THE FORTNIGHTLY
A Review of Middle East Regional Economic & Cultural News & Developments
5 February 2020
10 Shvat 5780
11 Jumada Al-Akhirah 1441
Written & Edited by Seth J. Vogelman*
TABLE OF CONTENTS:
1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
1.1 Israel Securities Authority Considering Allowing Bonds to Dual List
2: ISRAEL MARKET & BUSINESS NEWS
2.1 Microsoft to Launch New Cloud Datacenter Region in Israel
2.2 Vicarius Raises $5 Million to Protect Apps & Assets Against Vulnerabilities
2.3 ServiceNow Acquires Israeli Startup Loom Systems
2.4 Ubeya Raises $3.5 Million to Simplify the Process of Managing Hourly Staff
2.5 Andersen Global Announces Collaboration with Lipa Meir & Co.
2.6 Nuweba Increases Seed Funding Round to $10.2 Million
2.7 Comtech to Acquire Gilat Satellite Networks for $532.5 Million in a Strategic Transaction
2.8 SeAH Group Invests in Assembrix for Distributed Additive Manufacturing
2.9 Siemens Venture Arm Next47 Opens Israel Office
2.10 Iguazio Raises $24 Million for AI Development and Management Tools
2.11 Pecan Comes Out of Stealth, Secures a Total of $15 Million in Funding
3: REGIONAL PRIVATE SECTOR NEWS
3.1 Basma Secures $1.2 Million in Seed Funding
3.2 Sarwa Raises $8.4 Million in Series A Funding Round
3.3 Kitopi Raises $60 Million and Expands its Cloud Kitchen Services
3.4 The UAE’s First WeWork Officially Opens
3.5 Saee Raises $2.4 Million in Series A Funding
3.6 Homzmart Raises $1.3 Million Seed Funding from Regional Investors
3.7 elmenus Raises $8 Million from Global Ventures and Algebra Ventures
3.8 Greek Supermarket Turnover Increased in 2019
4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS
4.1 NEOM Adopts Pioneering Solar Dome Technology for Sustainable Desalination Project
5: ARAB STATE DEVELOPMENTS
5.1 Lebanon Central Bank Governor Says $1 Billion Transferred Abroad Since October
5.2 IMF Agrees to a $1.3 Billion Aid Package for Jordan
►►Arabian Gulf
5.3 GCC Medical Costs Set to Outpace Inflation by Over 300%
5.4 UAE Announces Major New Gas Discovery in Abu Dhabi & Dubai
5.5 Etihad Rail Launches Construction of Stage 2 of UAE-Wide Railway
5.6 Sharjah Makes its First Onshore Natural Gas Discovery in Over 30 Years
5.7 Oman Considering Introduction of VAT in 2021
5.8 Saudi Arabia Issues $5 Billion in Bonds to Meet Budget Deficit
►►North Africa
5.9 Positive Macro-Economic Indicators gave Egypt’s Economy a Boost in 20195.10 Morocco Votes to Consolidate Maritime Sovereignty off Atlantic Coast
5.11 Morocco’s Public Debt Amounts to MAD 901.1 Billion, Loans Reach MAD 968 Billion
6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS
6.1 Cyprus Wins Back UK Halloumi Trademark
6.2 NPLs are the Greek Economy’s Weakest Link
6.3 Greece Expects Tourism Growth This Year Despite Bumpy 2019
7: GENERAL NEWS AND INTEREST
7.1 Appalachian State University Delegation Visits AURAK8: ISRAEL LIFE SCIENCE NEWS
8.1 ELSE Nutrition Receives Notice of Allowance from U.S. Patent Office
8.2 IM Cannabis Enters into Joint Venture Agreement in Greece
8.3 Canonic & Hadassah Pre-Clinical Studies to Develop Canonic’s Medical Cannabis Products
8.4 Lumenis Launches the New LightSheer QUATTRO – Laser Hair Removal Platform
8.5 AI-System Flags the Under-Vaccinated in Israel
8.6 Israel’s First Ever Cannabis Export Completed as LYPHE Group Imports Into the UK
8.7 Clarifruit Raises $6 Million
8.8 TAU & Harvard Researchers Build Human ‘Body-On-Chips’ To Better Predict Drug Response
8.9 Serenno Medical Continuous Monitoring of Kidney Function of Hospitalized Patients
9: ISRAEL PRODUCT & TECHNOLOGY NEWS
9.1 BigID’s New Discovery-in-Depth Technology Gives Unmatched Data Intelligence for Privacy
9.2 Perception Point Next-gen Internal Email Security Protects from In-house Threats
9.3 Foresight’s QuadSight Vision System Wins 2020 BIG Innovation Award
9.4 Cyberbit Range Comes to the Cloud
9.5 BGU Researchers Introduce the First All-Optical, Stealth Data Encryption Technology
9.6 Iguazio Deployed by Payoneer to Prevent Fraud with Real-time Machine Learning
9.7 Radiflow & Fraunhofer Institute Joint Research on Applying AI to Industrial Cybersecurity
9.8 vHive’s New AI Driven Capabilities Accelerates Tower Inspections Worldwide
9.9 infiniDome Introduces GPS Cyber Protection Tailored for Commercial and Consumer Vehicles
10: ISRAEL ECONOMIC STATISTICS
10.1 Israel’s Composite State of the Economy Index for December 2019 Increased by 0.3%
10.2 Unemployment in Israel Falls to a New Low
11: IN DEPTH
11.1 LEBANON: A Storm of Imperfection
11.2 JORDAN: IMF Reaches a Staff-Level Agreement on a Four-Year Extended Fund Facility
11.3 KUWAIT: Staff Concluding Statement of the 2020 IMF Article IV Mission
11.4 SAUDI ARABIA: Saudi Arabia e-Commerce Market to Reach Nearly $24 Billion by 2026
11.5 EGYPT: Greenback Weakening in Egypt as the Economy Improves
11.6 TUNISIA: The Risks to Democracy
11.7 GREECE: Fitch Upgrades Greece to ‘BB’; Outlook Positive
1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
1.1 Israel Securities Authority Considering Allowing Bonds to Dual List
Dual listing is an arrangement that enables companies listed on foreign stock exchanges to also be listed on the Tel Aviv Stock Exchange (TASE) on the basis of their reports in compliance with the foreign law that applies to them. This arrangement, which has already existed for 20 years, was originally designed to attract Israeli companies listed on Wall Street to have themselves simultaneously listed on the TASE. The arrangement is now broader than it was initially, and will further expand in the future.
The Israel Securities Authority regards dual listing as one of its main growth engines for developing the capital market in Israel. A number of measures taken in recent years or taking place now are slated to extend the incidence of dual listing. The aim is to increase the dwindling trading turnovers on the TASE. In 2019, the average daily turnover on the TASE was NIS 1.28 billion, 10% less than the daily average in the two preceding years.
For the local capital market, the number of stock exchanges relevant to dual listing has grown in recent years. Among other things, a reciprocal dual listing agreement was signed for the first time, in which local companies can be listed on the Singapore Stock exchange and report according to Israeli law, and foreign REIT funds were allowed to be dual-listed on the TASE.
As of now, there are 56 dual-listed companies on the TASE, half of which are included in the Tel Aviv 125 Index. These dual-listed companies account for 30% of trading turnover on the TASE, showing their importance for the local stock exchange. 40% of the trading in those shares takes place on the TASE.
The Securities Authority is now considering a new possibility – dual listing in Israel of bonds. This means that companies with bonds listed on certain stock exchanges will be able to list the bonds for trading on the TASE and report according to the law applying to them on the foreign stock exchange. Such a step has interesting potential for increasing the number of companies traded on the TASE. (Globes 30.01)
2: ISRAEL MARKET & BUSINESS NEWS
2.1 Microsoft to Launch New Cloud Datacenter Region in Israel
On 21 January, Microsoft announced plans to establish the company’s first cloud region in Israel to deliver its intelligent, trusted cloud services through a local datacenter region. This investment expands the Microsoft global cloud infrastructure to 56 cloud regions in 21 countries, with the new Israel region anticipated to be available starting with Microsoft Azure in 2021, with Office 365 to follow. The new Israel region will adhere to Microsoft’s trusted cloud principles and become part of one of the largest cloud infrastructures in the world, already serving more than a billion customers and 20 million businesses.
Azure is an ever-expanding set of cloud services that offers computing, networking, databases, analytics, and Internet of Things (IoT) services. The investment in a new Israel datacenter region will enable customers to use the most advanced technologies and adhere to data residency requirements to store data within Israel. Microsoft’s cloud services are also compliant with the European Union’s General Data Protection Regulation (GDPR) and are certified for an industry-leading portfolio of international security and privacy standards. Azure will enable the local Israeli ecosystem to build on the latest advancements in the cloud, helping organizations drive their digital transformation. Office 365, the cloud-based productivity solution, will be available from the new datacenter region, helping customers enable the modern workplace and empower their employees with real-time collaboration and cloud-powered intelligence while maintaining security, compliance, and in-country customer data residency.
Establishing new datacenter regions entails significant investment of resources and reinforces the continuous commitment of Microsoft to the Israeli market. The company started its journey in 1989 in Israel by opening a local branch. In 1991 Microsoft established its Israeli R&D center – its first R&D center outside of the US – one of the first major tech companies to do so in Israel. In addition, 2020 will include another key investment in the local market with the launch of a new Microsoft Israel campus. Microsoft has deep engagement with the Israeli tech ecosystem – it operates a business branch, an R&D Center, a Venture Capital Fund and Microsoft for Startups programs. (Microsoft 22.01)
2.2 Vicarius Raises $5 Million to Protect Apps & Assets Against Vulnerabilities
Vicarius announced the closing of a $5 million funding round led by JVP (Jerusalem Ventures Partners), with the participation of Innogy Ventures and Goldbell Investments. This seed investment provides the capital injection needed to continue the design and development of many great Vicarius products like TOPIA. With today’s institutions thwarting thousands of cyberattacks each year, it isn’t hard for data miners to catch a break in 2020. Today, the ugly truth facing most companies is that their most firmly guarded digital assets –– including millions of bytes of customer data –– are actually at risk. This is the pillar Vicarius was founded on: a mission to help protect the most sensitive pieces of data from getting into the wrong hands.
Founded in 2016, Jerusalem’s vicarius protects clients against exploitation of yet-to-be-discovered software vulnerabilities. The Vicarius powered platform, called Topia, enables companies to predict, prioritize and protect against software vulnerabilities before they can be exploited by hackers. Vicarius begins by identifying vulnerabilities within clients’ digital environment using a proprietary binary code analysis methodology. It then prioritizes these vulnerabilities, building a live threat map of the organization’s infrastructure, using asset context analysis. Lastly, a shim layer is deployed to protect software from identified vulnerabilities by limiting access to its exploitable code in real-time. Topia is live and already protecting dozens of organizations worldwide.
Vicarius’ Topia clients enjoy a complete and automatic solution for the secure management of any software services in their network – shattering the common paradigm of software being treated as “safe” – until a vulnerability is exposed. This new mind shift allows organizations to protect any software without involving the vendor or even their own IT teams. (Vicarius 22.01)
2.3 ServiceNow Acquires Israeli Startup Loom Systems
Santa Clara, California’s ServiceNow announced on 22 January that it signed an agreement to acquire Loom Systems, a Tel Aviv based AIOps company. The transaction will extend ServiceNow’s AIOps capabilities, giving customers deeper insights into their digital operations so they can prevent and fix IT issues at scale before they become problems. Loom Systems was founded in 2015 and has raised $16 million to date in funding rounds led by Jerusalem Venture Partners (JVP), along with investments from Meron Capital, Global Brain and Flint Capital. Loom Systems also has offices in San Francisco and JVP’s International Cyber Center in New York City.
Loom Systems extends ServiceNow’s IT Service Management (ITSM) and IT Operations Management (ITOM) solutions, which help companies unlock productivity and drive operational efficiency on a single platform. With Loom Systems, ServiceNow will increase customers’ ability to apply AI to their knowledge base of issues and fixes for better insights into root causes and allow them to automate remediation tasks, reducing the number of Level 1 IT incidents. (ServiceNow 22.01)
2.4 Ubeya Raises $3.5 Million to Simplify the Process of Managing Hourly Staff
Ubeya announced its $3.5 million financing round led by ICV VC and joined by Cornerstone. They join existing investor Magma VC, bringing the total amount of venture capital raised to date to $5M. Ubeya was launched in 2017, and is currently used by businesses – including event venues, catering companies, hospitality organizations, staffing agencies, stadiums, promotional businesses and retailers – to source, schedule, manage and pay gig workers. Ubeya’s workforce management platform is designed for companies that rely on hourly staff at the core of their operation. For this type of business, it can be extremely challenging to manage or oversee the performance of a diverse event-based workforce. The Ubeya platform connects all parties, helping businesses book, track, monitor and reward their hourly staff.
Tel Aviv’s Ubeya is an all-in-one platform providing an incomparable solution for scheduling and management for businesses working with temporary or hourly staff (event-based industries, catering, venues, hotels, staffing agencies and promotional companies). Their software is both web and mobile friendly to allow maximum efficiency and convenience. They automate scheduling, communication and workforce management for businesses of all sizes. (Ubeya 23.01)
2.5 Andersen Global Announces Collaboration with Lipa Meir & Co.
San Francisco based Andersen Global has entered into a collaboration with Lipa Meir & Co., one of the most established and reputable law firms in Israel, adding dimension to the organization’s existing presence in the Middle East. Lipa Meir & Co., founded in 1987, is comprised of more than 80 legal professionals that specialize in a variety of legal services including corporate law, M&A, litigation & dispute resolution, antitrust & competition, banking & finance, energy & infrastructure, capital markets & securities, project finance, cleantech & clean energy, healthcare & life sciences, high-tech & technology, and real estate. The firm has also been consistently recognized by global legal directories, including Chambers and Partners, Legal 500, IFLR1000 and WTR.
Andersen Global is an international association of legally separate, independent member firms comprised of tax and legal professionals around the world. Established in 2013 by U.S. member firm Andersen Tax LLC, Andersen Global now has nearly 5,000 professionals worldwide and a presence in over 167 locations through its member firms and collaborating firms. (Andersen Global 28.01)
2.6 Nuweba Increases Seed Funding Round to $10.2 Million
Nuweba announced an expanded seed funding round of $10.2 million led by Blumberg Capital with participation from Magma Partners and Target Global. Nuweba is pioneering development of the next wave of serverless platforms, and plans to use the new funds to support further technological development of the platform and build a variety of solutions on top of it. Nuweba is bringing serverless technology to the forefront of cloud computing, producing a solution with enhanced speed and unmatched application security and visibility. Nuweba technology enables companies to use serverless for user-facing applications, mission critical and other core workloads, all without having to leave the companies’ current ecosystem or change code or configuration.
Less than a year after emerging from stealth in February 2019, Nuweba became the first serverless platform to support the use of graphics processing units (GPUs). Recognizing a market need for a high-speed serverless option, Nuweba is bringing serverless to the mainstream with the most optimal architecture for AI/ML use cases.
Tel Aviv’s Nuweba re-architected serverless from the kernel up to enable companies to use serverless for applications that require scalability, high performance, advanced application security and deep visibility in real-time. Their fast and secure FaaS platform is compatible with leading serverless platforms, so you can start using Nuweba with only one click and without any changes to your code or configuration. (Nuweba 28.01)
2.7 Comtech to Acquire Gilat Satellite Networks for $532.5 Million in a Strategic Transaction
Comtech Telecommunications Corp. and Gilat Satellite Networks jointly announced that Comtech has agreed to acquire Gilat in a cash and stock transaction for $10.25 per Gilat ordinary share of which 70% will be paid in cash and 30% in Comtech common stock, resulting in an enterprise value of approximately $532.5 million.
