Fortnightly, February 25th 2015

Fortnightly, February 25th 2015

February 25, 2015
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TABLE OF CONTENTS:

 1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1  Israel to Launch $4 Billion Wave of Privatizations in 2015
1.2  Bank of Israel Sets Interest Rate at Historic Low
1.3  Israel Railways Issues NIS 3 Billion Electrification Tender

2:  ISRAEL MARKET & BUSINESS NEWS

2.1  Microsoft Buys Digital Pen Maker N-trig
2.2  Israel Led in London IPOs in 2014
2.3  Perion Acquires MakeMeReach, Adding Social Media
2.4  MTS to Acquire Vexigo
2.5  Fox Launches Charles & Keith Footwear Chain in Israel

 3:  REGIONAL PRIVATE SECTOR NEWS

3.1  Alghanim & Wendy’s Announce Middle East Partnership
3.2  lululemon To Open Stores Across Arabian Gulf
3.3  Pret To Go Announces Dubai Expansion Plan
3.4  UK’s Dune Targets Saudi Arabia for Expansion in 2015
3.5  MOOYAH Opens First Restaurant in Riyadh, Saudi Arabia
3.6  Riyadh Selects TransCore to Deploy Traffic Management System

 4:  CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1  Hebrew University Switches To Using Only Recycled Paper

5:  ARAB STATE DEVELOPMENTS

5.1  Lebanon’s Healthcare Expenditures to Reach $3.74 Billion in 2015
5.2  Lebanon Ranks 94th on the Global Retirement Index
5.3  Iraq Ranks Second in Global Oil Supply Growth

♦♦Arabian Gulf

5.4  GCC Sees $67.6 Billion Construction Projects Completed in 2014
5.5  Saudi Arabia & UAE Control 74% of Gulf’s Private Wealth
5.6  Kuwait’s Budget Surplus Shrinks 26% on Lower Oil Prices
5.7  Qatar’s Foreign Trade Surplus Shrinks by Nearly 33%
5.8  Qatar Signs Deal for Doha Metro Driverless Trains
5.9  Oman’s GDP Reaches OMR23.6 Billion in 2014
5.10  Saudi Arabia’s Inflation Set to Remain Stable in First Quarter
5.11  At Least 650,000 Saudis Receiving Unemployment

♦♦North Africa

5.12 Decline in Oil Price Saves Egypt EGP 30 Billion
5.13  Egypt Approves Law Privatizing Electricity Production & Transmission
5.14  Morocco Ranks 2nd in Africa for Bloomberg’s Emerging Markets
5.15  Benkirane Calls for Adopting English as First Foreign Language in Morocco

6:  TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1  Greece Reform Plan Offers Major Compromises

7:  GENERAL NEWS AND INTEREST

♦♦ISRAEL:

7.1  Baghdad Appoints First Female Mayor

♦♦REGIONAL:

7.2  Dubai Customs Seize 10,000 Black Magic Items at Airport
7.3  Saudi Arabia Mulls Jail & Fines for AIDS Discrimination

8:  ISRAEL LIFE SCIENCE NEWS

8.1  Games Motivate Kids To Develop Skills Through Play
8.2  Evofuel Expands Castor Activity in Brazil with Insolo
8.3  Teva Launches Generic Lovenox and Zyvox in the US
8.4  Teva Licenses Eagle’s Bendamustine Rapid Infusion Product
8.5  Evogene Introduces Biology Driven Ag-Chemical Discovery Platform
8.6  Israel’s Wine Industry Hits $220 Million in 2014; $40 Million in Export
8.7  Rainbow Medical Raises $25 Million from Chinese Investors

9:  ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1  Ecoppia Strengthens Water-Free Solar Panel Cleaning
9.2  Giraffic Extends Acceleration Technology to Mobile Devices
9.3  Tier 1 Chinese Operator to Deploy RAD’s Miniature Programmable NIDs
9.4  nFrnds & Microsoft Turning 5 Billion ‘Dumb’ Phones Into Smartphones
9.5  Ginger Introduces “Smart Bar” for its Android Keyboard

10:  ISRAEL ECONOMIC STATISTICS

10.1  Israel’s CPI Falls By 0.9% in January
10.2  Israeli Economy Grew by 7.2% During Last Quarter
10.3  Israel’s January Job Figures Show Improvement
10.4  Israeli Home Sales Break 13 Year Record

11:  IN DEPTH

11.1  ISRAEL: ‘A+/A-1’ Ratings Affirmed; Outlook Stable
11.2  IRAQ: Kurdistan Needs an Estimated $1.4 Billion to Stabilize the Economy
11.3  GCC: Heavily Dependent on Expatriate Healthcare Workforce
11.4  BAHRAIN: S&P Downgrade to ‘BBB-/A-3’ After Decline in Oil Prices
11.5  SAUDI ARABIA: S&P Outlook to Negative Following Oil Price Decline
11.6  IRAN: Billion Dollar Smuggling Industry Drains Iran’s Economy
11.7  EGYPT: Russia and Egypt’s ‘New Partnership’
11.8  EGYPT: Knockoff Drugs Endanger Egyptians
11.9  TUNISIA: Tunisia’s Unstable Majority Government
11.10  ALGERIA: Year in Review 2014
11.11  MOROCCO: IMF Executive Board Concludes 2014 Article IV Consultation

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Israel to Launch $4 Billion Wave of Privatizations in 2015

A decade after Jerusalem last sold off its state-owned enterprises, a senior Finance Ministry official said stakes will be offered in electric, rail, water, and mail companies, as well as 2 ports and defense firms. Israel will begin selling major stakes in a number of state-owned companies in November or December despite any political uncertainty created by elections next month. The government aims to sell all or part of eight companies and two ports by 2017, raising around 15 billion shekels ($3.9 billion) in a plan announced in October. Of the 87 companies that remain in government hands, the 10 set to be sold generate nearly 90% of revenue.

With Knesset elections set for 17 March, a new government may not be in place until the middle of 2015 given the difficult process of forming a ruling coalition. This should not impede the government’s floating up to 49% of the Ashdod port – one of two main seaports on the Mediterranean coast – on the Tel Aviv Stock Exchange (TASE) in November or December. The controlling stake will be sold in 2020.

As part of the privatization plan, which will help pay down Israel’s debt and improve efficiency, Israel also aims to privatize or sell minority stakes in Israel Electric Corp, Israel Railways, water company Mekorot, the Israel Postal Authority, the Haifa seaport and defense contractors Rafael and Israel Aircraft Industries – all on the Tel Aviv market. The last privatizations took place from 2003-2007, when the state sold stakes in two of its largest banks – Leumi and Discount – flag carrier El Al, shipping line Zim, Israel Oil Refineries and Bezeq, Israel’s largest telecoms company. Israel has tried to privatize the Israel Electric Corp over the years but union opposition has been a major hindrance. (Various 18.02)

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1.2 Bank of Israel Sets Interest Rate at Historic Low

After a several-month period of keeping interest rates steady at 0.25%, the Bank of Israel lowered the rate to 0.1% on 23 February. The new figure, which will become effective in March, is the lowest in Israel’s history. The new interest rate is 0.4% lower than during the height of the global financial crisis in 2009, when Governor Stanley Fischer headed the bank. The Monetary Committee’s decision to reduce the interest rate for March 2015 to 0.10% is consistent with the Bank of Israel’s monetary policy, which is intended to return the inflation rate to within the price stability target of 1 to 3% a year over the next 12 months, and to support growth while maintaining financial stability. The path of the interest rate in the future depends on developments in the inflation environment, growth in Israel and in the global economy, the monetary policies of major central banks, and developments in the exchange rate of the shekel.

The bank said the decision was prompted by the continued appreciation of the shekel against the dollar, which “was liable to weigh on growth in the tradable industries – exports and import substitutes.” The move was also designed to avoid negative inflation, as indicated by lower Consumer Price Index levels. The bank noted that the recent 0.9% drop in the CPI was expected to be followed by another 0.5% CPI drop in February owing to lower prices in the energy and water industries. (Various 24.02)

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1.3 Israel Railways Issues NIS 3 Billion Electrification Tender

Israel Railways has published a NIS 3 billion tender for the electrification of railway infrastructure. The tender is part of the railway electrification project, which is estimated at NIS 13.7 billion. The infrastructure tender includes the electrification of 420 kilometers of existing and planned railway tracks, construction of electrical substations, as well as the control and command stations required for the electrification of the tracks.

The first lines to be electrified are the high-speed train to Jerusalem, and the Akko-Karmiel line, both of which are currently under construction. The companies that won the previous railway track electrification tender are entitled to participate in this tender, including Alstom, and Siemens.

The Israel Railways inter-city system is currently powered by diesel, while in most countries inter-city trains are electrically powered. Under the electrification project, Israel Railways published a tender last July for the purchase of 62 electric locomotives, with an option to buy 16 more. Another tender is expected for this project in H1/15 – a tender for the purchase of electric multiple units (EMUs). This tender and the tender published yesterday are among the electrification project’s three mega-tenders. (Globes 18.02)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Microsoft Buys Digital Pen Maker N-trig

Microsoft is buying N-trig, a Kfar Saba based provider of digital pens and chips for touch screens. The full price was not disclosed by said to be around $200 million. Most of N-trig’s 190 workers will be integrated into Microsoft Israel and will be part of a new research and development center. Officials at N-trig and Microsoft in Israel could not be reached for comment.

N-Trig was founded in 1999 and has generally struggled since, hitting hard times after a failed IPO. In 2014, the company gave up on the IPO attempted and raised $4.4 million. N-trig was valued at $75 million when it raised money privately last February. Microsoft, which owns 6.1% of the company, signed a deal last year to integrate N-trig’s pen in its Surface Pro 3 tablets. Other investors in the company include Evergreen Venture Partners, Canaan Partners and Tamares. Customers for N-trig’s technology include Sony (6758.T), Fujitsu (6702.T), Hewlett-Packard (HPQ.N) and Lenovo (0992.HK) for use in smartphones, tablets and ultrabooks. (Various 15.02)

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2.2 Israel Led in London IPOs in 2014

A delegation from the London Stock Exchange (LSE) that visited Israel in early February announced that Israel led in the number of IPOs in 2014 on the LSE. According to the LSE representatives, more companies listed in London last year from Israel than from anywhere in the world, other than the UK itself. Nine Israeli companies floated on the London Stock Exchange, two of them, Matomy Media Group and Barak Capital, listed on the main market, and the others on the AIM secondary market. The British Embassy, as the representative of the London Stock Exchange in Israel, assists Israeli companies in raising funds in London. The LSE continues to attract the attention of Israeli companies and, already in 2015, several potential issuers are advanced in the IPO process. (Globes 15.02)

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2.3 Perion Acquires MakeMeReach, Adding Social Media

Perion Network acquired MakeMeReach, a profitable and rapidly growing Paris-based company and one of Europe’s leading social media advertising platforms. MakeMeReach’s AdsOptim technology enables mobile app developers to efficiently and effectively scale their advertising campaigns on social media, with a specific focus on optimizing mobile ad campaigns. MakeMeReach is a Facebook Preferred Marketing Developer (PMD) and Twitter Marketing Platform Partner (MPP). MakeMeReach expands Perion’s GrowMobile offering to include the fast-growing social media space, solidifying its position as the industry’s most complete and comprehensive automated mobile marketing platform.

MakeMeReach’s award-winning platform, AdsOptim, similar to GrowMobile, is available as both a self-serve and fully-managed platform, providing developers the flexibility to either create and optimize their ad campaigns on their own, or work with the MakeMeReach team to manage their campaigns. The platform’s purpose is to simplify mobile social media advertising, as well as boost campaign performance.

Holon’s Perion powers innovation. Perion is a global performance-based media and Internet company, providing online publishers and app developers advanced technology and a variety of intelligent, data-driven solutions to monetize their application or content and expand their reach to larger audiences, based on its own experience as an app developer. Their leading software monetization platform, Perion Codefuel, empowers digital businesses to optimize installs, analyze data and maximize revenue. (Perion Network 11.02)

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2.4 MTS to Acquire Vexigo

MTS – Mer Telemanagement Solutions signed a definitive agreement to acquire Ness Tziona’s Vexigo, a privately-held Israeli-based software company supporting video advertising over the internet and mobile devices, which will continue to operate as a wholly-owned subsidiary of MTS. Under the terms of the agreement, MTS will acquire 100% of the outstanding shares of Vexigo. MTS will pay cash consideration of $4 million, consisting of the payment of $3 million at closing and two payments of $500,000 each that will be paid three months and six months following the closing date. In addition, at closing MTS will issue 40% of MTS’s outstanding ordinary shares post-closing to Vexigo’s shareholders. The acquisition is expected to be completed around April 2015.

Vexigo specializes in video advertising solutions for online and mobile platforms, engaging multiple ad formats and interactive ad units with a cutting-edge, in-house optimization platform providing precise targeting in a safe environment for both advertisers and website owners.

Headquartered in Ra’anana, MTS is a global provider of innovative products and services for telecom expense management (TEM), enterprise mobility management (EMM), mobile virtual network operators and enablers (MVNO/MVNE), billing mobile money services and solutions and an IOT/M2M enablement platform used by mobile service providers. The MTS TEM Suite solution enables enterprises to gain visibility and control of strategic fixed and mobile telecom assets, services and IT security policies that drive key business processes and provides a crucial competitive advantage. (MTS 03.02)

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2.5 Fox Launches Charles & Keith Footwear Chain in Israel

Fox-Weizel formally launched the women’s footwear chain Charles & Keith in Israel, with the opening of the chain’s second branch, at the Kanyon HaGadol mall in Petah Tikva. The first store opened last week in the IKEA North in Haifa Bay compound. Within two months, the chain will have 12 stores in Israel and by the end of the year there will be 17. Fox Group believes there will be 40 branches within three years, and the chain will have an annual turnover of more than NIS 100 million.

