Planning (HCP) announced on 22 November that Morocco’s Consumer Price Index (CPI) fell by 0.1% in October, as a result of the 0.3% decrease in product index and the 0.1% increase of the non-food index. Drops in food product prices that occurred between September and October 2017 concern mainly seafood with 3.9%, meats (2.3%), fruits (1.1%), coffee, tea and cocoa (0.7%). Prices increased by 2.2% for vegetables, by 1.9% for oils and fats and 0.2% for milk, cheese and eggs, added HCP. For non-food products, the increase mainly concerned fuels, by 0.9%.

Under these conditions, the core inflation indicator, which excludes products with volatile prices and products with public tariffs, have decreased by 0.3% in October 2017 compared to the month of September 2917 and an increase of 1.1% compared to October 2016. (HCP 22.11)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1 Turkish Lira Plunges to New Record Low as Erdogan Ends Truce with Central Bank

On 17 November, the Turkish lira fell to a new record low against the dollar, as President Erdogan renewed criticisms of the country’s central bank. To the consternation of Turkey’s central bankers, the president has earned a reputation as the world’s most outspoken proponent of a theory that high interest rates cause high inflation. Vowing to fight what he referred to as an “interest rate lobby” conspiring to keep rates artificially high, Erdogan said “we will solve this, things can’t go on like this.” Following the lira down, the Borsa Istanbul Banks Index fell as much as 2.4%, according to Bloomberg.

Turkey’s rising payments deficit has helped push down the lira, raising import prices and inflation. The currency devaluation in turn scares away the hot money investors that Turkey depends on, threatening to push the country into a spiral of devaluation and inflation. Erdogan’s push to cut interest rates will only exacerbate the problems according to most economists. (Asia Times 18.11)

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6.2 Greek Parliament Approves its 2018 Budget, Showing 0.75% Rise in Expenditures

A plenary session on 17 November approved the Parliament’s budget for 2018, which includes a 0.75% rise in expenditures to €133,985,000, from €132,985,000 in 2017. The 2018 expenditures fully meet the medium-term budgetary targets.

The ruling SYRIZA party spokesperson detailed further improvements to streamline operations, including greater reliance on electronic document dispatch and using parliament-allocated funds to create long-term infrastructure that would reduce operational costs. He also said the special committee that reviews asset declarations of MPs, parties, the cabinet and local government officials would become an independent agency.

On 22 November, Athens submitted the 2018 budget in Parliament, predicting a higher-than-expected primary surplus, of 3.8% of GDP and a growth rate of 2.5%, as well as additional austerity with some €1 billion in new taxes. The strong growth rate of 2.5% is projected to follow a 1.6% expansion this year – a figure that has been downwardly revised twice following an original forecast of 2.7%.

In a report accompanying the budget, the Finance Ministry looked forward to an “exit from a long period of programs of macroeconomic adjustment,” referring to Greece’s anticipated exit from its third foreign bailout in the summer of next year. The budget – which is to be voted on in Parliament on 22 December – foresees a primary surplus of 2.4% of GDP for this year, significantly above a target of 1.75% and 3.8% for 2018. The budget also provides details about a “social dividend,” heralded by Prime Minister Tsipras, for 1.4 million households. The handout is worth an average of €483 euros and a projected increase in growth rates in the coming years should allow the government to broaden its initiatives for social protection.

The budget also includes a list of 12 measures that were passed in Parliament earlier this year but have yet to be implemented. They include increases in social security contributions, cuts to heating and oil subsidies, higher tax rates for medium-sized and large properties, the elimination of value-added tax breaks for dozens of Aegean islands that had enjoyed a reduced rate of VAT, and a new hotel stayover levy. There are fears that the latter could have an impact on tourism, which remains one of Greece’s few dynamic economic sectors. The government hopes that the 12 measures will raise around €1 billion in revenue. (eKathimerini 21.11)

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6.3 Greece Leads OECD Taxation Hike Chart

Greece ranked first out of 35 OECD countries in tax hikes last year, according to a report by the Organization for Economic Cooperation and Development, and the budget for 2018 will lead to an even greater tax burden that will stifle growth. According to the OECD report, tax revenues in Greece increased by 2.2% of gross domestic product within a year, growing from 36.4% of GDP in 2015 to 38.6% in 2016, while the average tax growth rate among the 35 OECD member-states stood at just 0.3% (from 34 to 34.3%) in the same period. Crucially, in the last couple of years there has been an increase in indirect taxes as a ratio of all taxes, with the balance of indirect/direct taxes shifting from 1:18 in 2016 to 1:33 in 2017.

Greece now ranks 10th among the countries with the highest ratio of tax revenues per GDP, based on 2016 data. In 2015 Greece was in 15th place. Greece will climb further in the next report on the issue as it will factor in the new hikes in indirect taxation imposed in the last few months as well as the increased social security contributions that apply as of this year. Worse is yet to come from next year, as the 2018 budget was evidence of its concern over “the persistent seeking of primary surpluses above the official target” that entail excessive austerity and have a negative impact on growth. (GR 23.11)

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6.4 Bank of Greece Reports Record September for Greek Tourism

This September was the best month, with a double-digit increase in both arrivals and receipts for Greek tourism, according Bank of Greece data. Revenues for the first nine months approached €13 billion. In particular, arrivals of non-resident travelers and related revenue grew by 11.8% and 15.5% respectively, while the double-digit rates were maintained during the nine-month period since the two indicators increased by 10.3%.

In particular, according to the balance of payments of the Bank of Greece for September 2017, the revenue reached €2.47 billion from €2.14 billion in September 2016, while in the same month in 2015, tourism revenue amounted to €2.18 billion.

Significantly higher are the nine month data for Greek tourism compared to 2016. The revenue amounted to €12.994 billion from €11.78 billion in January-September 2016, while the performance in 2017 is moving higher than in the best nine months of 2015 when the corresponding figures had reached €12.79 billion. It should be pointed out that 2013 was the first year in which the nine-month tourist revenue exceeded the psychological limit of €10 billion (€10.7 billion), as well as the September of the same year, was the first with revenues of over €2 billion (from €1.7 billion in 2012 and €1.61 billion in 2011). (BoG 21.11)

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6.5 Greece Has Received €256 billion in Loans Since 2010

German news daily Handelsblatt, taking a look at the Greek economy, has come to the conclusion that despite the obscene amount of loans the country has received since the start of the financial crisis, it is still a long way from full recovery. The paper, which often analyses the causes and mismanagement of the Greek bailout, claims that the country has received loans of up to €256 billion since 2010, in order to avoid bankruptcy. The amount is close to the bailout loans received by the four other EU countries (Portugal, Ireland, Cyprus and Spain) hit by the financial crisis put together. Still, the Greek crisis is far from over. Beyond the debt overload, the German daily points to the huge amount of NPLs hanging over the country’s credit system, as well as the sputtering efforts of Greek banks to sell-off “bad debt” portfolios and even auction-off properties seized by individuals and companies with millions of euros in arrears. (Various 18.11)

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6.6 Greek Registered Unemployment up by 3% in October

Greece’s registered unemployment grew 3% in October from September; totaling 824,517 people, the Workforce Employment Organisation (OAED) announced. In its monthly report, OAED said that 60% of registered unemployed were out of work for more than 12 months and 40% for less than 12 months. Registered unemployment among women was more than 63%, while the majority of registered unemployed were aged between 30-54 years old (64%). 92% of them are Greek citizens. Registered unemployed eligible for unemployment benefit fell by 97,268 in October, down 28% from September. (AMNA 20.11)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Hebrew University Ranks 62nd on Global Employability Ranking

The Hebrew University of Jerusalem has been ranked 62nd in the Global University Employability Ranking published by The Times of London, rising five places over its 2016 ranking. The Technion-Israel Institute of Technology placed 113th, while Tel Aviv University ranked 135th.

The ranking, designed by French human resources company Emerging, is published exclusively by The Times. It lists the universities considered by human resource scouts in the economy’s leading companies as the best at preparing students for the job market. The ranking surveyed 2,500 companies from 22 countries and 3,500 executives from a range of firms and industries around the world.

The first five spots on the prestigious list went to the California Institute of Technology, Harvard University, Columbia University, Massachusetts Institute of Technology and Cambridge University.

Survey respondents were also asked a host of questions about the skills that they believe graduates need if they are to adapt to the digital revolution, and which countries and institutions they feel are best preparing students for it. Regarding this question, the Technion Israel Institute of Technology is rated highest, with the Korea Advanced Institute of Science and Technology (KAIST) and UCL coming joint second. (THE 16.11)

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*REGIONAL:

7.2 Fewer New International Students Attending US Colleges

For the first time in 12 years, the number of new international students attending American colleges and universities has dropped. That information comes from the 2017 Open Doors Report on International Educational Exchange, released on 13 November 2017. The Open Doors report has been documenting international student exchanges at American colleges and universities since 1954. The 2016/17 school year marked the second year in a row that over a million international students attended the schools.

This year, the number of new international college students was about 10,000 less than a year earlier. That represents an almost 3% decrease from the 2015-2016 school year. The latest Open Doors report did note a record year, with the largest number of international college students in the U.S. to date. But separately, the Institute of International Education noted a drop in the number of internationals seeking admission for the current school year. The average decrease, at almost 500 colleges and universities, was 7%.

The IIE said the main reason for the decrease is economics. The cost of higher education in the US has been rising over the past 30 years. The United States faces greater competition than ever to provide top quality education. Also, cuts to several programs that sent many international college students to the U.S. in the past no longer exist. For over 10 years, the government in Saudi Arabia spent billions of dollars so that its citizens could study in other countries. But in 2016, falling oil prices led the government to make cuts to that program. This resulted in a 14% decrease in the number of Saudi Arabian college students coming to the United States last year.

While the United States may be facing a decrease in the number of new foreign college students, Canada is becoming more appealing. Between 2008 and 2015, the total number of international students at Canadian colleges and universities increased by about 92%. A decrease in the number of international college students at American colleges and universities could affect the U.S. economy. The Department of Commerce reports that internationals students added about $39 billion to the economy last year. (VOA 14.11)

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7.3 Some 40% of Egypt’s Population is Under 18

CAPMAS announced that 40% of Egypt’s population are under the age of 18. Thirty-eight million of the total population of 104.2 million are children. Statistics from 2015 put the number of children under the age of 18 in Egypt at 32.5 million, or 36.6%% of the population that year. CAPMAS added that 51.7% of the population under 18 are male, while 48.3% are female. Egypt’s population reached 104.2 million in 2017. Some 94.98 million live within Egypt while 9.4 million live abroad. The number of children under four years of age reached 34% of those under 18, while the number of between 15-17 years reached 14.5%.

According to education ministry statistics, 28% of eligible male children and 27.9% of eligible females were registered in kindergarten in the 2015-2016 school year. The ministry estimated that 91.3% of male children and 93.5% of female children were registered in primary school, while 80.6% of male children and 86.4% of females were registered in preparatory education. The percentage of children who dropped out of primary education was 0.5% for males and 0.4% for females; the total number of drop-outs in preparatory education is while was 4.1% in the school year 2015-2016. The CAPMAS report said that almost 119,000 children in the age range 10-17 were married, 93.4% of them girls.

The Ministry of Social Solidarity said earlier this year that 16% of Egyptian girls marry before the age of 18, a violation of Egyptian laws which the government aims to combat. According to the government’s 2016 Information and Communications Technology Indicators report, the number of internet users in Egypt in 2015 reached 29.8 million or 37.8% households and individuals. (CAPMAS 21.11)

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7.4 Women-Only Buses Introduced Around Cairo

An Egyptian private company has introduced the women-only buses to go around Cairo as a way to stand against sexual harassment. The buses, to be driven by women, aim to provide a safer environment for women to commute safely around the streets of Cairo. The company is recruiting women drivers to further encourage women to use buses as means of transportation. Also, the fare of these buses will be similar to the regular bus fares that go around Cairo.

According to a 2013 UN report, about 99.3% of Egyptian women face a form of sexual harassment. A new poll conducted by the Thomson Reuters Foundation suggested that Cairo is the world’s third-worst megacity for women in terms of risk being exposed to sexual harassment. There are women-only metro carriages, women-only beauty salons and lines dedicated to women in public areas that are crowded. Egypt introduced women-only carriages on the metro system in 2007. Men who use the women-only carriages are subject to pay a fine reaching 50 EGP. (Various 22.11)

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7.5 PISA Director Says Turkey’s Education System is Not up to Global Standards

Turkey’s education system does not comply with global standards and improvements must be made to raise quality, according to the director of the Program for International Student Assessment (PISA). On 13 November, he said the education system in Turkey too often stresses “memorizing” at the expense of “creative thinking. The PISA director said that mathematics education in Turkey “contains too much geometry. Turkey particularly focuses on algebra and geometry in mathematics in Turkey. But mathematics is today used for many different things such as probability, risk and accuracy calculations. The mathematics that will shape the future is very different from the mathematics that has been taught in the past, he said.

Announcing a raft of changes to Turkey’s troubled education system, Education Minister Ismet Yilmaz announced on 5 November that a central high school entrance exam will only be held at specific schools, while the system will be based on the principle of students enrolling at the nearest school available.

Finland once again came top of this year’s PISA rankings, followed by Vietnam and a number of South Asian countries. (HDN 13.11)

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7.6 Ankara Bans LGBT Cinema & Exhibitions

The Turkish capital Ankara has banned the public showing of films and exhibitions related to lesbian, gay, bisexual and transgender (LGBT) issues, the governor’s office announced, citing public sensitivities. The move is likely to deepen concern among rights activists and Turkey’s Western allies about its record on civil liberties under President Erdogan’s Islamist-rooted AK Party. Authorities in Ankara had already banned a German gay film festival on 15 November, the day before it was due to start, citing public safety and terrorism risks. Two gay pride parades have been banned in Istanbul for the last two years running. Unlike in many Muslim countries, homosexuality is not a crime in Turkey, but there is widespread hostility to it. (Reuters 19.11)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Kalytera Receives US Patent for Treatment of Graft Versus Host Disease

Kalytera Therapeutics announced that the United States Patent and Trademark Office has issued two favorable rulings covering the use of cannabidiol (CBD) in the treatment and prevention of graft versus host disease (GVHD). Both were Notices of Allowance for US Patent Application 15/143,694. Securing patents for this proprietary technology represents an important step forward for the Company in its work focused on the treatment of this serious and life-threatening disease. Together these cover both the prevention and treatment of GVHD. Kalytera has exclusive world-wide rights to the technology covered by both of these patents.

Kalytera is currently advancing its Phase 2 clinical program evaluating the use of CBD in the prevention of GVHD. Kalytera’s Phase 2 study is expected to enroll 36 patients following allogeneic hematopoietic cell transplantation (HCT), commonly referred to as bone marrow transplantation. The study will take place at the Rabin Medical Center, Beilinson, and Rambam Health Care Campus, Haifa, in Israel.