Both companies’ talented global workforces are expected to remain in place and focus intently on meeting all customer commitments and expectations, including supporting all existing products, services and agreements. The transaction enlarges Comtech’s global market footprint with a significant physical presence in key international markets. This increased presence addresses a growing need for local touch points that can offer integrated secure connectivity solutions including public safety and location solutions. At the same time, Gilat will gain access to Comtech’s strong relationships with the U.S. government, allowing expanded distribution of Gilat’s products and solutions to the U.S. government. As such, Comtech believes the transaction carries minimal integration risk while creating numerous opportunities for potential long-term revenue and efficiency synergies going forward.
Post-closing of the transaction, Gilat will become a wholly owned subsidiary of Comtech and will maintain its well renowned and highly regarded brand. Gilat will continue to maintain its corporate headquarters and research and development facility in Petah Tikva, Israel.
Petah Tikva’s Gilat Satellite Networks is a leading global provider of satellite-based broadband communications. With 30 years of experience, Gilat designs and manufactures cutting-edge ground segment equipment, and provides comprehensive solutions and end-to-end services, powered by Gilat’s innovative technology. Delivering high value competitive solutions, Gilat’s portfolio comprises of a cloud based VSAT network platform, high-speed modems, high performance on-the-move antennas and high efficiency, high power Solid State Amplifiers (SSPA) and Block Upconverters (BUC). (Comtech 29.01)
2.8 SeAH Group Invests in Assembrix for Distributed Additive Manufacturing
Korea’s SeAH Group has invested in Israeli software company Assembrix that enables organizations to securely manage and control their distributed additive manufacturing activities. Assembrix’s VMSÔ (Virtual Manufacturing Space) creates a virtual platform that represents and connects to physical 3D printers in multiple locations and gives the user full control over the 3D printing process. SeAH is a Korea based company operates in the steel sector. The company is manufacturing special steel raw materials and products used in a wide range of industries from automotive and machinery to shipbuilding and construction.
Tel Aviv’s Assembrix developed a cloud-based platform that virtualizes industrial 3D printing enabling simpler, secured and more efficient process. It oversees the entire additive-manufacturing thread from the initial part model to the verified physical part and beyond. The platform enables to allocate and monitor manufacturing spaces of industrial 3D printers to multiple in-house users or external clients, leading to a fully automated and self-controlled process, higher utilization of the printers and higher ROI. (Assembrix 29.01)
2.9 Siemens Venture Arm Next47 Opens Israel Office
Next47, the venture arm of German industrial manufacturing giant Siemens, has announced the launch of its Israel operations during an official inauguration event at its new offices in Herzliya. Next47, which has 8 office worldwide, invests in and partners with startups that use deep technologies, such as artificial intelligence, augmented and virtual reality, cybersecurity, autonomous driving, Internet of Things (IoT), robotics, and advanced manufacturing, to solve the most difficult and fundamental industry challenges.
The fund has already been active in the Israeli market, having invested in startups such as Bringg, the logistics management and delivery platform; Bizzabo, the cloud marketing and conference-management platform developer; and Logz.io, the machine data analytics platform. (Globes 29.01)
2.10 Iguazio Raises $24 Million for AI Development and Management Tools
Iguazio announced that it has secured $24 million in a funding round led by INcapital Ventures with participation from existing and new investors including Samsung SDS, Kensington Capital Partners, Plaza Ventures, and Silverton Capital Ventures, bringing its total raised to around $75 million following a $33 million series B in July 2017.
Iguazio’s product suite collects data and preps it offline or offline, accelerating and automating AI model training for deployment via APIs. Event-driven streaming, time series, NoSQL, SQL, and files are among the types supported, which can be explored and manipulated by a real-time data layer that lets admins use a variety of protocols and concurrently read the data with third-party analytics and data science frameworks.
Nuclio, Iguazio’s open source serverless framework, streamlines machine learning pipeline steps like packaging, scaling, tuning, instrumentation, and continuous delivery with features like rolling upgrades, A/B testing, logging, and monitoring. Its MLRun open source framework parallelizes work within a single pod by wrapping engines around tools like Spark, Google’s Tensorflow, Horovod and Nuclio, and it handles a range of triggers including HTTP and cron.
The Iguazio suite — which runs as in-memory databases on flash memory — continuously trains models in a production-like multi-cloud or hybrid cloud environment, dynamically scaling graphics cards, processors, and memory and automatically tracking code, metadata, inputs, and outputs of executions in a reproducible fashion. (Admins can track the elements of all running jobs as well as historical jobs and store them in a single report.) The platform can run multiple experiments simultaneously and select the best model, and it facilitates the migration of this model from an integrated development environment to production.
Herzliya’s Iguazio provides a Data Science Platform to automate machine learning pipelines. It accelerates the development, deployment and management of AI applications at scale, enabling data scientists to focus on delivering better, more accurate and more powerful solutions instead of spending their time on infrastructure. (Iguazio 27.01)
2.11 Pecan Comes Out of Stealth, Secures a Total of $15 Million in Funding
Pecan.ai (Pecan), an AI-powered predictive analytics platform provider, has launched out of stealth. The startup has received a total of $15 million in funding, led by Dell Technologies Capital and S Capital. Pecan’s proprietary platform uses deep learning (neural networks) and machine learning to make predictive analytics 10 times faster than any alternative, and without requiring prior data science knowledge. The capital raised will allow Pecan to expand its business worldwide. The company plans to double its workforce in the coming year.
The Pecan platform provides state-of-the-art prediction technologies for a wide range of business use cases, including prediction of demand, churn, customer lifetime value, upsell potential, segmentation, pricing and promotions optimization, fraud and anomaly detection and more. Pecan equips data and business analysts with data science capabilities. Customers have reported radical outcomes from using the platform, such as the ability to increase revenues by millions of dollars through sales and marketing optimization, quickly build predictive models within days, and with no prior data science knowledge, predict outcomes of alternative business scenarios and leverage these predictions for direct improvements to their bottom line and save millions of dollars by preempting churn or fraud-related instances
Tel Aviv’s Pecan is an AI-powered automated predictive analytics platform that simplifies and speeds the process of building and deploying predictive models in various customer-journey and operational use-cases. Pecan does not require any data preparation, engineering or prepossessing, it connects directly to raw data, and uses neural networks to automate the entire predictive process. With Pecan, organizations with no prior data science experience can obtain and deploy AI models in days. (Pecan.ai 28.01)
3: REGIONAL PRIVATE SECTOR NEWS
3.1 Basma Secures $1.2 Million in Seed Funding
Basma, the Beirut-based digital dental startup, secured $1.2 million in a seed funding round, allowing access to simple and affordable orthodontics in the MENA region. This financing round was led by prominent Beirut-based VC firms, B&Y Venture Partners and Cedar Mundi Ventures, with the joint participation from iSME and various business angels. Basma is a direct-to-consumer healthcare brand that wants to give customers straighter and brighter teeth. It’s a digital health company founded on the belief that affordable dental care should be accessible to everyone.
Basma believes aligners are the best alternative to braces. By changing the distribution channel and putting everything online, Basma cuts the treatment cost by up to 65%. Patients are constantly connected to doctors on our advanced telemedicine platform and are able to receive the treatment kit that will have a series of clear custom fitted aligners, straight to their homes. The funds will further push Basma’s tech base and fuel expansion in the MENA region. (Basma 27.01)
3.2 Sarwa Raises $8.4 Million in Series A Funding Round
Dubai’s Sarwa has raised more than $8.4 million in a Series A funding round, with a variety of new and existing investors participating in the round. The round was led by Kuwait Projects Company Holding (KIPCO), and was joined by investors such as the Dubai International Financial Center (DIFC), Abu Dhabi Investment Office (ADIO), 500 Startups, Saudi Arabia-based Vision Ventures, UK-based Hambro Perks, as well as existing investors that were part of the previous rounds such as Shorooq Partners, Hala Venture Capital, Phoenician Funds and Mindshift Capital.
Through this new funding round, Sarwa looks to strengthen its position in the UAE, and working on further progressing with its expansion plan. Including this funding round, Sarwa has raised more than $10 million, according to MAGNiTT data. Founded in December 2017, the startup has month-over-month growth of over 20%, with 10,000 users registered currently.
The round was also joined by venture capital firms 500 Startups and Shorooq Partners, two of the most active investors in UAE-based startups according to MAGNiTT data. Sarwa is one of the first robo-advisories that has consistently shown potential in delivering results. Investors have been impressed by Sarwa’s achievements since the seed round and are pleased to support their business growth in 2020 and beyond. (Sarwa 22.01)
3.3 Kitopi Raises $60 Million and Expands its Cloud Kitchen Services
Kitopi has raised $60 million, closing its Series B round of funding. The round was led by Knollwood and Lumia Capital with further participation from new and existing global investors, namely BECO, CE-Ventures, GIC, Rise Capital, Reshape, Global Ventures and Wilshire Lane Partners.
Kitopi’s platform is unique in the industry as it provides restaurants with access to state-of the-art infrastructure at a minimal capital expenditure, Kitopi’s expertly-trained staff and industry focused technology. A large part of Kitopi’s competitive advantage is their in-house suite of applications (collectively known as a smart kitchen operating system – SKOS) which optimize all aspects of kitchen operations in real time to maximize efficiency and increase utilization. In addition, Kitopi caters to the entire customer experience journey from the call center to delivery, allowing restaurant owners to focus on running their dine-in space, marketing and menu development.
Kitopi currently operates 30 kitchens across the US, UAE, KSA, UK and Kuwait, and will look to continue its expansion into both new and existing markets. Building on its current success, it plans to expand with 50 more locations in the US and 100 globally in 2020. Kitopi is currently partnered with more than 100 restaurants – including internationally recognized brands such as Operation Falafel, Pizza Express, Right Bite and UNDER500 to name a few.
Founded in January 2018, Dubai’s Kitopi aims to power the food economy by revolutionizing the way people can access food. Restaurant owners are able to focus on running their restaurants while Kitopi takes care of all aspects of operations, ensuring that meals are delivered fresh and quickly to customers who order via third party food delivery apps. (Kitopi 03.02)
3.4 The UAE’s First WeWork Officially Opens
Hub71, Abu Dhabi’s tech ecosystem, officially launched WeWork x Hub71 – three floors of workspace offering 1,200 desks for members to innovate, collaborate and connect – in the award-winning international financial center, Abu Dhabi Global Market, located on Al Maryah Island, Abu Dhabi. The grand launch event was attended by Hub71’s strategic partners, senior government officials, WeWork x Hub71 members, corporate leaders, and global startups – all brought together under the theme: A Decade Ahead: Abu Dhabi’s Global Tech Ecosystem.
The building is WeWork’s first location in the UAE and its first members moved in earlier this month, including Hub71’s global community of startups, venture capitalist firms and tech accelerators. Adding to the growing community, it was announced that four new innovative startups – Jordanian company Rizek, UAE-based fintech companies Sarwa, Denarii Cash and US-based Securrency, a New York founded pioneer of blockchain technology – have been admitted into the Hub71 Incentive Program, bringing the total number of startups at Hub71 to 39. (WeWork 03.02)
3.5 Saee Raises $2.4 Million in Series A Funding
Saee, a Jeddah-based startup providing last-mile delivery through freelancers, announced the completion of a SAR 9 million ($2.4 million) Series A round of funding to fuel local expansion. The round was led by Saudi Arabia-based Business Incubators and Accelerators Company (BIAC), TasHeel Holding and Abunayyan Holding’s investment arm ABN Ventures.
The innovative service platform is a key area of focus for Saee, which will enable micro and small e-commerce platforms in the Kingdom to serve their clients better and faster. The new funding will further allow the company to capitalize on its position as a leader in the freelancer-based last-mile delivery industry in the region. With more than 1,000 active drivers on its platform, and over 50% of them being Saudis, Saee is providing an additional revenue stream to the many households in the Kingdom, in line with the Vision 2030 program.
The company was first known as “Kasper Cab,” a freelancer platform that focused on providing transport to working women between their homes and workplaces. In December 2017, the company built upon its network of freelancers and pivoted to last-mile deliveries for e-commerce platforms. Today, Saee delivers more than 5,000 shipments a day from 10 different dispatch centers across the Kingdom. (Saee 26.01)
3.6 Homzmart Raises $1.3 Million Seed Funding from Regional Investors
Homzmart, a Cairo-based furniture marketplace, announced that it has raised $1.3 million in seed funding from MSA Capital, Oman Technology Fund (OTF), EquiTrust (Choueiri Group Investment), with participation from 500 Startups among other strategic investors. Homzmart is an e-commerce marketplace that connects home furnishing manufacturers and vendors with customers, selling furniture online. Homzmart aims to focus on the home furnishing sector in MENA region. The platform showcases different designs to help customers personalize their ideas and vision for their home, and bring it to a reality, a feature the founders see as an important part of the furniture purchasing decision.
For customers, Homzmart will build a unique experience that enables customers to confidently shop for their furniture online. The marketplace helps customers choose from thousands of SKUs and sellers on its platform. This is something that is not convenient to do if you are buying offline as the process of shopping furniture offline is extremely time consuming, lacks variety, has limited accessibility and doesn’t enable customers to compare prices. Homzmart said it their first fund to scale their technology, enhance the customer purchasing experience, grow their selection and hire great talents. (Homzmart 03.02)
3.7 elmenus Raises $8 Million from Global Ventures and Algebra Ventures
Ciro’s elmenus, the leading food-tech startup based in Egypt focusing on personalizing food recommendations to users at the dish-level through digitized restaurant menus, reviews and photos via its online food discovery and ordering platform (app and website), has raised its Series B funding. The round was led by Global Ventures, a UAE-based venture capital fund focused on enterprise technology solutions across the Middle East and Africa region, and Algebra Ventures, the leading technology venture capital firm in Egypt, with participation from Tarek Sakr and Hamad Al Homaizi, who are both prominent entrepreneurs having partially exited 4Sale, the leading Kuwait-based classifieds platform to NBK Capital last year.
The online food delivery space is a massively untapped market in Egypt, where only 4% of total food delivery orders are currently processed online, and the main competition is with phone orders. Through its AI-powered food recommendation engine and fully automated online ordering platform, elmenus is well positioned to disrupt and dominate the online food delivery space. The company has built strong brand equity in the market due to its popularity in the food discovery segment in both dine-out and delivery channels. Last year, elmenus also launched the ability for users to order food online through its platform, and subsequently, its own fleet service, in order to effectively serve over 1 million users across Cairo and offer a complete dining experience. (Global Ventures 04.02)
3.8 Greek Supermarket Turnover Increased in 2019
Greek supermarket turnover posted an annual increase in 2019, albeit less than in previous years, according to IRI Hellas researchers. Provisional estimates for 2020 sales are even more pessimistic, which market analysts attribute to the fact the disposable income has not yet improved significantly, as well as to the aging population. According to IRI Hellas figures, the sales of fast-moving consumer goods (those bought and consumed faster) reached about €5.44 billion last year, up 1.7% from €5.35 billion in 2018. These commodities – packaged food, laundry detergents, domestic cleaning and personal hygiene products – constitute the biggest share of supermarket sales.
Adding products sold in bulk, such as fruit, vegetables, meat and fresh fish, then the increase in the value of sales in 2019 came to 2.4% from 2018. However, this is mainly due to the rise in the price of meat and not to the increase in sales volume. Even so, the yearly growth rate in sales was lower last year than in 2018, when it had come to 2.7%. (eKathimerini 30.01)
4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS
4.1 NEOM Adopts Pioneering Solar Dome Technology for Sustainable Desalination Project
NEOM announced on 29 January that it will adopt pioneering solar technology to produce low cost, environmentally friendly water, strengthening NEOM’s reputation as an emerging hub for innovation and conservation. The company has signed an agreement with U.K.-based Solar Water Plc. to build the first ever “solar dome” desalination plants in NEOM, located in northwest Saudi Arabia. The pilot project promises to revolutionize the water desalination process, helping solve one of the world’s most pressing problems – access to fresh water. Work on the first “solar dome” will begin in February and is expected to be completed by the end of 2020.