Charles & Keith is a Singaporean footwear, bags and accessories brand named after its founders, Charles and Keith Wong. The brand’s first store opened in Singapore in 1996. Five years later, the company began opening stores outside of Singapore. The most significant step up, both in terms of design and quality and in financial terms, was in 2011, when Louis Vuitton bought 20% of the company. (Globes 23.02)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Alghanim & Wendy’s Announce Middle East Partnership

Alghanim Industries and The Wendy’s Company announced the signing of a Master Franchise Agreement aimed at expanding the Wendy’s brand in the Middle East. This deal reinforces Alghanim Industries’ strategy to partner with international food and beverage franchises and build on the company’s previous successful acquisition of Costa Coffee (Kuwait) in 2013. Alghanim Industries acquired the rights to develop Wendy’s restaurants across the Middle East North Africa (MENA) region from Alamar Foods, a Saudi-based company owned jointly by Al Jammaz Group and the Carlyle Group. The value of the deal remains undisclosed. Alghanim Industries has acquired all operational outlets in the UAE with plans to open additional stores across MENA over the next 10 years. Part of the expansion in the region includes opening stores in Alghanim Industries home market, Kuwait, which has among the highest consumption of fast food per capita in the MENA region.

Alghanim Industries is one of the largest, privately-owned companies in the Gulf region. Originally founded in 1932 by Yusuf Ahmed Alghanim in Kuwait, the company has since grown into a multi-billion dollar conglomerate, employing over 14,000 people in 30 businesses, and present in 40 countries across the Middle East, Eastern Europe and Asia. (Alghanim 14.02)

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3.2 lululemon To Open Stores Across Arabian Gulf

Rapidly growing yoga clothing brand lululemon is expected to launch in Dubai in autumn with a unique store concept, after signing an exclusive deal with UAE shopping mall owner Majid Al Futtaim’s fashion division. The deal covers the entire Middle East, with between 15 and 22 more stores to open in the UAE, Qatar, Bahrain, Oman and Kuwait over the next five years. Founded in Vancouver in 1998, lululemon sells yoga-inspired fitness clothing for men and women. Growth in yoga participation globally has helped the brand expand exponentially and it currently has 289 stores and 50 showrooms across the world. Its stores also offer yoga classes and other events. The deal with Lululemon is the latest coup for Majid Al Futtaim Fashion, which has signed similar licensing agreements with AllSaints and Abercrombie & Fitch. (AB 16.02)

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3.3 Pret To Go Announces Dubai Expansion Plan

Pret To Go announced plans to launch four additional outlets across the emirate, from its current single location. The brand which provides fresh food to the “person-on-the-go” revealed new openings across the business hubs of JAFZA, DAFZA, Media City and Downtown Jebel Ali – Galleries Building 1. JAFZA will be the first outlet to open, with a launch date of the end of February. A Media City branch will follow in April, with dates currently being set for DAFZA and Downtown Jebel Ali locations in Q2/15. The first Pret To Go outlet opened in DIFC in November and offers a selection of natural and wholesome food, with a delivery service across the financial hub. (AB 18.02)

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3.4 UK’s Dune Targets Saudi Arabia for Expansion in 2015

UK Shoe retailer Dune says it will open three new stores in Saud Arabia within the next year, as part of continued expansion in the Middle East. Dune has identified three locations for new stores in Riyadh and Jeddah after identifying a growing and “increasingly visible” global retail sector in the kingdom. Eighteen months ago the brand began a global roll-out of a new store concept that places greater emphasis on menswear and accessories, for example with a dedicated accessories wall and more space for men’s shoes. Dune outlets in Abu Dhabi Mall and Dubai Mall were the first two stores in the Middle East to be refurbished in this way last year. Dune, which is part of Apparel Group, has 25 stores across the region – 12 in the UAE, six in Saudi, three in Kuwait, and two each in Bahrain and Qatar. It hopes to open more stores in the UAE in the next five years, but nothing is planned as yet. (Dune 23.02)

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3.5 MOOYAH Opens First Restaurant in Riyadh, Saudi Arabia

Dallas based MOOYAH Burgers, Fries & Shakes, a fast-casual, “better burger” chain, announced the recent opening of its first restaurant in Saudi Arabia. Located in Riyadh on King Abdul Aziz Branch Road, the restaurant is the fourth new country launch in the Middle East for MOOYAH since September of 2013. The Riyadh restaurant is owned and operated by Healthy Food Company, which has entered into a multi-unit development agreement with MENAFEX, MOOYAH’s international development partner for the Middle East. The brand is currently in five foreign countries and 15 states. MOOYAH is continuing its strong growth domestically and abroad, with restaurants slated to open in new markets such as Qatar, Oman, and Mexico the first half of 2015. (MOOYAH 19.02)

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3.6 Riyadh Selects TransCore to Deploy Traffic Management System

The Arriyadh Development Authority (ADA) of Saudi Arabia has selected Nashville, Tennessee’s TransCore to design and implement an advanced traffic control system to improve the flow of traffic for the seven million people living in Riyadh. For this $100 million transportation project, TransCore will deploy its TransSuite software solution to manage traffic signal operations at 350 of Riyadh’s busiest intersections. The system automatically adjusts traffic signal timing in response to real-time traffic conditions, representing a significant upgrade over the existing fixed-time system. TransCore’s approach to this project includes integration of its TransSuite Advanced Traffic Management System (ATMS) with an adaptive control system to reduce congestion in the Kingdom’s capital city. The software-based solution combines data, real-time communications and analytics to handle both routine and unexpected traffic conditions, and to facilitate immediate communications among agencies responding to an emergency or abnormality.

TransCore first established an office in the Middle East in 2006 with the design and installation of the Salik Toll System for the Roads & Transport Authority in Dubai. Since then, TransCore has continuously expanded and operated the Salik system, which was recently awarded the 2014 Toll Excellence Award in Technology by the International Bridge, Tunnel and Turnpike Authority. (TransCore 24.02)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Hebrew University Switches To Using Only Recycled Paper

The Hebrew University in Jerusalem is going green, as every department in the university switched to using recycled paper. Hebrew University is the first Israeli university to implement the eco-friendly initiative. On an environmental level, using recycled paper means requiring less wood. Economically, the paper is recycled in Israeli facilities, thus increased use of recycled paper means boosting the local economy. The collection of recycled paper is done by populations with disabilities, providing employment opportunities. As part of the environmental campaign, the campus would also promote two-sided printing to reduce paper use. (Israel HaYom 24.02)

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5: ARAB STATE DEVELOPMENTS

5.1 Lebanon’s Healthcare Expenditures to Reach $3.74 Billion in 2015

According to Business Monitor International’s (BMI) latest industry view, the Lebanese healthcare system is “under enormous strain due to the increasing number of Syrian refugees seeking treatment in the country”. Moreover, BMI notes that the political instability will adversely affect the government’s policy regarding healthcare and will therefore expose the pharmaceutical sector to risk. Pharmaceutical sales are expected to grow marginally from $1.59b in 2014 to $1.60b in 2015. As for healthcare expenditures, they are projected to rise from $3.7b in 2014 to $3.74b in 2015. BMI’s Risk/Reward Score for Lebanon in Q2/15 stood at 52 out of 100 down from 54.7 in the previous quarter. In fact, the industry rewards’ score, measuring the size of the market and the growth potential fell from 21.2 over 44 in Q1/15 to 20 out of 44 in Q2/15. As for the industry risks’ score, it stood at 9.5 out of 21 in Q2/15, above the regional average of 7.7. According to BMI, this means that it is less risky for multinationals to operate in the country. However, the political instability, the lack of data protection and counterfeiting are likely to affect the future risk profile of Lebanon. The country risk score is at 7.9 out of 14 in Q2/15, barely above the regional average of 7.3, due to the ongoing issues of a poor legal framework and political instability. (Blominvest 22.02)

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5.2 Lebanon Ranks 94th on the Global Retirement Index

The Global Retirement Index (GRI) 2015, issued by global asset manager, Natixis, shows which countries are the best homes for retirement and which countries aren’t. According to Natixis, welfare in retirement is achieved when the retiree has “good health and access to quality health services, enough material means to live a comfortable life, access to quality financial services, including preserving the value of savings” and when the retiree is “living in a clean and safe environment”. Based on these criteria, Switzerland earned the top spot on the GRI followed by Norway. As for Lebanon, it earned the 94th spot amongst 150 countries. In previous years, Lebanon fared better on the GRI with a rank of 53 in 2013 and 72 in 2014. In terms of quality of life, Lebanon was amongst the bottom 30 with a rank of 143. Some Middle Eastern countries were however in the top 30. Qatar, the UAE and Kuwait ranked 21st, 25th and 26th, respectively. (Blominvest 22.02)

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5.3 Iraq Ranks Second in Global Oil Supply Growth

Iraq ranked as the second-largest contributor to global oil supply growth in the world in 2014, according to the US Energy Information Administration (EIA). The EIA said Iraq contributed to almost 60% of production growth among OPEC members. Iraq ranked second, behind only the United States, despite security unrest caused by the Islamic State and disrupted production in northern Iraq. It is worth mentioning this growth was underpinned by production declines in other OPEC countries.

Iraq produced around 3.4 million barrels of crude oil per day (bbl/d) in 2014. This represents an increase of 330,000bbl/d above 2013 levels. Canada came in third place after Iraq, among the top five contributors, to global oil supply growth in 2014, followed by Brazil and Iran. In July and August 2014, Iraq’s production of crude oil declined reaching its lowest monthly levels for the year following the start of the IS attacks. From August to December, Iraq increased its oil production by almost 600 mbpd. In December, Iraq’s crude oil production reached 3,750 mbpd, the highest amount on record. Major foreign oil companies like ExxonMobil, BP and Chevron helped revitalize oil fields in Iraq that suffered poor maintenance and oversight during the past years. (AME 11.02)

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►►Arabian Gulf

5.4 GCC Sees $67.6 Billion Construction Projects Completed in 2014

Construction projects valued at $67.6 billion were completed in the Gulf region during 2014. The study, conducted by Ventures ME, forecast that the pipeline of projects will continue to grow this year, with development schemes worth $72 billion (up 6.5%) to be completed and $103 billion to be awarded across the year. The study said 2014 was another strong year for the construction market with residential (41.5%), commercial (16.97%) and educational (10.6%) sectors representing the highest market shares. It added that the top markets across all sectors bar retail were Saudi Arabia and the UAE, with Qatar ranking top with completed retail projects worth $362 million.

The value of the GCC interior contracting and fit-out market in 2014 was $7.35 billion, the research showed, with Saudi Arabia and the UAE showing the highest market share. Saudi Arabia was the highest ranking market with a 43% share ($3.4 billion) followed by the UAE valued at $2.3 billion and representing a 31% market share. Looking ahead to 2015 projects, the Ventures ME report highlighted that figures across both the building construction and interiors markets are both set to increase further. With $72 billion worth of completed projects and $103 billion worth of awarded projects forecast over the next 12 months, the interiors market is also likely to grow by 9% to $7.35 billion.

The healthcare sector is expected to grow by 91.12% this year from a value of $3.72 billion registered in 2014, with Qatar driving the growth. But despite the large increase in the healthcare sector, the GCC construction market will still be led by the residential and commercial sectors, the study said. (AB 16.02)

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5.5 Saudi Arabia & UAE Control 74% of Gulf’s Private Wealth

Private wealth has doubled in the past five years in the GCC with Saudi Arabia and the UAE controlling 74% of the region’s wealth. The Arabian Gulf’s private wealth market has rocketed from $1.1 trillion in 2010 to $2.2 trillion last year, with a compound annual growth rate (CAGR) of 17.5%, according to a study by Strategy&. The Strategy& study estimates that there are currently between 1.5 million and 1.6 million wealthy households in the GCC. Most of the region’s private wealth resides in Saudi Arabia (44%), but the UAE has made notable gains with its share of GCC’s private wealth increasing from 24% to 30% from 2009 to 2013.

According to the study, the growth of affluent households – those with $100,000 to $1,000,000 of liquid financial assets – has been strong, with total households increasing about 50% between 2010-2013, from an estimated range of 850,000-880,000 to up to 1.325 million. It said the UAE has created the most affluence in the GCC, growing its share of affluent households from 16% to 26% from 2009 to 2013.

The study revealed that geopolitical events also intensified the migration of new wealth to the region. Since the start of the Arab Spring and in its aftermath, many regional wealthy households migrated to the more stable countries like the UAE. These households also moved a significant portion of their wealth to either regional or foreign banks based in the GCC countries to which they relocated, the report added. (AB 21.02)

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5.6 Kuwait’s Budget Surplus Shrinks 26% on Lower Oil Prices

Kuwait’s government budget surplus shrank 26% in the first nine months of this fiscal year as lower oil prices cut revenue sharply, according to Ministry of Finance data. The surplus totaled 10.6 billion dinars ($35.9 billion) between April and December, down from 14.3 billion dinars a year earlier. The plunge in oil prices since last June has squeezed state finances and if Brent crude stays at its current level of around $60 a barrel in the coming year, some analysts believe Kuwait could run a budget deficit or come close to it. NBK, the country’s largest bank, predicted the surplus for the full fiscal year to the end of March would total 4.1 billion dinars, the smallest surplus in six years, though it would still be large by international standards at 8.7% of gross domestic product. Government spending rose 10% to 10.6 billion dinars in the first nine months of the fiscal year. Capital spending surged 31% to 900 million dinars, or 39% of the budget’s annual allocation for capital spending.