Completion of this Phase 2 program will take approximately eight months, and is required by the FDA prior to the initiation of a pivotal Phase 3 study. The Phase 2 program includes an open label, multicenter trial to evaluate the pharmacokinetic and safety profiles of multiple doses of CBD for the prevention of GVHD following allogeneic hematopoietic cell transplantation (HCT). The Company anticipates that, following completion of the Phase 2 study, it will initiate the Phase 3 study as quickly as possible.

Katzrin’s Kalytera Therapeutics is pioneering the development of a next generation of cannabinoid therapeutics. Through its proven leadership, drug development expertise, and intellectual property portfolio, Kalytera seeks to establish a leading position in the development of novel cannabinoid medicines for a range of important unmet medical needs, with an initial focus on graft versus host disease (GVHD). Kalytera also intends to develop a new class of proprietary cannabidiol (CBD) therapeutics. (Kalytera Therapeutics 15.11 & 27.11)

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8.2 RDD Pharma Raises $9.5 Million in Series B Funding to Fuel Global Development

RDD Pharma has raised $9.5m in Series B funding, including $6m from two new investors, Québec’s Pharmascience and an international life science fund, as well as existing investors OrbiMed and Capital Point. Proceeds will be used to advance programs globally in anal fissure, fecal incontinence, radiation colitis/proctitis and pruritus ani.

Over the past several years, RDD Pharma has advanced two products into clinical trials and this funding will enable these programs to progress globally. RDD-1219 is currently in a Phase III registration trial in Europe for treatment of chronic anal fissure. A Phase 2a study with RDD-0315 for fecal incontinence in patients with spinal cord injury has been completed. Based on these results, RDD was been awarded a US Department of Defense grant to advance the spinal cord injury program. In June of this year, the European Medicines Agency granted Orphan Status to this program. In parallel with the financing, RDD Pharma has licensed the Canadian rights to its anal fissure product to Pendopharm, a division of Pharmascience.

Ramat HaHayal’s RDD Pharma is a privately held specialty pharma company focused on fast-track development and commercialization of innovative therapeutics for anorectal diseases and lower-gastrointestinal tract disorders. The company has two clinical stage products which serve significant unmet needs: RDD-1219 for chronic anal fissure, currently enrolling patients in a multicenter European Phase 3 study, with 300 patients already enrolled and RDD-0315 for fecal incontinence, an indication for which there are no approved Rx products. (RDD Pharma 16.11)

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8.3 RDD Pharma Receives $1.28 Million DoD Grant to Help Spinal Cord Injury Patients

RDD Pharma announces the receipt of a $1.28 million grant from the Department of Defense (DOD) to help enable US clinical development of RDD-0315 to help treat fecal incontinence in spinal cord injury (SCI) patients. The grant, from the DOD office of the Congressionally Directed Medical Research Programs (CDMRP), is funding the Spinal Cord Injury Research Program (SCIRP) Translational Research Award – Clinical Trial application.

The development of RDD-0315 includes preparations for and conducting of a Phase 1 study in healthy volunteers to assess acute tolerance and PK. Positive Phase 2a results in Europe in evaluating the safety and efficacy of RDD-0315 for the treatment of fecal incontinence in spinal cord injury patients have previously been reported with a statistically significant reduction in the number of fecal incontinence episodes at 8 and 12 hours post-administration.

Ramat HaChayal’s RDD is a specialty pharma company developing targeted pharmacological treatments for diseases of the anorectal region such as anal fissures, fecal incontinence and pruritus ani. A pharmaceutical compound targeting radiation proctitis is in preclinical development as well. The company utilizes a high-reward, low-risk business model by repurposing drugs. By choosing medications that are already approved for other indications and combining them with our proprietary drug-delivery technology, we benefit from a short regulatory route while maintaining patent protection. (RDD 30.10)

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8.4 Can-Fite’s Former Subsidiary OphthaliX Successfully Completes Merger with Wize Pharma

Can-Fite BioPharma announced that its previously majority owned subsidiary OphthaliX (renamed Wize Pharma) has successfully completed a merger with Wize Pharma Ltd. As a result of the merger, Can-Fite’s ownership of OphthaliX, immediately post-merger, became approximately 8% of the outstanding shares. As part of the merger, Can-Fite cancelled OphthaliX’s prior debts to Can-Fite and has terminated an exclusive license to OphthaliX of Can-Fite’s Piclidenoson (CF101) drug candidate for the treatment of ophthalmic diseases. These rights revert back to Can-Fite. All Can-Fite executives and board members who had held executive and board positions at OphthaliX have resigned from their respective positions at OphthaliX.

Petah Tikva’s Can-Fite BioPharma is an advanced clinical stage drug development company with a platform technology that is designed to address multi-billion dollar markets in the treatment of cancer, inflammatory disease and sexual dysfunction. The company’s lead drug candidate, Piclidenoson, is scheduled to enter a Phase III trial for rheumatoid arthritis in 2017 and a Phase III trial for psoriasis in early 2018. The rheumatoid arthritis Phase III protocol has recently been agreed with the European Medicines Agency. Can-Fite’s liver cancer drug CF102 is in Phase II trials for patients with liver cancer and is slated to enter Phase II for the treatment of non-alcoholic steatohepatitis (NASH). CF602, the Company’s third drug candidate, has shown efficacy in the treatment of erectile dysfunction in preclinical studies and the Company is investigating additional compounds, targeting A3AR, for the treatment of sexual dysfunction. (Can-Fite BioPharma 17.11)

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8.5 DiA Enters Partnership with GE Healthcare on Automatic Imaging Analysis Tools

DiA Imaging Analysis has signed a multi-year, non-exclusive licensing and professional services agreement with GE Healthcare. DiA intends to develop its automated imaging analysis technology to work with GE Healthcare’s ultrasound devices. DiA has marketed its automated imaging analysis technology to deliver immediate, accurate, and reproducible imaging interpretation of ultrasound for point of care settings. These tools utilize advanced, proprietary pattern recognition and sophisticated machine learning algorithms that can dramatically improve monitoring of patient conditions, offering physicians powerful tools to support their decisions.

Beer Sheva’s DiA Imaging Analysis is a medical imaging analysis software company providing fully automated, implementable tools that enable quick, objective, and accurate imaging analysis, with an initial focus on echocardiography. The Company’s FDA and CE cleared cognitive image processing tools are based on advanced pattern recognition and machine learning algorithms that automatically imitate the way the human eye identifies borders and motion, producing accurate and reliable data for the use of physicians. (DiA 20.11)

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8.6 NIH Agreement for a Phase 2 Trial in the U.S. with BiondVax’s Universal Flu Vaccine

BiondVax Pharmaceuticals announced the signing of the clinical trial agreement (CTA) for a Phase 2 clinical trial with the National Institute of Allergy and Infectious Diseases (NIAID) of the U.S. National Institutes of Health (NIH). The study is designed to evaluate the cell mediated immunity directly induced by BiondVax’s universal flu vaccine candidate M-001, as well as M-001’s priming effect to enhance the immunogenicity of current seasonal influenza vaccines.

The NIAID-funded trial will include 120 young adults (aged 18 to 45 years) randomly assigned to one of two groups receiving either placebo or M-001. Later, all participants will receive a currently marketed unadjuvanted trivalent seasonal influenza vaccine. Four trial sites from the NIAID-supported Vaccine and Treatment Evaluation Units contracts are participating, namely Baylor College of Medicine in Texas, Cincinnati Children’s Hospital Medical Center in Ohio, and the University of Iowa, with laboratory support provided by St. Louis University in Missouri. The NIAID is submitting the Investigational New Drug (IND) to the U.S. Food and Drug Administration (FDA), and participant recruitment is anticipated to begin after the end of the 2017/18 flu season.

Ness Ziona’s BiondVax is a clinical phase biopharmaceutical company developing a universal flu vaccine. The vaccine candidate is designed to provide multi-season protection against most seasonal and pandemic human influenza virus strains. BiondVax’s proprietary technology utilizes a unique combination of conserved and common peptides from influenza virus proteins, activating both arms of the immune system for a cross-protecting and long-lasting effect. (BiondVax 20.11)

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8.7 Enopace Biomedical Voted #1 Medical Innovation Company

Enopace Biomedical has been voted the 2017 #1 Medical Innovation company by world leading cardiologists and industry professionals in the annual Shark Tank Innovation Competition. The voting took place at the Transcatheter Interventional Therapeutics (TCT) Congress held in Denver, Colorado. The TCT Congress is the world’s largest, and most important educational conference in interventional cardiovascular medicine and showcases the latest advances in current therapies and clinical research. With more than 20 million patients in Europe and in the United States, heart failure is associated with tremendously high healthcare costs and remains the largest unmet clinical need in the cardiovascular world. Enopace, founded by Rainbow Medical, has developed an endovascular neuromodulation technology that increases cardiac efficiency by reducing the workload on the heart, thereby treating patients who suffer from congestive heart failure (CHF).

Caesarea’s Enopace Biomedical is developing an innovative device to treat heart failure patients. Enopace’s technology consists of a minimally invasive, implantable neuro-stimulation device that increases cardiac efficiency by reducing left ventricular workload. Herzliya’s Rainbow Medical is a unique private operational investment company that seeds and grows start-up companies developing breakthrough medical devices, in a diverse range of medical fields. By addressing significant unmet market needs, Rainbow Medical seeks to improve people’s lives and generate exceptional returns for its shareholders. (Enopace Biomedical 20.11)

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8.8 DarioHealth Launches Version 3.5 of its MyDario App to Support iPhone 7 and iPhone 8

DarioHealth Corp. announced the availability of update version 3.5 of its MyDario app. The app update includes support for DarioHealth’s new Lightning compatible device for iPhone 7 and iPhone 8 which was recently awarded the CE Mark. The DarioHealth lightning adapter is currently under consideration for regulatory approval with the US FDA and the Therapeutic Goods Administration (TGA) in Australia. The 3.5 version update ensures that users will be able to receive the same quality user experience with DarioHealth on the latest Apple devices, including the brand-new iPhone 8.

Amongst the new features that are being rolled out with version 3.5 are a weight log and a barcode scanner. The weight log seamlessly integrates with Dario’s intuitive logbook and charts. Now customers have one place where they can see their diabetes snapshot and track their weight. In addition, customers can now scan foods with the barcode scanner feature in the all-in-one smart diabetes system. This permits easier carb counting, as customers simply point their smartphone at a barcode and the app imports the nutritional information for the particular food. DarioHealth believes this feature will increase customer engagement, and help customers keep better track of their carbohydrate intake.

Caesarea’s DarioHealth Corp. is a leading global digital health company serving tens of thousands of users with dynamic mobile health solutions. They believe people deserve the best tools to manage their treatment, and harnessing big data, they have developed a unique way for users to analyze and personalize their diabetes management. With their smart diabetes solution, users have direct access to track and monitor all facets of diabetes, without having the disease slow them down. (DarioHealth 20.11)

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8.9 Chengdu Kanghong Pharma Buys IOPtima for $56 Million

BioLight announced that together with the other shareholders of its subsidiary IOPtima, it has entered into a binding agreement for the investment in and the acquisition in stages of IOPtima by the Chinese pharmaceutical company Chengdu Kanghong Pharmaceutical Group Co. Pending closings pre conditions, the investment in and acquisition in stages of IOPtima will be executed in four separate stages, whereby the first stage will include a direct investment into IOPtima by Chengdu Kanghong Pharmaceutical Group Co for a total consideration of about $7 million at a pre-money valuation of $30 million, and the following stages will include an acquisition of the remaining IOPtima shares from all its other shareholders (including BioLight). In the event that the transaction will be fully executed, the gross consideration to BioLight is expected to range between approximately $23 million and approximately $27.3 million. Chengdu Kanghong will distribute IOPtima’s products in China.

IOPtima is responsible for BioLight’s only current commercial product. BioLight’s revenue in 2016 totaled NIS 2.1 million, mostly from IOPtima’s activity.

Tel Aviv’s BioLight is an emerging global ophthalmic company focused on the discovery, development and commercialization of products and product candidates which address ophthalmic conditions, including glaucoma, dry eye syndrome, or DES, and age-related macular degeneration, or AMD. (BioLight 21.11)

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8.10 Barney’s Farm to Invest €1.8 Million in Medivie Cannabis Venture

Medivie Therapeutic announced that it had obtained an investment in its new cannabis venture. Barney’s Farm, a large Dutch farm for growing cannabis seeds, will invest €1.8 million in Medivie’s venture, located on an unnamed kibbutz in northern Israel. Medivie’s share price leaped following the announcement, pushing its market cap up to NIS 26 million. Barney’s Farm will appoint a representative to Medivie’s board of directors. When Medivie’s products reach the market, they will be branded with the Barney’s Farm logo and name.

Earlier, Medivie announced its intention of acquiring 51% of a kibbutz company that is setting up a farm to grow cannabis, and is also about to start a pharmacy for packaging and dispensing cannabis. The memorandum of understanding signed by the parties includes a commitment by Medivie to invest NIS 14 million in the activity being acquired, including NIS 2 million by the date on which the deal is signed and NIS 5 million by the end of 2017. The current investment will help Medivie meet this obligation. The merger follows the failure of Medivie’s previous activity in pain relievers. (Globes 22.11

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8.11 HealthWatch Named Most Promising Start-Up for 2018 at the China-Israel Summit

The Most Promising Start-Up for 2018 award by the China-Israel Summit has been bestowed upon HealthWatch Technologies. This award celebrates the best of Israeli start-up companies and acts as a benchmark for excellence in innovation and leadership across the whole sector. With 40 competing Israeli start-up companies, HealthWatch was found to be exceptionally refreshing, innovative, profound and professionally managed. This competition was a part of the 6th China-Israel Summit that took place in Haifa, Israel, on 20 November 2017.

Founded as a response to real-life stories and the fact that lives can be lost as a result of delays on the time continuum, Kfar Saba’s HealthWatch’s innovative textile medical sensor technology and its in-depth patient management system, has wide market applications both within and outside the hospital environs. The Master Caution patented platform technology is the first and only 12-lead ECG smart digital garment that is CE/FDA-cleared and is the answer to the growing paradigm shift within the healthcare ecosystem. Master Caution allows for the delivery of near real-time actionable data and other unparalleled medical advantages allowing for tailor-made alerts. Coupled with personalized physician supervision and an ability for a 24/7 monitoring, Master Caution can be used anywhere, anytime, without disturbing one’s lifestyle. (HealthWatch 23.11)

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8.12 Regentis Biomaterials Performs the First Cases in Gelrinc Pivotal Study

Regentis Biomaterials announced the start of its Phase III pivotal clinical trial of GelrinC for the treatment of focal knee cartilage defects with successful surgery on three patients in the U.S. and Denmark. These procedures are part of an FDA approved Investigational Device Exemption (IDE) clinical study to compare GelrinC to microfracture, the current standard of care treatment. The clinical study will be used to support a Pre-market Approval Application (PMA) which will allow Regentis to market GelrinC in the U.S.