At an estimated $0.34/m3, the cost of producing water via “solar dome” technology will be significantly lower than desalination plants using reverse osmosis methods. The technology will also significantly reduce the impact on the environment by producing more concentrated brine, a potentially harmful byproduct of the water extraction process. The “solar dome” desalination process, which can also operate at night due to the stored solar energy generated throughout the day, will reduce the total amount of brine that is created during the water extraction process. Typically, the high salt concentration in brine makes it more difficult and expensive to process. The solar dome process helps prevent any damage to marine life as no brine is discharged into the sea.
NEOM, the flagship project of Saudi Arabia’s post-oil diversification plan, is being built on a 26,500 km2 area in northwestern Saudi Arabia. It offers unique investment opportunities in economic sectors and real-estate development. (NEOM 29.01)
5: ARAB STATE DEVELOPMENTS
5.1 Lebanon Central Bank Governor Says $1 Billion Transferred Abroad Since October
On 30 January, the governor of Lebanon’s central bank said that $1 billion had been transferred out of the country, despite tight restrictions on withdrawals as the protest-hit country faces a liquidity crisis. Governor Riad Salameh said that of the $1.6 billion that was withdrawn (from the Lebanese banking sector) between 17 October and the end of the year, one billion dollars were transferred abroad by Lebanese. The other $600,000 that were taken out of Lebanese banks during the period in question were capital deposits held by foreign banks
Since 17 October, Lebanon has been rocked by an unprecedented protest movement against an entrenched political class seen as corrupt and incompetent. The protests coincided with an increasingly crippling shortage of dollars, prompting banks to impose tight restrictions on withdrawals and transfers overseas. Protesters have accused bankers of complicity with the political class and suspect politicians of transferring funds abroad despite the restrictions and a prolonged local bank closure when protests first broke out. (Various 31.01)
5.2 IMF Agrees to a $1.3 Billion Aid Package for Jordan
The IMF announced on 30 January that Jordanian officials reached an agreement with the International Monetary Fund on a $1.3 billion, four-year aid program to help authorities stabilize the economy. The loan, which must be approved by the board of the Washington-based crisis lender, will help the government bring down public debt and spending gradually while supporting economic growth, as the country hosts an influx of Syrian refugees. The government program is focused on enhancing the conditions for more inclusive economic growth, particularly in light of the challenges posed by ongoing regional conflict and uncertainty. That includes steps to reduce tax evasion and improve the investment climate, while boosting growth. Among the key reforms the government will reduce electricity prices for businesses and shift household subsidies to benefit those who need it. In addition, the authorities will introduce measures to help young people and women enter the labor force. GDP growth is projected to reach 2.1% in 2020 and increase gradually in the coming years to 3.3%. Inflation will remain subdued in 2020, at under 1%, but is expected to rise 2.5% over the next few years. Various 31.01)
►►Arabian Gulf
5.3 GCC Medical Costs Set to Outpace Inflation by Over 300%
Medical costs are set to continue to outpace general inflation by close to three times, with the regional average expected to be 13.6% in 2019, according to the Mercer Marsh Benefits Key Medical Trends report. This is anticipated to grow to 14% in 2020, the report said, adding that as the cost of delivering health benefit programs rises across the region, employers are working to develop smarter healthcare plans and embrace wellness and preventive medicine.
It added that regionally, the top three health risk factors influencing medical costs are respiratory conditions, diseases of the circulatory system and endocrine and metabolic diseases. Type 2 diabetes remains a significant concern across the Middle East, with Saudi Arabia having the highest prevalence of the condition (31.6%) followed by Oman (29%), Kuwait (25.4%), Bahrain (25%), and the UAE (25%).
With several countries in the region looking to introduce mandatory healthcare regimes, employers will need to combat the over-use of benefits and the under-use of primary care, the report added. The report noted that the commercialization of the hospital sector, together with the increasing availability of healthcare is driving an uptake in healthcare services and the resulting costs. Employers face a challenge in balancing the cost of healthcare provision with the quality needed to meet regulatory standards and employee needs, it went on to say. It claimed the top three causes for the increasing costs the region faces are the over prescribing of low-value health tests and procedures, high cost pharmaceuticals and overly lengthy inpatient stays. (AB 27.01)
5.4 UAE Announces Major New Gas Discovery in Abu Dhabi & Dubai
On 3 February, the UAE announced the discovery of 80 trillion standard cubic feet of shallow gas resources in place between Saih Al Sidirah and Jebel Ali in the emirates of Abu Dhabi and Dubai respectively. This new discovery reinforces the nation’s goal of achieving gas self-sufficiency, enabling major development projects in preparation for the next 50 years of the union. The announcement was made during the signing of a strategic cooperation agreement between the Abu Dhabi National Oil Company (ADNOC) and Dubai Supply Authority to continue to explore and develop the shallow gas resources in this area.
The discovery of the 80 TSCF of shallow gas resources was made within an area of 5,000 sq. km between the two emirates with ADNOC drilling more than 10 exploration and appraisal wells, signifying the first time ADNOC has explored for hydrocarbon resources in Dubai. The gas produced will be supplied to DUSUP to support Dubai’s economic growth ambitions and enhance its energy security.
The discovered reservoir is referred to as ‘shallow gas’, as it contains high-quality organic gas at relatively shallow depths from the earth’s surface. The announcement comes less than three months after Abu Dhabi’s Supreme Petroleum Council announced increases in hydrocarbon recoverable reserves of 7 billion stock tank barrels of oil and 58 TSCF of conventional gas, moving the UAE from seventh to the sixth position in both global oil and gas reserves rankings with a total of 105 billion STB of recoverable oil, 273 TSCF of conventional gas and 160 TSCF of unconventional gas resources. (AB 03.02)
5.5 Etihad Rail Launches Construction of Stage 2 of UAE-Wide Railway
Sheikh Theyab bin Mohamed bin Zayed Al Nahyan, chairman of Etihad Rail, has launched the construction works of Package A of stage two of the pan-UAE railway network. Package A will run for 139km from Ghuweifat on the UAE border with Saudi Arabia to Ruwais, where it connects with stage one of the network.
Package A will utilize 700,000 cubic meters of ballast, involve 30,000,000 tons of earthwork and the installation of over 450,000 concrete sleepers provided by Etihad Rail’s own manufacturing plant, which produces up to 45,000 railway sleepers each month. A contract between Etihad Rail and a joint venture of Larson and Toubro Limited and Power China International has also been signed to construct freight facilities for the railway network at a total cost of AED1.87 billion.
Etihad Rail is building a series of freight facilities in Ruwais, Industrial City of Abu Dhabi (ICAD), Khalifa Port, Dubai Industrial City (DIC), Jebel Ali Port, Al Ghayl and Siji, Fujairah Port and Khorfakkan Port capable of undertaking all loading and unloading operations, in addition to providing container storage and maintenance. The planned port facilities will provide a full service to Etihad Rail customers, including direct access to trains on the dock, easing container movements between ships and trains. With this award, Etihad Rail said it has completed the contract-awarding process of stage two of the national network which will connect Fujairah and Khorfakkan on the UAE’s east coast to the UAE’s Saudi border at Ghuweifat. (AB 31.01)
5.6 Sharjah Makes its First Onshore Natural Gas Discovery in Over 30 Years
Sharjah National Oil Corporation (SNOC) announced that its oil and gas exploration service and its partner Eni have made a new onshore discovery of natural gas and condensate in the emirate. The discovery, named Mahani, comes within the first year of the partnership and represents the first onshore discovery of gas in Sharjah since the early 1980s. The national energy company said that the Mahani-1 exploration well, located in the Area B Concession, is the first exploration well drilled by SNOC following the acquisition of a new 3D seismic survey covering the territory. The two companies are also partners in the Onshore Sharjah Concession Areas A and C. (AB 27.01)
5.7 Oman Considering Introduction of VAT in 2021
Oman is set to introduce VAT from 2021, according to Omani Minister of Commerce and Industry Ali bin Masoud Al Sunaidy. All six Gulf Cooperation Council (GCC) members agreed in 2016 to implement a VAT charge levied at five percent. However, to date only Saudi Arabia, the UAE and Bahrain have introduced the charge.
Al Sunaidy admitted that the oil crash in 2014 hit the Sultanate hard, with its GDP falling from OR30 billion to OR26 billion, although he stressed it was back up to pre-2014 levels. Reforms include cuts to fuel and electricity subsidies as well as the introduction of a foreign investment law and PPP law, designed to open Oman up further to the world. As a result, Al Sunaidy said they are forecasting annual growth between 2.5% and 3%, barring any significant disruptions. (AB 22.01)
5.8 Saudi Arabia Issues $5 Billion in Bonds to Meet Budget Deficit
Saudi Arabia sold its first Eurobond of the year on 21 January, issuing $5 billion of debt, taking advantage of low borrowing costs globally. It’s seeking to plug part of its growing budget deficit by selling about $32 billion of local currency and international debt over the course of the year. Investors placed more than $23 billion of orders for the debt, the Ministry of Finance announced.
The country issued a $1.25 billion seven-year tranche at 85 basis points over US Treasuries and a yield of 2.54%. A 12-year offering of $1 billion was priced at a spread of 110 basis points and yield of 2.88%, while a $2.75 billion 35-year tranche, the kingdom’s longest yet, yielded 3.84%. Citigroup, Morgan Stanley and Standard Chartered led the transaction. BNP Paribas, HSBC Holdings, JPMorgan Chase & Co and NCB Capital also helped sell the bonds.
Saudi Arabia last sold Eurobonds in October, when it raised a $2.5 billion sukuk. The head of the kingdom’s debt management office said in December the country would probably soon return to global debt markets. It issued $13.4 billion of euro and dollar bonds last year, more than any other emerging market aside from Turkey, according to data compiled by Bloomberg. (AB 24.01)
►►North Africa
5.9 Positive Macro-Economic Indicators gave Egypt’s Economy a Boost in 2019
Egypt’s economy was given a boost in 2019 due to positive macro-economic developments on the back of its economic reforms, according to a 2019 review released by the Oxford Business Group. The report said that real GDP growth was at 5.6% in fiscal year 2018/2019, up from 5.3% in the previous fiscal year, while the Egyptian pound strengthened against the dollar over 2019, reaching EGP16.40 to the dollar by mid-September and dipping below EGP 16 in December.
Additionally, the annual headline inflation rate reached 7.1%, which was within the Central Bank of Egypt’s (CBE) target range of 9%, plus or minus three points. The benefits of the floatation of the Egyptian pound in 2016 began to be felt in 2019, with company profits reaching pre-floatation levels by the end of November.
In the petroleum sector, the report highlighted that significant oil and gas discoveries in the eastern Mediterranean in March and July are set to reduce the import burden of the chemical and plastics industries through the development of downstream segments, but there are concerns that the discoveries could also aggravate the predominance of hydrocarbons in the economy. On the other hand, the report said that there are number of challenges that remain in terms of implementing these reforms, especially the pressure on consumer spending as nominal wage growth fell below inflation between 2016 and 2018.
Egypt has also undertaken several legislative reforms that have had notable effects, including changes to the income tax law which boosted government revenues, while the investment environment has been strengthened by amendments to the investment law and the implementation of the competition law. In addition, the industrial licensing regime has been streamlined, reducing the time it takes to obtain a license in low-risk industries by 80%.
The report predicts Egypt will continue moving ahead with plans to transform its renewable energy capacity in 2020, spearheaded by the development of a major solar power station in November. Meanwhile, the 1.4 gigawatt Benban Solar Park in Aswan has attracted some $2 billion in investment, with around 30 companies already establishing energy projects and commercial operations at the site, adding that meeting domestic power needs through renewable resources will free up oil and gas supplies to be used either for export or in other value-added industries.
Nevertheless, more work needs to be done on social conditions, especially as around 32.5% of citizens live below the poverty line, according to a Central Agency for Public Mobilization and Statistics (CAPMAS) report released in July. (OBG 04.02)
5.10 Morocco Votes to Consolidate Maritime Sovereignty off Atlantic Coast
Morocco has officially adopted two draft laws to establish the country’s legal authority over its maritime domain. The laws update Morocco’s maritime legislation to UN standards and assert the country’s sovereignty over the maritime zone off the coast of Western Sahara, between the cities of Tarafay and Dakhla and near the Spanish-owned Canary Islands. Morocco’s parliament voted on and approved Bill 37.17 and Bill 38.17 on 22 January. The five maritime zones where a coastal state can exercise varying degrees of sovereignty include the territorial sea, the contiguous zone, the Exclusive Economic Zone (EEZ), the Continental Shelf, and the High Sea. Bill 38.17 moves to set up an EEZ of 200 nautical miles off the Moroccan coast by amending and supplementing Act 1.81. The bills had stalled in Moroccan parliament since the government approved them in July 2017.
Spain, meanwhile, submitted scientific data supporting its claims to the outer limits of its continental shelf off the Atlantic coast within the specified time frame. In 2014, the European country delivered a partial presentation on its claims over the EEZ and the outer limits of its continental shelf, followed by another oral presentation at the 38th session of the CLCS in 2015. The Spanish presentations failed to mention the existence of a conflict between Morocco and Spain over the maritime territories in question. By failing to mention the existence of a dispute between Morocco and Spain, the latter violated the Rules of Procedure of the CLCS.
Morocco’s recent submission of the two maritime delineation laws for approval in parliament is a calculated move from Rabat to disrupt the smooth running of Spain’s application to the CLCS and a bid to force Spain to re-enter fair negotiations about the maritime limits. It remains to be seen whether Morocco’s move will exacerbate or ameliorate tensions between Rabat and Madrid. (MWN 23.01)
5.11 Morocco’s Public Debt Amounts to MAD 901.1 Billion, Loans Reach MAD 968 Billion
Bank Al-Maghrib, Morocco’s central bank, said that the total of bank lending reached MAD 968 billion in 2019, a slight increase of approximately 0.9% compared to MAD 870 billion in 2018. In its 2019 report, Bank Al-Maghrib pointed out that the banking sector provided 88% of the total funds granted to enterprises, while 12% is funded by the bond market. Approximately 48% of the loans went to the service sector, 45% to the secondary sector, including the industry sector, the water and electricity sector, in addition to the construction and public works sector. The remaining 7% went to the primary sector.
Morocco’s debt burden has doubled since 2009, increasing from MAD 345.2 billion to MAD 750.12 billion in 2019, compared to MAD 706.8 billion in 2018. This figure represents 65.3% of the GDP, an increase of MAD 27.4 billion compared to 2018. The objective of reducing the debt level to 60% of GDP by 2021 will be difficult to achieve. The public debt increased to MAD 901.1 billion, equivalent to 81.4% of GDP. (MWN 30.01)
6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS
6.1 Cyprus Wins Back UK Halloumi Trademark
Cyprus has won back the right to call halloumi cheese its own again after it successfully re-registered the UK trademark it had lost in 2018. Cyprus had lost the trademark for its famous cheese over the 18 months ago after a blunder by Commerce Ministry officials, who failed to reply to a UK court requesting a response over the cancellation of the Halloumi trademark. Commerce Minister George Lakkotrypis confirmed the good news, telling CyBC radio that Cyprus had reapplied to register the trademark which it lost in May 2018. On 31 January, it was notified that halloumi had been registered by the British Intellectual Property Office, the minister said.