Actual expenditure has repeatedly fallen far behind budget plans in recent years as political disputes and bureaucracy have delayed the implementation of economic development projects. In past years, an average of only 35% of budgeted allocations for capital projects were spent by December; the rise of this ratio to 39% suggests the government’s ability to push through projects is improving, NBK said. Government revenue in the first nine months of this fiscal year dropped 12% to 21.2 billion dinars. Oil revenue, which account for over 90% of state revenue, fell 13%. (AB 22.02)

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5.7 Qatar’s Foreign Trade Surplus Shrinks by Nearly 33%

Qatar’s foreign trade surplus shrank by nearly 33% to QAR22.75 billion ($6.25 billion) in December from QAR33.86 billion a year earlier because of falling oil and natural gas prices, preliminary data from the Ministry of Development Planning and Statistics revealed. Exports of petroleum gases and other gaseous hydrocarbons in December fell 17.7% year-on-year to QAR22.76 billion. In December, Qatar predicted its economy would grow 7.7% this year, signaling the world’s top exporter of liquefied natural gas expects very little disruption to its finances from the oil price plunge. The forecast by the Ministry of Development Planning and Statistics was down only marginally from the 7.8% estimate for 2015 which the ministry delivered in June last year. Growth of 7.7% in 2015 would be Qatar’s fastest expansion since 2011 and an acceleration from 6.3% estimated for this year. In the April-June quarter of the current fiscal year, actual state spending fell 6.6% from a year ago to QAR38.8 billion and the government enjoyed an actual surplus of QAR79 billion, according to the latest data. Since then, however, the price of Brent crude oil has plunged from around $115 a barrel to below $50, putting the finances of the Gulf oil exporters under pressure. (AB 14.02)

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5.8 Qatar Signs Deal for Doha Metro Driverless Trains

A consortium of five companies has signed an agreement to build and deliver a full-automated driverless metro system in Doha. The group consisting of Mitsubishi Heavy Industries, Mitsubishi Corporation, Hitachi, The Kinki Sharyo Co and Thales said it has received a letter of conditional acceptance from the Qatar Railways Company for the systems package for the metro project which is slated for completion in October 2019. The package calls for turnkey construction of a fully automated driverless metro system. Included are 75 sets of three-car trains, platform screen doors, tracks, a railway yard, and systems for signaling, power distribution, telecommunications and tunnel ventilation. The package is also expected to include maximum 20-year maintenance services for the metro system after its completion.

The Doha Metro will run through the city of Doha and will consist of four lines in two phases – Red, Green, Gold and Blue – covering a total distance of 241 kilometers with 106 stations, of which 123 kilometers will be constructed underground. (AB 22.02)

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5.9 Oman’s GDP Reaches OMR23.6 Billion in 2014

Oman’s Gross Domestic Product (GDP) hit OMR23.6 billion during 2014, according to the latest study released by the National Centre for Statistics and Information (NCSI). This represents an increase of 5.2%, compared with OMR22.4b in 2013. NCSI statistics reveal that oil activities witnessed an increase of 1.4% to OMR11.4b, compared with OMR11.2b during 2013. The share of crude oil from oil activities for 2014 saw a two-per cent increase – reaching OMR10.7b up from OMR10.4b the previous year – while natural gas activities slumped by 6.8%, recording OMR746 million in 2014 after it was OMR800.7m in 2013. In 2014, the Sultanate’s non-oil activities total value increased by 8.2% from OMR12.5b in 2013 to OMR13.5b. The same period, however, saw industrial activities slump by 3.5%, falling from OMR3.3b to OMR3.2b. It is worth mentioning that the GDP at product price witnessed a five-per cent hike in 2014, reaching OMR24.4b, up from OMR23.3b in 2013. (AME 17.02)

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5.10 Saudi Arabia’s Inflation Set to Remain Stable in First Quarter

A state handout to Saudi Arabian citizens to mark the accession of King Salman may push up some domestic prices but overall inflation is expected to stay stable in the current quarter, the Saudi central bank announced. Last month, King Salman ordered the immediate payment of two months of bonus salary to all state employees and pension to retired government workers, as well as payments to students and others, and spending on improving electricity and water services. In total, the additional spending may be over 100 billion riyals ($26.7 billion). The annual Saudi inflation rate was 2.4% in December, the lowest level since at least September 2012, when the current data series began. (AB 13.02)

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5.11 At Least 650,000 Saudis Receiving Unemployment

At least 650,000 Saudis are claiming unemployment benefits, according to the government’s Central Department of Statistics and Information (CDSI). The figures say the unemployment rate has fallen to 11.7%. However, the Ministry of Labour emphasized that the figure was based on those collecting benefits and did not take into account others actively looking for work but remained jobless. Almost one-third of employable women, or 392,000, were registered as unemployed, compared to 5.6% of men, or 258,000. Some commentators argue the unemployment rate is far higher than government statistics.

The CDSI said the reduced unemployment level was due to the Nitaqat nationalization program that sets specific national employment levels for businesses according to their sector. There are stiff penalties, including a ban on new foreign worker visas for those that do not comply. However, it has been widely accepted that there are numerous cases of businesses employing Saudis to cover their books, without them participating in work. The third phase of the Nitaqat program is due to come into effect on 20 April. About 750,000 Saudis were employed in the private sector under the program last year, a 15.6% rise, according to the government. (AB 16.02)

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►►North Africa

5.12 Decline in Oil Price Saves Egypt EGP 30 Billion

The sharp decline in crude oil prices over the past five months ended up saving Egypt EGP30 billion, Minister of Investment Salman announced at a recent conference. Since June, the price of crude oil per barrel is down more than 40%. Salman says the freed up money will be directed to health, education and infrastructure. He adds citizens can gradually feel the improvements by carrying on with the reform program and the use of tax money.

Bureaucracy was the first challenge for investors, but the new law has eliminated it, says Salman, noting Egyptian investment returns are the highest in the world after Brazil. Egypt is expected to issue the Unified Investment Law by the end of February, prior to the upcoming Egypt Economic Development Conference scheduled in March. (AME 09.02)

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5.13 Egypt Approves Law Privatizing Electricity Production & Transmission

On 18 February, Egypt’s cabinet approved a law privatizing electricity production, distribution and transmission. The law limits the state role in the electricity sector to regulation and supervision and separates activities of production, transmission and distribution to ensure competitiveness in the private sector. Egypt has been suffering from an acute energy crunch as foreign oil companies suspend extraction works on the back of growing arrears as political turmoil took hold in the aftermath of a popular uprising in 2011. Parts of the national grid are also in need of renovation. Egypt’s government slashed energy and electricity subsidies mid-2014 in a move to reform the country’s budgetary imbalance and ultimately eliminate energy subsidies. Last September, the government set feed-in tariffs at which it would buy electricity generated by the private sector via renewable energy with plans for renewable sources to provide 20% of Egyptian energy production by 2020. (Ahram Online 18.02)

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5.14 Morocco Ranks 2nd in Africa for Bloomberg’s Emerging Markets

Morocco is ranked 21st in Bloomberg’s fourth annual ranking of the most-promising emerging markets in which to invest in 2015. Bloomberg ranked the kingdom ahead of Russia, Greece, and India. At the African level, Morocco was ranked 2nd behind South Africa (19th). Economic measures included average projected GDP growth for 2015 and 2016, plus projected inflation rate, government debt as a percentage of GDP, total investment as a percentage of GDP and current-account balance as a percentage of GDP. (Bloomberg 17.02)

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5.15 Benkirane Calls for Adopting English as First Foreign Language in Morocco

The Moroccan government is moving towards elevating the position of English over French within the Moroccan educational system. After the statements of many Moroccan ministers and politicians in favor of adopting English over French, Abdelilah Benkirane, the Head of the Government, called for adopting English as the first foreign language in the kingdom. During the monthly political conference of the party dedicated to the reform of education and training, the Head of the Government highlighted the importance of adopting English and using in it in Moroccan schools.

Benkirane confirmed that Morocco and France have very “strong bonds that can’t be broken, but it is not our destiny to keep using French.” “Personally, I regret having not learned English very well because I need it the most during my official visits, even when I go to Saudi Arabia,” he added. The Justice and Development party (PJD) wants “the Arabic language [to] remain the language of instruction at all levels” in Moroccan schools, and hopes that the Amazigh language, another official language in Morocco, can be “developed so that it can be fully integrated in education.” The Strategic Report of the Supreme Council for Education, Training and Scientific Research, which will be submitted to King Mohammed VI soon, is recommending replacing French with English in Moroccan education. (MWN 24.02)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1 Greece Reform Plan Offers Major Compromises

Greece secured a four-month extension of its financial rescue on 24 February when its euro zone partners approved a reform plan that backed down on key leftist measures and promised that spending to alleviate social distress would not derail its budget. Finance ministers sealed the decision in a one-hour telephone conference after the new leftist-led Athens government sent him a detailed list of reforms it plans to implement by July.

Greece has promised not to roll back any ongoing or completed privatizations and ensure that any state spending to address a “humanitarian crisis” does not hurt its budget. The list of reforms aims to offer compromises on major issues such as labor reforms and social spending to satisfy both European partners funding the country and Greek voters who voted in a left-wing government to end years of rigid austerity. Greece needed to present its plans as a condition for extending its bailout program for four months in a deal struck with euro zone partners on 20 February.

On the issue of minimum wages, for example, Prime Minister Tsipras’ government climbed down from election pledges to raise the level immediately. Instead it said it would phase in collective bargaining with a view to raising minimum wages over time and that any changes would be agreed with partners. Greece also said it would reform the public sector wage system in a way that would not reduce pay further but would ensure that the overall public wage bill does not rise. Athens also committed to consolidating pension funds to achieve savings, and eliminate loopholes and incentives for early retirement – in an apparent effort to find a compromise between the government’s objective of avoiding any further pension cuts as previously demanded by EU and IMF inspectors. (Reuters 24.02)

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7: GENERAL NEWS AND INTEREST

7.1 Baghdad Appoints First Female Mayor

A woman has been appointed as mayor of Baghdad for the first time, a government spokesperson has said. Zekra Alwach, a civil engineer and director general of the ministry of higher education, is the first female to have been appointed to such a position in Iraq. The mayor of Baghdad is considered the most important administrative position in the city. In her newly appointed position Alwach will deal directly with Prime Minister Haider Al Abadi. (Various 23.02)

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7.2 Dubai Customs Seize 10,000 Black Magic Items at Airport

Dubai Customs intercepted 155 attempts to smuggle talismans and black magic items at Dubai International Airport. The seizures included almost 10,000 articles associated with the practice of witchcraft and sorcery and weighed a total of 97 kg. Dubai Customs inspectors have received all kinds of training and awareness courses for its staff to be able to recognize these materials. The confiscated articles included talismans, amulets, worry beads, animal skins, sorcery knives, magic teaching books, bags containing fish skeletons, animal bones, ampoules full of blood and other liquids, animal drawings, strings, pieces of charcoal, finger rings, oysters, leaves, powders, cotton rolls used in sorcery, thread and some dark materials. Smugglers were mostly from Asian, African and European origins and they used clothes, hand bags, travel bags and parcels in trying to smuggle these items into Dubai. (AB 16.02)

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7.3 Saudi Arabia Mulls Jail & Fines for AIDS Discrimination

Saudi Arabia is considering new protections for AIDS patients, including jail sentences and a SAR50,000 ($13,300) fine for discriminating against them. The move would mark a significant change in the treatment of patients with the fatal disease in Saudi Arabia, who have typically been victimized and ostracized in the past. A Shoura Council committee was reportedly drawing up legislation that would give them enhanced educational, health and social rights. There are an estimated 1,700 AIDS patients in the Saudi kingdom, including 500 citizens. (AB 23.02)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Games Motivate Kids To Develop Skills Through Play

In keeping with Israel’s lead in developing tools to assist the disabled, the Tel Aviv-based startup Timocco – which has created an on-line gaming platform for special-needs children — is making welcome strides internationally. Established in 2009, Timocco recently announced that it was granted a patent in the UK for its unique technology, perfectly suited for use by wheelchair-bound youngsters, or those who suffer from spastic cerebral palsy and/or other motor, cognitive and communication disabilities. Their games are not only attractive, colorful and safe, but they provide a wide range of developmentally appropriate challenges for kids working on acquiring a variety of skill sets. They have already developed more than 50 games. The company, with a staff of 17, has been developing a new game nearly every month. So far, though the platform is in English, the games are available in Hebrew, Arabic, German, Spanish and Japanese. (Israel21c 12.02)

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8.2 Evofuel Expands Castor Activity in Brazil with Insolo

Evogene announced the signing of a collaboration agreement between its wholly-owned subsidiary Evofuel and Insolo Agroindustrial, for the selection and optimization of Evofuel’s proprietary castor bean varieties in Insolo farms located in Piaui state in northeast Brazil. The two-year collaboration between the two companies will examine the suitability and adaptability of growing Evofuel’s castor varieties as a second crop solution for Insolo farms located in one of the fastest developing agricultural regions in Brazil – the Cerrado. In the framework of the collaboration, the two companies will jointly evaluate the economic and agronomic benefits of growing Evofuel’s castor seed varieties in this area, selecting the best performing varieties, and developing the agronomic know-how to integrate castor into Insolo’s production system.

Evofuel focuses on the development of castor bean seeds for industrial use and production of oil feedstock suitable for the growing biofuel market. Utilizing the unique characteristics of castor’s high oil content and ability to withstand relatively harsh conditions, Evofuel is focused on growing castor as a second crop solution, particularly in semi-arid regions such as northeast Brazil. Evofuel recently announced its on-going collaboration with Case New Holland (CNH) for the development of a customized combine solution for large-scale harvesting of castor, and collaboration with Embrapa for research of castor disease control practices.