The FDA trial will appraise the safety and efficacy of GelrinC compared to the raw level data of a historical microfracture control arm. This study design overcomes the limitation of randomized control studies in this field, and is expected to generate faster patient enrollment and significantly reduce the time for product approval.

With offices in Or Akiva, Israel and Princeton, NJ, Regentis Biomaterials is a privately held company focused on developing and commercializing proprietary hydrogels for tissue regeneration. The company’s core technology is Gelrin, a biodegradable hydrogel based on polyethylene glycol diacrylate and denatured human fibrinogen originally developed at the Technion – Israel Institute of Technology. The Gelrin hydrogel platform combines the stability and versatility of a synthetic material with the bio-functionality of a natural substance for a range of clinical applications. (Regentis Biomaterials 28.11)

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8.13 Cannabics Received New Research License for Anti-Tumor Activity of Cannabinoids

Cannabics Pharmaceuticals has received a new research license from the Israeli Ministry of Health for the Characterization of anti-tumor activity of cannabinoids. The new license will enable the company to continue our vision of developing an ecosystem for creation of diagnostic tools and bringing to the market diagnostic services for cancer patients who are medicated with cannabis. Their forward looking plan encompasses a synergy between HTS (High Throughput Screening), CTCs (Circulating Tumor Cells), Drug Efficacy, and Genomic Data to provide therapists and their patients with personalized supportive data for their treatment.

Cannabics Pharmaceuticals, a U.S based public company, is dedicated to the development of Personalized Anti-Cancer and Palliative treatments. The Company’s R&D is based in Israel, where it is licensed by the Ministry of Health for its work in both scientific and clinical research. The Company’s focus is on harnessing the therapeutic properties of natural Cannabinoid formulations and diagnostics. Cannabics engages in developing individually tailored natural therapies for cancer patients, utilizing advanced screening systems and personalized bioinformatics tools. (Cannabics Pharmaceuticals 28.11)

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8.14 Bazelet Develops New Cannabis Formulations with Improved Therapeutic Effects

Bazelet has a strong and innovative R&D team of scientists and experts from a range of fields including chemistry, biology, neurology, analytical chemistry, pharmacology, herbal treatment, plant extracts, and bee’s science. It is well networked in the Israeli scientific community, including university labs and university hospitals. Bazelet’s team uses its science, diversity, creativity, vast patient knowhow and proprietary manufacturing knowledge to best serve its patients, to further improve production, to form new products and delivery methods and to explore new applications for its products. This work has led so far to 14 provisional patent applications, with seven of them in the PCT stage.

A recent product of Bazelet’s innovative R&D group are new cannabis formulations directed to enhance the therapeutic effect in an array of conditions, including treatment of pain, anxiety, various neurological conditions, auto-immune diseases, conditions related to women health and wellness and conditions characterizing geriatric populations. Another set of formulations is directed to the treatment of children, including cases of epilepsy and autism, aiming to reduce putative long-term effects in this population. Those formulations are based on cannabis enrichment with particular terpene blends, specific for each indication. Bazelet’s first patent application in this field was published recently, the International Search Report (ISR) promisingly found all claims possessed Utility, Novelty, and an Inventive Step.

Bazelet is an Israeli medical cannabis company that was founded five years ago. Bazelet currently processes crops from half of Israeli’s eight licensed farms to serve the needs of 10,000 medical cannabis patients, around 40% of licensed users in Israel. Bazelet securely delivers its products to the homes of thousands of patients every month. In its portfolio, Bazelet has a range of 50 different cannabis strains and 20 different oils. It runs an in-house laboratory to analyze its products confirming their composition, quality, and reproducibility. (Bazelet 28.11)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 CyberArk Automates Protection Against Privileged Account Exploitation

CyberArk unveiled major advancements to accelerate adoption of the most comprehensive privileged account security solution on the market. With new capabilities encompassing simplicity, automation and risk reduction, the CyberArk Privileged Account Security Solution is the industry’s only solution that can easily scale to protect against privileged account exploitation anywhere – on-premises, in hybrid cloud environments and across DevOps workflows.

CyberArk delivers 10x improvement in time spent on privileged account-related tasks and reduces the time spent by IT auditors reviewing session recordings by 5x. The new user interface makes it easier to navigate workflows, visualize risk, monitor privileged activities, and comply with audit and policy requirements. An expanded API strategy enables customers to accelerate integration of the CyberArk Privileged Account Security Solution with existing security, operations and DevOps tools. New REST APIs empower IT operations to reduce the time it takes to onboard accounts by up to 90%, a critical capability for organizations that need to onboard thousands of accounts at a time.

Petah Tikva’s CyberArk is the global leader in privileged account security, a critical layer of IT security to protect data, infrastructure and assets across the enterprise, in the cloud and throughout the DevOps pipeline. CyberArk delivers the industry’s most complete solution to reduce risk created by privileged credentials and secrets. (CyberArk 15.11)

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9.2 Newsight Imaging & LeiShen Intelligent Partner to Deliver V-LiDAR – a 3D Automotive LiDAR

Newsight Imaging announced a partnership with LeiShen Intelligent, a global provider of high-performance laser LiDAR (Light Detection And Ranging) systems to deliver V-LiDAR, a game-changing 3D pulsed based LiDAR for automotive applications used in ADAS systems and in autonomous vehicles. Newsight’s patent-pending eTOF (Enhanced Time-of-Flight) implemented in this venture bridges the gap between short-distance iTOF and the 200m distance automotive requirement by extending the dynamic range while retaining high accuracy. Design of the V-LiDAR is the result of close collaboration between LeiShen and Tier-1 and Automotive OEMs. It is real solid-state (no moving parts, No MEMS), high resolution (VGA and above), with range and accuracy that meet the automotive industry definition, and with the appropriate ISO certifications. Newsight and Leishen have a track record of successful collaboration in the robotics market; LeiShen built a rotating head LiDAR based on the Newsight NSI3000 line sensor. The V-LiDAR will be offered at very competitive low cost for high volume orders.

The partnering companies have established a special collaboration program for first adopters, OEM or first-tier collaborators, who will gain access to R&D in order to define, review, and contribute to the product definition, influencing the LiDAR’s internals, such as CMOS image sensor, optics, board, software algorithms, and interfaces. Participants will also receive extensive R&D support for their final system design. The program will also be offered to companies developing advanced state-of-the-art support solutions, such as algorithms and image processing.

Ness Ziona’s Newsight Imaging develops advanced CMOS image sensor chips for two main market segments: machine vision – laser lidar based devices, and spectral analysis for portable food inspection and medical devices. Newsight’s disruptive innovative technology enables design of ultra-sensitive and low-power sensors, at an entirely different and affordable price point. (Newsight Imaging 12.11)

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9.3 Plasan SandCat Stormer – New Armored SUV for Fight Against Terror

Plasan will present a new variant of the SandCat Stormer for police and counter-terrorism units. As a response to the growing domestic terror and violence seen over recent years, Plasan is launching the ultimate anti-terror and riot-control vehicle – and for the First Time a RHD (Right Hand Drive) version is offered for RHD countries. The new RHD SandCat Stormer is equipped with the all-new SCAT system to address low intensity conflict violence with a variety of non-lethal means, providing precise and proportionate crowd control, preventing civilian casualties, and with no risk to the system operators. SCAT is a roof-mounted RCWS with day & night imaging, command and control system, dazzler, multi-shot 40mm smoke/gas grenade launcher, Long Range Acoustic Device and optional rifle.

The SandCat offers unique optimization between protection, payload, and cost by using composite materials to defeat threats once only encountered in warzones, but now seen in attacks on city streets. This includes B6/B7 protection + AK47 7.62×39 AP + Dragunov 7.62×54 AP, a floor protected against two DM51 hand grenades, and more.

Plasan SandCat Stormer is the lightest tactical armored vehicle providing such a high protection level. It is designed to serve in various mission profiles requiring a highly maneuverable and protected vehicle, such as urban law enforcement, peace-keeping, homeland security and border patrol. It has low cost of ownership by using a reliable commercial Ford F550 Super Duty chassis with a powerful engine and four-wheel-drive, and staying safely within the Ford certified GVW. The armored cabin comfortably accommodates up to 10 passengers with great attention to the design and ergonomics to allow the team to fulfill their missions safely.

Founded in 1985, Kibbutz Sasa’s Plasan is a global leader in offering safer vehicle environments and survivability solutions for defense and security forces. Their solutions offer high-end protection and mission readiness for defense and security vehicles while reducing operational costs. Plasan offers a variety of vehicle protection solutions, including advanced kitted armor hulls, the Guarder and SandCat armored tactical vehicles, and a wide range of survivability and personal protection solutions. {Plasan Sasa 16.11)

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9.4 Cdiscount Starts Using the Bringg Platform to Provide Superior Customer Experience

Bringg announced that Cdiscount, the leading e-commerce retailer in France, is rolling out its platform across their delivery operations. The technology will be initially used to improve the delivery process for large household items, enabling customers to track deliveries in real time, communicate with drivers to make special arrangements, and provide feedback on their deliveries. Bringg’s platform was successfully piloted at Cdiscount earlier this year, showing high levels of customer satisfaction on their delivery experience thanks to the ability to follow drivers and engage with them in real-time. Based on these results, Cdiscount is rolling out Bringg’s customer-centric technology for customers in Bordeaux, Lyon, and Paris; followed by nationwide deployment in 2018.

Tel Aviv’s Bringg is the leading customer-centric logistics solution for enterprises, with customers in over 50 countries including some of the world’s best-known brands. Their technology platform helps companies in logistics, retail, food, CPG, and services industries streamline every aspect of their delivery ecosystems – from the headquarters and the dispatchers, through warehouse managers and drivers, and all the way to the end-customer – by enabling to create the perfect delivery experience while improving efficiency and visibility, all in real-time. (Bringg 16.11)

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9.5 prooV Enhances Proof-of-Concept Offering with Private Cloud for Red Team Attack Simulations

prooV, the world’s first PoC-as-a-Service platform that facilitates and streamlines the Proof of Concept (PoC) process for startups and enterprises, announced the immediate availability of prooV Red Cloud. The private cloud enhances the company’s offering by enabling customers to conduct simulated cyberattacks on technologies undergoing PoCs, effectively measuring the technology’s defense and response capabilities before they are implemented.

One of the main pitfalls of red team penetration testing using the most popular public clouds is that their tight security is designed to block many of the threats that customers are testing against. Whether it’s malware, phishing or Trojan horses – penetration testing in public clouds is difficult or impossible to complete. prooV Red Cloud was purposely built to overcome this hurdle.

Herzliya Pituah’s prooV is the first PoC-as-a-Service platform that brings together global enterprises and startups/independent software vendors to discover, connect, execute and evaluate Proof of Concepts (PoCs) through remote, secure and data-rich testing environments. Founded by serial entrepreneurs who recognized the inefficiencies in the modern PoC process, prooV offers a radical new approach to testing, tracking and analyzing vendor solutions, accelerating the journey from RFP to PoC. (prooV 15.11)

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9.6 AT&T Approves Altair’s ALT1210 LTE-M Chipset on IoT Network

Altair Semiconductor announced that the ALT1210 LTE-M chipset has successfully completed AT&T’s ADAPT chipset validation process. The ADAPT validation improves time-to-market and reduces the cost associated with the introduction of new Internet of Things (IoT) devices. Building upon the first live network trial of LTE-M with AT&T, this chipset validation and commercial availability furthers Altair’s commitment to AT&T and broadens the device and module partner ecosystem supporting LTE-M deployments.

The ALT1210 is an LTE-M IoT chipset with extremely low power consumption, and is software upgradeable to single antenna LTE CAT-1. ALT1210 is highly integrated with an on-chip PMU, DDR memory and a low-power MCU subsystem with a robust security framework for customer-developed applications, enabling designs with just a few external components. The ALT1210 is ideal for a variety of IoT applications such as trackers, wearable devices, sensors and numerous other industrial and consumer IoT devices. This highly integrated LTE-M solution is available today in certified modules from various module and device vendors.

Hod HaSharon’s Altair Semiconductor is a leading provider of LTE chipsets. Altair’s portfolio covers the complete spectrum of cellular 4G market needs, from supercharged video-centric applications all the way to ultra-low power, low cost IoT and M2M. Altair has shipped millions of LTE chipsets to date, commercially deployed on the world’s most advanced LTE networks including Verizon Wireless, AT&T, Softbank and KT (Korea Telecom). (Altair Semiconductor 20.11)

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9.7 OTI’s UNO 6 Selected by CityEV for Cashless Payment for Electric Vehicle Charging Stations

On Track Innovations announced its UNO 6 Ultra Compact NFC Contactless Reader had been chosen by UK-based CityEV, a leading provider of electric vehicle charging solutions, as the cashless payment solution for its Cityline 100 electric vehicle charging stations. The CityEV ingenious charge point network is a new ‘second generation’ car charge network system, with the latest protocol version offering both local smart charging, where charging on multiple charge points is limited to a certain power limit and central smart charging which is managed by the central system.

Rosh Pina’s On Track Innovations (OTI) is a global leader in the design, manufacture, and sale of secure cashless payment solutions using contactless NFC technology with an extensive patent and IP portfolio. OTI’s field-proven innovations have been deployed around the world to address cashless payment and management requirements for unattended retail and petroleum markets, the Internet of Things (IoT) and wearables. (OTI 20.11)

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9.8 Silicom Announces Strategic New SD-WAN Award

Silicom announced that a leading provider of Cloud-based networking solutions has selected Silicom’s vCPE edge devices as its hardware platform for a customized Cloud-based SD-WAN networking solution. According to the customer, once development and testing phases have been completed, its volumes will ramp to more than $4 million per year, and after several years of deployment, they are likely to increase further to more than $10 million per year.

Kfar Saba’s Silicom is an industry-leading provider of high-performance networking and data infrastructure solutions. Designed primarily to improve performance and efficiency in Cloud and Data Center environments, Silicom’s solutions increase throughput, decrease latency and boost the performance of servers and networking appliances, the infrastructure backbone that enables advanced Cloud architectures and leading technologies like NFV, SD-WAN and Cyber Security. Silicom products are used by major Cloud players, service providers, telcos and OEMs as components of their infrastructure offerings, including both add-on adapters in the Data Center and stand-alone virtualized/universal CPE devices at the edge. (Silicom 20.11)

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9.9 Cloudinary Enhances Media Management With New Amazon Rekognition Features

Cloudinary debuted three new Amazon Rekognition features that will allow developers to integrate image analysis and recognition capabilities into their image management workflow. Amazon Rekognition is the newest addition to Cloudinary’s marketplace, which brings image innovation and cutting-edge technologies to its users. By leveraging Amazon Rekognition’s image moderation, auto tagging, and celebrity detection, Cloudinary users can easily add reliable and scalable automated image analysis to their web and mobile applications, helping them to consistently tag and categorize images within their library and eliminate concerns about explicit or suggestive user-generated content. Amazon Rekognition leverages deep neural network models to detect and tag people, objects and scenes in images. In addition to supporting the creation of a rich, searchable library, customers can use these features to get insights into the images that users upload, making it easier for app developers to create dynamic content that will increase user engagement and conversion.