Cyprus lost its biggest export market after a blunder by ministry officials failed to contest an application by a British company John & Pascalis. The company, owned by UK Cypriots, is one of the largest halloumi importers in Great Britain. He said the development effectively protects Cyprus’ halloumi exports to the UK as the Agriculture Ministry continues its efforts to register it as an EU product of Protected Designation of Origin (PDO). The UK is the biggest market for the popular squeaky cheese, absorbing 40% of halloumi exports generating around €80 million a year. Cyprus producers expect to yield €300 million in exports from halloumi by 2023. Cyprus’ PDO application for halloumi was first filed with Brussels back in 2014 but has been tangled in red tape. (FM 03.02)
6.2 NPLs are the Greek Economy’s Weakest Link
The European Central Bank warned Greece that the high level of nonperforming loans held by Greek banks represent the soft underbelly of the country’s economy, stressing that all instruments should be used for their reduction. However, the activation of the Hercules scheme continues to hang on resolving the question of the provision (or not) of any additional collateral by the Greek state so that the senior bonds to be issued will be considered zero-risk. Sources say that the ECB’s Single Supervisory Mechanism (SSM) is continuing to press for those guarantees while the state refuses to set aside any cash from bonds or the cash buffer for that purpose.
Greece’s banks’ financial balances to be cleared of bad loans, while Bank of Greece Governor Yannis Stournaras said that even after the reduction of NPLs to below 20% of all loans by the end of 2021, as the plan dictates, the rate will be five times the European Union average. The Hercules asset protection scheme, Stournaras said, is an important step; however, he reiterated that it has to be complemented by other plans, such as that proposed by the central bank in the past. According to January-September data, the NPLs added up to €71 billion, or 42.1% of all credit. As for the growth rate of the Greek economy, Stournaras estimated that it came to 2.2% in 2019 and will rise to 2.5% this year and in 2021. (eKathimerini 04.02)
6.3 Greece Expects Tourism Growth This Year Despite Bumpy 2019
Tourism, which accounts for about a quarter of Greece’s gross domestic product, will grow in 2020 despite the blow dealt to the sector last year by the collapse of British travel giant Thomas Cook, Tourism Minister Theocharis said on 23 January.
Greece is emerging from a decade-long debt crisis and relying on its resorts, beaches and ancient monuments to attract strong visitor numbers if it is to fully recover. Tourism employs roughly one in five people. Revenues in 2019 grew an estimated 12-15% from about €16 billion in 2018 on the back of a 4% to 5% rise in arrivals. About 33 million tourists visited Greece in 2018, the year the country exited its third international bailout. The collapse of Thomas Cook in September left thousands of holidaymakers stranded at island resorts and dealt a significant blow to Greek hoteliers and businesses.
The impact was initially estimated at €500 million ($555 million) and was seen spilling over to 2020, an immediate worry for the conservative government that took office in July. But the sector has found new contracts and replaced the lost slots. Greece’s target for 2020 and the years to come is an annual one-digit rise in arrivals and a two-digit increase in revenue, said Theocharis, who headed revenue collection at the country’s finance ministry at the peak of the crisis in 2013-14. The government has been mulling changes to the sector ranging from further regulating the home sharing market to opening up the industry to sea diving tourism, which is currently restricted because of the many archaeological ruins in Greek waters. (Various 24.01)
7: GENERAL NEWS AND INTEREST
7.1 Appalachian State University Delegation Visits AURAK
A delegation from Appalachian State University (ASU) in the United States visited the American University of Ras Al Khaimah (AURAK) for a campus tour and discussions with the leadership on deepening their cooperation. One of AURAK’s goals is to enter into partnerships with premier U.S. and international universities in order to foster academic exchange of students and faculty and research opportunities for AURAK. AURAK and Appalachian State University have been cooperating since 2015. AURAK and Appalachian State University recently agreed to establish a 3+1 Student Transfer Program (TSP). The agreement is due to be valid for a period of five years.
Appalachian State University, located in Boone, North Carolina, is one of 16 universities in the University of North Carolina system. AURAK is a nonprofit, government-owned institution of higher education which provides the local, regional and international communities with a North American-style education integrated with Arab customs and traditions. AURAK is licensed by the Ministry of Education in the United Arab Emirates and has been accredited in the United States of America by Southern Association of Colleges and Schools Commission on Colleges (SACSCOC) since December 2018. (AURAK 28.01)
8: ISRAEL LIFE SCIENCE NEWS
8.1 ELSE Nutrition Receives Notice of Allowance from U.S. Patent Office
Tel Aviv’s Else Nutrition, a developer of plant-based alternatives to dairy-based baby nutrition, received a formal notice of allowance from the U.S. Patent & Trademark office for the extension of the Company’s existing patents to cover the market of adults suffering from malnutrition. The extension addresses the use of the company’s proprietary formula for adults who have specific malnutrition related conditions such as lean body mass and declining basal metabolic rates. The patented composition provides the necessary proteins, amino-acids and other nutrients needed in a single food serving.
Receiving a notice of allowance in this critical market represents a milestone of significant importance, because it paves the way for future, already planned, product expansion beyond the baby and toddler market segments. Furthermore, the growth of their intellectual property portfolio in the US is timely as Else gets ready to launch their products there this year. Else’s 100% plant-based formulation has functional and meaningful applications to a wide range of potential consumer markets. (Else Nutrition 22.01)
8.2 IM Cannabis Enters into Joint Venture Agreement in Greece
IM Cannabis Corp. announced a definitive agreements to establish a medical cannabis cultivation and processing joint venture in Greece. The Company’s Joint Venture partner is Galen Industries Single Member Societe Anonyme, a Greek company established by a consortium of investors in Greece with extensive experience in the pharmaceutical, media, financal and energy sectors. In addition, the Joint Venture and IMC have signed a preferred supply agreement in which IMC has the right to purchase up to 25% of the total production from the Joint Venture. IMC expects to gain commercial and competitive advantages by supplying the German market and other emerging markets across Europe with EU-GMP medical cannabis products from the Joint Venture’s facility in Greece at preferred terms.
IMC will own 25% of the Joint Venture and the remaining 75% of the Joint Venture will be owned by Galen. Each party is committed to fund the initial capital expenditures, totaling approximately up to €8,000,000 to fund the construction of an EU-GMP certified cultivation and processing facility in Greece. IMC will invest from existing cash resources up to €1,500,000 into the Joint Venture, with the balance funded by Galen. Execution of the Joint Venture’s business plan will start immediately and construction of greenhouses as well as the EU-GMP facility is expected to begin upon receiving the Establishment Approval from the Greek medical cannabis regulatory authorities.
Galil Yam’s IMC is a well-known Israeli brand of medical cannabis products. In Europe, IMC is establishing a medical cannabis operation first with its distribution subsidiary in Germany and augmented by strategic agreements with certified EU-GMP Standard suppliers, making it one of the only medical cannabis companies with fully integrated operations in Europe. IMC intends to leverage its operational experience and brand to establish a foothold in emerging medical cannabis markets including Germany, Portugal and Greece. IMC’s core Israeli business includes offering branding, know-how and other intellectual property-related services to the Israeli medical cannabis market. Its key assets in Israel include commercial agreements with licensed producers and an option to purchase licensed entities. (IM Cannabis Corp. 28.01)
8.3 Canonic & Hadassah Pre-Clinical Studies to Develop Canonic’s Medical Cannabis Products
Canonic, a wholly owned subsidiary of Evogene, announced an agreement with Hadasit, Hadassah Medical Center Technology Transfer Company for pre-clinical studies to support the development of anti-inflammatory medical Cannabis products as part of its Precise product program. The work will be conducted in Hadassah Medical Center (Ein Kerem, Israel), screening Canonic’s Cannabis core collection in inflammatory in-vitro models. These studies are expected to support the development of Canonic’s unique Cannabis varieties with anti-inflammatory properties.
Canonic initiated its product programs based on a genetically diverse cannabis seed core collection. Extracts from these Cannabis lines cultivated by the company will be applied to inflammatory cells in pre-clinical studies. The data obtained from these studies will be leveraged by Evogene’s CPB platform to direct and support Canonic in the development of its Precise product line, focusing on specific medical indications including inflammation and pain management.
Rehovot’s Canonic is a subsidiary of Evogene, developing medical Cannabis products through a Computational Predictive Biology (CPB) platform. The company’s products in development are aimed at improving active compounds yield, genetic stability and cannabis varieties for specific medical indications. The company’s strategy includes the development of Cannabis varieties in order to commercialize medical cannabis products independently or through collaborations. Canonic has exclusive access to Evogene’s genomic assets and technology for the development of medical cannabis products. (Canonic 27.01)
8.4 Lumenis Launches the New LightSheer QUATTRO – Laser Hair Removal Platform
Lumenis announced the launch of its newest platform, the LightSheer Quattro. Following a successful US launch in 2019 the platform was showcased at the 22nd International Master Course on Aging Science (IMCAS) conference in Paris, France.
LightSheer Quattro is the newest addition to the premium Lumenis LightSheer family positioning it ahead of the market, as a flagship solution in the diode laser hair removal industry. The system offers clinically proved laser hair removal treatments for all skin types with either 805nm or 1060nm wavelengths with no down time as well as treatment of pigmented and vascular lesions. The newest addition to the LightSheer family allows practitioners to deliver excellent clinical results by combining High Speed Vacuum assisted technology with ChillTip™ Integrated Contact cooling technology, providing patients with comfortable, effective, fast and safe treatments. The compact and portable LightSheer Quattro system is upgradeable and a great addition to a MedSpa or a Medical office, whether experienced or just starting out in the industry.
Yokneam’s Lumenis is a global leader in the field of minimally-invasive clinical solutions for the Surgical, Ophthalmology and Aesthetic markets, and is a world-renowned expert in developing and commercializing innovative energy-based technologies, including Laser, Intense Pulsed Light (IPL) and Radio-Frequency (RF). For 50 years, Lumenis’ ground-breaking products have redefined medical treatments and have set numerous technological and clinical gold-standards. Lumenis has successfully created solutions for previously untreatable conditions, as well as designed advanced technologies that have revolutionized existing treatment methods. (Lumenis 27.01)
8.5 AI-System Flags the Under-Vaccinated in Israel
Medial EarlySign announced its flu complications algorithm has been selected as part of the Israeli healthcare organization’s integrated strategy to enhance its vaccination campaign. This innovative machine-learning (AI) program is designed to facilitate more effective and targeted outreach to people in need of disease protection. EarlySign’s software applies advanced algorithms to ordinary patient data, collected over the course of routine care.
EarlySign said its’ algorithm can flag individuals at high risk for developing flu-related complications and is being used as part of a clinical study undertaken by Maccabi Healthcare Services and EarlySign. The influenza identification algorithm uses EMR generated data to identify and stratify unvaccinated individuals at high risk of developing flu-related complications, often requiring hospitalization.
Maccabi’s clinical study using EarlySign’s flu complications algorithm supports the Israeli HMO’s commitment to investigating and implementing machine learning-based solutions to improve the health of populations. The program follows EarlySign collaboration with Geisinger Health System in December 2019, to apply advanced artificial intelligence and machine learning algorithms to Medicare claims data to predict and improve patient outcomes. The AI vendor and Danville, Pennsylvania based healthcare provider intend to develop models that predict unplanned hospital and skilled nursing facility admissions within 30 days of discharge and adverse events such as respiratory failure, postoperative pulmonary embolism or deep vein thrombosis, as well as postoperative sepsis before they occur.
Maccabi Healthcare Services is Israel’s 2nd-largest HMO, covering approximately 2.3 million patients, operating 5 regional centers, including hundreds of branches and clinics throughout Israel.
Founded in 2009, Hod HaSharon’s Medial EarlySign is the brainchild of three pioneers who sought to apply advanced mathematical algorithms and artificial intelligence technology to detect early warning signals and health risks in simple medical data across billions of dormant electronic health records, spanning decades of information. Adapting a technology initially implemented on algorithmic trading platforms, the technology experts behind Medial EarlySign applied world-leading cognitive, mathematical principles to expose hidden patterns – what we call the ‘blind spots’ – in ordinary EHR data. By exposing these hidden signals, Medial EarlySign enables healthcare providers to identify risks for critical threats, leading to potentially life-changing diagnoses for millions of patients every single day. (Medial EarlySign 21.01)
8.6 Israel’s First Ever Cannabis Export Completed as LYPHE Group Imports Into the UK
London, UK’s Astral Health, a specialist import and distribution company and subsidiary of LYPHE Group, brokered a strategic partnership with Israel’s largest and leading manufacturer of pharma GMP certified medical cannabis products – BOL Pharma. The import marks the start of a new era for the UK medical cannabis industry after a period of reliance on irregular and unreliable pharmaceutical grade product coming into Europe from Canada, and antiquated systems bringing in product from the Netherlands. The new Israeli supply promises to put an end to these erratic processes, as Astral Health redefines the efficiency of bringing medical cannabis into the UK from the most advanced medical cultivation market globally.
This medical cannabis shipment, made possible by Astral Health, will be used to treat patients in the UK with treatment-resistant epilepsy, and marks the first of many shipments the company will make over the coming months from Israel. (LYPHE Group 30.01)
8.7 Clarifruit Raises $6 Million
Clarifruit announced it has completed a $6 million seed round led by Firstime Ventures, with participation of other private investors. The capital raise includes a $2.5 million grant from the European Union Horizon 2020 EIC program, which focuses on accelerating the growth of European companies with ground-breaking innovations.
Clarifruit’s platform can automatically identify, collect, and analyze real-time data about fresh produce’s external and internal attributes. Solution results in objective, consistent, and cost-effective inspection that not only increases inspector productivity by x3 and reduces customer’s current waste, but also empowers the world’s Fresh Produce growers, wholesalers, and retailers to make decisions based on high-quality data, resulting in better match of quality of supply to customer demand and ultimately favorable revenue opportunities. The system significantly cuts the staggering waste in the fresh produce industry.
Nes Ziona’s ClariFruit is a leading software provider of next-generation, automatic QCaaS & data analytics solutions for the Fresh produce industry. The company’s mission is to create a global quality standard for the Fresh produce industry, by (a) transform the entire supply chain (Grower Wholesaler Retailer Consumer) from offline onto the cloud (b) collect, track, and analyze DATA in an automatic fashion (rather than manually as taking place today) to derive insights that would improve produce quality, optimize processes, and promote collaboration (c) enhance revenue opportunities to supply-chain participants. (Clarifruit 30.01)
8.8 TAU & Harvard Researchers Build Human ‘Body-On-Chips’ To Better Predict Drug Response
A team of over 50 researchers at Harvard University and Tel Aviv University (TAU) have successfully built human “organs-on-chips” that they say will allow scientists to better predict human responses to drugs during trials as a way to speed up drug development, and may offer alternatives to some animal testing. A total of eight microchips were created to recapitulate the build and functions of living human organs – including the lungs, liver, intestines, kidneys, skin, bone marrow, brain, and the blood-brain barrier. The scientists also built an automated instrument to fluidly link up to 10 “organ chips” to create what they called “a functional human Body-on-Chips platform. The organs are also linked to a central arterio-venous (AV) fluid mixing reservoir that “helped recapitulate life-like blood and drug exchange between the individual organs, while also providing a way to carry out blood sampling that would mimic blood drawing from a peripheral vein.
The Organ Chip technology is licensed by a Wyss Institute-launched startup company, Emulate, which is now further developing and commercializing the technology and automated instruments “to bring these important research tools to biotechnology, pharmaceutical, cosmetics, and chemical companies as well as academic institutions and hospitals for personalized medicine,” the institute said.
The Organ Chips themselves are made of a clear flexible polymer and contains two parallel hollow channels separated by a porous membrane that allows them to communicate. One channel is lined with cells from a specific human organ or organ structure, the other one is lined with cells presenting a blood vessel. The Organ Chips “are essentially living, three-dimensional cross-sections of major functional units of whole living organs” and “present an ideal microenvironment to study molecular- and cellular-scale activities that underlie human organ function and mimic human-specific disease states, as well as identify new therapeutic targets in vitro.” (No Camels 03.02)
8.9 Serenno Medical Continuous Monitoring of Kidney Function of Hospitalized Patients
Serenno Medical revealed Sentinel™, a novel, robust device for automatic monitoring and detection of kidney damage in hospitalized patients. The Sentinel device is a continuous urine output monitor that measures urine flow rate and volume in real time. Continuous kidney function assessment allows the early detection of Acute Kidney Injury (AKI), a common condition in hospitalized patients that significantly increases risk of mortality during and after hospitalization. Accurate measurement of urine output (UO) is clinically accepted as the best method for monitoring kidney function. However, UO is currently monitored intermittently and manually by ICU nurses, therefore acute changes in urine flow are difficult to detect. Thus, kidney injury is often detected relatively late, sometimes after it is impossible to prevent further progression.