Rehovot’s Evofuel is engaged in the development and commercialization of high yielding castor seeds as a cost-competitive, sustainable and second-generation feedstock for the growing biofuel market and various industrial uses. It has built its castor genetic assets based on a broad collection of over 300 castor lines from over 40 different geographic and climatic regions. As part of its development process, Evofuel applies advanced breeding methods utilizing cutting-edge plant genomics capabilities together with agro-technique expertise to enable efficient and sustainable large-scale production of castor. (Evogene 17.02)

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8.3 Teva Launches Generic Lovenox and Zyvox in the US

Teva Pharmaceutical Industries launched the generic equivalent of Lovenox (enoxaparin sodium injection) in seven dosage strengths in the United States. Enoxaparin Sodium Injection, USP is used for prophylaxis of deep vein thrombosis (DVT) in patients undergoing abdominal surgery, hip or knee replacement surgery, or in medical patients with severely restricted mobility during acute illness; and also for the treatment of acute DVT. Under a licensing agreement, Teva has partnered with Chemi SPA to leverage their internal research based technology in the development and manufacture of Enoxaparin Sodium Injection, USP.

Teva has also recently launched the generic equivalent to Zyvox (linezolid) Injection which is used for the treatment of infections caused by Gram-positive bacteria.

Teva continues to invigorate the injectable business in the United States with a selective reintroduction of older generic injectable products as well as continued investment in newer, higher-value generic injectable products. Additionally, Teva has progressed in building its Research and Development capabilities in complex, generic injectables including drug-device combinations, complex drug delivery, and complex molecules. This month, Teva has launched Nafcillin for Injection, USP and is reintroducing into the market Leucovorin Calcium for Injection (100 mg/vial), Methylprednisolone Acetate Injectable Suspension, USP (40 mg/mL), and Ondansetron Injection, USP (2 mg/mL).

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions to millions of patients every day. Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area. (Teva 17.02)

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8.4 Teva Licenses Eagle’s Bendamustine Rapid Infusion Product

Teva Pharmaceutical Industries and New Jersey’s Eagle Pharmaceuticals entered into an exclusive license agreement for EP-3102, Eagle’s bendamustine hydrochloride (HCl) rapid infusion product for the treatment of chronic lymphocytic leukemia (CLL) and indolent B-cell non-Hodgkin lymphoma (NHL). Teva will be responsible for all U.S. commercial activities for the product including promotion and distribution. Eagle has responsibility for obtaining all regulatory approvals, conducting post-approval clinical studies, if required, and initially supplying drug product to Teva.

Eagle has submitted a New Drug Application (NDA) to the U.S. FDA for the rapid infusion bendamustine product for the treatment of patients with CLL and patients with indolent B-cell NHL that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen. As part of the agreement, Teva will waive its orphan drug exclusivities for NHL and CLL with respect to EP-3102, which should allow the product to come to market more quickly. Under the terms of the exclusive license agreement, Eagle will receive an upfront cash payment of $30 million and is eligible to receive up to $90 million in additional milestone payments. In addition, Eagle will receive double-digit royalties on net sales of the product, assuming FDA approval.

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions to millions of patients every day. Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area. (Teva 17.02)

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8.5 Evogene Introduces Biology Driven Ag-Chemical Discovery Platform

Evogene announced the introduction of its biology-driven platform for the discovery of novel ag-chemicals, with the initial application focused on novel herbicides. The ag-chemical discovery platform includes a new chemical-discovery computational platform, PointHit, and follows the announcement last year of Evogene’s target-discovery computational platform, PoinTar. Together, these two platforms, along with a uniquely designed chemical database also being announced today, provide a start-to-end discovery infrastructure for Evogene’s rapidly growing ag-chemical program. Addressing the need for weed control solutions, currently a worldwide market of over $20 billion, Evogene’s herbicide discovery program offers a unique approach of integrating predictive biology and chemistry.

Rehovot’s Evogene is a leading company for the improvement of crop productivity and economics for the food, feed and biofuel industries. The Company has strategic collaborations with world-leading agricultural companies to develop improved seed traits in relation to yield and a-biotic stress (such as tolerance to drought), and biotic stress (such as resistance to disease and nematodes), in key crops as corn, soybean, wheat and rice, and is also focused on the research and development of new products for crop protection (such as weed control). (Evogene 24.02)

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8.6 Israel’s Wine Industry Hits $220 Million in 2014; $40 Million in Export

Israel’s wine industry continued its climb in 2014, reaching $220 million and taking its place amongst some of the leading wine producers in the world, according to the Israel Export and International Cooperation Institute. Exports of wine and spirits rose 10% last year to $40 million. The Israel Export and International Cooperation Institute attributes the rise in wine exports to growing demand in North America, Europe and Asia. In 2014, 58% of wine exports amounting to $23 million ($20 million to the US) went to North America, $13 million (up 12%) to Europe and $2.2 million (up 27%) to Asia. In Europe, France is the biggest market for Israeli wine. Most Israeli wine exports are bought by the Diaspora Jewish kosher market. Israel Export and International Cooperation Institute figures show that wine and spirits exports have grown consistently over the past five years, having more than doubled from $19 million in 2009. Israel has 250 wineries of which 50 operate commercially. Overall annual sales of Israeli-made wine reached $220 million in 2014. (IE&ICI 24.02)

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8.7 Rainbow Medical Raises $25 Million from Chinese Investors

Rainbow Medical, a leading R&D and operational investment company, specializing in seeding and incubating medical device startups and developing breakthrough medical technologies, has raised $25 million from investors in China and opened a China office to promote strategic collaborations. Participants in the current round of fundraising include China’s largest private insurance holding company Ping An, investment and financial management company YongJin, the Chinese telecommunications giant ZTE Corporation, and Chinese venture capital funds. Rainbow Medical will invest these funds in seeding new startup companies based on intellectual properties owned by Rainbow Medical as well as to provide additional funding for Rainbow Medical’s existing portfolio companies.

Herzliya Pituah’s Rainbow Medical, a private operational investment company, currently holds a portfolio of 12 companies that are developing products for the treatment of a range of chronic indications such as heart disease, diabetes, hypertension, blindness, uterine fibroids, chronic neuropathic pain and others. Rainbow Medical raised significant funds from strategic entities around the world, including medical device giants Medtronic and Abbott, the European Sorin Group and Japanese Sony Corporation. (Rainbow 16.02)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Ecoppia Strengthens Water-Free Solar Panel Cleaning

Herzliya’s Ecoppia, an innovative developer of robotic, water-free photovoltaic (PV) solar panel cleaning solutions, launched its advanced E4 control system. With the integration of real-time and forecasted information on precipitation, cloudiness and air quality, Ecoppia now offers a more intelligent and reliable operation, and provides a comprehensive view of site conditions – helping site managers make better-informed decisions on cleaning schedules. Ecoppia’s E4 technology cost-effectively removes 99% of dust from solar panels to maintain maximum production levels and accelerate return on investment. Each robotic E4 unit is self-charging, self-cleaning and can be monitored and controlled remotely to mitigate the need for on-site maintenance. Data from The Weather Channel is now fully integrated into Ecoppia’s web-based monitoring and management dashboard, allowing customers to access current weather conditions and forecasts for a given site and schedule cleanings. Because the data is built into E4’s master control, the system can automatically retract any cleaning robots in the field during severe weather events. Customers also have the option to receive severe weather alerts via SMS, along with scheduling recommendations. (Ecoppia 11.02)

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9.2 Giraffic Extends Acceleration Technology to Mobile Devices

Giraffic announced its AVA mobile solution that accelerates video streaming on mobile devices and improves the delivery of large, mobile-to-mobile file transfers over Wi-Fi. This enables quick and easy sharing of personal media, as well as OTT video apps to deliver throughput of over 20 Mbps for HD and UHD videos. Consumers can find it difficult to send large files, especially videos, from smartphones or view them on TVs because the transfer is often interrupted or extremely slow. Giraffic’s AVA solution for mobile devices seamlessly accelerates online videos or files coming from other devices in the home. Unlike conventional video streams, AVA outsmarts Internet limitations by requesting multiple feeds of small fragments of files, and then stitching them together for reliable, seamless playback. AVA mitigates interruptions that can happen over basic Wi-Fi networks at home or in public spaces.

Tests of the most challenging Wi-Fi networking environments have shown that AVA enables over 50% faster delivery of files shared over the home network – between mobile devices as well as from mobile devices to the big screen smart TV. AVA-powered sharing also resulted in uninterrupted large file transfers, enabling a more reliable and simpler way to share videos directly, from one mobile device to another.

Tel Aviv’s Giraffic is the inventor of Adaptive Video Acceleration (AVA) – a new client-side network throughput optimization technology that offers consumers High Definition video, without re-buffering pauses or streaming resolution reduction. With tens of millions of users worldwide enjoying accelerated high-quality video via Giraffic AVA, and thousands of Giraffic enabled devices or Apps being deployed daily, Giraffic’s ground breaking technology has been validated and benchmarked by some of the world leaders in Consumer Electronics and OTT TV, to provide dramatic internet throughput increase. (Giraffic 18.02)

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9.3 Tier 1 Chinese Operator to Deploy RAD’s Miniature Programmable NIDs

RAD has won a tender from a Tier 1 Chinese telecommunications operator to implement a major performance monitoring project. The telecom giant is now widely deploying thousands of its unique MiNID miniature programmable Layer 2/Layer 3 network interface devices (NIDs), part of the company’s award-winning Service Assured Access (SAA) solution. The finger-sized MiNID’s patented SFP sleeve design upgrades the carrier’s installed base with an overlay of SLA assurance tools for Carrier Ethernet and IP services, including end-to-end visibility, performance monitoring, diagnostics, and more. Because most networks are a mixed assortment of multisource devices with different feature-sets, MiNID is an ideal solution for measuring and boosting quality of experience (QoE) and service performance with add-on tools otherwise not supported by the network. MiNID is also available in a compact standalone enclosure that is shorter than the average smartphone.

Tel Aviv’s RAD is a global Telecom Access solutions and products vendor. Their Service Assured Access solutions for mobile, business and wholesale service providers are designed to improve the way they compete: service agility to minimize time to revenue, complete visibility of network performance for greater operational efficiency and better QoE to reduce churn. RAD is a member of the $1.2 billion RAD Group of companies, a world leader in communications solutions. (RAD 17.02)

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9.4 nFrnds & Microsoft Turning 5 Billion ‘Dumb’ Phones Into Smartphones

Ramat Gan’s nFrnds has partnered with software giant Microsoft to form a new platform that will enable the Israeli startup to expand its services more efficiently into new markets through Microsoft’s Azure cloud platform. nFrnds, originally founded in Israel as VascoDe Technologies, has developed a solution that enables people with any type of mobile phone to connect with the digital world. nFrnds, which last year partnered with Microsoft on cloud computing, digitally connects those who were previously disconnected from the digital world. This strategic partnership also provides nFrnds with more market knowledge. nFrnds will begin making use of Microsoft’s cloud platform, Azure, in the coming months. Without using mobile data like a typical smartphone, a simple phone equipped with nFrnds’ mobile “operating system” is able to use several different “apps,” such as email, chat and Wikipedia. Since the service does not require mobile data, accessibility is wide. Users of nFrnds’ platform pay only $1 a month, which makes it affordable for clients in emerging markets. With the company’s further expansion into Southeast Asia in countries like Indonesia, nFrnds hopes to reach one million users this year. (NoCamels 22.02)

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9.5 Ginger Introduces “Smart Bar” for its Android Keyboard

Ginger introduced “Smart Bar” for its Android Keyboard, the world’s first productivity-focused in-keyboard functionality that allows users to quickly access, open and use other apps directly from Ginger Keyboard. Smart Bar helps users save time by letting them open and even perform actions within other apps without having to close the keyboard. The new functionality enabled by Smart Bar leverages insights gleaned by analyzing the mobile behavior of Ginger’s millions of Android users, who routinely rotate between apps and Ginger Keyboard while communicating. Smart Bar will feature productivity functions such as calendar, to-do, search and note-taking, with users being able to enjoy full customization by removing and/or adding any app. Following the initial roll-out, Ginger plans to finalize partnerships with some of the more popular apps for tight integration into the Smart Bar. Smart Bar will be available as part of the popular Ginger Android Keyboard, which is available for free download in the Play Store, where it is one of the most popular apps in the productivity category.

Tel Aviv’s Ginger specializes in developing mobile keyboard and writing enhancement apps that enable everyone to quickly write high-quality, accurate messages. Ginger has developed the NLP platform (natural language processing), which is the foundation for its advanced text analysis applications. (Ginger 24.02)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel’s CPI Falls By 0.9% in January

The Central Bureau of Statistics announced on 15 February that Israel’s Consumer Price Index (CPI) fell by 0.9% in January. Pundits had expected the CPI to fall by no more than 0.7%. In 2014, the CPI fell 0.2% and it has declined by 0.5% over the past 12 months. Notable price falls in January were in fuel and oil (8.8%), water services (8.9%), hotel prices (6.6%), clothing (6.7%), fresh vegetables (4.2%) and housing costs (1.2%). There were notable price rises in imported cigarettes (1.3%). Vegetables experienced a seasonal increase of 4.2% and medical services were 0.9% higher than a month before. The accelerating fall in the CPI was expected due to the sharp fall in fuel prices, which have left gasoline prices at their lowest since 2010. Water prices also fell in January, and electricity rates have fallen this month. However, fuel prices are expected to rise in March. The February cost of living rate is expected to fall significantly as well, as a one-time 10% cut in the price of electricity comes into effect. Over the past year, prices fell at an annualized rate of 0.5%, or 1.6%% without inclusion of housing and vegetables. (CBS 15.02)

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10.2 Israeli Economy Grew by 7.2% During Last Quarter

The Israeli economy has recovered from the relative slowdown that followed last summer’s Operation Protective Edge, marking 7.2% growth in Q4/14, the Central Bureau of Statistics announced. The Q3/14 saw growth sag to 0.6% during the operation against Gaza based terror. The business product in this period grew by 8.2% and overall, the bleak predictions of negative economic growth have been proven wrong. CBS data shows that the growth rates noted in the fourth quarter were higher than those in the corresponding quarter in 2013, when growth rates were pegged at 2.7%, up from 2.3% in Q1/13.