Tel Aviv’s Cloudinary provides end-to-end media management. More than 250,000 developers and 5,000 companies rely on Cloudinary’s powerful cloud-based solution to automate and streamline their entire media asset workflow, from upload and manipulation to optimization and delivery. The scalable solution delivers results for businesses of all sizes – from small start-ups to large companies with demanding media management needs – including BuzzFeed, Taboola, Under Armour and Whole Foods. (Cloudinary 21.11)

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9.10 Skorpion Accelerates Development of Luxury Car Prototypes Using Stratasys Technologies

Stratasys announced that specialist automotive service bureau, Skorpion Engineering, is producing complex automotive prototypes 50% faster than would be achievable through traditional methods. With offices in Milan and Turin, Italy, the company deploys its arsenal of six Stratasys 3D printers to fulfil a vast gamut of both exterior and interior automotive prototypes – from door handles to full-size seat frames. More specifically, using its FDM 3D printers, Skorpion Engineering can respond to customer requests within 24-hours while its PolyJet 3D printers are driving greater part complexity and precision compared to traditional prototypes.

Skorpion Engineering witnessed a surge in business as customer requirements shifted from rudimentary clay models to high-performance prototypes, with shorter deadlines. This is exemplified by a recent project which saw the company produce a full-sized car bumper. Utilizing the large build tray of its Fortus 900mc Production 3D Printer, Skorpion Engineering produced the part 50% faster compared to the time it would have taken to make the bumper from clay.

Rehovot’s Stratasys is a global leader in applied 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. (Stratasys 21.11)

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9.11 Intezer Launches Community Edition of Cloud-Based Intezer Analyze

Intezer announced the launch of the community edition of its Cloud-based Intezer Analyze malware detection and analysis product. The free community edition allows up to 10 file uploads per day, providing cyber-security professionals a taste of the astonishingly rapid and comprehensive malware detection and analysis enjoyed by users of the enterprise edition. Intezer Analyze is designed by members of the infosec community for the infosec community, and uses the company’s Code Intelligence technology to deal with threats. This DNA mapping for software enables the analysis and identification of the origins of every minute piece of code, within seconds for comparison against Intezer’s Genome Database. The database contains billions of code pieces, or genes, from legitimate as well as malicious software, to enable the detection of code reuse and similarities on an unprecedented scale.

Intezer Analyze is a subscription-based SaaS product that requires no onsite deployment. An intuitive interface and simple API access are moreover hallmarks of what is essentially a plug-and-play solution for any process within an organization’s incident response plans or daily cyber monitoring.

Tel Aviv’s Intezer is replicating the concepts of the biological immune system into cyber security, offering enterprises unparalleled threat detection and accelerated incident response. By providing a fast, in-depth understanding of any file by mapping its code DNA at the ‘gene’ level, offering the most advanced level of malware detection and analysis. Intezer is able to detect code reuse from known malware, as well as code that was seen in trusted applications. (Intezer 21.11)

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9.12 Zirra Signs Agreement with ELITE to Offer AI-Led Solutions for Company Analysis

Zirra entered into a strategic agreement with ELITE, London Stock Exchange Group’s business support and capital raising program. The partnership will provide ELITE with an additional set of unique tools powered by automated signals, artificial intelligence, and big data to support ELITE company onboarding and growth. Zirra provides automated smart analysis tools that enhance and support existing manual verification processes. These will be used by ELITE to enrich its integrated service offering for ELITE customers and partners.

Tel Aviv’s Zirra’s platform offers users company analysis tools powered by data science and machine learning. Zirra’s customers include global and enterprise brands such as Microsoft Ventures, Deutsche Telekom Capital Partners, SilverLake, and Verizon Ventures. Recognized by the Office of the Chief Scientist in Israel, Zirra is backed by top-tier investors. (Zirra 23.11)

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9.13 OakNorth Chooses Illusive Networks’ Deception Cybersecurity to Bolster Cyber Defense

Illusive Networks announced that OakNorth, the bank for entrepreneurs, by entrepreneurs, chose Illusive’s Deceptions Everywhere cybersecurity technology to defend its network from targeted attacks and Advanced Persistent Threats (APTs) that could occur in the future. In May 2016, OakNorth became the first UK bank to have its core systems fully hosted on the cloud – a landmark move for the industry and one that came after several months of liaising with the financial regulator. The bank opted for deception technology to bolster its defense with a new and proactive approach to cybersecurity, detecting and analyzing attacks in real time with no false positives, minimizing manpower required to monitor alerts. The ability to mitigate attacks at the earliest opportunity accompanied by detailed forensic evidence at the time of the alert was also a priority.

Tel Aviv’s Illusive Networks is pioneering deception-based cybersecurity with its patented Deceptions Everywhere technology that neutralizes targeted attacks and Advanced Persistent Threats (APT) by creating a deceptive layer across an enterprise network. By providing an endless source of false information, Illusive disrupts and detects attacks with real-time forensics and without disruption to business, while real-time forensic and risk insights support more effective and efficient incident resolution. (Illusive Networks 22.11)

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9.14 Cellebrite Extends Digital Intelligence Portfolio to Help Combat Emerging Drone Threat

Cellebrite introduced the industry’s most comprehensive solution for the extraction and analysis of data obtained from the most popular civilian drones, also known as unmanned aerial vehicles (UAVs). Cellebrite is the industry’s only provider to deliver an end-to-end solution for drone forensics that allows drone data to be accessed and analyzed in concert with data from other digital sources using advanced text, image, and video analytics engines to accelerate intelligence-gathering operations and law enforcement investigations.

To date, law enforcement and federal agency investigations of drones suspected of being used for criminal or terrorist activity have been limited by the minimal amount of data that can be directly extracted from drones. Cellebrite’s industry-leading digital evidence extraction and analysis capabilities provide access to data, either extracted from the physical drone or on a mobile application, to deliver critical digital evidence including pictures, video, logs, journey maps based on locations and time stamps, and take-off and retrieval locations. Cellebrite’s new industry-leading capabilities provide comprehensive drone data extraction, decoding and analysis via USB connection, SD card, or remote-control application. Cellebrite’s drone forensic solution enables access to many types of data stored onboard using the drone’s USB port without the need to physically access an SD card or other hardware to obtain digital evidence contained on a drone and its payload.

By enabling access, sharing and analysis of digital data from mobile devices, social media, cloud, computer, cellular operators and other sources, Petah Tikva’s Cellebrite products, solutions, services and training help customers build the strongest cases quickly, even in the most complex situations. As a result, Cellebrite is the preferred one-stop shop for digital intelligence solutions that make a safer world more possible every day. (Cellebrite 28.11)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel’s CPI Rises by 0.3% in October

According to the Central Bureau of Statistics, Israel’s Consumer Price Index (CPI) rose by 0.3% in October. Inflation for the past twelve months to the end of September currently stands at 0.2%, while prices have risen 0.6% since the start of the year. Both figures are well below the government target range of 1% – 3%. There were notable rises in October in prices of clothing and footwear (6.1%) and fresh vegetables (3.2%). There were notable falls in prices of furniture and household equipment (0.6%). The housing price index for August-September rose 0.4% in comparison with July-august. The housing price index is published separately from the CPI, and covers transactions in the preceding two months. In the twelve months to the end of August, housing prices rose 4.2%. (CBS 15.11)

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10.2 Israel’s Economy Grows by 4.1% During Third Quarter

The Central Bureau of Statistics announced that Israel’s Gross Domestic Product (GDP) grew by 4.1% on an annualized basis in the third quarter of 2017. This contrasts with 2.5% growth in the second quarter and only 0.9% in the first quarter. Behind this impressive jump in growth is an 8.1% increase in investment in fixed assets in the third quarter of 2017, and a 7.8% rise in private consumption, while business GDP grew 4.2%. Imports of goods and services grew 10.5% in the third quarter but there was almost a halt in export growth, which rose by just 0.4% in the third quarter compared with the preceding quarter. Public expenditure fell 1.6% in the third quarter. (CBS 16.11)

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10.3 Israel’s Unemployment Rises Slightly

On 23 November, the Central Bureau of Statistics announced that in October 2017, there was an increase in the unemployment rate from 4.1% in September to 4.2% in October. The manpower survey showed that there were 4.017 million participants in the labor force in October, of whom 3.85 million were employed and 167,000 were unemployed. Some 2.027 million men and 1.824 million women were employed. The CBS also reported that 102,000 jobs were available in October, down from 103,000 in September. The number of available jobs rose by an annualized 4.1% in August-October, after rising by 7.6% in May – July. (CBS 23.11)

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11: IN DEPTH

11.1 ISRAEL: Fitch Affirms Israel at ‘A+’; Outlook Stable

On 28 November 2017, Fitch Ratings affirmed Israel’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘A+’ with a Stable Outlook

Key Rating Drivers

Israel’s IDRs balance strong external finances, robust macroeconomic performance and solid institutional strength against a government debt/GDP ratio that is high relative to peers and ongoing political and security risks.

Israel’s external balance sheet remains strong. Israel has returned annual current account surpluses each year since 2003, underpinned by rapid expansion of services exports (related to the high-tech sector) and the start of gas production. Fitch forecasts current account surpluses to persist in 2017-19, albeit at lower levels, averaging 3% of GDP. There has been further accumulation of foreign exchange reserves, which reached $111.3 billion in October 2017 (about a year of current external payments), up from $98.5 billion at end-2016.

Fitch expects Israel’s net external creditor position to be 45.5% of GDP in 2017, an improvement from 35.1% in 2014 and 23% in 2008. This is significantly stronger than the ‘A’ median score and is also stronger than the ‘AA’ median. Fitch’s international liquidity ratio for Israel has also continued to show strong and consistent improvement.

Further gas sector development will lend additional support to the external balance sheet. Production at the offshore Tamar gas field, which commenced in 2013, has reduced the need for gas imports. The regulation and final investment decision are now in place for the larger nearby Leviathan gas field. The controlling consortium, which has agreed a number of supply contracts, is aiming for production to start in 2020.

Israel’s public finances remain a weakness relative to ‘A’ category sovereigns, despite a trend of improvement. The 2017 central budget deficit is likely to be less than 2% of GDP and the smallest since 2008, in what will be the third consecutive year of significant budget over-performance. The improvement in 2017 stems from a number of larger than expected one-off revenues, which the MoF estimates at NIS17 billion for the year so far. We forecast that the 2018 central budget deficit will widen to the target of 2.9% of GDP. The MoF expects 2018 spending to be in line with the budget, whereas projections for largely flat revenues are realistic given the outperformance in 2017 and the impact of tax cuts introduced for the 2017-18 two year budget.

We expect the government debt/GDP ratio, which has declined markedly during the last decade, to fall again in 2017, to less than 62% (end-2007: 74.6%, end-2003: 95.2%). However, we forecast that the downward trend will stop in 2018-19 on the basis of wider deficits and slightly slower growth. This ratio will therefore remain some way above the peer median of less than 50%.

Other features of public debt are fairly favorable. The share of external debt is low, declining to less than 8% of GDP in 2016 from 20% of GDP in 2006 and the government is gradually lengthening the maturity profile. Israel benefits from high financing flexibility. It has deep and liquid local markets, good access to international capital markets, an active diaspora bond program and US government guarantees in the event of market disruption.

Israel’s ratings will continue to be constrained by political and security risks, but its credit profile has shown resilience to periodic conflict and political shocks over an extended timeframe. Conflicts with military groups in surrounding countries and territories flare up intermittently and can lead to increased spending commitments or be damaging to economic activity (despite Israel’s improved defense capabilities). Israel is concerned by what it perceives as the growing influence of Iran in neighboring Syria and Lebanon. There is a persistent risk of another conflict with Hezbollah, although there has not been a clash since 2006 and both sides would suffer losses. There has been no progress towards peace between Israel and the Palestinians. Fitch believes prospects for a realistic peace process remain bleak.

Domestic politics can be turbulent, with coalition governments often not lasting their full term. None of the coalition parties currently has a clear incentive for elections, but relations are fractious and could suddenly precipitate a new vote, for example, in the context of the next round of budget discussions in 2018. The prime minister, Benjamin Netanyahu, remains under pressure over a number of ongoing police investigations.

Five-year average real GDP growth is slightly stronger than rating category peers and growth volatility has been lower. Growth will be slower in 2017 than 2016 (when there was a one-off boost related to vehicle purchases), but will remain robust at around 3%.

GDP growth has been slowing in recent years, notwithstanding the 2016 performance. Annual growth averaged 3.3% in 2012-2016, compared with 4.5% in 2004-2011, due in part to slower working-age population growth, less productive additions to the labor force, sluggish world-trade and competitiveness challenges. The government is seeking to enact structural reforms to improve the business environment, as well as boosting labor market participation. In the medium term, rising gas production and the start of gas exports will support growth.

Inflation has returned to positive territory for most of 2017, after being negative in 2015-16, owing to higher rents and commodity prices, the elimination of one-off factors and robust domestic demand. The strength of the shekel, especially against the US dollar, has been a disinflationary force. We expect inflation to average no more than 0.3% in 2017, but it could nudge back into the lower-end of the Bank of Israel’s 1%-3% target range in 2018. Further one-off administrative measures by the government to reduce the cost of living could yet slow this process.

Israel’s well-developed institutions and education system have led to a diverse and advanced economy. Human development and GDP per capita are above the peer medians, and the business environment promotes innovation, particularly among the high-tech sector. However, Doing Business indicators, as measured by the World Bank, have slipped below peers. The government also faces socio-economic challenges in terms of income inequality and social integration.

Rating Sensitivities

The main factors that could, individually or collectively, lead to positive rating action are:

-Significant further progress in reducing the government debt/GDP ratio.
-Sustained easing in political and security risks.

The main factors that could, individually or collectively, lead to negative rating action are:

-Sustained deterioration of the government debt/GDP ratio, either through widening fiscal deficits or a structural decline in GDP growth.
-Serious worsening of political and security risks.
-Worsening of Israel’s external finances, for example, due to a loss of export competitiveness.

Key Assumptions: Fitch assumes regional conflicts and tensions will continue. The tolerance of the rating depends on the economic and fiscal implications of any conflict. Fitch does not assume any breakthrough in the peace process with the Palestinians or a prolonged serious deterioration in domestic security conditions. (Fitch Ratings 28.11)

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11.2 ISRAEL: Number of Early Stage Investments in Startups Sees Dramatic Fall

More venture capital is being poured into fewer Israeli-linked startups, according to an October report by Seattle-based market research company Pitchbook Data. Investments by venture capital funds in Israeli-linked companies increased in 2017, already surpassing the total overall value of investments in 2015, according to Pitchbook.