Sentinel offers a simple and cost-effective solution for the precise, continuous measurement of urine flow rate in real time. The system promotes early detection of kidney injury, while there is still time to intervene and prevent further damage. It aims to automatically and accurately detect small changes in kidney function, taking the workload off the nursing staff while delivering actionable data. The device works in synergy with existing hospital equipment (any catheter and bag) and requires a short and simple, non-invasive installation. It fits the complicated intensive care unit (ICU) and operating room environments and is fully functional in any patient condition or hospital environment.
Founded in 2017, Yokneam’s Serenno Medical is a portfolio company of Alon Medtech Ventures, owned by Dr. Shimon Eckhouse, a renowned entrepreneur and investor in the field of medical devices and medical technologies. The Company develops medical devices for patient monitoring in a hospital setting. Its flagship product is Sentinel™, for the automatic monitoring and detection of kidney damage in hospitalized patients. (Serenno Medical 04.02)
9: ISRAEL PRODUCT & TECHNOLOGY NEWS
9.1 BigID’s New Discovery-in-Depth Technology Gives Unmatched Data Intelligence for Privacy
BigID announced their Discovery-In-Depth technology to provide organizations with unprecedented visibility and insight into personal and crown jewel data. The new technology builds on BigID’s patented Correlation technology for finding any Personal Information (PI) and sensitive data, across any data store or pipeline, and correlating it back to a person so as to address critical CCPA and GDPR use cases like personal data rights. It introduces three new ML-based data intelligence modalities to help organizations know their data for privacy, protection and perspective.
Based in New York and Tel Aviv, BigID uses advanced machine learning and identity intelligence to help enterprises better protect their customer and employee data at petabyte scale. Using BigID, enterprises can better safeguard and assure the privacy of their most sensitive data, reducing breach risk and enabling compliance with emerging data protection regulations like the EU’s General Data Protection Regulation and California Consumer Privacy Act. (BigID 22.01)
9.2 Perception Point Next-gen Internal Email Security Protects from In-house Threats
Perception Point launched its Internal Email Security product, completing the company’s email security offering, and enabling organizations to protect themselves from threats stemming from within. The growing sophistication of attacks, coupled with the dramatic rise in Account Takeover (ATO) attacks, is forcing organizations to adopt new tools to offer 360-degree email protection. However, digital-first enterprises cannot afford the long delays or bad user experience that accompany some new tools. Perception Point has developed a cloud-native solution that provides full protection against any content-based attack, including malware, phishing & impersonation, and APTs, while keeping the same functionality and speed.
Tel Aviv’s Perception Point is powered by several decades’ experience successfully developing and implementing innovative cybersecurity solutions for organizations worldwide. With its proven R&D leadership formerly playing key roles within the elite Israeli Intelligence Corps, Perception Point is committed to building agile cybersecurity solutions for the digital-first enterprise, with a mission to protect all content exchanges across the enterprise, through any channel, with one extremely easy to deploy cloud solution. (Perception Point 22.01)
9.3 Foresight’s QuadSight Vision System Wins 2020 BIG Innovation Award
Foresight Autonomous Holdings announced that its QuadSight® vision system has been named a winner in the 2020 BIG Innovation Awards presented by the Business Intelligence Group. The BIG Innovation Awards recognize those organizations and people who bring new ideas to life, and change the way we experience the world. Designed for autonomous and semi-autonomous vehicles, the QuadSight four-camera vision system achieves exceptionally accurate obstacle detection in harsh lighting and weather conditions. By adapting field-proven security technology that has been deployed for almost two decades, QuadSight offers autonomous vehicles advanced perception capabilities beyond those of human vision and reduces the likelihood of accidents and injuries.
Nes Ziona’s Foresight Autonomous Holdings, founded in 2015, is a technology company engaged in the design, development and commercialization of sensor systems for the automotive industry. Through the company’s wholly owned subsidiaries, Foresight Automotive and Eye-Net Mobile, Foresight develops both “in-line-of-sight” vision systems and “beyond-line-of-sight” cellular-based applications. Foresight’s vision sensor is a four-camera system based on 3D video analysis, advanced algorithms for image processing, and sensor fusion. Eye-Net Mobile’s cellular-based application is a V2X (vehicle-to-everything) accident prevention solution based on real-time spatial analysis of clients’ movement. (Foresight 28.01)
9.4 Cyberbit Range Comes to the Cloud
Cyberbit announced that its world-leading simulation platform for training cybersecurity professionals, Cyberbit Range, is available as a cloud-based offering. With this offering Cyberbit has made it easier for organizations to provide their cybersecurity teams with advanced simulation exercises in a simple, cost effective manner, anytime, anywhere.
Cyberbit’s cloud-based cyber range enables security teams to experience real-world cyberattacks simulated in an immersive virtual environment that mirrors a corporate network. Trainees respond to the attacks using commercial security tools by leading vendors, including major SIEMs, firewalls, and endpoint security products. By experiencing attacks in an environment that closely resembles the real-world, cybersecurity professionals significantly improve their performance and reduce response time during a real cyberattack. Exercises span across multiple blue and red team roles and include both individual and team exercises in varied levels of difficulty. Some of the simulated attacks include ransomware, DDoS, Trojans, worms, file-less attacks and web server exploits, all based on real-world malware.
Ra’anana’s Cyberbit is the world’s-leading provider of cyber range simulation platforms for training cybersecurity professionals. Cyberbit Range prepares security teams for cyberattacks by providing them with a hyper-realistic training environment that mirrors their own and running full-length simulated cyberattacks which are based on real-world malware. (Cyberbit 27.01)
9.5 BGU Researchers Introduce the First All-Optical, Stealth Data Encryption Technology
BGN Technologies, the technology transfer company of Ben-Gurion University (BGU) of the Negev, Israel, introduced the first all-optical “stealth” encryption technology that will be significantly more secure and private for highly-sensitive cloud computing and data center network transmission.
Using standard optical equipment, the research team essentially renders the fiber-optic light transmission invisible or stealthy. Instead of using one color of the light spectrum to send one large data stream, this method spreads the transmission across many colors in the optical spectrum bandwidth (1,000x wider than digital) and intentionally creates multiple weaker data streams that are hidden under noise and elude detection. Every transmission, electronic, digital, or fiber has a certain amount of “noise”. The researchers demonstrated that they can transmit weaker encrypted data under a stronger inherent noise level which cannot be detected.
The solution also employs a commercially available phase mask, which changes the phase of each wavelength (color). That process also appears as noise but destroys the “coherence” or ability to recompile the data without the correct encryption key. The optical phase mask cannot be recorded offline, so the data is destroyed if a hacker tries to decode it.
BGN Technologies is the technology-transfer company of Ben-Gurion University of the Negev, Israel. The company brings technological innovations from the lab to the market and fosters research collaborations and entrepreneurship among researchers and students. (BGN Technologies 29.01)
9.6 Iguazio Deployed by Payoneer to Prevent Fraud with Real-time Machine Learning
Iguazio announced that Payoneer, the digital payment platform empowering businesses around the world to grow globally, has selected Iguazio’s platform to provide its 4 million customers with a safer payment experience. By deploying Iguazio, Payoneer moved from a reactive fraud detection method to proactive prevention with real-time machine learning and predictive analytics.
Payoneer overcomes the challenge of detecting fraud within complex networks with sophisticated algorithms tracking multiple parameters, including account creation times and name changes. However, prior to using Iguazio, fraud was detected retroactively, enabling customers to only block users after damage had already been done. Payoneer is now able to take the same sophisticated machine learning models built offline and serve them in real-time against fresh data. This ensures immediate prevention of fraud and money laundering with predictive machine learning models identifying suspicious patterns continuously. The cooperation was facilitated by Belocal, a leading Data and IT solution integrator for mid and enterprise companies.
Iguazio’s Data Science Platform enables Payoneer to bring its most intelligent data science strategies to life. Designed to provide a simple cloud experience deployed anywhere, it includes a low latency serverless framework, a real-time multi-model data engine and a modern Python eco-system running over Kubernetes.
Herzliya’s Iguazio provides a Data Science Platform to automate machine learning pipelines. It accelerates the development, deployment and management of AI applications at scale, enabling data scientists to focus on delivering better, more accurate and more powerful solutions instead of spending their time on infrastructure. The platform is open and deployable anywhere – multi-cloud, on prem or edge. (Iguazio 27.01)
9.7 Radiflow & Fraunhofer Institute Joint Research on Applying AI to Industrial Cybersecurity
Radiflow and the Fraunhofer Institute of Optronics, System Technologies and Image Exploitation (Fraunhofer IOSB), a prominent research institute for applied science in Germany, announced the launch of a joint research project for applying advanced machine learning and artificial intelligence to cybersecurity for industrial automation networks. For this research project, Radiflow and Fraunhofer IOSB will collaborate on developing machine learning methods and artificial intelligence techniques for allowing the autonomous detection of non-compliant and anomalous behaviors on industrial automation networks. This applied research will involve evaluating graph-based and semantic approaches for event correlation and context awareness in order to develop these new machine learning and artificial intelligence capabilities.
The outcome of this research will be the development of a prototype for an Autonomous Industrial Cybersecurity Assistance System (AICAS) that expands on existing approaches for detecting deviations and anomalies to a baseline of network behaviors on OT networks. This prototype will be designed to self-learn the underlying behaviors of industrial automation networks and the functions of the connected assets in order to dynamically detect new and unknown cyber threats. The funding for this research project, which is scheduled to last two years, was granted by the Innovation Authority in Israel and the Federal Ministry of Education and Research in Germany. At the conclusion of this research project, Radiflow intends to incorporate the new capabilities of this AICAS prototype into its iSID industrial threat detection system.
Tel Aviv’s Radiflow develops trusted industrial cybersecurity solutions for critical business operations. The company offers a complete portfolio of game-changing solutions for ICS/SCADA networks that empowers users to maintain visibility and control of their OT networks, including an Intelligent Threat Detection tool that passively monitors the OT network for anomalies as well as Secure Gateways that protect OT networks from any deviations from set access policies. (Radiflow 30.01)
9.8 vHive’s New AI Driven Capabilities Accelerates Tower Inspections Worldwide
vHive announced the release of an AI driven Auto Discovery™ capability for simplifying and shortening data acquisition in communication tower inspections. Tower companies require a scalable level of automation as part of their digital transformation process. vHive’s AI driven Auto Discovery™ adds contextual awareness to off-the-shelf drones, enabling vHive’s system to capture data on assets without needing to know their precise location or orientation a-priori. vHive’s new AI based Auto Discovery™ enables enterprises to further improve the quality of the data captured as well as to shorten time in the field, save costs and provide an overall easy user experience that enables field technicians to use drones as another “tool” in their toolset.
Herzliya’s vHive is the global software provider to enterprises, accelerating their continuous digital transformation, enabling them to make better decisions based on accurate field data and analytics. vHive is the only software solution that enables enterprises to deploy autonomous drone hives to digitize their field assets and operations. vHive is making an impact in a variety of industries including communication towers, construction, insurance and rail by dramatically cutting operational costs, generating new revenue opportunities and boosting employee safety. (vHive 04.02)
9.9 infiniDome Introduces GPS Cyber Protection Tailored for Commercial and Consumer Vehicles
infiniDome announced the launching of OtoSphere™, the world’s first GPS Cyber protection solution tailored for commercial and consumer vehicles. OtoSphere™ mitigates a real threat of GPS attacks by cargo thieves against commercial vehicles. When protected with infiniDome’s OtoSphere™, vehicles are able to DETECT an attack, ALERT the system and SOC and PROTECT the system allowing it to continue normal operations. OtoSphere™ is built to be either added on to any GPS system as a retrofit module installed inline between the GPS receiver and two antennas or as an OEM, retrofitted inside of any telematics system.
Caesarea’s infiniDome provides front-end cyber solutions protecting wireless communications from jamming and spoofing attacks. The company’s products protect against attacks of GPS-based systems, which are critical for autonomous vehicles, drones and connected fleets. InfiniDome’s products have been successfully proven in the field and sold to customers globally. (InifiniDome 04.02)
10: ISRAEL ECONOMIC STATISTICS
10.1 Israel’s Composite State of the Economy Index for December 2019 Increased by 0.3%
The Bank of Israel’s Composite State of the Economy Index for December increased by 0.26%. The Index’s rate of increase continues to reflect stable growth at the long-term pace. The Index was positively affected by a sharp increase in consumer goods imports and by an increase in the job vacancy rate for December, and by an increase in the retail trade revenue index. The sharp increase in consumer goods imports reflects, at least partly, the bringing forward of vehicle purchases into December, in view of the taxation change in the beginning of 2020. The Index’s growth rate was moderated primarily by declines in the import of inputs and in goods exports in December, as well as the declines in the industrial production index and in the services revenue index for November. There were essentially no revisions to the overall Index for previous months.
For 2019 overall, the Composite Index increased by 3.4% relative to 2018, a similar pace to that of GDP based on initial estimates from the Central Bureau of Statistics (3.3% overall, 3.5% in the business sector) and similar to the growth rate of the Composite Index in the previous year (3.6%). The growth rate of the Composite Index over the past two years reflects the economy’s long term growth rate, which is consistent with the low unemployment rate. The development of the Index’s components is in line with this picture: the growth rate of employee posts was 1.8%, similar to the previous year and only slightly higher than the growth rate of the population in the prime working ages. The increase of the Composite Index this year reflected balanced growth, seen in increases in the domestic retail trade and services revenue indices as well as in the industrial production index and in exports. (BoI 26.01)
10.2 Unemployment in Israel Falls to a New Low
On 30 January, Israel’s Central Bureau of Statistics announced that the unemployment rate among those age 15 or older fell from 3.9% in November to 3.4% in December. The previous record was in October, when the rate was also 3.4%, but was later revised upwards to 3.5%. The decline in the unemployment rate among women was particularly steep, from 3.8% in November to 3.2% in December, while the unemployment rate among men dropped from 3.9% in November to 3.6% in December. The rate of participation in the labor force was down slightly. The downturn in unemployment at the end of the year lowered the average unemployment rate in 2019 to 3.8%, compared with 4% in 2018.
Employment rose by 16,000 to 3.983 million in the fourth quarter. The proportion of total employees working in the technology industry is now 10%, compared with 9.4% in 2018. The sectors with the fastest increase in the number of jobs in the fourth quarter were vehicle trading and repair (35,000 more jobs), information and communications (10,000 more jobs), and hosting and food services and local and public administration (5,000 more jobs each). Mining and quarrying, on the other hand, lost 19,000 jobs in the fourth quarter. (CBS 30.01)
11: IN DEPTH
11.1 LEBANON: A Storm of Imperfection
Maha Yahya posted on 31 January in Diwan that Lebanon is struggling against simultaneous shocks, and the country is in urgent need of a new social contract.
A new Lebanese government has just been formed. It faces an uphill battle in addressing significant economic and political challenges, and its success will be critical for Lebanon’s revival and sustainability.
Lebanon is going through a perfect storm that is gaining intensity. The country is in the midst of an economic collapse, compounded by political deadlock, all wrapped in a broader crisis of legitimacy because a significant portion of the population has lost confidence in its political leadership. The Lebanese system is no longer operating effectively. Unless a new social contract is agreed between citizens and the state, the country may descend into chaos.
The priority of the new government of Prime Minister Hassan Diab is to slow Lebanon’s economic and financial freefall. To do so, it must address several simultaneous crises. With the public debt estimated at 150% of GDP, the government must bring spending under control and find ways of reimbursing what it owes. This will not be easy as the balance of payments deficit, driven by a perennial trade deficit, is expected to be $8 billion at the end of 2020. Exacerbating this is the fact that the deepening recession in the country has eaten into government revenues, so that in 2020 economists anticipate a budget deficit of some $3 billion, excluding interest payments.