The enhanced market performance of Q4/14 has been attributed to the rise in dollar rates, as well as to the government assistance afforded to exporters, industrialists and farmers, among other factors. The report also said that overall, the Israeli economy grew by 2.6% in H2/14, compared to 2.7% in H1 and 3.4% in H2/13. CBS economists said the favorable data supported projections that the local economy will grow by over 3% in 2015. (CBS 17.02)

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10.3 Israel’s January Job Figures Show Improvement

Israel’s unemployment rate fell to 5.6% in January, with more people working full time. The percentage of people aged 15 and over in the workforce who were unemployed fell to 5.6% in January, from 5.7% in December, according to figures released by the Central Bureau of Statistics.

The Central Bureau of Statistics figures indicate slight improvement in several labor market indicators. The employment rate, that is, the number of people employed as a percentage of the total population aged 15 and over rose to 60.6%, from 60.5% in December 2014. The unemployment rate in the 25-64 age group fell to 4.8%, compared with 4.9% in December 2014. The percentage of people aged 25-64 participating in the workforce rose to 79.7%, from 79.6% in December 2014, and the employment rate in the 25-64 age group rose to 75.9%, from 75.7% in December 2014. The percentage of those with jobs who generally worked full time was 77.9%, compared with 77.6% in December. Among men, this percentage rose to 86.7%, from 86.3% in December, and among women it rose to 68.1%, from 67.8% in December 2014. (CBS 23.02)

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10.4 Israeli Home Sales Break 13 Year Record

The period between October and December 2014 was the most active on the Israel real estate scene on an annualized basis since 2002, the Central Bureau of Statistics announced. During Q4/14, 8,100 new homes were sold in Israel, while Israelis also bought some 20,000 second-hand homes. One of the reasons for the sharp increase was the arrival on the market of thousands of young couples who had been holding off on buying in order to take advantage of the government’s zero-VAT plan on new homes. Housing experts said that the perception – and eventual announcement – that the VAT plan was off the table was the reason for the sharp changes in the direction of the market, despite the fact that housing prices in Israel remain high. Home sales increased significantly in all parts of the country, except for Jerusalem, where prices were on average higher than elsewhere. The 28,000 homes sold represent a 22% increase over the previous quarter. The 8,100 new homes sold represent a 52% increase in that segment over the previous quarter. (CBS 19.02)

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11: IN DEPTH

11.1 ISRAEL: ‘A+/A-1’ Ratings Affirmed; Outlook Stable

Overview

• In our view, the outcome of Israel’s elections in March 2015 should not dampen the country’s healthy growth prospects and stable fiscal trajectory.

• We are therefore affirming our ‘A+/A-1’ foreign and local currency sovereign credit ratings on Israel.

• The stable outlook reflects our view that the government will maintain stable public finances and that the impact of security risks on the Israeli economy will be contained over 2015-2018.

Rating Action: On 13 February, 2015, Standard & Poor’s Ratings Services affirmed its ‘A+/A-1’ long- and short-term foreign and local currency sovereign credit ratings on the State of Israel. The outlook is stable.

Rationale: The ratings are supported by Israel’s core credit strengths, such as its prosperous and diverse economy, strong external balances and its relatively flexible monetary framework.

We estimate economic growth to have slowed in 2014 to 2.5%, the lowest rate of growth since 2009. The conflict with Hamas in Gaza in the third quarter exacerbated lower investment activity that had already started to slip early in the year. For 2015-2018, we forecast that GDP growth will return to more than 3%. In per capita terms, this equates to trend growth slightly exceeding 1.5% per year. Income per capita is close to $38,000 making Israel one of the highest-income economies globally while exhibiting higher trend growth versus its peers.

The consequences of the recent military operation, the instability in Judea & Samaria and the perception of potential escalation at Israel’s northern border will likely push up defense spending, regardless of the next government’s political composition after the general elections in March 2015. So far, we understand the military operation’s direct costs are limited. The general government deficit in 2014 amounted to just 2.8% of GDP. We anticipate that the government will substantially increase the defense budget in 2015. In our view, expenditure cuts elsewhere will not fully offset this hike. In addition, tax-rich domestic demand will likely dip below-trend and in turn lead to slow revenue growth. We believe this combination will likely lead to moderately higher deficits.

Subtracting all liquid assets from gross government debt, we project that net debt this year will remain at about 65% of GDP, matching the year-end 2010 number using Israel’s revised and enlarged GDP figures following the 2013 methodological change by under the Central Bureau of Statistics. This forecast is based on our expectation of average deficits of 3.0% of GDP per year in 2015-2018. In light of annual growth prospects slightly above 3%, we regard such deficit levels as consistent with a stable net government debt burden. We think favorable interest rates will help lower the government’s interest payments to about 10% of revenues in the next few years.

By contrast, Israel’s external fundamentals remain strong. Israel continues to improve its net creditor position versus the rest of the world by running small but consistent current account surpluses. We forecast that its narrow net external asset position will strengthen to 23%-25% of current account receipts (CARs) over the next three years. This dynamic is also lowering the country’s gross financing needs, which will likely only make up 76% of CARs and usable reserves in 2015 – an all-time low dependency on external financing.

We consider Israel’s monetary policy flexibility to be a credit strength. However, as we have previously stated, we no longer consider the Israeli shekel to be a free-floating currency. The Bank of Israel (BoI) has become increasingly interventionist, over and above its commitment to purchase foreign currencies to offset the impact of domestic natural gas production on the balance of payments.

In addition to frequent interventions in the foreign exchange market, the BoI has eased its stance on monetary policy to counter the shekel’s strength. It lowered its policy rate to a historical low of 0.25% in August 2014. Given the current low inflation, we consider a move toward unconventional monetary policy possible. Its policies are partially responsible for the shekel’s rapid depreciation (roughly 15% in nominal terms since August). The currency had benefited from a largely balanced current account, very strong inward foreign direct investment, and capital inflows on the financial account, but its strength was damaging the export sector.

Another challenge continues to be Israel’s rising house prices. The government’s dissolution in December 2014 will likely eliminate plans to cancel value-added tax (VAT) charges on first-time home buyers. Additional reforms to increase supply by freeing up more land for development could still be implemented, but we think price stabilizing effects remain unlikely in the near term. Macroprudential measures appear to have contained systemic risks to Israel’s banking industry, but any correction in house prices could still have other negative economic effects.

We consider Israel’s institutions to be generally effective, with a satisfactory degree of transparency and accountability. However, the persistent territorial dispute with the Palestinians, by inserting another dividing line in the electorate and distorting policy decisions, contributes to a lack of political stability and limited policy predictability.

The constraints on our rating are even greater when we take into account the direct geopolitical risks. Repeated violent clashes with the Palestinians not only inflict economic costs, but could also risk reactions by the international community. The northern border, the conflict in Syria-Iraq and instability in the Sinai region pose medium-term security risks. Any significant armed conflict could have a negative impact on the ratings if it significantly deters investment, weakens the economy’s growth potential, or strains fiscal flexibility.

Outlook: The stable outlook on Israel reflects our opinion that the outcome of the March 2015 elections will not undermine prudent public finances and the stabilization of government debt over 2015-2018. We also expect the impact of security risks on the Israeli economy to continue to be contained.

We could consider raising our ratings on Israel if fiscal consolidation exceeds our expectations or if there is marked progress in defusing external security risks.

Conversely, we could lower the ratings if we see a significant setback in reducing the government’s high debt, a significant decline in Israel’s growth prospects, a substantial deterioration in security, or if the perceived loss of international support were to carry adverse economic consequences. (S&P 13.02)

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11.2 IRAQ: Kurdistan Needs an Estimated $1.4 Billion to Stabilize the Economy

The Kurdistan Regional Government (KRG) is facing an economic and humanitarian crisis as a result of the influx of Syrian refugees (starting in early 2012) and more recently the Internally Displaced Persons (IDP) in 2014. According to a newly completed KRG – World Bank report, economic growth contracted 5%age points in the Kurdistan Region of Iraq (KRI), and poverty rate more than double increasing from 3.5% to 8.1%.

The report, Economic and Social Impact Assessment of the Syrian Conflict and ISIS Crisis, provides national and regional policy makers with a technical assessment of the impact and stabilization costs needed for 2015, associated with the influx of refugees and IDPs. The stabilization cost for 2015 is estimated at $1.4 billion in additional spending above and beyond the KRG budget. This estimate could get much higher depending on how long the crisis persists. While the KRG has been responsive to addressing the needs of the displaced population up till now, more resources are needed to avert this humanitarian crisis and address the needs of the displaced population in the medium and long-term. Impact refers to the immediate economic and fiscal effects on the KRG economy and budget, while stabilization cost refers to the additional spending that would be needed to restore the welfare of residents of the KRI.

“The international community remains deeply concerned by the circumstances facing the refugees and Internally Displaced Persons in the Kurdistan Region of Iraq,” said Robert Bou Jaoude, World Bank Special Representative for Iraq. “We hope that this assessment will support the KRG’s dialogue with its national and international counterparts and that a swift resolution to this problem will be identified.”

The study highlights how prices and unemployment have increased, and refugees and IDPs entering the labor market are pushing wages down. A surge in violence led to supply side shocks. The ISIS crisis has had a significant effect on trade of goods and services. Transportation routes were disrupted. Foreign direct investment flows have declined and operations of foreign enterprises have been adversely affected. Disruption of public investment projects has had a negative impact on the economy.

“As a result of the Syrian conflict and the ISIS crisis, Kurdistan Region of Iraq’s population increased by 28% placing strains on the local economy, host community and access to public services. We accepted and treated them as our own by providing access to all public services in our region,” said Dr. Ali Sindi, KRG Minister of Planning. “While our government has allocated significant resources through the Immediate Response Plan to accommodate the needs of the displaced population, it cannot address this big scale humanitarian crisis on its own. Greater support from the national and international partners will be needed to rise above this humanitarian crisis and meet the needs of the displaced.”

The report is an outcome of close collaboration between a wide spectrum of World Bank experts and regional government institutions and international partners. “A national and international response is needed in the immediate future and in the medium-term there is a need for structural reforms,” said Sibel Kulaksiz, World Bank Senior Economist and Project Leader. “The authorities have already recognized the need for economic reforms and the diversification of the economy. Indeed, one of the main pillars of the KRG Vision is the development of a diversified economy driven by the private sector.” (WB 12.02)

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11.3 GCC: Heavily Dependent on Expatriate Healthcare Workforce

Rapidly growing populations and per capita incomes, rising life expectancies, a high incidence of lifestyle-related diseases, and ambitious medical infrastructure projects are driving health care industry growth in the Middle East’s Gulf Cooperation Council (GCC) states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Yet even though the region is making appreciable progress in its efforts to improve health care access and quality, pressure on available capacity is increasing, and closing the wide gap between current and targeted states remains a top challenge in 2015.

The health care workforce, especially physicians and nurses, remains mainly expatriates. This is according to Deloitte’s newly released report entitled, “2015 global health care outlook: Common goals, competing priorities”.

This new report examines the current state of the global health care sector; describes the top issues facing stakeholders; provides a snapshot of activity in a number of geographic markets; and suggests considerations for companies to meet the challenges of 2015 and beyond.

“GCC countries depend heavily on government funding to meet health care needs. In Saudi Arabia, for example, the government accounted for 65.8% of health care spending in 2012, according to the World Health Organization (WHO)” said Julian Hawkins, partner in charge for Consulting at Deloitte Middle East.

The Deloitte report finds that to address the increasing demand for healthcare, which includes Saudi nationals who are entitled to free health care, as well as religious pilgrims, the government’s 2014 budget allocated $28.8 billion to health and social welfare.

The funding includes plans for 11 new hospitals, 11 medical centers and two medical complexes, on top of the 132 hospitals and health care centers already under construction. However, after several years of large budgetary spending increases, the Saudi government is intensifying its efforts to promote private health care, via expanded health insurance, increased loan limits to build private hospitals, and support for public-private partnerships.

The Deloitte report also finds that health care, education, and social services continue to be priorities in the UAE’s federal budget. In terms of health care, UAE nationals are covered under the government-funded health care program, whilst expatriates have to pay for private health care insurance. Although, the UAE government is encouraging more private participation in the sector, it will likely continue to finance the bulk of health care spending in the near term.

“Unequal access to health care facilities and a continued shortage of health care professionals across the Middle East illustrate the region’s need for more private sector involvement to fill the gap between increasing needs and available capacity,” explains Hawkins.

“Governments are responding to this imperative by introducing programs and incentives to encourage private sector growth, optimize current operations, and leverage technology to raise the quality of health care services in GCC countries”.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. (Deloitte 10.02)

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11.4 BAHRAIN: S&P Downgrade to ‘BBB-/A-3’ After Decline in Oil Prices

On 9 February, Standard & Poor’s Ratings Services lowered its long- and short-term foreign and local currency sovereign credit ratings on the Kingdom of Bahrain to ‘BBB-/A-3’ from ‘BBB/A-2’. At the same time, we lowered our long- and short-term foreign and local currency credit ratings on the Central Bank of Bahrain to ‘BBB-/A-3’ from ‘BBB/A-2’.

The outlooks on both Bahrain and its central bank remain negative.