The funding is being funneled into a fewer number of deals, with a dramatic fall in early-stage investments, resulting in an increase in average deal value over all rounds. While 2015 saw 319 deals for a total value of $1.4 billion, 2016 saw 274 deals for a total value of $2.7 billion, according to Pitchbook. As of September 2017, 155 deals were signed in Israel for a total value of $1.65 billion.

By September, Pitchbook registered only 27 early-stage investment deals in Israel, compared to an overall number of 71 deals in 2016, and 124 deals inked in 2015. As the number of deals dropped, the median early-stage deal size rose by around $2.3 million in 2017 compared to 2016, according to the report.

For early-stage rounds, 2015 saw 124 deals, 2016 saw 71 deals, and 2017 saw 27 deals as of September 30, but the median early-stage funding for 2017 rose by around $2.3 million compared to 2016.

The report also said that venture capital-backed exits are on the decline in Israel, echoing the general trend also seen in Europe. Of the exits seen, there was a decrease in the ratio of acquisitions compared to buyouts this year.

The trend Pitchbook reported for the first three quarters of 2017 is supported by data from Start-Up Nation Central (SNC), a Tel Aviv-based non-profit organization connecting international entities with Israeli startups that also manages an Israel-linked startup deals database, though the numbers reported differed in size. SNC’s data showed Israeli-linked startups had 356 funding rounds in the first three quarters of 2017, a 30% drop from 507 funding rounds reported in the same period of 2016. For data given specifically for the third quarter of 2017, there were 35% fewer investments than the same period in 2016, but the total investment during that period in 2017 was up 28%.

An October report by Israel-based market research firm IVC Research Center and Israel-based law firm Zysman Aharoni Gayer & Co., which referred only to tech companies, has also shown more money is going into fewer deals. Unlike Pitchbook, which referred only to venture capital deals, this reported included other investors such as investment companies, corporate investors, incubators and angels. According to IVC, for the first three quarters of 2017, Israeli-linked technology companies raised $3.8 billion, equal to the aggregated sum raised in the first three quarters of 2016. The number of deals, 457 deals overall, was the lowest number in the past five years. The average financing round has been steadily growing, from $3.3 million in the first three-quarters of 2013 to $8.2 million in the corresponding period of 2017. (Calcalist 16.11)

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11.3 ISRAEL: Israeli Startup Exits Hit Post Dot.Com Record in Third Quarter

On 19 November, Globes observed that a 17-year record in acquisitions of Israeli startups by foreign investors set in July-September 2017 is arousing concern among economists about the ability of the Israeli economy to maintain and develop its know-how. Figures published recent by the Central Bureau of Statistics show that the volume of exports of startups reached a peak of NIS 5.6 billion in the third quarter (NIS 4.86 billion seasonally adjusted). This is the highest quarterly figure since the dot.com bubble in 2000 and concern is being raised about the large-scale export of Israeli high-tech knowhow, from which the Israeli economy could have derived many billions in profits in the coming years.

In order to realize the macroeconomic significance of this figure, it is necessary to take into account that the Central Bureau of Statistics excludes startups from its general export figures, and therefore reported that Israeli exports grew by only 0.4% in the third quarter. If startups are included in exports, however, the result is that exports grew by the extraordinary rate of 18.5%. The exceptional size of the amount is likely to indicate a large one-time deal, or that the figure is very volatile.

The Central Bureau of Statistics did not provide identifiable particulars about the deals behind such figures, but a little research shows that it did not include the sale of Mobileye to Intel, as many assumed. The Central Bureau of Statistics defines a startup as a company with negligible sales and considers the acquisition by foreign owners of companies whose added value production activity leaves Israel to be exports. Mobileye, on the other hand, has very substantial revenue, and its main activity is slated to remain in Israel, not move overseas, following the acquisition deal. For this reason, it appears that the main activity behind the record acquisitions is exits of Israeli startups sold to investors.

Research conducted by Harel Insurance Investments and Financial Services shows that the quarterly figure for exits is the highest reported in Israel other than in 2000 at the height of the dot.com bubble. The probe shows, however, that what is involved is a real phenomenon, not a one-time. In addition to a bit of national pride, however, there are also very dubious consequences for the future of the economy and the effect on the rate of exchange.

The research found that exports of startups is the main growth engine of exports of services from Israel, a field of endeavor that has moved the economy forward in recent years. In August alone, exports of services were up 8.6%, completing a 34.1% rise over the past 12 months. The entire rise in exports of services in August, however, resulted from startups acquired and removed from the economy; excluding these companies, exports of services fell 0.6%, completing a more modest (but still impressive) 9.5% increase over the past year.

According to Harel chief economist Ofer Klein, the pattern is alarming Israeli economic leaders. “In our opinion, continuation of this trend in the future will be a problem,” he writes. “Up until now, most of the companies acquired by foreigners continued operating in Israel and contributing to employment and output. Once these companies are moved out of the economy, their future contribution to the economy will be lost. On the financial side, the sale of these companies brings dollars into the economy and strengthens the shekel and current tax revenues. In the future, however, they will be lacking in the import and exports accounts, exports of goods, and revenue of the companies that have been moved.”

Another problem with the exporting of Israeli knowhow is on the exchange rate. Not long ago, Israel decided to restrict exports of natural gas, among other things, because of the argument that large-scale exports are liable to cause the “Dutch disease” – excessive appreciation in the local currency, leading to severe damage to the Israeli economy’s competitiveness and even to its degeneration. In the case of the exchange rate, it makes no difference whether the dollars are obtained from gas ports or the sale of startups; both of them bring about the Dutch disease to the same extent. (Globes 19.11)

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11.4 ARAB MIDDLE EAST: Russia Looks to the Middle East for New and Returning Defense Markets

Russia’s United Aircraft Corporation (UAC) brought its marquee fighter, the Sukhoi Su-35 Flanker-E, to the 2017 Dubai Air Show as part of a broad effort to secure new markets for its big-ticket items in the Middle East and to regain entry to legacy markets which had bought Russian through the Cold War. The Su-35 is drawing interest from the United Arab Emirates (UAE), which, according to Russia’s Deputy Prime Minister Dmitry Rogozin, is negotiating for an unspecified number of the fighter. Russia hopes to close a sale by the end of 2017 and, ideally, expand it to “several dozen” Flanker-Es.

However, UAC is also eager to generate interest for the Mikoyan MiG-35 Fulcrum-F, a twin-engine multi-role fighter equipped with the Zhuk-AE active electronically-scanned array (AESA) radar. UAC and MiG are pitching the MiG-35 for its competitive acquisition and life-cycle costs, which MiG claims are 20% and 30-40% lower, respectively, than competing Western fighters. With a focus on legacy MiG-29 users, especially in the developing world, the Russian Aircraft Corp. MiG’s Director General, Ilya Tarashenko said that talks are taking place with more than 30 countries. Bangladesh, India, Kazakhstan, Myanmar, Malaysia and Serbia are among the MiG’s prospective customers.

The Almaz-Antey S-400 long-range surface-to-air missile (SAM) system is making in-roads in the regional market as well, with Turkey signing on recently. Saudi Arabia has also begun negotiations for the S-400, with Bahrain also expressing interest in the system. For Russia, the S-400 seems to have become its entry-ticket to accessing markets that continue to lean heavily on American and Western European armaments.

In an interview with Aviation International News (AIN), the Director of the Russian Federal Service for Military-Technical Cooperation (FSVTS), Dmitri Shugayev outlined Moscow’s defense export objectives, citing the Dubai Air Show as a major event. The FSVTS defines Russia’s defense export policies.

Shugayev also spoke of Pakistan, with whom Russia had relaunched defense relations in 2015. The FSVTS head reiterated that the central focus of those ties was counterinsurgency and counter-terrorism oriented, but also suggested that there are no explicit limits to scope of armament sales to Pakistan.

Russia is also working to position itself as a factor in the defense industry development goals of its current and prospective customers. At the Dubai Air Show, UAC announced that it has begun talks with the UAE to potentially to co-produce the Irkut MC 21 airliner. UAC also signed a memorandum-of-understanding with Turkish Aerospace Industries (TAI) to “implement joint design and production in the field of civil aviation.” TAI’s General Manager Temel Kotil expressed interest in developing a 100 seat airliner. (Quwa 15.11)

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11.5 JORDAN: Moody’s Challenges Credit Profile Due to High Public Debt & External Imbalances

Jordan’s (B1 stable) credit profile is constrained by high public debt, persistent external imbalances and elevated geopolitical risk, Moody’s Investors Service said in a report published on 24 November. The country’s credit strengths include a history of official sector external support and a strong institutional framework compared with regional peers.

“Although Jordan has benefitted from lower oil prices, falling remittances and transfers from regional oil exporters continue to weigh on external accounts, as does the disruption of traditional trade routes via Syria and Iraq,” said Elisa Parisi-Capone, a Moody’s Vice President – Senior Analyst and the report’s co-author. “In addition, the arrival of almost 1.4 million Syrians (655,000 of which registered as refugees) since 2012 has added to fiscal and capital spending and put pressure on Jordan’s labor market through higher unemployment and lower wages.”

Jordan’s strong economic growth – which averaged 6.1% between 2000 and 2010 – has boosted per capita income to levels in line with regional peers, despite the country’s small size. However, following the global financial crisis and particularly in the wake of the Arab Spring uprisings, Jordan’s trend growth outlook for 2011-21 has shifted to a significantly lower average of 2.6%.

The main drivers of the more subdued trend growth outlook are the continuing conflicts in Syria and Iraq – two of Jordan’s main trading partners – which have dented investor sentiment and closed regional trade routes, and the refugee wave, which has put pressure on infrastructure and public services as well as demand for housing and consumption goods. Lingering security threats in border regions have also subdued tourist arrivals.

Jordan’s high institutional strength is supported by the kingdom’s relatively strong institutional framework and track record of policy implementation under the umbrella of the 3 year External Fund Facility program with the IMF entered in 2016. The country’s low fiscal strength stems from its weak fiscal fundamentals, as reflected in consistent fiscal deficits and a very high debt burden.

Based on fiscal performance data up to September 2017, Moody’s expects a fiscal deficit of 3.9%, up from 3.2% in 2016, and higher than the budgeted 2.5%, mostly due to slower grant receipts. For 2018, Moody’s expects the government to resume fiscal consolidation, particularly through the implementation of revenue measures, such as the removal of exemptions, as well as income tax reform. These measures should sustainably compensate for the gradually declining foreign grant contributions.

Jordan’s gross public debt ratio includes the domestic and external debt of the central government in addition to guaranteed debts of state-owned enterprises. Based on Moody’s deficit projections of 3.9% in 2017 and 3.4% in 2018, the rating agency expects the gross public debt ratio to peak this year at 95.6% of GDP and to gradually decline thereafter.

The stable outlook on Jordan’s sovereign rating reflects Moody’s view that the government will pursue fiscal consolidation that stabilizes and reverses the country’s high debt metrics over the medium-term.

A substantial reversal of the recent increase in debt metrics, moving closer to those of rating peers, would be credit positive. Conversely, continued modest growth that increases the debt burden or persistent external imbalances amid a continuing decline in foreign-exchange reserves would put negative pressure on the rating. (Moody’s 24.11)

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11.6 JORDAN: Reforming Jordan’s Labor Market

Kirk H. Sowell wrote in Sada on 21 November that Jordan is making a concerted effort to address unemployment by restricting foreign labor and promising increased vocational training.

Jordan’s government, headed by Prime Minister Hani al-Mulqi, is taking on labor market reform. It is fighting decades of dependence on foreign labor while producing ever more college graduates in the near-absence of vocational education. With the debt-to-GDP close to 100% and the state solvent only because of foreign aid, the government has determined to nationalize its workforce to address the dire issue of employment.

The depth of Jordan’s unemployment problem cannot be overstated. Prior to 2015, the Ministry of Labor only reported unemployment at around 12%, raising these reported rates to 18% by mid-2017, yet this still understates the problem as surveys only count those who self-report. A different way of looking at the issue is to compare new entrants to the labor force, which are more reliably counted, to new jobs created. As of 2017, Jordan’s universities produce 61,000 new graduates, but total net new jobs each year since 2011 average just 48,000. The Ministry of Labor’s 2015 job creation figures show just 16,000 of new jobs went to those with any education beyond high school. A separate survey published in August 2017 confirms these numbers, finding that only 34% of new college graduates find jobs within six months. This shortfall can only be partially attributed to the post-2011 economic downturn. Even in 2009, when universities were producing 40,000 graduates per year and Jordan created 76,312 new jobs, only about 28,000 went to those with post-secondary education.

Taking workforce participation into account deepens the gap. Women make up about 56% of university graduates but have a participation rate of just 13% in the job market. While there are many women graduates who would not be in the workforce for family reasons, others are absent due to a lack of jobs. Even male participation among Jordanian citizens remains low, at 58%. According to the World Bank, the global average is 76% – only seven other countries have male participation rates this low. The low participation rate for males is potentially explained by “the culture of shame.” The majority of private sector jobs available tend to be low-skill labor in manufacturing, retail and agriculture, and these tend to be associated with low status, a result of long-term dependence on foreign labor without being wealthy.

Jordanians with a high school degree or less, who are most likely to pursue low-skill jobs and account for almost two-thirds of the population, are squeezed from below by competition from a large pool of foreign workers willing to work at lower wages. Jordan has over 300,000 registered foreign workers plus traditional estimates of 300,000 – 500,000 illegal foreign workers, making non-Jordanians 27 to 33% of the country’s total workforce – a large figure for a developing country with high unemployment. In December 2016, Minister of Labor Ali al-Ghazzawi said that the ministry estimated that there were now 800,000 illegal foreign workers, which if accurate would make foreigners 40% of the workforce. In February 2017, the ministry revised the estimate up to one million illegal workers, making them 44% of the total. Moreover, outgoing remittances come to $1.5 billion annually, cutting Jordan’s net gains from incoming remittances in half.

The private sector produces too few jobs for Jordanians even without foreign workers, so some degree of nationalization is unavoidable. For 2015, the last year for which the Ministry of Labor has made these statistics available, three of the six sectors that created the most jobs – civil & security services, education, and health & human services – were predominately in the public sector. The three private sector segments that produced the most jobs were retail, manufacturing and hotels & restaurants, which in 2016 employed a reported 24,472, 83,052 and 17,686 foreign workers, respectively. While manufacturing initiatives such as the Qualifying Industrial Zones (QIZs), which are tied to a free trade agreement with the United States, are often held up as a success for dramatically increasing Jordan’s textile exports, the fact that a majority of the workers are from South Asia means this program has done little for Jordanian employment.