In parallel to this, a crisis in the banking system has further impacted on public finances. For the last 27 years U.S. dollars and Lebanese pounds have been used interchangeably in the economy. But today, with almost half of bank assets invested in the country’s sovereign debt and with the central bank, and with another quarter representing risky private-sector claims, banks are effectively illiquid and some are possibly insolvent. They have ceased most normal banking activity, therefore are banks only in name. Though chaotic and inefficient capital and banking controls were recently put in place, the sector is experiencing a run on deposits. Normally, the central bank would provide liquidity to the banks. However, today it is constrained by a limited supply of U.S. dollars and by fears that if it compensates by injecting Lebanese pounds into the economy, this will further depreciate the domestic currency.
The result has been devastating for the Lebanese. Since the beginning of the protests last 17 October and the resignation of former prime minister Sa‘ad al-Hariri on 29 October, socioeconomic conditions have only worsened. Informal capital controls and restrictions on cash withdrawals are triggering panic as people try to get to their hard-earned deposits. A slash in credit lines has brought the economy to a standstill, with projections of negative growth in the range of 5 – 10% for 2020. Businesses are closing and unemployment is rising rapidly. Thousands of Lebanese are said to have lost their jobs in the past few months. On the parallel market the pound has lost 30–40% of its value and Lebanon is fast becoming a cash economy.
Bankruptcies, expanding poverty, and a general decline in living standards have become hallmarks of life for many Lebanese. Around 760,000 are considered extremely poor today, meaning that they live on less than $4 a day and cannot afford the basic caloric intake per day. Shortages in basic goods as well as fuel and medicine are becoming more apparent, while financial inflows have declined dramatically. Seven individuals are reported to have taken their lives in the last month as a direct result of the economic crisis.
The toolbox for addressing this calamitous economic and financial situation exists. An independent group of Lebanese development specialists, economists, and finance specialists recently outlined a plan to help overcome the crises in a way that would ensure equitable burden-sharing and protection of the most vulnerable. One hundred and fifty-one countries have gone through a financial crisis of sorts since the 1970s. Of these a mere 2% faced the simultaneous public finance, currency and banking shocks that Lebanon is facing. Of the countries that restructured their debt, most gained sufficient international support to go out and borrow again.
How policymakers address this challenge matters. A comprehensive approach is needed, in which different policies are implemented in parallel as part of a larger strategy. Yet recently parliament passed a budget for 2020 that assumed a significant reduction in debt servicing, without a clear road map for how to achieve this or an assessment of its impact on devaluation and inflation.
This is in line with current patterns of political behavior in the country. Despite the protests and the acute economic crisis, politicians have continued to fiddle, privileging their personal and political agendas over Lebanon’s interests. It took them three months to form a new government, and even then one that would preserve their representation in the system and protect their privileges.
However, this tragedy is not just about the present. It is also about the future and what it means for younger generations of Lebanese. Short-term measures on the economic front will only make the adjustment that much harder to deal with and will burden generations of unborn Lebanese with debt. Action on the economic and fiscal fronts, though badly needed, will remain insufficient. What months of protests by a broad cross-section of society have shown is that Lebanon is in need of a new social contract and a new political process.
Beyond declining economic conditions, a profound crisis of legitimacy is driving people into the streets to denounce their ruling class and the government it has formed. Protestors have called for early parliamentary elections and a new president. At face value, these demands are driven by mistrust of most state institutions and institutions of associational life, public or private, including the government, parliament, political parties, banks, the security services, media outlets, syndicates and labor unions.
Opinion polls illustrate this mood. In 2018, a Pew poll found that 77% of Lebanese said they did not trust their government to do what was right for Lebanon, while 84% believed the economic situation was bad. A majority of 80–85% expressed a lack of trust in institutions, including parliament, political parties and government. Confidence in the banking sector has plummeted while people are polarized with regard to the security services. Most media outlets are directly owned by politicians, while professional syndicates and labor unions have mostly been coopted by them.
The roots of the problem lie in a political and economic model that has characterized Lebanon since its independence in 1943. Politically, a national accord enshrined a power-sharing system based on sectarian identity. At the same time, Lebanon was billed as a merchant republic whose economy was primarily service oriented and rested on the twin pillars of banking secrecy and tourism.
This model was reaffirmed in the 1990s, after Lebanon’s civil war, during the phase of reconstruction. The political settlement that ended the war further institutionalized the sectarian power-sharing model. The dominant role of wartime sectarian politicians in the postwar period virtually ensured that they would share national wealth among themselves to fuel their patronage networks.
In parallel, the prominent role given to Hezbollah by Syria, the leading power in Lebanon between 1990 and 2005, transformed the country into a hub for the party’s “resistance” against Israel and its allies. While Beirut’s rebuilt downtown area was reconfigured as a center for leisure, a few kilometers away Hezbollah was building up its military. Today the party has become a vital defender of the corrupt sectarian order against the changes demanded by protestors, because the system effectively protects the party and its weapons.
These two sides of Lebanon’s schizophrenic character – the merchant republic alongside a militarized organization pursuing an agenda of resistance – reflected the uneasy regional balance that existed in the early years of the postwar period. Lebanon as a business hub open to the Arab world and the West embodied the interests of one of the sponsors of the postwar settlement, Saudi Arabia, and the kingdom’s main representative in Lebanon, the late prime minister Rafiq al-Hariri. Lebanon as a “resistance” hub mirrored the interests of Iran and Syria, the second regional sponsor of the agreement to end the war, who each for reasons of its own gained from the pursuit of conflict against Israel. Today, that implicit understanding no longer exists amid the Saudi rift with Iran and Syria.
Lebanon’s economic collapse is a further indication that the postwar model has reached its end. Capital inflows, particularly those from the Gulf, which sustained state spending have dropped. In part this is because of lower oil prices, which have impacted on the revenues of Lebanese expatriates living in the Gulf, but also a generalized feeling there that Lebanon has become an Iranian outpost.
What has also become apparent to the Lebanese is that their economic woes are at heart the consequences of a governance crisis. The dysfunctional sectarian system encouraged a culture of corruption and waste, allowing the political class to plunder the country. The system created an environment of equal opportunity abuse by the country’s elite at the expense of a majority of citizens. No single community has gained as a result of the system as the living standards of all Lebanese have declined. Meanwhile, the politicians are still focused on scoring political points while the country sinks into the abyss, keen to protect their vested interests in a political and economic order that can no longer sustain such behavior.
A financial crisis as profound as the one that Lebanon is facing today requires long-term solutions supported by a political process that reestablishes trust in the system. This must begin with early elections, based on a credible electoral law that reestablishes parliamentary legitimacy. In parallel, a national process to rethink Lebanon’s political framework has to be launched. This must be one in which all Lebanese, especially those who have taken to the streets or who see themselves as politically marginalized, feel that their concerns are addressed. Without this, the Lebanese will simply not be willing to silently bear the pain of necessary economic adjustments while their political leaders reap the benefits of a discredited political system. (Diwan 31.01)
11.2 JORDAN: IMF Reaches a Staff-Level Agreement on a Four-Year Extended Fund Facility
On 30 January, a visiting IMF mission and the Jordanian authorities reached a staff-level agreement on a new four-year program. It is centered on increasing growth and stimulating job creation, strengthening external and fiscal stability, increasing transparency, and improving social spending.
The structural reform agenda is designed to improve the investment climate and reduce costs to businesses, which will make it easier to create jobs while also protecting Jordan’s poor and most vulnerable. Financing support from Jordan’s international partners will be critical to support the government’s reform efforts.
The Jordanian authorities and a team from the International Monetary Fund (IMF) reached a staff-level agreement on a 48-month arrangement under the Extended Fund Facility (EFF) for around $1.3 billion. This agreement is subject to IMF management approval and Executive Board consideration, which is expected in March, following the completion of agreed prior actions. Following the conclusion of discussions, the IMF made the following statement in Amman:
“The agreed economic program, to be supported by an arrangement under the EFF, will reinforce the authorities’ ambitious macroeconomic and structural reform agenda for the next four years – an agenda underpinned by their five-year reform framework, which attracted significant support from the international community at the London Initiative in 2019. The authorities’ program aims at enhancing the conditions for more inclusive economic growth, particularly in light of the challenges posed by ongoing regional conflict and uncertainty. In this regard, the hosting of Syrian refugees is a testament to Jordan’s generosity and resilience. Donor support for this effort and for the program continues to be essential.
“Fiscal and monetary policies under the program will continue to safeguard macroeconomic stability; by reducing fiscal and external vulnerabilities in an equitable, growth-friendly and inclusive manner. A gradual and steady fiscal consolidation and reform path will help bring down public debt over the program period, while allowing sufficient space for social and capital spending. Monetary policy will continue to be anchored by the exchange rate peg, which serves the economy well. International reserves will be maintained at comfortable levels.
“In addition to macroeconomic stability, the program is centered on a pro-growth reform agenda – which is based on measures to improve tax administration and reduce tax evasion, as well as more effective public-sector investment, reduced business costs, and measures to improve government transparency and the investment climate. Key reforms include reduced electricity prices for businesses to improve competitiveness, together with development of a plan to reduce production costs and direct households’ subsidies only to those who need it. In addition, the authorities will introduce measures to help young people and women enter the labor force and will reform the Illicit Gains Law to improve Jordan’s asset-declaration system for public officials. This last measure will help improve accountability and raise public trust.
“GDP growth is projected to reach 2.1% in 2020 and will increase gradually in the coming years; reaching 3.3% over the medium term and reinforced by the program’s structural-reform timetable. Inflation will remain subdued in 2020, at under 1% (y/y), but is expected to converge to 2.5% over the next few years. External imbalances have narrowed – building on a significant improvement last year, in which the current account deficit fell from 7% of GDP to 2.9%, the deficit is expected to remain moderate over the medium term. (IMF 30.01)
11.3 KUWAIT: Staff Concluding Statement of the 2020 IMF Article IV Mission
The IMF recently concluded a visit to Kuwait as part of their regular Article IV Mission review.
Subdued oil prices and output are weighing on near-term growth prospects and external and fiscal balances.The current conjuncture and the exhaustible nature of oil underscore the need to diversify the economy and ensure adequate savings for future generations. While large financial assets, low debt, and a sound banking sector underpin Kuwait’s resilience, the recent run-up in spending has worsened the fiscal position and eroded liquid buffers. Without a course correction, the fiscal and financing challenges would intensify and the window of opportunity to proceed at a measured pace would narrow.
The Kuwaiti authorities have embarked on financial and structural reforms to boost private sector growth and employment of Kuwaitis.They are undertaking reforms to improve the business climate, strengthen competition, reduce the role of the state in the economy, deepen capital markets, and foster the development of small and medium enterprises. The needed fiscal adjustment however is proving difficult due to opposition to reducing the public wage bill, subsidies, and transfers, or introducing new taxes. To build broad support, the adjustment should be: (i) designed in a growth-friendly and socially equitable manner; (ii) supplemented by reforms to cut waste, improve the quality of public services, and strengthen government accountability and transparency; and (iii) accompanied by a vigorous communication campaign.
The IMF mission highly values the candid discussions with the authorities and expresses its gratitude for their hospitality and excellent cooperation.
Recent Macro-Financial Developments
1. Nonoil growth strengthened in 2019, but lower oil prices and output are weighing on the oil sector. Nonoil growth was propelled by strong government and consumer spending, the latter on the back of a credit recovery. Oil output however is expected to contract by 1%, broadly in line with the OPEC+ agreement. Taken together, this would bring overall growth to about 0.7% in 2019 from 1.2% in 2018. The current account surplus is estimated to have narrowed to 8½% of GDP in 2019 on account of lower oil exports. Inflation rose to 1.1%, reflecting higher food and transport prices and slower housing rent deflation.
2. While the consolidated fiscal balance improved in FY2018/19, the underlying fiscal position weakened. The nonoil balance excluding investment income fell by about 6% of nonoil GDP as government spending rose significantly. It grew by almost 25% in dinar terms from FY2016/17 to FY2018/19, mostly in hard-to-reverse expenditure categories. The public wage bill has grown by about 6% annually (despite low inflation) over the same period, as the government was compelled to absorb new graduates into the already oversized public sector. To make room for new labor force entrants, the retirement age for civil servants was lowered by 5 years, widening the state pension fund’s actuarial gap to about 45% of GDP.
3. Fiscal financing needs have remained large.The consolidated balance after mandatory transfers to the Future Generations Fund (FGF) and excluding investment income amounted to a deficit of about 8% of GDP in FY2018/19. With the new debt law awaiting parliamentary approval, the government has been unable to issue debt since October 2017. Instead, it has continued to rely on the General Reserves Fund (GRF) for financing.
4. Kuwait’s financial assets continued to grow, but readily available buffers declined. According to the mission’s estimates, assets of the Kuwait Investment Authority (KIA) surpassed 410% of GDP by end-2019, as the FGF continued to receive mandatory transfers from the government and generated strong returns on its assets. However, the continued drawdown from the GRF for fiscal financing reduced its estimated total and liquid balances to 56 and 24% of GDP by June 2019.
5. Credit has rebounded thanks to supportive prudential and monetary conditions.Credit growth accelerated, spurred by Central Bank of Kuwait’s (CBK) decision in late 2018 to increase ceilings on personal loans and supported by favorable monetary conditions. The CBK skillfully deployed various monetary policy instruments to support lending to the economy while maintaining the attractiveness of the dinar. As the Fed Funds rate rose in 2018, the CBK kept its policy lending rate unchanged (except in March), raising only the repo rate (a benchmark for deposits). While the CBK skipped the first two U.S. Federal Reserve interest rate cuts in 2019, it followed suit after the October cut. As a result, bank lending rates have remained broadly unchanged since 2018.
6. The banking system remains sound.The system wide capital adequacy ratio (CAR) reached 17.6% in September 2019, and banks have plentiful short-term liquidity. Nonperforming loans net of specific provisions stood at 1.2%, while loan-loss provisioning is high at 229%. Net interest income has declined due to a narrowing spread between bank lending rates and the cost of funds.
7. Equity markets outperformed. Equity markets have staged a recovery since mid-2016, in part benefitting from portfolio inflows thanks to the inclusion of Kuwaiti equities in the FTSE Russel and MSCI EM (expected in 2020) indices. MSCI Kuwait surged 29% in 2019, compared to 15% for MSCI GCC and MSCI EM, with market capitalization reaching an all-time high of $35 billion in December 2019.
Macroeconomic Outlook and Risks
Subdued oil prices and output are weighing on near-term prospects
8. Growth is expected to strengthen, but lower oil prices and uncertain output cloud the outlook.The mission’s projections are built on oil prices declining from $62 per barrel in 2019 to about $56 per barrel in 2023 and remaining broadly unchanged thereafter. The mission has assumed a small increase in oil output in 2020 consistent with the extension of the OPEC+ agreement through the year. Supported by government spending, employment, and credit growth, nonoil GDP could expand by 3% in 2020 and accelerate to 3½% over the medium term. With oil exports broadly flat and imports rising, the current account surplus would dissipate over the projection horizon. Inflation is expected to increase to 1.8% in 2020 as housing rents start to recover.
9. Credit is expected to accelerate, and further capital inflows are likely.As growth strengthens and capital projects come on stream, credit growth could pick up, supported by ample bank liquidity. The MSCI inclusion in May is expected to bring in about $3.5 billion inflows (2.3% of GDP), of which $2.6 billion would be passive inflows.