Rationale

Prices for crude oil in spot and futures markets have dropped more than 50% since June 2014, leading Standard & Poor’s to revise down its oil price assumptions significantly over 2015-2018. When we reviewed Bahrain in December 2014, we expected Brent oil prices to average $80 per barrel (/bbl) in 2015 and $83/bbl in 2015-2018.

We now assume an average Brent oil price of $55/bbl in 2015 and $70/bbl in 2015-2018. Consequently, we have also revised our forecasts for Bahrain’s economic growth, fiscal position and current account.

Over 2014, Bahrain derived approximately 65% of its fiscal revenues from crude oil receipts, which are part of the 84% of total revenues derived from the oil and gas industry. Bahrain’s fiscal break-even oil price, estimated at nearly $125/bbl of oil in 2014, was the highest of all Gulf Cooperation Council (GCC; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) members.

This compares with an average of $52/bbl between 2000 and 2010. We view this as an erosion of the longer-term sustainability of Bahrain’s fiscal position. Recurrent expenditures increased to 90% of total expenditures in 2014 from 81% in 2009, and wages and salaries account for 42% of total expenditures, with subsidies representing another 30%.

These increasingly burdensome social expenditures underpin Bahrain’s pronounced vulnerability to oil prices. The government’s debt burden has doubled since 2009 and stood at some 43% of GDP at the end of 2014. We estimate that the government will be in a net debt position of almost 20% of GDP by the end of 2015, from 10% of GDP in 2014 and a net asset position of 12% of GDP in 2010.

We view the implementation of tangible and sustainable reform that reduces Bahrain’s fiscal dependency on volatile oil prices as a key challenge for the government in place since the parliamentary elections on 29 November 2014. We expect that the 2015-2016 budget currently under parliamentary review will contain a number of expenditure measures, in particular a severe reduction in capital spending to about 2% of GDP, from a figure closer to 6% of GDP over the past few years.

However, we believe that political sensitivities will result in smaller reductions in recurrent expenditures. As a result, our fiscal projections now show Bahrain’s general government deficit widening to 8% of GDP in 2015, compared with our previous estimate of 4%, and compared with a surplus that averaged 1% of GDP over 2007-2013.

The government’s ability to implement more deep-rooted expenditure cuts or introduce taxes in an effort to balance fiscal results on a recurring basis in a delicate political environment remains its main challenge, in our opinion.

The fall in oil prices has also affected our analysis of Bahrain’s external accounts. We now expect the current account will fall into a slight deficit in 2015, given that approximately 80% of exports are linked to oil. Bahrain’s services balance is related to the profitability of the financial sector and could therefore deteriorate slightly under the impact from weaker oil prices.

We expect that corresponding outflows from the financial account will decline as a result, albeit with a potential time-lag, as prices feed through the financial system. We continue to believe that Bahrain’s external stock position could be significantly overstated as a result of a historical statistical discrepancy relating to the size of the financial system, much of which has limited bearing on the domestic economy.

While the exact external asset exposures of the wholesale banks (80% of the total system) are uncertain, the majority is to head offices, other banks and securities. We treat these assets as liquid, in line with an international financial sector. They also account for the very high stock of short-term external debt of 5x current account receipts.

We continue to assume that regional financial support will be forthcoming when needed in both our fiscal and external assessment of Bahrain’s creditworthiness. However, beyond 2015, the terms and timing of such support remain less certain, in our opinion. Furthermore, we believe that increasing this dependency could reinforce policy complacency, with the potential to undermine Bahrain’s credit quality.

We believe that disbursements from the GCC Development Fund, with approximately $10 billion in funding committed over a 10-year period, will offset government capital expenditure cuts and will act as a key growth contributor. We think that real GDP growth will slow a little more than previously, as regional demand decreases, but that growth will remain positive at about 2% over 2015-2018.

The fund has disbursed an estimated $150 million (0.4% of GDP) to date this year, and we expect it will disburse a further $750 million (2.1% of GDP) in 2015. These funds are intended to promote private-sector activity (albeit with little local bank financing) and improve Bahrain’s infrastructure. Projects underway include housing, new roads, and schools.

Bahrain’s economic performance has shown resilience to shocks, and real GDP growth averaged more than 4.5% between 2007 and 2013. Bahrain’s proximity to Saudi Arabia, its strong regulatory oversight, a relatively well-educated workforce, and its low cost environment still provide incentives for investment and create potential for the future growth of the non-oil economy, representing approximately 75% of total GDP.

Moreover, measures to ease restrictions on foreign participation in the labor force have improved flexibility for employers. Regulations that afford flexibility to foreign investors when managing their relationships with local business (who by law hold majority stakes in all businesses) are also signs of a relatively business-friendly policy setting.

However, we believe the already high level of competition in financial services–locally and regionally, particularly from Dubai – will limit the scope for growth at Bahrain’s offshore and retail banks. As a result of this and the reduced confidence triggered by lower oil prices, we think the need to bring foreign talent into the workforce will slacken.

While these factors limit upside growth potential, we expect that slower rates of immigration, which are a key determinant of population growth, could feed through into higher GDP per capita growth figures.

Despite Bahrain’s large financial sector and high number of majority-government-owned companies, we consider its contingent liabilities to be limited. On average, banks display high regulatory capital positions. We expect that competition will continue to strain profitability at Bahraini retail banks, encouraging further consolidation. Although the size of the overall banking system has declined by about 25% since its peak in 2008, driven by offshore banks’ balance sheet downsizing, in our base-case scenario we assume that outflows, in terms of both external funding and the physical presence of international banks, will be contained. Bahrain’s retail banks carry a large credit exposure to the real estate and construction sector (about one-fifth of total lending on Sept. 30, 2014).

In our view, the real estate and construction sector remains in a correction phase, which has contributed to the building up of a large percentage of problem assets (nonperforming loans and restructured loans.

We do not expect that the Central Bank of Bahrain would act as a lender of last resort for offshore banks. But we view the Bahraini government as a potential source of support for wholesale institutions not covered by parent entities or home countries, but still important from a systemic or reputational standpoint. Consequently, we include all wholesale banks’ external liabilities in our assessment of Bahrain’s external financing needs.

Outlook

The negative outlook reflects our view of Bahrain’s weakening fiscal profile and its uncertain policy response. We could lower the ratings over the next year if our fiscal deficit assumptions are materially exceeded, or if measures to combat falling government revenues do not aim for a structural improvement in Bahrain’s public finances that would in turn reduce its reliance on oil revenue and contain expenditures.

We could also lower the ratings if GCC development funds are not as forthcoming as we expect, causing our fiscal deficit assumptions to be markedly exceeded or growth to be substantially lower than we currently expect.

We could revise the outlook to stable if the Bahraini government embarked on a credible path to fiscal sustainability or if oil prices outstripped our current assumptions, thereby reducing fiscal deficits and limiting increases in government indebtedness. (S&P 09.02)

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11.5 SAUDI ARABIA: S&P Outlook to Negative Following Oil Price Decline

On 9 February, Standard & Poor’s Ratings Services revised its outlook on the Kingdom of Saudi Arabia to negative from stable and affirmed its ‘AA-/A-1+’ long- and short-term foreign and local currency sovereign credit ratings.

As a “sovereign rating,” the ratings on Saudi Arabia are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar. In this case, the reason for the deviation is the recent sharp drop in international oil prices.

Rationale

Prices for crude oil in spot and futures markets have fallen by more than 50% since June 2014, leading Standard & Poor’s to revise down its oil price assumptions significantly over 2015-2018. When we last reviewed Saudi Arabia, in December 2014, we expected Brent oil prices to average $80 per barrel (/bbl) in 2015 and $85/bbl in 2015-2018. We now assume an average Brent oil price of $55/bbl in 2015 and $70/bbl in 2015-2018.

Saudi Arabia derives about 40% of its GDP, 90% of government revenues, and 85% of exports from the hydrocarbons sector. We view Saudi Arabia’s economy as undiversified and vulnerable to a steep and sustained decline in the oil price, notwithstanding government policy to encourage non-oil private sector growth. We find that the non-hydrocarbon sector relies to a large extent on government spending (funded by hydrocarbon revenues) and downstream hydrocarbon activities.

Alongside our lower oil price assumptions, our fiscal projections also take into account the government’s 2015 budget, which suggests a general government deficit of about 6% of GDP in 2015. In addition, we include the new king’s recently announced Saudi Arabian riyal (SAR) 110 billion ($29 billion) off-budget spending package, representing 4.5% of GDP, which we understand is to be disbursed over 2015-2017.

In our view, the government may face sustained fiscal deficits over the period to 2018. Financing these deficits and the recently announced spending package may result in a pronounced decrease in the government’s net asset position or an increase in the government’s currently very low debt burden.

Sustained high oil prices over the past few years have helped bolster financial buffers, accumulating government liquid assets that we estimate will average about 111% of GDP in 2015-2018.

In our view, this level of assets significantly offsets the concentration risk related to the economy’s hydrocarbon dependency. However, we could reassess our view that the government has an exceptional buffer to offset most economic or financial shocks should liquid assets fall below 100% of GDP.

The large public investment program (just over 30% of all central government spending is capital expenditures) could provide the Saudi authorities with fiscal flexibility to react to the deteriorating terms of trade and concomitant detrimental government revenue trends, although at the cost of slower progress in implementing the official economic diversification strategy.

We understand that Saudi Arabia is the oil producer with the largest estimated amount of spare oil production capacity globally. In our view, this could provide it with an additional layer of fiscal and external flexibility that other oil producers don’t have.

King Abdullah passed away on 23 January 2015. The succession of his 79 year old half-brother, King Salman, has proceeded smoothly. King Salman has followed the wishes of his predecessor in naming his half-brother, Prince Muqrin, as crown prince and next in line to the throne. The new king has also adhered to the strictures of the Allegiance Council established in 2007 to formalize the procedure of appointing a crown prince once a new king ascends to the throne.

King Salman has named his nephew, interior minister Mohamed bin Nayef, as deputy crown prince and second in line to the throne.

However, we believe that this framework will face a crucial test when the scepter is passed from a son of King Abdulaziz Al-Saud, who established the kingdom in 1932, to the next generation of rulers – potentially the newly appointed deputy crown prince. So far, only the sons of King Abdulaziz have ruled after him. We continue to view succession as an element of uncertainty.

The spending package announced by King Salman is in line with the practice of newly appointed Saudi kings but comes at a time when public finances are already strained. The package includes a bonus of two months’ salary to be paid to current and retired state employees, while students and state benefit recipients will also receive a two-month bonus.

In our view, Saudi Arabia is an absolute monarchy in which decision-making is highly centralized with the king and the ruling family. We find that this could make future policymaking more difficult to predict. Political institutions are still at an early stage of development compared with those of non-regional peers in the ‘AA’ rating category.

According to our estimates, based on the 2014 BP Statistical Review of World Energy, Saudi Arabia’s annual production of both oil and gas–about 5 billion barrels of oil equivalent (boe)–could be maintained for the coming 66 years, given its 320 billion boe in estimated reserves.

However, in terms of years of hydrocarbon production at current levels, Saudi Arabia is surpassed by other Gulf Cooperation Council (GCC) countries: Qatar (106), Kuwait (91) and the United Arab Emirates (81). As a result, alongside the high share of hydrocarbons in nominal GDP and exports, and a relatively high fiscal breakeven oil price (estimated at $87/bbl in 2015 by the IMF), diversification away from the oil sector is in our view a more pressing issue in Saudi Arabia relative to some other GCC countries.

We now estimate trend growth in real per capita GDP at about 1% over 2009-2018, using 10-year weighted-average growth as our measure. This is still on a par with peers that have similar GDP per capita but at the bottom end of the typical 1%-4% range.

Over 2015-2018, we expect Saudi Arabia’s net liquid external assets (net of external debt) will remain in a strong position, averaging about 200% of current account receipts (CARs). The country’s external liquidity has weakened since our last review due to our expectation of weaker growth in CARs, with gross financing needs averaging 90% of usable reserves and CARs by our estimate.

Given the Saudi riyal’s peg to the U.S. dollar, we view monetary policy flexibility as limited. The long-standing currency peg helps to anchor the population’s inflation expectations but binds Saudi Arabia’s monetary policy to that of the U.S. Federal Reserve.

Outlook

The negative outlook reflects our view that Saudi Arabia’s general government fiscal position is weakening. We could lower the ratings over the next two years if the government’s liquid assets fell well below 100% of GDP or its overall fiscal performance significantly weakened by our estimates. The ratings could also come under pressure if domestic or regional events compromised political and economic stability.

The ratings could stabilize at current levels if the combination of policy choices by the Saudi authorities and external economic conditions preserve the government’s exceptionally large liquid asset position close to current levels, which provide the government with an exceptional buffer during periods of economic or financial shocks. (S&P 09.02)

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11.6 IRAN: Billion Dollar Smuggling Industry Drains Iran’s Economy

Al-Monitor reported on 13 February that Habibollah Haghighi, chief of an Iranian task force to combat smuggling, announced that up to $25 billion worth of contraband was smuggled into the country between March 2013 and March 2014. Haghighi’s announcement came during a 22 January meeting in Qom among seminary heads, in which he stated that the “trafficking of contraband goods hindered domestic production and had negative impacts on the economic, health care, medical and cultural sectors.” According to the official, the amount of contraband over the year was double the country’s development budgets.

Iran’s Central Task Force to Combat the Smuggling of Commodities and Currency, formed by direct order of the supreme leader, is affiliated with the Presidential Office, with the task force head serving as the president’s special representative. On 3 July 2002, Supreme Leader Ayatollah Ali Khamenei issued an order establishing the office, stating: “Growth of trafficking and its harmful impacts on manufacturing, legal trade, investment and employment is a serious and significant danger that should be fought with full force. All relevant departments are obliged to play their role in this combat.”