Therefore the new government has made the nationalization of the labor force its first major reform. On 28 June 2016, barely a month into office, the Ministry of Labor blocked new foreign worker permits, except for domestic workers and QIZ employees. The new minister of labor, Ali al-Ghazzawi, defended it as necessary not only to employ more Jordanians, but also to limit the large number of unlicensed workers. While Egyptian workers, who for decades have been heavily involved in Jordanian agriculture, have been given the option to renew their permits after six months, the ban on new permits effectively caps their current numbers, which will decline because the government increased the cost of the permit from JD 120 ($170) to 300 ($420) for agricultural workers and 500 ($705) for other workers. Combined with a crackdown on the employment of foreign workers without permits, the policy promised to cut the supply of cheap labor while raising revenue.

The construction industry was quick to complain, saying as early as November 2016 that the restrictions on foreign labor had led to project shutdowns because Jordanians could not be found to do the work. Ministry of Labor Spokesman Mohammed al-Khatib responded that most unemployed Jordanians have similar education levels to foreign construction workers and that the restrictions in place for construction did not ban legal foreign workers, noting that the ministry’s enforcement mainly impacted “the 500,000-600,000” unregistered foreign workers.

The agriculture industry also complained that the measures increased the cost of labor from one-third of total costs to half. One farm owner interviewed by Al-Ghad said that he usually had to pay only JD 1.5 ($2.10) per hour, but now workers were demanding JD 2 to 2 ($2.80-3.50) per hour. Yet, unlike the construction sector, there was no reduction in work permits for agriculture, just a crackdown on the use of illegal workers. It is also worth noting that JD 2.5 per hour is on par with the average salary in Jordan. By August 2017, with Jordan’s growing season in full swing again, employers again pressured the Ministry of Labor to allow more Egyptian workers whom they could pay less. Walid al-Faqir, head of the Water Management Initiative, argued that because Jordanians were refusing to take these jobs, the ministry was simply harming a sector already suffering from water shortfalls and reduced trade with Syria and Iraq.

Ghazzawi proposed getting Jordanians working in agriculture by having them do more mechanized agricultural work, promising in July 2017 to offer technical training to make sure Jordanian labor was productive enough to justify the higher cost. In addition, in September the government adopted a JD 100 million ($141 million) program with two tracks, one focused on training and a second focused on placing Jordanians into industries that have heavily employed foreign workers. The goal is to reduce Jordan’s foreign workforce by 10 to 25% over five years.

These efforts coincide with, and to an extent are undermined by, a commitment under the “Jordan Compact,” a February 2016 agreement with European countries, to increase legal employment for Syrian refugees in exchange for aid and trade deals that the Jordanian economy desperately needs. The compact aimed to issue 200,000 permits to Syrians over three years, starting with 50,000 by the end of 2016. While behind schedule, permits were up to 62,000 by September 2017. Syrian labor most directly competes with other foreign labor for low-skilled jobs, rather than with Jordanians, but Syrians are also taking many positions the government wants Jordanians to have. This gives rights to decent pay for Syrians who are already working, helping prevent abuse, but it squeezes Egyptian workers in particular and will complicate expanding employment for Jordanians.

After many years of delaying reforms, the Jordanian government is now acting on a conviction that it must fix the mismatch between available jobs and the skills of those entering the labor force and reduce dependence on foreign labor. Beyond the government’s efforts to nationalize the workforce – which have already placed undue burdens on key private sector industries and are limited by its international obligations to employ Syrian refugees – both officials and community leaders could work to change attitudes about vocational training and manual labor to deal with Jordan’s chronically high unemployment.

Kirk H. Sowell is a political risk analyst focusing on Jordan and Iraq. (Sada 21.11)

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11.7 SAUDI ARABIA: Ratings on Saudi Arabia Affirmed At ‘A-/A-2’; Outlook Stable

On 19 November 2017, S&P Global Ratings affirmed its ‘A-/A-2’ unsolicited long- and short-term foreign and local currency sovereign credit ratings on the Kingdom of Saudi Arabia. The outlook is stable.

Outlook

The stable outlook is based on our expectation that the Saudi authorities will continue to take steps to consolidate public finances and maintain government liquid assets close to 100% of GDP over the next two years. We think the risks emanating from recent shifts in Saudi Arabia’s political power structures and societal norms, alongside various regional stresses, are balanced by the possibility that these structural reforms could empower Saudi citizens and make Saudi Arabia more attractive to investors over the medium term.

We could lower our ratings if we observed further deterioration in Saudi Arabia’s public finances. Fiscal weakening could entail prolonged double-digit central government deficits as a percentage of GDP, a quicker drawdown of fiscal assets, or an unexpected materialization of contingent liabilities. The ratings could also come under pressure if we observed a significant increase in domestic or regional political instability as a result of the increasing centralization of power.

We could raise the ratings if Saudi Arabia’s economic growth prospects improved markedly beyond our current assumptions.

Rationale

The ratings on Saudi Arabia are supported by its strong external and fiscal stock positions, which we expect it will maintain despite large central government deficits. The ratings are constrained by weak economic growth, limited public sector transparency, and limited monetary policy flexibility.

In our view, recent shifts in Saudi Arabia’s power structures and societal norms, alongside various regional stresses, could increase the risk of policy mistakes that could result in increased domestic and geopolitical tensions, deterring investors, or delaying the consolidation of the kingdom’s public finances. However, we also consider that these structural reforms could empower Saudi citizens and make Saudi Arabia more attractive to investors over the medium term, as the authorities intend.

Institutional and Economic Profile:

-Domestic and external political volatility could further dampen economic growth

-Centralization of decision-making in the political system has increased, in our view, with limited checks and balances. The succession process is a source of domestic political volatility.

-We expect real economic growth to be broadly flat in 2017 and to pick up only slowly thereafter as oil production cuts and fiscal consolidation dampen domestic demand.

-We estimate trend growth in real per capita GDP of about 0.7% during 2011-2020, at the lower end of the range for peers (1%-4%) that display similar levels of development.

In November 2017, security forces arrested around 200 people, including members of the kingdom’s political and business elite, at the behest of an anti-corruption commission headed by crown prince Mohammed Bin Salman Al Saud. This marks a significant shift in the traditional power-sharing and consensus-building arrangements of the kingdom. We view these arrests as an attempt to communicate that all levels of the social strata must adhere to the crown prince’s vision of a fairer and more productive society, as well as an attempt to sideline potential rivals. The arrests include princes, high-profile businessmen and sitting and former cabinet officials such as the head of the National Guard, the Economy and Planning Minister and the ex-Minister of Finance. The authorities have taken decisive action, but the lack of an independent body to implement such a purge also highlights weaknesses in Saudi Arabia’s institutional framework, in our view, and introduces a new level of uncertainty to the investor environment. The authority’s actions may result in short-term capital outflows, but could improve medium-term prospects if implemented objectively, and noticeably reduce the level of corruption.

Banks are believed to have frozen hundreds of domestic accounts as part of the crackdown, part of which may eventually be appropriated by the government, supporting the public finances. We expect the authorities to be sensitive to the potential for these actions to weaken the domestic banks.

Power has been further centralized in the person of the crown prince, who now controls all three branches of the security forces (military, internal security services and the national guard). In our view, this increases the risk of policy mistakes at a time when Saudi Arabia faces significant regional challenges. These include: heightened tensions with Iran following Saudi Arabia’s interception of a ballistic missile close to the city of Jeddah, believed to have been fired by Iranian-aligned Yemeni rebels; and Saudi Arabia’s push to curtail the powers of an Iranian-backed party to Lebanon’s governing coalition, Hezbollah.

Saudi Arabia’s war in Yemen – apart from the related loss of life – also contributes to military and security services being the single largest spending item, at about 30% of total government expenditures. However, we do not expect any of these challenges to significantly impact the domestic economy. Rather, we believe that they add to the government’s already heavy policy program, which could weaken its commitment to the fiscal adjustment plans.

Saudi Arabia is also 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 5 June 2017. In our view, the impact of the boycott may not be confined to within Qatar’s borders and is likely worsening Saudi Arabia’s trade balance. We expect political tensions within the Gulf Cooperation Council (GCC) countries to persist over the next few years.

In our view, efforts to modernize the economy through an incipient cultural revolution could also risk increasing domestic tensions with more conservative sections of the population. In October 2017 the crown prince made a speech vowing to return the religiously conservative country to “moderate Islam,” while the activities of the religious police have been curbed over the past year. In September 2017, King Salman issued a decree, expected to be implemented in June 2018, allowing women to drive for the first time. These measures currently appear to be broadly popular, but represent a challenge to more conservative sections of the population, who lack the channels to express their views.

The authorities are also expected to revise the highly ambitious National Transformation Program (NTP) announced in June 2016. The program provides substance to the Vision 2030 announcement in April 2016, which encompasses the government’s strategy to rebalance the economy away from its historical reliance on fossil fuels and expatriate labor. We understand the broad thrust of the NTP will remain, but that key tenets may be delayed or scrapped, with the original plan being viewed as too aggressive. Among other things, the NTP aimed to:

-Create more than 450,000 jobs in the nongovernmental sectors by 2020;

-Privatize state assets, increasing the private sector’s share of GDP to 60%, from 40% in 2014;

-Increase the female workplace participation rate to 30% from 22%;

-Achieve a balanced budget by 2020, partly by reducing government spending on public sector wages to 40% of total spending by 2020 from about 45% at present;

-Reform the education system; and

-Raise the Saudi home ownership rate to 52% by 2020 from 47%, thus easing the housing shortage.

In our view, the program could result in accelerated economic growth and an overall rebalancing of the economy. However, the timing and completeness of any such structural improvements will depend on the achievement of challenging targets over a number of years. At this time, we have not factored in any specific effects from the NTP into our forecasts.

We expect the oil sector’s contribution to real economic growth in 2017 and 2018 to be largely flat. Non-oil sector growth will likely remain the economic driver, but at a subdued 1% in 2017 and 2018. Our estimate for GDP per capita for 2017 is $21,200, supported by the slowdown in population growth from close to 3% on average in 2011-2015, to about 1% in 2016-2017. In our view, the weak population growth highlights the economic downturn in the kingdom, along with reduced job prospects for foreign workers. We view the government’s aim of achieving a balanced budget by 2020 as challenging at a time when the government is striving to take measures to support the private sector and provide jobs for the 40% of 15-24 year olds who are unemployed. To some extent, these could be conflicting aims, in our view.

Flexibility and Performance Profile:

-Strong external and fiscal position from a stock perspective

-The central government balance improved significantly over the first half of 2017. However, given uncertainties surrounding pent-up capital spending and outstanding government arrears to private sector contractors, our forecast is broadly unchanged. The government remains a strong net creditor.

-We expect the current account to post small deficits over the forecast horizon, supported by rising oil production and a modest increase in oil prices after 2018.

-Monetary policy effectiveness is limited given the fixed exchange rate, which requires Saudi Arabia to closely follow movements in the Fed Funds rate even when they may not be appropriate for Saudi Arabian economic conditions.

The government’s targeted deficit for 2017 is about 8% of GDP, alongside a goal of achieving a balanced budget by the end of the decade under the Fiscal Balance Program 2020. We expect a central government deficit of about 9% of GDP in 2017, narrowing to 4% by 2020. Our 2017 government deficit estimate remains largely unchanged, partly due to uncertainties around the outstanding level of government arrears to private sector companies, and despite the deficit having halved to about 6% of GDP during the first half of the year.

In the medium term, we partly base our more conservative view of the government’s fiscal consolidation prospects on our oil price assumptions, which are broadly flat over our forecast period through year-end 2020. We also factor in our expectation that Saudi Arabia’s oil production will remain at around current levels of 10 million barrels per day (bpd) in order to shore up prices at these levels, in line with OPEC’s decision in late 2016. We factor in an additional 2% of GDP in government revenues starting in 2019, due to the expected introduction of a 5% value-added tax in 2018. We note that the non-oil deficit remains at about 23% of GDP over the first half of 2017, the same as in 2016, highlighting that the improvement in the budget so far this year has come through oil revenues rather than any diversification of revenue sources or expenditure cuts.

Our forecast for the annual change in general government debt (which is our preferred fiscal metric because in most cases it is more comprehensive than the reported headline deficit) is for an average increase of about 4% of GDP. In Saudi Arabia’s case, the change in general government debt is lower than the central government deficit because we have assumed that the deficit is financed 30% by asset draw-downs and 70% by debt issuance. Such a split implies that Saudi Arabia would report gross liquid financial assets of 101% of GDP by 2020. These fiscal assets include the central government’s deposits and reserves on the liabilities side of the balance sheet of the Saudi Arabia Monetary Authority (SAMA), government institutions’ deposits, and an estimate of investment income. We also include in our calculation an estimate of government pension funds’ liquid assets.

We acknowledge both upside potential and downside risk to these forecasts. Upside potential stems principally from oil prices. The downside rests with the scale of the required fiscal consolidation and the broader impact it will likely have on the economy.

Our general government balance consolidates the central government and the social security system. It also includes our estimate of investment income from sovereign wealth fund assets, which largely accounts for the difference between our central government and general government deficit projections.

Although Saudi Arabia’s fiscal profile has weakened on a flow basis, we believe it has remained strong on a stock basis. Net general government assets (the excess of liquid fiscal financial assets over government debt) peaked at 121% of GDP in 2015 (partly due to the estimated 14% decline in nominal GDP). Government liquid assets fell by about 10% of GDP in 2016 according to our estimates, largely related to a transfer of assets to the Public Investment Fund. However, absent disclosure on whether or not these assets remain liquid, we have excluded them from our estimates. We forecast that the government’s net asset position could decrease to 74% of GDP in 2020. We believe Saudi Arabia is facing a period of adverse terms of trade, from a previously strong position.

Under its Fiscal Balance Program, the government is looking to privatize some of its holdings to stimulate economic growth, improve the fiscal position, and contain the cost of public sector salaries, while at the same time cushioning the socioeconomic impact of fiscal consolidation on low-income households via the introduction of a “Citizens Account.” In March 2017, the government significantly reduced income tax rates for producers of hydrocarbons in the kingdom. The rate for the largest companies, including Saudi Aramco, the world’s largest oil producer, fell to 50% from 85%. The tax rate is in addition to a 20% royalty payment the company makes to the government. The government will now be incentivized to encourage Saudi Aramco to follow a generous dividend policy to compensate for the reduction in tax revenues. In this way, the interests of investors and the government will be more aligned, increasing the company’s attractiveness ahead of the listing in the capital markets of part of its shares or a bundle of its downstream subsidiaries. Various reports suggest that about 5% of Saudi Aramco could be sold before 2019. The valuation of Saudi Aramco remains highly uncertain, but a sale of 5% of its shares could be the world’s largest equity sale. Commentators suggest that the company could be valued at $1 trillion-$2 trillion (150%-300% of GDP), making a 5% stake worth about 7%-15% of GDP. As these plans are still being formed, and the ultimate use of the funds to be generated is unclear, we have not factored proceeds from a potential IPO into our projections.