10. Risks to the outlook are to the downside, mainly from delays in reforms and a sustained drop in oil prices. Delays in fiscal reforms would further amplify fiscal financing needs while slow progress on the structural front would dampen growth. Weaker-than-expected global growth, including due to escalating trade tensions, could drive oil prices lower. If so, the OPEC+ agreement may linger longer than expected, and the oil output recovery projected after 2020 may not materialize. A sustained drop in oil prices would generate unfavorable macro-financial dynamics, with weakening fiscal and current account balances and widening financing needs. Heightened security tensions and a challenging geopolitical environment in the region could weigh on confidence, investment and growth.
Fiscal and financing challenges would intensify without a course correction
11. Fiscal measures envisaged by the government in the near-term are modest.Given the challenging context, the government is focusing on measures that are under its control and do not require legislative changes. It has identified a menu of streamlining options, which include: (i) closing loopholes in various social transfer programs, (ii) reprioritizing capital expenditure, and (iii) reducing waste, including by improving procurement. It also plans to raise nonoil revenue by: (i) introducing the long-planned excise on tobacco and sugary drinks, (ii) repricing government services, and (iii) strengthening revenue collection, especially utility payments.
12. Against this backdrop, the government’s financing needs are projected to grow rapidly. The consolidated fiscal balance would turn from a surplus of 5½% of GDP in 2019 to a deficit of a similar magnitude by 2025. After compulsory transfers to the FGF and excluding investment income, this would give rise to average annual financing needs of 20% of GDP or, cumulatively, some KD55 billion ($180 billion) over the next 6 years.
13. Covering such large financing needs will present a challenge. Under the current arrangement with respect to the FGF and without recourse to other financing sources, GRF’s readily available assets would be exhausted in less than two years. Total KIA assets however would continue to increase. The government is hopeful that parliament will approve the new debt law this fiscal year, which is reflected in mission’s projections. This should pave the way for the government to resume domestic borrowing almost immediately and tap international markets next year. Borrowing would help reduce drawdowns from the GRF allowing it to last longer. Assuming no legal restriction on borrowing, to finance the remaining gap, government debt would have to rise to over 70% of GDP in 2025 from 15% in 2019. While Kuwait’s very strong credit rating can underpin external borrowing and ample bank liquidity can be tapped through domestic issuance, the borrowing envelope over the medium term would be unprecedented.
Policy Discussions
A. Ensuring Long-Term Fiscal Sustainability
14. The mission underscores the urgency of adjustment to put the fiscal position on a sounder path.The looming depletion of liquid GRF assets is a symptom of the fiscal position being too weak to meet savings obligations with respect to the FGF. The mission estimates that larger transfers than currently set aside in the FGF would be needed to ensure equally high living standards for future generations. Even under an estimation approach that allows the current generation to run a somewhat higher deficit (i.e., consume a higher share of oil wealth), the nonoil balance in FY2025/26 would fall about 16% of nonoil GDP short of the level needed to ensure adequate savings for future generations. The mission therefore calls for a well-paced fiscal adjustment over the medium term to close this intergenerational savings’ gap and reduce financing needs.
15. The mission proposes an adjustment path that would close the intergenerational savings’ gap in 10 years. Under such scenario, total spending would decline to about 75% of non-oil GDP (from 100% now) – a level broadly consistent with that experienced during 2000-10. The proposed adjustment would weigh on growth, but the effect would dissipate over time as higher investment and structural reforms to unlock the private sector’s potential bear dividends.
16. The government needs to build consensus for fiscal adjustment.To gain broad support, the proposed fiscal measures should be part of a comprehensive reform package that fosters private sector growth and jobs, reduces waste and improves the quality of public services, and strengthens government accountability and transparency. Experience in other countries shows the need for pro-active and transparent communication to explain the rationale for adjustment, proposed measures, their expected costs and benefits, including distributional impact.
B. Putting Robust Policy Frameworks in Place
Fiscal framework
17. The mission recommends adopting a rules-based fiscal framework. The volatile and exhaustible nature of oil revenues poses a challenge to fiscal policy due to the inherent tension between long-term savings and near-term economic stabilization objectives. The current arrangement whereby 10% of revenue is transferred to the FGF, with remaining surpluses going to the GRF, allowed Kuwait to accumulate substantial savings. However, the arrangement does not ensure adequate savings for future generations. It imposes no constraint on “above the line” fiscal policy, with available financing acting as the only check.
18. The mission discussed a menu of fiscal rule options with the authorities.A well-calibrated rule would ensure that future generations enjoy a broadly similar standard of living as the current one. It would also help insulate the economy from oil price fluctuations by preventing spending run-ups during episodes of high oil prices and protect government spending decisions from political pressures. The mission emphasizes that for any rule to be effective, it should be enshrined in a sound institutional framework that includes political commitment, sound public financial management, comprehensive budget reporting, and transparent accounting practices.
19. The current arrangement with respect to the FGF should be maintained until a properly calibrated fiscal rule is firmly in place.Even as the new rule is implemented, the stock of FGF assets should not be tapped. This is crucial for preserving the nation’s oil wealth for future generations. While the FGF was tapped for the reconstruction after the Iraq war, doing so in normal times would set an unfortunate precedent and postpone fiscal consolidation.
20. The mission encourages the authorities to continue strengthening fiscal governance.Addressing remaining governance weaknesses can help improve the efficiency of spending and reduce vulnerabilities to corruption. The authorities are strengthening independence and building capacity of the Anti-Corruption Agency, which administers the asset declaration regime where compliance reached 91% in 2019. The mission calls for renewed efforts to accelerate the implementation of the procurement law adopted in 2017, including launching e-procurement. To that end, the government plans to review procurement practices with the help of the World Bank. It is also considering conducting a public expenditure review in the health sector. Undertaking a public investment management assessment (PIMA) and a Fiscal Transparency Evaluation would provide a comprehensive roadmap for strengthening governance of public investment and fiscal transparency. The mission encourages the authorities to further improve transparency of oil wealth management, by disclosing information on the value chain from the point of extraction to how revenues make their way through the government and KIA’s financials.
21. There is a need to improve the management of fiscal risks stemming from state-owned enterprises (SOEs) and public-private partnership (PPPs). As a first step toward enhanced oversight of SOEs, the Ministry of Finance (MoF) should systematically analyze fiscal risks stemming from their activities, including borrowing. The MoF should also gather comprehensive information on PPPs and quantify related contingent liabilities.
Monetary and Financial Sector Frameworks
22. The mission considers the pegged exchange rate regime to be appropriate. The peg to an undisclosed basket has provided an effective nominal anchor and limited exchange rate flexibility during a period of dollar strength. The pegged exchange rate puts a greater onus on fiscal policy to support stability and facilitate external adjustment. The mission’s external sector assessment shows that the estimated current account gap would close under the proposed fiscal adjustment. The mission notes that, as the economy becomes diversified, the arrangement should be periodically reviewed to ensure that it continues to serve Kuwait well.
23. The mission commends the CBK for prudent regulation and supervision which have helped keep the banking sector resilient. The mission supports CBK’s plans to conduct a comprehensive inventory of macro-prudential tools to ensure that they continue to promote financial sector resilience, prevent buildup of systemic risks, and carefully balance financial stability and growth objectives. Plans to upgrade stress-testing techniques and early warning indicators are welcome. The mission supports the recent decision to remove preferential (zero) risk weights for exposures to GCC sovereigns in the calculation of risk-weighted assets.
24. The mission supports ongoing efforts to strengthen supervisory and regulatory frameworks. To enhance risk-based supervision, the CBK is planning to better integrate its on- and off-site supervision functions, including through cross-training of staff. The mission welcomes progress towards establishing a centralized Shariah Board at the CBK, as this would reduce risks from inconsistent interpretation of Shariah law in Islamic banks.
25. The authorities should continue efforts to strengthen crisis management and resolution framework. Reforms should focus on revamping the existing framework to promote orderly resolution of banks, reduce moral hazard, promote market discipline, and help safeguard fiscal resources. To that end, the authorities have prepared a draft law on banking resolution, currently in the cabinet, and initiated internal discussions on the appropriate setup for a deposit insurance scheme in Kuwait. To promote greater coordination between agencies overseeing the financial sector, the CBK has updated the memoranda of understanding with the Capital Markets Authority and the Ministry of Commerce and Industry. A draft law, currently in parliament, assigning the CBK an explicit financial stability mandate and establishing a Financial Stability Committee (FSC) would create a more structured framework for supervision and crisis resolution. Given the banks’ dominant share in the financial system, the CBK should take a leading role in the technical work of the FSC.
26. The mission sees scope to further enhance the liquidity management framework. With IMF assistance, the CBK has operationalized its liquidity forecasting tool, including through formalization of information sharing agreements with relevant entities. The mission is encouraged by progress in extending the forecasting framework beyond the short-run horizon. This has allowed the CBK to better anticipate potential system-wide pressures. The mission recommends further refinements in the liquidity management framework to allow market forces to play a bigger role in the pricing and allocation of liquidity.
27. The mission recommends a gradual relaxation of lending rate caps. While established corporations already borrow at below the applicable lending rate cap, a gradual relaxation could expand access to credit to a wider segment of the corporate sector and SMEs. It would also reduce concentration of loans over time and promote lending at longer maturities, which would encourage investment. The mission welcomes recent amendments to the law on credit information that have enabled the credit bureau to start gathering credit information on businesses and enhance data collection on retail borrowers. As a comprehensive nationwide rating system is established and banks are better able to price risk, the CBK could consider gradually relaxing the interest rate cap on consumer loans as well. The mission believes that the CBK has a wide menu of macro- and micro-prudential tools to arrest potential risks to financial stability, while its commendable efforts in strengthening consumer protection, including by enhancing financial literacy, would help mitigate risk to individual borrowers.
Statistics
28. The mission welcomes efforts to enhance the coverage and quality of statistics. The mission commends the Central Statistical Bureau (CSB) for starting to disseminate quarterly national accounts data. The CSB is conducting a household consumption and expenditure survey and laying the groundwork for the 2020 establishment census, which will help to more accurately capture economic activity and update the base year of the national accounts.
C. Promoting Private Sector-Led Growth and Economic Diversification
29. Weaning the economy off oil hinges on the emergence of a vibrant nonoil sector that creates jobs for the growing labor force.With scope for public sector employment growth limited, the private sector needs to absorb most of 100,000 Kuwaiti nationals (22% of the current Kuwaiti labor force) expected to enter the job market in the next 5 years. To tip the balance toward greater private sector employment of Kuwaitis, the large public-private wage premium should be reduced and accompanied by education reforms to address skill mismatches. The mission welcomes authorities’ efforts to promote SMEs given their potential to create jobs, including launching a comprehensive assessment of barriers to SME development.
30. Reducing the role of the state is paramount for improving economic efficiency, competitiveness and diversification. The government is looking into PPPs and privatization as a way to raise productivity and encourage a greater role of the private sector. To ensure that PPPs provide value for money, they must be implemented transparently and competitively, and fiscal risks should be limited. The mission encourages the authorities to more effectively address anti-competitive practices and promote competition, including by empowering and strengthening the operational independence of the Competition Promotion Agency. The competition framework should aim for a “competitive neutrality” to even the playing field between private firms and government-owned commercial entities which are currently exempt from the competition law.
31. The mission welcomes sustained progress in improving the business environment. Kuwait jumped in the 2020 Ease of Doing Business ranking thanks to improvements in starting a business, getting electricity, access to credit, and trading across borders. The mission is encouraged by authorities’ plans to further streamline registration, expedite the issuance of business and import licenses, and remove regulatory barriers to FDI. More action is needed to improve the efficiency of courts in ruling over commercial cases and expedite contract enforcement. When passed, the draft insolvency law that aims to revamp insolvency regulations and modernize bankruptcy proceedings would remove an important obstacle to doing business in Kuwait. (IMF 27.01)
11.4 SAUDI ARABIA: Saudi Arabia e-Commerce Market to Reach Nearly $24 Billion by 2026
The “Saudi Arabia E-Commerce Market report has been added to ResearchAndMarkets.com ‘s offering.
Saudi Arabia has experienced a steady shift from offline shopping to online shopping in the recent past. Being the largest among the GCC countries, the Kingdom of Saudi Arabia has a population of over 34 million. The population is highly urbanized as more than 84% of the country living in urbanized areas, with super-fast internet connections. With such an affluent population, Saudi Arabia is poised as an attractive market for e-Commerce offering huge potential for industry players. Moreover, Saudi Arabia has an overwhelmingly young and rich population as the country is ranked among the top 20 richest countries by spending power, the high-spending power of the country’s citizens is a driving factor in the growth of e-commerce.
Realizing the potential of the e-Commerce market in the country, the Saudi Government has taken a number of steps to boost the market. The Saudi Ministry of Commerce and Investment (MOCI) has introduced a new Electronic Commerce Law (the E-Commerce Law), effective as of 9th October 2019.
E-commerce is recognized as one of the pillars of Saudi Arabia’s Vision 2030 under the National Transformation Program and the government aims to increase the contribution of modern trade and e-commerce to 80% in the retail sector by 2030. Also, the Saudi Arabian government is planning an investment of over $ 100 billion in the development of logistics infrastructure to boost ecommerce growth in the region.
By Segments – Saudi Arabia E-Commerce Market & Forecast
On the basis of segments, the Saudi Arabia e-Commerce market is dominated by the fashion segment. Availability of international brands and presence of trending products on such online platforms with varied offers and discounts are the major factors which have driven sales of fashion products on e-commerce portals. The demand for Electronics & Media products in Saudi Arabia is increasing at a rapid pace. The ability to compare product features, search for low prices and read reviews makes the web a good fit for electronic products.
The growing number of real estate development, and increasing demand for residential property along with the governmental initiatives to develop socio-economic infrastructure is driving the whole Furniture & Appliances industry in the Kingdom. Personal Care products are no more restricted to being used on special occasions, but are gaining prominence as part of women’s daily regimen. Moreover, backed by growing trend of workplace gender equality in the country, the women workforce is continuously expanding, which in turn, is aiding Saudi Arabia Personal Care products market.
By Payment Methods – Saudi Arabia E-Commerce Market & Forecast
Among the various methods of payment, Cash on Delivery is the most widely used method of payment by Saudi Arabian online shoppers. However, Cards and Wallets are expected to grow at the highest rate during the forecast period. During the past few years, several wallets that operate via smartphones were launched such as Apple Pay, Mada Pay, STC Pay and BayanPay. Meanwhile, Bank transfers as a means of payment are widely used by buyers who may not have credit cards or simply prefer to transact through a bank.
By Device Types – Saudi Arabia E-Commerce Market & Forecast
In terms of devices, Mobiles are the most preferred devices for online shopping as it held maximum share of the Saudi Arabia e-Commerce market. With one of the highest smartphone penetrations in the world, Saudi consumers are looking more towards their phones for product information and purchases. As technological savviness is rapidly growing due to the high mobile and internet penetration rates, a gradual decline in shopping via desktop is being observed in Saudi Arabia e-Commerce market.
Saudi Arabia E-Commerce Market – Company Analysis
11.5 EGYPT: Greenback Weakening in Egypt as the Economy Improves
Ahmed Elleithy posted in Al-Monitor on 24 January that Egypt’s pound continues to grow stronger against the US dollar in 2020, thanks to gains in foreign investment, tourism and exports.
Egypt’s pound may keep gaining momentum against the US dollar in 2020, thanks to improving macroeconomic indications and the rising influx of the greenback, traders and economists say. “The dollar may weaken to below 15 pounds (95 cents as of 21 January) in the coming few months if the present ratio of decline continues,” Ali al-Hariri, secretary-general of the foreign exchange bureau division at the Federation of Egyptian Chambers of Commerce, told Al-Monitor.
On 19 January, he said the dollar had lost at least one piaster (1 pound equals 100 piasters) a day over the past two weeks, noting that on 14 January alone it declined by 10 piasters. “The US dollar stood at 16.09 [pounds] at the beginning of 2020. It has lost more than 0.16 pounds since 1 January. It may fall below 15 pounds in the first quarter of 2020 in the wake of the recent ratio of decline. The pound has been strengthening as inflow of the US dollar has been on the rise as the economy improves,” Hariri added.