Hamid Zangeneh, an economics professor at Widener University, told Al-Monitor that Iran’s high inflation rates and unemployment were the main reasons for the growth of smuggling. He said, “Another very sobering root cause of smuggling is the prohibition of many products in the market. Large bulks of these smuggled commodities are those that cannot be produced or purchased in the free market, such as alcoholic beverages, films, medicine and, most importantly, drugs.”

Haghighi had previously reported on Iran’s smuggling problem back in December 2014, thus highlighting how President Hassan Rouhani’s administration is attempting to raise awareness of the issue through the media and seeking collaboration with powerful organizations like the judiciary and the police force.

According to official statistics, commodities such as cigarettes, cellphones, alcoholic beverages, cosmetics, satellite receivers and medicine are the top illegal imports. The Islamic Republic of Iran Customs Administration announced that of Iran’s annual $11 billion in cigarette imports, 25%, or $3.6 billion, is smuggled into the country. Drug trafficking is estimated to be worth $3 billion.

Ebrahim Dorosti, deputy of Iran’s Chamber of Trade Unions, reported that illegal cellphone imports total $2 billion. According to Dorosti, 85% of cellphones are illegally imported to Iran, amounting to $200 million worth of losses for Iran’s government. Cosmetics smuggling is also big business, reports Iran’s Deputy Health Minister Rasoul Dinavand. According to the minister, Iran is the seventh top consumer of cosmetics in the world, with the official import value at $1 billion. However, the illegal imports of cosmetics are worth “much more.” Dinavand warned against the high volume of smuggling drugs, bodybuilding supplements and cosmetics.

Reza Tahmasbi, deputy editor-in-chief of Tejarat-e Farda Weekly — a popular journal that advocates a free economy — explained to Al-Monitor the role of international sanctions in increasing smuggling. “Obviously, the more barriers on the free market, the more smuggling there will be. International sanctions made the import of many commodities difficult or even prohibited. It paved the way for smuggling these goods. When you cannot [legally] import high-demand commodities such as cellphones, notebooks and computer devices, smuggling is the only way.”

Tahmasbi suggested that Rouhani’s administration reduce customs tariffs and bureaucracy to decrease smuggling.

Smuggling of commodities has increased fivefold from 2007 to 2013. Majid Reza Hariri, chairman of the import committee of Iran’s Chamber of Commerce, told Fars News Agency, “According to the statistics provided by the Central Task Force to Combat the Smuggling of Commodities and Currency, the total value of smuggling increased from $5 billion in 2007 to $25 billion later on.”

It seems that international sanctions and the government’s customs policies are not the only reasons behind Iran’s booming smuggling economy. Zangeneh told Al-Monitor that the Islamic Revolutionary Guard Corps (IRGC) and the border police have played a role in the increase of smuggling. “The beneficiaries of these activities are not the government and government agencies. Actually, the government is the main loser in these affairs because they are denied the potential tax revenues that could result from these transactions and incomes. The main beneficiaries are the corrupt officials of the Sepah (Revolutionary Guards) and border police who receive bribe money for looking the other way and in some cases actively participating in buying and selling of these commodities.”

Former President Mahmoud Ahmadinejad made the most serious accusation against the IRGC in 2011, claiming that the IRGC uses its military ports to smuggle cigarettes: “The value [of cigarette smuggling] makes any first-class international smuggler greedy, let alone our very own ‘smuggler brothers.'”

Head of the IRGC Maj. Gen. Mohammad Ali responded to Ahmadinejad’s accusations in less than 24 hours: “These accusations are made to deviate the public’s mind, by people who are beneficiaries themselves in our opinion.”

In 2004, the sixth parliament’s investigation body published a report on illegal imports and ports involved in illegal activities. The report clearly stated that three IRGC ports located in Chabahar, Khoor Zangi and Hormozgan were involved in this illegal trade, along with several police ports.

Progress in Tehran’s international relations, a waiving of sanctions and future economic growth might restrict smuggling. However, an anonymous political analyst in Tehran told Al-Monitor, “As the final step in this combat, the government should stand against powerful beneficiary organizations such as the IRGC. This is a step Rouhani might never want to take.” (Al-Monitor 13.02)

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11.7 EGYPT: Russia and Egypt’s ‘New Partnership’

Al-Monitor reported that between 9 – 10 February, Russia’s President Vladimir Putin paid an official visit to Egypt, thus reciprocating an August 2014 Russia visit by Egyptian President Abdel Fattah al-Sisi. Shortly before Putin’s trip, Moscow’s analyst community suggested that the Russia-Egypt relationship might be elevated to a strategic partnership. The makings of such a shift included the parties’ shared positions on a number of regional issues; closely aligned interests (particularly on fighting international terrorism); a successful track record of bilateral cooperation on various fronts; and a strong personal bond of trust between respective leaders.

The reader may be reminded that Moscow took time to lean toward support for the Egyptian military, which had assumed power through an unprecedentedly large-scale manifestation of the popular will. However, the waiting game did not take long, as Russia’s orientation toward support for Sisi in every possible way became obvious following Sisi’s electoral victory. Already in 2014 trade and economic cooperation between the two nations developed at a brisk pace. According to Egyptian Ambassador to Russia Mohammed al-Badri, who described Russia-Egypt ties as “picking up” across all areas of cooperation, last year’s trade between the two countries stood at $3 billion. Meanwhile, Russia’s Federal Customs Service cites an even higher figure of $4.6 billion between January and December, including $4.1 billion in Russian exports. Notwithstanding certain misgivings about Egypt’s security situation and an overall drop in the number of Russian nationals traveling abroad, more than 3 million Russians toured the country last year. In fact, Egypt’s Tourism Minister Hesham Zazua has gone as far as to propose that settlements with Russia in this sphere may be carried out in Russian rubles and Egyptian pounds, thus bypassing the dollar. Given Russia’s sizable trade surplus, this does not appear implausible.

As Yuri Ushakov, an aide to the Russian president, told the press on 5 February, Egypt and the nations of the Eurasian Economic Community had agreed to set up a free trade area working group, and “a decision had been made to establish an appropriate research team that would examine this topic. Its first meeting will be held in Cairo in March or April this year.”

As Putin told Egypt’s Al-Ahram daily on 8 February, “We have established mutually beneficial and effective cooperation in the field of agriculture. Egypt is the major buyer of Russian wheat, Russia provides about 40% of grain consumed in that country; as for us, we import fruits and vegetables.” According to the president, Russia “sees promising prospects in the field of high technology, particularly in the areas of nuclear energy, outer space use and sharing of Russia’s GLONASS satellite navigation system.”

To Cairo, this continued rapprochement with Moscow is taking place against the background of a difficult relationship with Washington. Indeed, when Barack Obama’s decision to invite Sisi to the White House was announced on 14 July 2014, Sisi excused himself and sent his prime minister instead, reminding observers of an interview he granted to Larry Weissman back in 2013. At the time, Sisi stated much more bluntly: “The people of Egypt are aware of the fact that the USA has stabbed Egypt in the back with the Muslim Brotherhood and [Mohammed] Morsi. It is nothing that Egypt will easily forget, or forgive.” On 24 October 2014, the Russian website Inosmi quoted from an article titled “Egypt gets ready for Putin’s visit” published in the UAE daily Al-Bayan, which said: “As opposed to actions taken by Washington that considers a terrorist organization involved in pillage and looting as the lawful government and denounces its ouster as a coup, Russia is not ready to compromise, for it unabashedly calls a spade a spade.”

The Egyptian leadership was particularly peeved by the January 2015 tour of Washington taken by an Egyptian opposition delegation, including members of the Muslim Brotherhood’s Freedom and Justice Party. They were received at the Department of State, according to political consultant Christof Lehmann. I do not believe, however, that Egypt will further strain its relations with the United States, for it badly needs US assistance.

Egypt’s cooperation with Russia will, to a substantial degree, depend on whether Western nations continue to support Sisi financially. (Given the difficulties that Russia is facing on its own as a result of the sanctions and the oil price collapse, it is unlikely that it will shoulder the burden of pro bono assistance to Cairo.) Without the strong financial sustenance that Gulf countries such as Saudi Arabia, the United Arab Emirates and Kuwait provide to it, Egypt would be clearly unable to pay for Russian weaponry and military hardware imports, estimated by the media to total $3.5 billion last year already, including rotary and fixed-wing aircraft, as well as air defense systems. It remains unclear what kind of aftershocks Egypt and the balance of power within the region at large would experience as a result of the “Saudi earthquake” that followed royal succession in the kingdom.

David Hearst, editor-in-chief of the Middle East Eye, believes that “it is not a good time for the Egyptian army to lose its chief bankroller in Riyadh, but this now is a real possibility.” In his opinion, the Saudi policy of declaring the Muslim Brotherhood a terrorist organization may also be about to change, as evidenced, in particular, by Rachid Ghannouchi’s arrival in Riyadh to express his condolences on the passing of King Abdullah bin Abdulaziz, and by the removal of Suleiman Ab Al-Khail, an arch opponent of the Brotherhood, as minister of endowments and Islamic affairs.

A vast field for cooperation has opened up for Cairo and Moscow, as each party has redoubled its efforts to mediate a settlement to the Syrian conflict. Prior to the advisory meeting of Syrian opposition, civil society and government representatives held in Moscow between 26 – 29 January – the first meeting of its kind – opposition figures met in Cairo, even though no Syrian government delegation was there. I would not rule out a situation whereby, as a result of the Russian president’s visit to Cairo, the parties might agree to pool their forces in the context of a Syrian settlement. This would doubtless boost the chances for a successful resolution of this conflict.

Still, the fight against international terrorism remains key to the political engagement of Moscow and Cairo. The 29 January Sinai Peninsula attack against the Egyptian army by terrorists from the Wilayat Sinai organization (formerly known as Ansar Bayt al-Maqdis), which has pledged allegiance to the Islamic State, dealt a blow to Sisi. According to a February 2015 assessment by the Middle East Briefing, that attack “has increased the general sentiment in Egypt that the government of Sisi is unable to control the deteriorating security environment.” In addition, Sisi accused the Muslim Brotherhood of conducting a campaign of terror. Plus, the Egyptian authorities suspect that the terror attack was “aided by foreign special services.” Tellingly, a Muslim Brotherhood communique issued on the attack day promised to “intensify the jihad” against the government, according to the Middle East Briefing. In this context, cooperation with Russia that, like Egypt, views the Brotherhood as a terrorist organization, receives a strong impetus.

By pursuing its “new partnership” with Egypt as a key Arab nation, Russia proves that suggestions of its political isolation are irrelevant. According to Seth Ferris, “For reasons Egypt did not create, Russia has become the most acceptable supplier in both political and emotional terms.”

Considering the dynamic evolution of its relations with non-Arab players such as Turkey, Israel and Iran, its ties to Egypt give Russia more clout as a Middle East player. Even though Moscow is both unable and unwilling to compete here with players wielding greater influence, primarily with Washington, it has not merely secured its niche but is clearly gaining ground. (Al Monitor 11.02)

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11.8 EGYPT: Knockoff Drugs Endanger Egyptians

Rami Galal posted on 18 February in Al-Monitor that the number of counterfeit medications in Egyptian markets has recently reached 30% of the total of drugs on the market. The prevalence of counterfeit drugs has even extended to several vital medications used to treat cancer, liver inflammation, allergies, diabetes and tumors.

The consumer, torn between the Ministry of Health, the police and the Ministry of Supply, remains the biggest victim, in the absence of an independent Egyptian drug committee that monitors the registration, pricing, sale and quality control of medications. Egypt’s national economy is suffering as well.

Mohamed Seoudi, the undersecretary of the Egyptian Pharmacists Syndicate, told Al-Monitor, “This problem is tightly linked to pharmacies that have multiple branches whose owners hold huge capital and are close to the decision-makers in Egypt. They are the ones mainly selling counterfeit and smuggled drugs.”

He added, “The lack of laws that deter the counterfeiting of medications has led to the spread of this phenomenon, as Law 126 of 1955, dealing with the practice of the pharmacy profession, is not in line with the spread of counterfeiting that surfaced in the past few years. The sanctions range between a fine that is no less than 20,000 Egyptian pounds [$2,600] and no more than 50,000 pounds [$6,600] or a two-year prison sentence. This is not a deterring law.”

Seoudi noted, “We have made several suggestions to the Ministry of Health to make the punishment for counterfeit medications harsher, to reach in some cases execution when the medication causes death.”

Seoudi indicated that because of the lack of direct communication between the Ministry of Health and pharmacists, the phenomenon of counterfeit medications has expanded. Lines of communication such as Internet hotlines are needed to facilitate the reporting of problematic medication to pharmacies, whether they are counterfeit or suspected to be.

Seoudi said, “The project of an Egyptian drug committee presented to the presidency is exactly similar to the American Food and Drug Association.”

He explained, “The Ministry of Health is strictly refusing to pursue the project, as it will deprive it of the huge revenues it receives through the central administration in the ministry. The latter receives money in exchange for registering or pricing any medication on the Egyptian market.”

Seoudi demanded an end to the practice of withdrawing machines used for drug manufacturing from the market and selling them later on, as the Bir al-Selem pharmaceutical factories use them to produce counterfeit medications. These machines, which should not be sold to just anyone, must be smelted and remanufactured. Furthermore, the importation of pharmaceutical-making machinery should be restricted to authorized drug manufacturers.

Amir al-Komi, the head of the quality control for the Egyptian Consumer Protection Association, told Al-Monitor in an interview, “The agency is doing its part to monitor the activities of pharmacies, through inspection campaigns according to the bulletin issued by the Ministry of Health on counterfeit or smuggled drugs.”

He said, “We request that the inspector takes legal action against the concerned pharmacies according to the type of crime or fraud that has been committed. However, we need to employ more efforts to follow up on all the pharmacies’ activities in the provinces and villages in Egypt, which requires larger financial allocations. We also demand that all laboratories analyzing the drug samples be brought under one umbrella to speed up this process.”