We understand the government’s arrears have largely been to building and construction companies, a sector that accounts for about 8% of total bank loans, equivalent to about one-third of the banking sector’s capital base. The banking system nonperforming loan ratio was 1.4% at end-2016, which we expect will rise to 2%-3% over the next two years due largely to continued vulnerability in the contracting sector. We classify the banking sector of Saudi Arabia in group ‘4’ under our Banking Industry Country Risk Assessment methodology, with ‘1’ indicating the lowest risk and ’10’ the highest.

Given the Saudi riyal’s peg to the U.S. dollar, we view monetary policy flexibility as limited. The long-standing currency peg helps to anchor the population’s inflation expectations, but binds Saudi Arabia’s monetary policy to that of the U.S. Federal Reserve. We expect that the peg will be maintained. At a time of already significant change and regional geopolitical instability, GCC countries are unlikely to increase economic uncertainty by amending this fundamental macroeconomic policy. Consequently, the riyal’s real effective exchange rate has appreciated by 16% since December 2014 and is approximately 37% over the December 2007 level, according to Bruegel data. The riyal’s long-term real effective appreciation since 2007 has been the most pronounced among all GCC sovereigns. In our view, this indicates an ongoing deterioration of international competitiveness of the country’s modest tradables sector, which is likely to dampen non-oil GDP growth, absent any offsetting factors, such as improved efficiency or technological capacity.

We continue to view Saudi Arabia’s external position as a strength. We expect that Saudi Arabia’s liquid external assets, net of external debt, will average about 185% of current account receipts (CARs) over 2017-2020. Gross external financing needs are about 45% of the sum of usable reserves and CARs over 2017-2020, suggesting ample external liquidity. That said, usable reserves continue to decline, largely due to fiscal deficit financing. We expect them to reach about $400 billion at end-2017, compared with $536 billion at end-2015. Our calculation of usable reserves subtracts the monetary base from gross foreign currency reserves for sovereigns that have a long-standing fixed peg with another currency (because the reserve coverage of the base is critical to maintaining confidence in the exchange-rate link). We estimate reserve coverage (including government external liquid assets) at about 20 months of current account payments in 2017, falling to 15 months by 2020. (S&P 19.11)

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11.8 SAUDI ARABIA: Corruption Purge Overshadows Stalled Reality of the Economy

On 18 November, Karen E. Young posted in at the Arab Gulf States Institute that Saudi Arabia is in a period of top-down restructuring, creating risk and opportunity for its citizens and ruling family. There have been a series of recent proclamations: public policy shifts on women’s economic inclusion, limits on the power of the Islamic clerics, promises of robots and new technology, and open investment opportunities in special economic cities under separate jurisdiction. The remaking (or dismantling) of the Saudi state seems very possible. The announcement of mass arrests and freezing of financial assets of business tycoons, sitting ministers and military brass on 5 November should not have been a surprise. For all of the announcements of intentions to change, though, there are some intransigent aspects of the Saudi economy that refuse to budge.

The efforts to dislodge institutional pillars of Saudi Arabia’s political and economic elite and root out corrupt practices will have regional consequences beyond plans to strong-arm the Lebanese prime minister. Less-discussed have been the effects on the business climate and reputation of neighboring financial centers like Dubai that could hinder the Gulf’s plans for economic diversification. The central banks of both the United Arab Emirates and Kuwait have placed advisories on certain local Saudi account holders, in cooperation with Saudi authorities and their anti-corruption purge. The political action of the past two weeks will have a chilling effect on domestic investment and economic activity across the Gulf Cooperation Council (GCC) states. The shared economic reform agenda is taking second place in policy priorities to regional security and regime stability.

Early indications of sell-offs in regional equity markets have been severe. The combined market capitalization of bourses in the GCC has fallen to the lowest level in a year, losing $6.8 billion of value within 72 hours of the purge. Saudi stocks, however, made some rebounds, thanks to an intervention by the Saudi Public Investment Fund, the kingdom’s sovereign wealth fund now charged with targeting both outside and domestic investment opportunities. The fallout is spreading beyond Riyadh. Dubai, as a regional financial hub of asset managers, will also suffer from capital flight from Saudi investments placed there. For large funds with exposure to newer Gulf equity markets, this could mark a retreat from regional stock exchanges to alternate emerging markets. The Dubai and Abu Dhabi markets long coveted emerging market status as a means of inclusion in large fund portfolios for locally-listed companies, only making the list in 2014; Saudi Arabia is seeking that status now. For regional capital markets and equity markets, this will be a lasting strain.

While fighting corruption is an important step in Saudi Arabia’s economic reform process, the current “purge” mechanism has favored regime stability and consolidation over institutionalization and rule of law. As with most economic reform processes, there are problems of sequencing of reforms and putting institutional supports in place to apply reforms evenly and sustainably. Corruption, connected lending, favoritism, and bias in contracting are all endemic to the Saudi business environment, but most of it links back to the driving force of investment and capital expenditure in the country, which is the state itself, not private sector actors.

Institutional Reforms to Support Growth

There are parallel and supporting processes that would assist both local and foreign investor rights and are necessary for growth. There are some economic institutional changes underway that deserve attention and some tentative commendation. Their success, however, depends on the state’s ability to create and enforce rules, widening the investment and commercial space for both citizens and foreigners.

Commercial Agency Restrictions on Foreign Ownership

These reforms need to expand immediately, especially in opening all sectors to foreign investment without commercial agency law restrictions that require foreign companies to partner with a Saudi citizen as co-owner or investor, rules that the Saudi Arabia General Investment Authority (SAGIA) has been easing since 2000. Recently, the Saudi government announced it would allow 100% foreign ownership in three more sectors – engineering, education and health – in an effort to attract foreign direct investment and reduce government expenditure

Special Economic Zones

Free zones and new economic cities are not a new economic development mechanism (nor have they been very effective) in the kingdom, but they are a centerpiece of the Vision 2030 agenda. SAGIA (Saudi Arabian General Investment Authority), formed in 2000, and given more legal authority in 2006, is the regulator of these cities. Four are in the works: King Abdullah Economic City lies between Mecca and Medina and serves as a seaport; Knowledge Economic City, in Medina, is an information technology hub with a plan to create 20,000 jobs; Prince Abdulaziz bin Mousaed Economic City, in Hail, is slated to become a land transport hub; Jazan Economic City, south of Jeddah, will be an industrial center with plans for its own dedicated desalination and electricity plants. These are massive state investments that require outlays of capital and large contracts with master developer partners – yet there is no current public-private partnership framework for shared ownership of long-term projects like power plants or water and sewage utilities required in these special economic zones.

Tax Policy

The impact of new tax policy is not yet clear. A new value-added tax of 5% on most goods and services will begin in January 2018, but its collection and administration will be a new test for government. Saudis and expatriate residents are only just learning to live with taxes. Several were introduced in 2017, including new consumption or sin taxes on sugary drinks and tobacco, a new unused land tax, which has targeted wealthy (and many royal) landowners who have undeveloped properties in urban centers and new taxes on foreign laborers and their families. The implementation of these taxes will likely cause some price inflation in 2018.

Labor Policy

Labor policy is in flux. Saudi employment is a key obstacle to generating economic growth. Official government statistics put the unemployment rate for Saudi men at 12.7% and at 23.3% among young people (male and female) ages 20-29. For Saudi women, the figures are much worse at 33.1% unemployment. Foreigners have been barred from employment in some sectors, including dentistry and retail, and there has been substantial job loss among non-citizens; the construction industry has shrunk (on weak government spending and projects), and nearly 70,000 jobs were lost between the first and second quarters of 2017, according to research by Jadwa Investment in Riyadh. As a result, remittances from Saudi Arabia are at a four-year low, which will impact already weak economies in countries like Pakistan, Bangladesh and Egypt. Despite the job loss among expatriates, there has not been corresponding growth in job creation for nationals. In manufacturing, for example, non-Saudi jobs declined by 6,700 in the second quarter of 2017, while just 1,000 new Saudi jobs were created.

Bankruptcy Protection

Bankruptcy law needs to be formalized. A draft law under consideration by the Shura Council since 2016 is expected to be approved by royal decree in early 2018, but there is currently little instruction or framework for orderly unwinding of failed businesses, especially between foreign and local partners.

Equity Markets

Stock markets will need to expand rights and access to foreigners; foreigners were granted the ability to purchase shares on the local exchange in 2015, but only as institutional investors on behalf of funds. In 2016, these restrictions were eased, allowing individual foreigners to buy shares in local companies on the exchange, but limited to portions of firms. A new secondary market for small- or medium-sized enterprises (SMEs), called NOMU, is set to allow full foreign ownership of firms listed on the exchange starting in 2018, but foreigners might not have many options initially. There are few firms on the main exchange, Tadawul, and expectations of new smaller firms ready to join NOMU are low, despite the government’s plan to create a dedicated $1.07 billion fund within the PIF dedicated to SMEs. An ecosystem of support (e.g. incubators or a small business administration) could be helpful, but is not evident yet.

Privatization and Public Private Partnerships

The early privatizations in state assets in water treatment and utilities need to demonstrate that the government can manage fair tenders. A framework for public-private partnerships needs to be formalized, and quickly, before the Saudi government gets too deep into its ambitious agenda. As many as 27 airports are meant to be sold or privatized under PPPs by the end of 2018, though not one sale has been closed yet.

Predatory State Investment

The Saudi state remains the key actor in the economy, even in these broad privatization and liberalization plans. The regulatory environment has lagged behind invitations to foreign investors, and the state has not demonstrated it is going to back off from crowding out private investment and opportunities for competitive firms in fields the state has dominated, like contracting. Where there have been opportunities for new firms to take the lead and disrupt the old economy, the PIF has promptly invested in them with large stakes, creating ownership and free market dilemmas. In new partnerships with foreign investors, including a massive $45 billion investment in the Softbank fund, aimed at technology investments globally, Saudi Arabia is using its old, circular and connected-lending strategies. In exchange for its $45 billion injection to the $100 billion Softbank fund, the fund has promised to invest $25 billion inside of Saudi Arabia.

For change to really hit Saudi Arabia’s economy, there are some substantial barriers to break through. Growth is stalled across the GCC states, while governments continue to struggle to balance their budgets. In Saudi Arabia, foreign reserve assets fell to $485 billion in September, with the pace of decline increasing over the last year, in spite of heavy borrowing on both domestic and international debt markets. Again, the timing and sequencing of the reform efforts will be essential to spur private sector growth without draining state resources too severely. The handoff between state-driven investment and private sector investment needs to be swift.

While there are many reasons to see the Saudi shake-up as a signal that old ways of politics are changing, despite Riyadh’s ambitious economic agenda, there are few reasons to see a revolution in the Saudi economy.

Karen E. Young is a senior resident scholar at the Arab Gulf States Institute in Washington. (AGSI 18.11)

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11.9 TUNISIA: Fitch Affirms Tunisia at ‘B+’; Outlook Stable

On 17 November 2017, Fitch Ratings has affirmed Tunisia’s Long-Term Foreign-Currency Issuer Default Ratings (IDRs) at ‘B+’ with a Stable Outlook.

Key Rating Drivers – Tunisia’s ‘B+’ IDRs reflect the following key rating drivers:

Tunisia’s ‘B+’ ratings balance high income per capita, ease of doing business and governance indicators relative to the ‘B’ peers’ category, against high government and external debts. In a difficult economic and security context after the 2011 political transition, the authorities have been unable to prevent a rise in the budget and current account deficits. However, Fitch assumes an improvement in security and economic conditions since 2016 is maintained, which should help reduce the twin deficits in the coming years.

Fitch expects GDP growth will accelerate to 2.2% in 2017 from 1.0% in 2016. Improved security conditions relative to the post-2015 terrorist attacks have supported a recovery in tourism (tourist receipts were up 19% y/y in the nine months to September) and foreign direct investment (+13% y/y). The agency expects growth to be 2.8% in 2018 and 3% in 2019 as increased confidence allows a gradual economic recovery. Deterioration in security and political conditions remain the main downside risk to the outlook.

Fitch expects the general government deficit will decline gradually, to 5.8% in 2018 (including 5.4 % of GDP for the central government deficit) and 5.3% in 2019 from 6.4% in 2017 (6.0% for the central government). The reduction will be primarily driven by the recovery in the economy and its effects on revenues. Under its current IMF program, the country has committed to cut its deficit via increased taxes and reduced public spending, including a reduction in public sector workers. The draft budget for 2018, yet to be approved by parliament, is in line with these objectives. However, given Tunisia’s weak track record for fiscal reforms in recent years, implementation risk remains high.

Fitch expects general government debt will be 70% of GDP at end-2017 from 62% in 2016 and 59% for the ‘B’ peers’ median. The increase reflects the impacts of the government deficit and the exchange rate depreciation (-18% vs. the euro and -10% vs. the USD since the start of the year) on foreign currency debt (65% of the total at end-2016). Given continued high deficits, Fitch expects debt will continue to rise and only peak in 2024, at 76% of GDP.

The agency expects the current account deficit will be 9% of GDP in 2017 and will remain high at 8% by 2019. The improvement reflects stronger tourism, a weaker exchange rate and tighter fiscal policy. Fitch expects net external debt will increase to 56% of GDP at end-2017, and reach 62% of GDP by 2019 versus the ‘B’ peers’ median of 21% in 2017. The concessional nature of most external loans has limited the rise in the external debt service burden and alleviates refinancing risk.

Tunisia is highly reliant on the international community to fund its current account deficit and Fitch expects support to continue. However, potential delays in disbursements, for example due to inability to achieve reforms under the IMF program, or weaker international support in future, constitute downside risks to access to external funding.

Foreign reserves at the central bank were equivalent to 96 days of imports in October 2017. The central bank aims to keep reserves at around 110 days of imports. To support reserves, and in line with its commitment to allow more exchange rate flexibility, the central bank has made limited interventions on the foreign currency market despite the shortage of foreign currency liquidity. The improvement in the current account position combined with continued donors’ inflows should support a stabilization in reserves over the forecast horizon.

The banking sector, particularly state-owned banks, is weak following decades of mismanagement and is exposed to the ailing tourism sector. NPLs were 15.1% in Q2/17, driven up by the public banks. Restructuring the banks is a key focus of the current IMF program.

The improved security apparatus has so far succeeded in averting further terrorist attacks following the series of attacks in 2015. Security risks remain high and are aggravated by the fragile situation in neighboring Libya. A key issue is the rising threats emanating from Tunisian fighters returning home after waging wars abroad. Domestically, episodes of social unrest will likely persist fueled by the high level of unemployment (15.2% in Q2/17).

Rating Sensitivities

The Outlook is Stable, which means Fitch does not expect developments with a high likelihood of leading to a rating change. However, the main factors that could lead to negative rating action are:

-Political destabilization of the country, for example from social unrest or major terrorist attacks, with adverse impact on economic growth.
-Continued weakening in external finances, such as a widening of the current account deficit and renewed pressure on international reserves leading to a marked increase in net external debt-to-GDP.
-Worsening of the fiscal deficit or a materialization of contingent liabilities, for example from the weak state-owned banks, leading to an increase in government debt/GDP.