By the end of last year, the dollar was trading below 16 pounds for the first time since Egypt floated its currency on 2 November 2016. The dollar declined to 15.98 pounds on 27 December.
As for the outlook this year, Hariri said the US currency will witness further declines as the hard currency influx gets a boost from tourism, exports and remittances from Egyptian expatriates and foreign investment. “There are no reasons the dollar would rise versus the pound again. The downtrend will continue as the economy grows,” Hariri added.
The World Bank said in Egypt’s Economic Update on 9 October that “assuming a continuation of macroeconomic reforms and a gradual improvement in the business environment, economic growth is expected to reach 6% by [fiscal year 2020/21], supported by a recovery in private consumption, investments and exports (notably in tourism and gas).”
“The current account deficit is expected to hover around 2.6% of [gross domestic product] (compared to 2.4% in FY18) due to the balancing effects of an expected improvement in the services trade surplus, against a decline in private transfers (if remittances — especially from the Gulf — continue to inch downwards),” the World Bank added.
Banker Hani Abol Fotouh told the local private TV channel DMC on 16 January that the dollar has fallen by 10.5% since December 2017. Mostafa el-Fiky, senior treasurer and head of planning and financial analysis at oil and energy company Saipem Egypt, agreed with Hariri, forecasting more gains for the pound. “Dollar inflow has invigorated the pound since the beginning of the year. In fact, the greenback has been weakening since the end of December, with the US currency falling below 16 versus the pound,” Fiky told Al-Monitor on 17 January. “We should keep in mind that the fair value of the dollar stands at around 12 to 14 pounds on the local market.”
The Central Bank of Egypt said 13 January that local banks received inflows worth $1.7 billion on the four business days between 8 and 13 January from foreign funds investing in Egypt’s treasury bills and the stock market. “There are abundant foreign reserves at the Central Bank, which can easily cover any outflows of hot money anytime. I don’t think the dollar will strengthen again on the local market as we used to see in the past,” Fiky said.
Egypt’s foreign reserves stood at $45.42 billion at the end of December, according to data from the Central Bank of Egypt. Higher foreign reserves have strengthened the local currency versus the dollar. The country’s foreign reserves rose by $2.9 billion, or 6.7%, in 2019, the same data showed.
Fiky said the dollar has been weakening thanks to the Egyptian government’s strategy to rein in imports and increase non-oil exports. “That has resulted in a narrower deficit in Egypt’s trade balance,” he noted.
According to a 26 December Central Bank statement, Egypt’s balance of payments posted a surplus of $227.3 million in the first quarter of fiscal year 2019/20, which began on 1 July. The deficit in the trade balance fell to $8.2 billion in the first quarter of fiscal 2019/20, down from $9.2 billion in the same period a year ago. Non-oil exports rose by $707.3 million to $4.7 billion in the first quarter of the 2019/20 fiscal year, compared with the same quarter a year earlier, according to the Dec. 26 Central Bank statement.
Ahmed Elleithy is an Egyptian reporter and financial columnist who has been writing for various local and international newspapers and news portals since 2004. (Al-Monitor 24.01)
11.6 TUNISIA: The Risks to Democracy
Jake Walles posted in Diwan on 03 February that Tunisia’s political and economic model has to be changed if the population is to enjoy freedom and dignity.
Tunisia is widely admired as the only success story of the Arab Spring. Its democratic achievements are indeed admirable. The country held free and fair elections in 2011, 2014, and 2019. It enshrined basic rights in a new democratic constitution in 2014. Tunisia also overcame serious security challenges between 2012 and 2015. In contrast to the other countries in the region that faced popular uprisings in 2010–1011—Egypt, Syria, Libya and Yemen—Tunisia is the only one that emerged as a functioning democracy.
However, today the country seems adrift, unable to move forward either economically or politically. The economy has been stuck for years in a pattern of low growth and high unemployment. The political system has so far been unable to translate the results of the parliamentary elections of 2019 into an effective government. While popular support for the democratic system remains strong, the lack of progress in the economic and political spheres is putting the country’s democratic transition at risk. Further efforts to address these weaknesses are needed to put the country back on a more secure path.
Tunisians generally describe the essential objectives of the 2011 uprising as “freedom and dignity.” The “freedom” goal has seen much success. Political parties of all stripes compete freely in elections, the press operates largely without restrictions and a vibrant civil society keeps tabs on the political process. But when it comes to “dignity,” most Tunisians express disappointment in what has been achieved. While the search for dignity has many aspects, a key underpinning is the ability to gain the economic resources to live a life in a dignified way—getting married, owning a home, raising children. Yet Tunisia’s economy has not produced the jobs and economic opportunities that are necessary to enable such a life for many people, especially in the country’s impoverished interior.
Turning this situation around will require significant changes to the Tunisian economic model. Addressing endemic corruption in the system is essential—this was a major theme in the recent elections—but it is not enough. The environment for starting or operating a private business remains much too restrictive. The next government must tackle the web of regulations that stifle the private sector and facilitate corruption. In addition, it needs to create incentives for entrepreneurs to expand beyond traditional export sectors and markets. Tunisia needs to do more to leverage its well-educated workforce and prime location between Europe and Africa to expand the volume and value of its exports.
The presidential and parliamentary elections in 2019 produced an unusual outcome. It brought to power a president, Qaïs Sa‘id, with no previous experience in government and no organized political base, alongside a fractured parliament unable to agree on the composition of a new government. In early January, prime minister-designate Habib Jemli’s proposed cabinet was overwhelmingly rejected by parliament. Sa‘id has now nominated a former finance minister, Elias Fakhfakh, as prime minister. He will have a month to form a government. If he also fails, new elections will have to be held.
Tunisia seemed to emerge from the previous elections in 2014 with the beginnings of a two-party system. The Islamist Ennahda, led by Rashed Ghannouchi, and Nida’ Tounes, founded by the late president Beji Caïd Essebsi, dominated the parliament that was elected in 2014. Between them, these two largest parties held 155 out of 217 seats.
Nida’ Tounes, however, quickly began to unravel in 2015, as its disparate elements lacked a common ideology other than their opposition to Ennahda. Successive splits within the party resulted in a proliferation of smaller parties in the non-Islamist camp. By 2019, Nida’ Tounes itself gained only 1.5% of the vote and essentially disappeared from the political landscape.
Ennahda has also lost much ground in recent years, dropping from 27.8% of the vote in the 2014 parliamentary elections to 19.6% in 2019. Its influence declined further when Jemli, its candidate for prime minister, was unable to win a parliamentary vote of confidence earlier this month. Aside from Ennahda, only one other small Islamist party supported Jemli.
Whether a new government is formed by Fakhfakh, or whether new elections are held, Tunisia’s next government should give priority to addressing the country’s urgent need for economic reform. This will not be easy, as vested interests that have done well under the current system will continue to resist change. Political leaders from a broad swath of parties will need to put aside their ideological differences to focus on the need for economic progress. Sa‘id could play an important role in making this possible. He could, for example, convene stakeholders from government, the business community and organized labor to begin a dialogue to agree on general principles to move the economy forward.
The country also needs to consider how to reform the political system to prevent a repeat of the results from the 2019 parliamentary elections, when some 20 political parties made it to parliament, not counting independent lists. Only two parties—Ennahda and Nabil Qaraoui’s Qalb Tounes, or Heart of Tunisia Party—got more than 7% of the vote. An astonishing thirteen parties made it into parliament with less than 3% of the vote. This situation is not healthy for a democratic system and Tunisia should consider establishing a threshold for parliamentary representation. This would force smaller parties to combine, making for a more manageable, less fractured legislature. This too will not be easy, as changes to the electoral law will require the assent of the existing parliament and its assemblage of small parties.
Tunisia still has much to be proud of in the nine years since it rid itself of the authoritarian regime of former president Zine al-‘Abedin bin ‘Ali. But if it wishes to continue to move forward with its democratic transition, some serious reform is needed to promote economic development and streamline the political process. (Diwan 03.02)
11.7 GREECE: Fitch Upgrades Greece to ‘BB’; Outlook Positive
On 24 January 2020, Fitch Ratings upgraded Greece’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BB’ from ‘BB-‘with a Positive Outlook. The upgrade of Greece’s IDR reflects the following key rating drivers and their relative weights:
High
General government debt sustainability continues to improve, underpinned by a stable political backdrop, sustained GDP growth and a continuing track record of fiscal outperformance against targets. The Positive Outlook reflects improved prospects for political stability and policy implementation following the July parliamentary election and greater confidence that general government debt will fall at a steady pace.
The Greek government, led by Kyriakos Mitsotakis, has made swift progress in reducing tax rates on labor and capital and starting to address banking sector asset quality issues. It is also making efforts to provide new impetus to the privatization program. In our view, these developments underpin Greece’s macroeconomic outlook and enhance confidence that the relationship with EU creditors will remain constructive. For now our estimate for trend GDP growth is unchanged at 1.2% but tangible progress in the government’s policy agenda (aimed at improving the business climate and attracting private investment) could underpin an improvement in medium-term GDP growth.
We have greater confidence that the fiscal stance will remain prudent. We expect Greece’s general government primary surplus to have reached 4% of GDP in 2019, above the 3.5% target. This is the fourth consecutive year in which Greece has outperformed targets agreed with EU creditors. We expect the primary surplus to decline to 3.5% and 2.5% of GDP in 2020 and 2021. The government intends to renegotiate the fiscal target from 2021 onwards as part of an agreed process with the EU institutions that would take account of the fiscal and growth outturns, and implementation of reforms. A reduction of the target by 1pp of GDP could provide substantial stimulus to the economy.
General government debt is set to decline steadily from the peak of 181.2% of GDP in 2018 to 161% by 2021. Although the stock of general government debt will remain high over a prolonged period, there are mitigating factors that support debt sustainability. The concessional nature of Greece’s public debt means that debt servicing costs are low; 94% of general government debt is at fixed interest rates, which implies low sensitivity to interest-rate shocks, and the average maturity of Greek debt (21 years) is among the longest across all Fitch-rated sovereigns. Interest payments to revenue at 6.2% are well below the current ‘BB’ and ‘BBB’ medians (7.8 and 7.1%, respectively). The nominal effective interest rate on Greece’s general government debt stock is well below that of most Eurozone peers. Moreover, Greece further consolidated its presence in international capital markets in 2019 and this enhances its fiscal financing flexibility.
The more stable political backdrop and evidence of swifter policy implementation are likely to result in further improvements in both the “political stability” and “government effectiveness” percentage ranks, which are part of the composite World Bank Governance Indicator (WBGI). An improvement in governance is important within the context of Fitch’s sovereign rating assessment. Structural features carry the heaviest weight in Fitch’s Sovereign Rating Criteria and, within these, governance indicators carry the heaviest weight in our Sovereign Rating Model.
Fitch has revised the Country Ceiling to ‘BBB+’ from ‘BBB-‘. It is now four notches above the Long-Term Foreign Currency IDR, up from three previously. The revision follows the full lifting of capital controls in September 2019. However, it remains below the maximum possible six-notch uplift for Eurozone member states, owing to the weakness of the banking sector and the very recent history of capital controls.
Medium
The Greek economic recovery gathered pace in 2019, with GDP growth increasing to 2.2% from 1.9% in 2018 against the backdrop of a weakening external environment. The export sector proved particularly resilient. Consumer and business confidence indicators are at multi-year highs while capital controls were fully lifted in September 2019. We expect real GDP growth of 2.5% in 2020 and 2021. Pent-up investment demand, a declining unemployment rate, rising disposable income and a gradual reduction in the large budget primary surpluses are set to support domestic demand.
The outlook for medium-term GDP growth depends on the recovery of gross fixed investment, which remains 62% below its 2008 level and is the lowest among all EU member states (relative to GDP). The underlying investment trend remains weak. Gross fixed capital formation grew by 2%yoy in Q1-Q3/19. The European Commission estimates medium-term potential growth to be in a wide range of 0.6%-2.0% while the IMF’s estimate is 0.9%. In our medium-term debt dynamics calculation, we use the assumption of real GDP growth gradually slowing to 1.2% by 2027.
Asset quality in the banking sector continues to improve. Greek banks are reducing their high stock of non-performing loans (NPL) mainly driven by asset sales, although on an aggregate basis NPLs still represented a very high 42.1% of the sector’s gross loans at end-September 2019. Fitch expects banks to accelerate the pace of reduction in 2020 by using the recently approved “Hercules” Asset Protection Scheme, which provides a state guarantee of up to €12 billion on senior tranches. However, banks’ asset-quality clean-up plans, which aim to reduce non-performing exposure ratios in two to four years to single digits remain sensitive to Greece’s operating environment and investors’ appetite for distressed assets, as well as the effectiveness of the legal framework.
Greece’s ‘BB’ IDRs also reflect the following key rating drivers:
Greece has high income per capita levels, which far exceed ‘BB’ and ‘BBB’ medians. The profile of Greece’s general government debt stock is exceptionally favorable and fiscal performance over the last four years has been strong relative to ‘BB’ category peers. Governance indicators are also significantly stronger than in most sub-investment-grade peers. These strengths are set against weak medium-term growth potential, an extremely high level of non-performing loans in the banking sector and high stocks of general government debt and net external debt.
Greece’s cash reserves are high at €26.8 billion (14.5% of GDP) and have remained undrawn since the end of the program in August 2018. The cash buffer covers Greece’s gross financing requirement well beyond 2021, providing a significant backstop against refinancing risk. Yields on Greek bonds have decreased markedly: the 10-year yield was 1.4% in early 2020, down from 4.3% a year earlier. Greece has completed the early repayment of the most expensive part (€2.7 billion) of the outstanding IMF loan.
The 2020 budget includes a package of growth-friendly measures (0.6% of GDP) aimed at reducing tax rates and increasing social benefits for families. The fiscal adjustment since 2015 has been remarkable but has relied heavily on tax revenue and under-execution of capital spending. In Fitch’s view, the 2020 budget constitutes a first step towards rebalancing the fiscal policy mix. The broad shift from taxes on labor and capital towards less distortionary taxes (e.g. property tax) has the potential to support private investment and employment. The cuts to personal income tax target the lowest income households and should therefore have a higher multiplier effect on GDP growth.
The improvement in the sovereign and banks’ funding conditions paved the way for the complete lifting of capital controls in September 2019. Banks’ funding and liquidity profiles continue to improve, helped by deposit inflows and better access to market financing, supported by a return of depositor and investor confidence. Liquidity buffers are still fairly low but increasing. Banks’ capital ratios are above minimum requirements but capitalization remains highly vulnerable to asset quality shocks given high capital encumbrance from unresolved problem assets. The recovery in real estate prices supports collateral values and investor appetite for Greek distressed assets.
External finances are a rating weakness. The stock of net external debt (123% of GDP) and the net international investment position (-134% of GDP) are significantly worse than the ‘BB’ medians (19% and -25% of GDP). Risks are mitigated by the large share of liabilities owed to official creditors but the large stock exposes the country to swings in market sentiment. The current account balance has improved significantly (-2.5% in 2019 from -14.5% of GDP in 2008) but remains negative due to the large import content of Greek exports. Improved external competitiveness, a solid increase in tourist arrivals and the composition of goods’ exports (that tend to be less sensitive to cyclical moves in external demand) have underpinned exports’ growth in 2019 (9.5% in Q3/19).
Rating Sensitivities
Developments that could, individually or collectively, result in positive rating action include:
Key Assumptions
We assume that the Greek government and the European creditors will agree a reduction in the primary surplus target from 2021 onwards. More broadly, we assume that the Greek government will maintain a constructive relationship with its creditors. This reduces risk of confrontations that in the past have generated financial instability.
In our debt dynamics calculation, we assume no drawdown of the large cash buffer. Use of the cash buffer could result in a more marked reduction in the stock of general government debt relative to our baseline. (Fitch 24.01)
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