The main factors that may individual or collectively lead to positive rating action are:

-Improved growth prospects, for example related to structural improvements in the business environment and/or the security situation.
-Reduction in budget deficits consistent with lowering the debt-to-GDP ratio in the medium term.
-A structural improvement in Tunisia’s current account deficit, leading to reduced external financing needs and stronger international liquidity buffers.

Key Assumptions: Fitch assumes continued financial support from the donor community in the form of large inflows from multilateral and bilateral lenders. (Fitch Ratings 17.11)

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11.10 TURKEY: Profile Balances Growth & Public Finances Against Political Risk & Vulnerability

Turkey’s (Ba1, negative) credit profile reflects its large and flexible middle-income economy, resilient growth and favorable demographics, Moody’s Investors Service said in an annual report on 17 November. The country’s key credit challenges include political risk and high external vulnerability. The research is an update to the markets and does not constitute a rating action.

“Although Turkey’s public finances have deteriorated marginally over the past year due to fiscal stimulus and the weaker lira, the country’s resilient economic growth and manageable government debt metrics continue to provide key credit anchors,” said Kristin Lindow, a Moody’s Senior Vice President and co-author of the report.

Public finances are a source of strength for Turkey’s sovereign creditworthiness. That said, fiscal outcomes will likely be challenged in an environment of rising global interest rates, already wider spreads and larger borrowing needs. Although Turkey’s stock of debt remains moderate at less than 30% of GDP, bigger fiscal deficits and associated borrowing have put the debt-to-GDP ratio on an upward path after more than a decade of steady decline.

Under Moody’s central scenario, the general government debt-to-GDP ratio is expected to stay below 30% in 2018. High nominal GDP growth – fed by rapid inflation – will largely offset heavy borrowing to finance wider budget deficits.

Turkey has a high susceptibility to event risk mainly driven by domestic political risks and the country’s large external financing needs due to wide current account deficits and sizeable external or foreign currency refinancing requirements. Balance-of-payments pressures constrain any upgrade in Turkey’s sovereign rating, as long as external imbalances and annual refinancing requirements remain large. However, upward rating pressure could follow structural reductions in these vulnerabilities or improvements in Turkey’s institutional environment or competitiveness.

Reduced political risk – while credit positive – would not result in rating upgrades without sustainable improvement in external vulnerability, although it could lead to a stabilization of the rating outlook.

Turkey’s sovereign rating could be downgraded if the probability of a balance-of-payments crisis were to rise. Such an event would likely be associated with some combination of a rapidly weakening exchange rate and a sharp reduction in foreign exchange reserves driven by shortfalls in funding the country’s wide external deficit.

Sustained lower growth and a related worsening in the government’s fiscal strength could also lead to a downgrade, as could a further erosion of institutional strength. The coherence of Turkey’s macro policy framework and the maintenance of fiscal and external stability will remain important drivers of sovereign creditworthiness. (Moody’s 17.11)

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11.11 TURKEY: Turkish Defense Industry Targeting South Asian Markets

Metin Gurcan wrote in Al Monitor on 16 November that leaders from the Middle East, Central Asia and the Far East are showing a lot of interest in Turkey’s defense companies. For example, Pakistani Prime Minister Shahid Khaqan Abbasi, during his recent visit to Ankara, personally participated in a test flight of a T-129 attack helicopter manufactured by Turkish Aerospace Industries (TAI). Pakistan is thinking of spending $1.5 billion to replace its worn-out Bell AH-1F and AH-1S Cobra attack helicopters with 30 T-129s from Turkey.

Technology transfer from TAI to Pakistan Aeronautical Complex (PAC) would allow for joint production. If Pakistan approves the deal (it is expected to by July), this will be the biggest single sale made by the Turkish defense industry. Also, Pakistan is closely interested in Hurkus trainer aircraft, also manufactured by TAI, and Anka drones.

Turkey’s search for markets in South Asia is not confined to Pakistan but includes Thailand, Malaysia, Indonesia, the Philippines and Vietnam. Turkish defense companies participated in the Bangkok Defense and Security Fair, held on 6 – 9 November, and touted T-129 helicopters, MILGEM Class corvette warships, armed and unarmed drones, Hurkus training aircraft and armored combat vehicles. It also promoted its weapons systems, rockets and missiles, border security solutions, night and thermal observation systems, radars, smart munitions and much more military hardware.

Low-intensity clashes in Thailand, Pakistan, the Philippines, Indonesia and Malaysia have made those countries aware of Turkey’s counterterror experience. Its locally manufactured weapons and systems are the kinds most needed in counterterror and counterinsurgency operations against violent non-state actors. There is particularly heavy interest in Turkey’s devices to counter roadside bombs, such as jammers and compressors, armed and unarmed drones, border surveillance systems, armored tactical vehicles and personnel carriers.

Today, Ankara is very pleased with the marketing success stories and sales of Turkish defense products abroad. Defense industry expert Arda Mevlutoglu underlined that the rapid expansion of Turkey’s defense industry increased export revenues; about 50% to 60% of these sales are part of offset agreements. Mevlutoglu said there are several factors driving Turkey’s increasing defense-industry footprint in the Asia-Pacific region. “First, social, cultural and religious commonalities help Turkey easily develop business, establish long-term relationships and build trust. Second, many Asian countries have ambitious regional goals that require strong and effective military capabilities. These countries seek advanced, high-quality military equipment with high standards and few, if any, political strings attached. Turkey, therefore, becomes an ideal source for such systems and solutions: It is a NATO member, meaning [it has] very high standards and requirements for platform design, manufacture, training, doctrine and operation,” Mevlutoglu told Al-Monitor.

One important thing that sets Turkey apart from its South Korean and Israeli rivals in the South Asia market is that Turkey’s entire range of defense products comply with NATO standards. Another factor that makes Turkey very competitive is Turkish companies’ willingness to agree to technology transfer and joint production. This openness encourages many South Asian companies, especially those new to the field that are looking for easy contacts and meetings, not companies that just sell their products off the shelf.

But Mevlutoglu underlines an important fact: “Turkey’s defense industry is currently at a cross roads: So far the industry has expanded rapidly and produced many impressive platforms and systems. Now the sector should enter the ‘sustainability phase’ in which it should manufacture, maintain, upgrade and export these products. Export of defense systems has never been a straightforward business: It is genetically infected with implications of political relations and also the effects of [technological] advances. Given that the Turkish defense sector can cope with these, the result is many impressive export successes.”

Mevlutoglu also stressed that for Turkey to be competitive globally, it must develop its human capital, significantly increase funds for research and development, and create a serious political vision. This sector is a business ecosystem that requires flexibility, long-term planning and continued focus on total quality. Putting effort into immediate export results might make Ankara smile for two or three years, but it can’t be the sole criterion for Turkey’s success in the defense industry.

Metin Gurcan is a columnist for Al-Monitor’s Turkey Pulse. He served in Afghanistan, Kazakhstan, Kyrgyzstan and Iraq as a Turkish military adviser from 2002 to 2008. After resigning from the military, he became an Istanbul-based independent security analyst. Gurcan obtained his PhD in 2016 with a dissertation on changes in the Turkish military over the preceding decade. (Al Monitor 16.11)

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11.12 TURKEY: Rising Oil Prices Add to Turkey’s Economic Woes

Mustafa Sonmez posted in Al-Monitor on 16 November that the increase in global oil prices and the depreciation of the Turkish lira are a bruising mix for Turkey, which heavily relies on imports to meet its energy needs.

Atop an inflation rate stuck at 11%, an urban unemployment rate above 13%, a current account deficit close to 5% of gross domestic product (GDP), a growing budget deficit and a rapidly depreciating currency, Turkey is now being hit by an increase in global energy prices coupled with a rise in prices for metals and minerals.

Turkey relies heavily on imports to meet its energy needs. The same goes for a number of raw materials. Turkey’s bill for them is now swelling, not only because of the price increases themselves, but also because of the Turkish lira’s deprecation, which makes the dollar more expensive. Crude oil imports, which represent the bulk of the bill, deserve a closer look.

The upward trend in oil and other commodity prices accelerated in the second half of the year under the impact of various political and economic factors. Among the factors driving oil prices are anticipation of expanded US economic growth through tax cuts, increased output by US refineries and corresponding increases in demand, strong demand from China and concerns over oil supplies fueled by the independence referendum in Iraqi Kurdistan. Tensions in Saudi Arabia, stirred by a roundup of royals accused of corruption and a ballistic missile attack on Riyadh, and a drop in the drilling-rig count in the United States have further compounded the trend.

Crude oil prices, as low as $44 per barrel in November 2016, began to rise in the ensuing months, reaching $55 in February. A reversal brought prices down to $46 in June. Since then, however, prices have shot up again, hitting $57 in September, $60 in October and $65 in November. This represents an increase of nearly 48% over 12 months. In addition to the advent of winter, a potentially stronger global growth trend could sustain the pace of the rise.

Other energy items, agricultural raw materials and industrial intermediate goods have seen similar price increases. For Turkey, the burden of higher prices is heavier due to the depreciation of the lira, which has slumped 12% against the dollar in the past two months alone. For the economy, this translates into a source of cost inflation and a tangle of serious problems. The impact on Turkey’s oil bill alone is already scary.

Turkey imports 25 million tons of crude per year, while producing only 2.6 million tons at home. Similarly, its gas output stands at only 400 million cubic meters per year, while its gas imports amount to 46.4 billion cubic meters.

Rising oil prices and the tumbling lira are a double blow for the Turkish economy. The country’s oil import bill swelled 36.5% in the first 10 months of the year, rising from $22 billion to $30 billion and accounting for more than half the increase in the foreign trade deficit this year. Besides its macroeconomic impact, the double blow bears directly on consumers, as evidenced by frequent gasoline hikes in recent weeks.

In terms of consumer prices, the year-on-year inflation in the transport sector stood at 16.8% in October, well above the overall inflation rate of 11.9%. For the first 10 months alone, the figures stood at 14% and 9.5%, respectively.

Rising prices for other energy items and metals and minerals stand as additional factors that could sustain the increase in both producer and consumer prices by adding to cost inflation in industrial output. This, in turn, will likely slow economic growth in the last quarter of 2017 and next year, exacerbating the country’s unemployment problem.

In terms of primary energy consumption in Turkey, natural gas accounts for 31% and crude oil for 30%. With the exception of lignite, the country has no significant wealth in terms of fossil fuels, and thus relies on imports to meet three-fourths of its total primary energy consumption. The reliance on foreign supplies is about 98% for natural gas and about 91% for oil, which represents a serious supply security risk.

Turkey’s energy bill fluctuates, of course, depending on global energy prices. Between prices falling in the first few years after the 2009 crisis and rising again by 2014, Turkey’s average energy bill stood at $53 billion per year. When prices dropped in 2015 and 2016, the bill decreased to $37 billion and $26 billion, respectively. In the first nine months of 2017, the bill had already reached $27 billion and is expected to hit at least $35 billion by the year’s end.

The increase in crude oil prices is immediately reflected in the price of fuel. The price of gasoline in Istanbul reached 5.6 lira ($1.40) per liter in mid-November and is expected to hit 6 lira fairly soon. For the first time, the cost of filling a tank reached 300 lira ($77.40, based on the exchange rate for Nov. 14). Taxes make up the bulk of the sale price. The government, in its economic program for next year, projects that revenues from a special consumption tax levied on petroleum and gas products will reach 63.3 billion lira in 2017, amounting to 2.1% of GDP.

While the hikes on fuel prices are not deferrable, the government can delay hikes on natural gas and electricity prices. In 2017, for instance, neither has seen an increase. The government’s 2018 program, however, signals change ahead. The relevant paragraph states, “In 2017, no hike has been made on the sale prices of natural gas and electricity due to the relatively low level of oil prices. … In 2018, public economic enterprises in the field of energy are planned to adopt pricing policies that will meet their costs in accordance with the changes in crude oil and exchange rates and thus continue their operations with a sustainable financial structure.” Hikes on gas and electricity are on the way.

Mustafa Sonmez is a Turkish economist and writer. He has worked as an economic commentator and editor for more than 30 years and authored some 30 books on the Turkish economy, media and the Kurdish question. (Al-Monitor 16.11)

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11.13 CYPRUS: Cyprus’s Balances Greater Economic Resilience Against High Debt

Cyprus’s (Ba3 positive) credit profile reflects recent improvements in the country’s economic resilience, robust growth momentum and strong fiscal performance, Moody’s Investors Service said in a new annual report. Cyprus faces credit challenges arising from its small and relatively undiversified economy, as well as high levels of government, banking and household debt.

“Cyprus’s growth momentum, coupled with strong fiscal performance, helped to reduce the country’s debt-to-GDP ratio in 2016 for the first time since 2008,” said Sarah Carlson, a Moody’s Senior Vice President and the report’s author. “We expect a decline in the debt-to-GDP ratio to close to 100% by the end of this year. “The country has regained capital market access and has a cash buffer, which will help to cover financing needs next year.”

Moody’s has raised its real GDP growth forecast for 2017 to 3.5% (from 2.7%), and for 2018 to 3.2% (from 2.5%), and expects a gradual moderation in growth. Although Moody’s expects household private debt servicing to result in a deceleration in the growth of private consumption, it is still likely to be the main driver of the ongoing expansion, supported by favorable developments in the labor market and the important tourism sector.

After the strong fiscal consolidation efforts realized in recent years, the government’s 2017-19 Medium Term Fiscal Plan assumes a broadly neutral fiscal stance, with a slight deterioration in the general government budget balance penciled in for 2018.

Moody’s projects a headline deficit of just 0.4% of GDP for 2017 and primary surpluses of around 2.1% of GDP through 2018, which will help support debt reduction. Moreover, the authorities project that the primary balance will remain in surplus over the medium-term, in the order of 2.5% in 2018 and 3.4% in 2019.

Cypriot government debt remains affordable, reflecting the very large share of official sector creditors in the total debt stock. Interest charges took up only 6.6% of general government revenue in 2016, down from a peak of 9.2% in 2013, and this is likely to stay just below 7% over the next two years.

In Moody’s central scenario, public debt will decline to around 92% of GDP by 2019. However, Cyprus’s debt metrics still remain vulnerable to a negative growth, fiscal or a combined shock scenario.

Cyprus is highly susceptible to event risk, reflecting the significant risks that remain in the banking sector. The main rated Cypriot banks have very low stand-alone ratings and the banking sector remains large. However, the stability of the country’s financial sector and bank balance sheets has been bolstered through increased capital buffers, the sale of non-core activities overseas and improvements in bank funding profiles. Nevertheless, uncertainties remain over the strength of the banking sector, given the very high NPL ratios across both household and corporate loan books.

The positive outlook on Cyprus’s sovereign rating reflects Moody’s view that improvements in economic resilience and fiscal strength are likely to be sustained. (Moody’s 27.11)

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Fortnightly, 29 November 2017

Fortnightly, 29 November 2017

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