Komi added, “The Consumer Protection Agency supports the Egyptian Drug Authority’s draft law. Should the current government refuse to pass it, we will not give up and will refer the law to the upcoming parliamentary session.” He stressed that most countries have established similar associations, including neighboring states Saudi Arabia and Jordan.

The former undersecretary of the Ministry of Health for the pharmacy department, Mustafa Ibrahim, told Al-Monitor, “The [ministry’s] central administration charges fees for registering or pricing drugs, after analyzing their samples and before putting them on the market. The Ministry of Health plays its legal role to monitor drugs in Egypt.” He added, “Illegal drug trade ranks second at the international level after arms trade, which encourages many unscrupulous people to tamper with drugs, either by decreasing their active ingredients or completely faking them.”

Georges Ishaac, a leader of the Civil Democratic Current and member of Egypt’s National Council for Human Rights (NCHR), told Al-Monitor that the council called for laws to end the misleading advertisements that threaten Egyptians’ health and fundamental rights, most importantly the “right to a secure treatment.”

The NCHR called for a review of the laws addressing health and commercial fraud, an amendment of the consumer protection law to increase its efficiency in protecting Egyptian citizens, increasing the role of its affiliated media watchdog and limiting the sale of drugs to pharmacies only.

An Egyptian drug committee is needed to certify any medical or food product made in Egypt or imported from abroad. The committee would also run campaigns to raise awareness about health and protect citizens, as well as require television channels to dedicate time to educating people on harmful products and the risks of counterfeit drugs promoted by misleading ads. Drug producers must be made to declare known side effects on drug packaging.

Ultimately, Egyptian citizens remain the only victims of negligence by the authorities, whose decisions are always issued when crises have already become acute. (Al-Monitor 18.02)

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11.9 TUNISIA: Tunisia’s Unstable Majority Government

Sarah Mersch reported in Sada on 12 February that Tunisia’s new coalition cabinet is hardly a beacon of stability, confronting ideological differences between four different parties.

After months of wondering whether the new Tunisian cabinet would include Islamist members, many Tunisian voters were surprised that designated Prime Minister Habib Essid decided to integrate Ennahda into his government. The Islamist party, the main opponent of Nidaa Tounes, had come second in parliamentary elections in October 2014. Even though Ennahda only has one minister and three undersecretaries in the new government, their presence unsettles disappointed voters and members of Nidaa Tounes, which has positioned itself as an anti-Islamist political project since its creation in 2012.

Newly elected president Beji Caid Essebsi had charged Habib Essid, an independent politician, to form a government in early January. Essid’s first proposal for a government made up solely of Nidaa Tounes and the populist Free Patriotic Union (UPL) had been attacked from all sides for lack of cohesion and expertise. Seeing that this proposed cabinet had no chance of meeting parliamentary approval, Essid came back in early February with a second proposal that included ministers from the liberal Afek Tounes party (which has 8 representatives in parliament) and Ennahda (69 representatives).

Yet the first proposal was mainly a tactical maneuver. Nidaa Tounes had built its parliamentary and presidential election campaigns around its opposition to Ennahda. But with 86 of 217 seats, the party was far from the 109 seats needed for a majority in parliament. Even a coalition with both UPL (16 seats) and Afek Tounes (8 seats) and independents, would garner only 110 seats – barely past the 109-seat threshold and with no guarantee that the parties and their members would vote in unison. In the long run, such a coalition would be unlikely to survive until the next elections, scheduled for 2019. The leftist Popular Front (15 seats) also refused to enter the coalition due to the presence of old regime figures in it. Nidaa Tounes realized it had no option but to form a coalition with Ennahda, but this was a bitter pill to swallow for many. To appease party members, Essid had to at least try to form a government without Ennahda, even though he knew this first proposal was likely to be rejected.

The second version of Essid’s cabinet was adopted on 5 February with 166 votes in favor, more than 75% of parliament. But observers were quick to point out critical aspects of the new power arrangement. “They won’t last longer than a year or two,” critics said. Ideological differences between Nidaa Tounes and Ennahdha, especially on social issues, risk straining the newly formed coalition – as do the lack of governing experience for many in Nidaa Tounes, Afek Tounes and the UPL. Both Ennadha and Nidaa are likely to pay a high price for their alliance in terms of supporters.

Ennahda has already paid the price in the parliamentary elections for how they ran the government, losing 20% of the votes they had obtained in 2011. They agreed to participate in the new coalition, even with very limited representation, instead of taking a step back and cultivating an opposition role that would be more palatable to their voter base. Former Ennahda spokesperson Zied Laadhari became minister of vocational training and employment, which is an important portfolio in post-revolution Tunisia, where unemployment is one of the new government’s biggest challenges. But because the country is facing such difficult economic conditions, Laadhari is likely to suffer in public opinion, no matter what he does.

For its part, Nidaa Tounes’s decision to include Ennahda in the cabinet risks driving away some of its supporters, which could impact upcoming elections if they believe the party is not following through on their election promises. This decision also reinforces internal divides within Nidaa Tounes, which is already pulled in different directions by old regime figures, unionists, and disappointed social democrats from various smaller parties. Of the 86 Nidaa Tounes deputies, one refused to give a vote of confidence in the new government and another four abstained. However, a press release by Nidaa Tounes’s secretary-general and new Minister of Foreign Affairs, Taieb Baccouche, strongly condemned those deputies who did not vote for the new government, saying that they will be sanctioned for not following the party line. This incident prompted new discussions about the party’s internal quarrels.

Other critics have pointed out the lack of women and young politicians in the government. Only three women are among the 24 ministers, of whom the majority are over 50 years old. This is in a country where about half the population is under 30 and politicians often cite the emancipation of women as a signature national achievement. In addition, Essebsi’s nomination of Habib Essid and the choice of his Minister of Interior, Najem Gharsalli, has raised concerns among civil society. Having figures strongly associated with the old regime in these key positions has triggered fear and staunch criticism from the opposition. Essid has a long political career that dates back to the early 1990s and the rule of Zine El Abidine Ben Ali, under whom he served as the undersecretary to the minister of agriculture, environment, and water resources. Najem Gharsalli, a judge during the Ben Ali era, has been governor of the center-east Mahdia province since 2011.

Tunisians were also surprised at the appointment of 87 year old Lazhar Karoui Chebbi as President Essebsi’s “personal representative” (mumathil shakhsi li-ra’is al-jumhuriya), a new position that carries the rank of minister. The announcement triggered jokes that the two elderly politicians would take turns heading the country, reflecting Tunisians’ concerns that the 88-year-old Essebsi might be too old to lead the country for a five year period. More seriously, concerns have been raised that this position could be an attempt to circumvent the presidential succession process laid out in the constitution.

With a number of challenges ahead for the new government – among them socio-economic reforms, security threats, and municipal elections – a clear plan of action and coordination between the different portfolios are necessary to get Tunisia back on track. While the institutional steps toward democracy are moving forward, the socio-economic issues that underpinned the 2011 uprising persist. Differences in ideology, along with the need to coordinate the positions of four different parties, risk slowing decision making. This will place further strains on citizens who are still waiting for the more tangible results of their uprising.

Sarah Mersch is a Tunis-based freelance journalist. (Sada 12.02)

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11.10 ALGERIA: Year in Review 2014

The Oxford Business Group reported that hydrocarbons-rich Algeria benefited from steady growth in 2014 even amid declining crude prices, thanks in part to strong public spending and increased manufacturing activity.

According to the IMF, overall GDP was projected to jump 4% in 2014 to €167.5b, up from 2.8% in 2013. This compares to estimates of 3% from the World Bank, which recently lowered its forecast from 3.3% previously, in large part due to lower-than-expected oil prices. Last June, the Bank also lowered its 2015 forecast from 3.5% to 3.3%.

Strong commodity prices have allowed the country to build up healthy financial buffers, as Algeria’s foreign exchange reserves topped $193b in June according to the latest data.

The fiscal cushions have come in handy for the country, with the government tapping them to minimize the impact of fluctuating prices. Presenting the draft budget bill for 2015 in October, finance minister Mohamed Djellab said the oil stabilization fund (Fonds de regulation des recettes), which was established in 2000 to help buffer Algeria’s economy from oil price volatility, had dropped to AD4.42trn ($52.6b), down from AD5.50trn ($65.4b) in 2013.

The country’s savings have also allowed the government to maintain a robust spending campaign, with hundreds of billions of dollars’ worth of capital being put into new infrastructure. In a five-year strategic plan released after President Abdelaziz Bouteflika was elected to a fourth term in April, the government promised to continue its pathway for sustainable growth with $262b of public investments announced through to 2019, with particular emphasis on transport and housing projects. This is slightly down on the $286b announced in the previous five-year plan.

Oil production, which accounts for more than one-third of GDP, was set to expand last year for the first time in eight years. However, slumping oil prices hit the economy in the second half, pushing Algeria into a current account deficit for the first time in nearly 15 years.

With oil accounting for more than 60% of budget revenue according to the IMF, Algeria’s financial reserves may come under pressures from an extended period of low oil prices.

Even before the oil market plunge, the IMF warned last year that if Algeria continued to rely on oil and maintained a high level of public spending on social welfare and subsidies, it could become a net debtor in the next 20 years – a sobering thought for the largest natural gas producer in Africa. Algeria also needs to step up hydrocarbons production to preserve fiscal revenue as domestic consumption increases, putting a squeeze on exports.

Seeking energy investment

To that end, the government is trying to accelerate oil and gas exploration. A new tender for hydrocarbons blocks saw four blocks out of 31 awarded in September to consortia including Spain’s Repsol, Italy’s Enel, Norway’s Statoil, Royal Dutch Shell and Dragon Oil.

The oil ministry described the results as “acceptable” following a disappointing round in 2011 when a single block was awarded.

State-owned energy firm Sonatrach announced in November 2014 that it will proceed with its plan to invest €58.8b between 2015 and 2019, despite low oil prices. Sonatrach, Africa’s largest company, plans to drill 125 wells in the next five years, which could help stimulate a renaissance in foreign investment.

A revised 2013 Hydrocarbons Code extended new incentives to foreign investors, especially for non-conventional projects. Authorities have indicated that they may improve the terms for companies to attract more interest in another tender round likely be held in the third quarter of 2015.

Although production costs for conventional resources are competitive in Algeria, the country is looking to lay the groundwork for future shale production. Sonatrach said in December that it had conducted successful test drilling in the Ahnet basin. Algeria has the third-largest technically recoverable shale reserves in the world, but their development has raised concerns over the cost and environmental impact. For the time being, lower return from oil prices may deter large-scale investment in shale resources.

Moving on with Diversification

Non-hydrocarbon industries contribute only 5% of Algeria’s GDP, but over the past decade, the government has made them a focal point for development and several industrial projects were on the verge of completion in 2014. French car manufacturer Renault opened a €50m assembly plant in November last year in the coastal town of Oran, the first automobile plant to be located in Algeria in decades. The facility will produce 25,000 low-cost vehicles a year, with an option to scale up to 75,000 vehicles at a later stage.

French drug maker Sanofi Aventis is finalizing construction of its AD6.6b (€61m) plant and distribution center near Algiers, which will be the company’s largest site in Africa.

Elsewhere, fertilizer production boomed last year. In the first nine months exports nearly tripled to $657m from $238m in the same period of 2013. One producer – a joint venture between Sonatrach and Oman’s Suhail Bahwan Holding Group – is slated to increase national capacity by one-third when it begins operations in early 2015.

As Algeria continues to focus on increasing value-added activity and local manufacturing, its efforts did start to pay off last year with new investments from both domestic and foreign, but more may need to be done to continue this momentum in 2015 against a tougher global outlook. (OBG 19.02)

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11.11 MOROCCO: IMF Executive Board Concludes 2014 Article IV Consultation

On 6 February, the Executive Board of the International Monetary Fund (IMF) concluded the 2014 Article IV consultation for Morocco.

Morocco has made important strides in maintaining macroeconomic stability in a difficult environment, but challenges remain to reduce fiscal and external vulnerabilities, strengthen growth, create jobs and tackle poverty. Growth slowed in 2014 as a result of a contraction in agricultural activity following an exceptional 2013 crop and weak demand from Europe.

However, growth is expected to rebound in 2015 to about 4.4% and remain robust in the medium term as external demand and domestic confidence strengthen. Inflation has remained low and the financial sector remains sound. The 2014 current account deficit narrowed to an estimated 5.8% of GDP due to booming exports from newly developed sectors and lower oil prices. International reserves increased to above 5 months of imports. The 2014 fiscal deficit was also reduced to 4.9% of GDP.

Executive Board Assessment

Executive Directors commended the authorities for their strong policy actions which have reduced economic vulnerabilities. Fiscal and current account deficits have declined and international reserves have increased. However, Directors noted that Morocco’s economy still faces significant risks given the challenging external environment. They encouraged the authorities to continue with an appropriate policy mix and reforms to consolidate the gains thus far, further build external and fiscal buffers, reduce unemployment, and promote higher and more inclusive growth.

Directors welcomed the progress made in fiscal consolidation. They commended the impressive reduction in subsidies, in particular the removal of subsidies on all liquid petroleum products. To further reduce fiscal vulnerabilities and create space for the much needed growth-enhancing investment and social spending, Directors encouraged the authorities to rationalize and better target remaining subsidies to reduce budgetary costs while protecting the most vulnerable.

Directors underscored the need for continued fiscal consolidation to put debt firmly on a downward path and to address vulnerabilities arising from the large public and external financing needs. They commended the progress made in adopting the new organic budget law, which is expected to strengthen and modernize the fiscal framework by enhancing its efficiency, improving financial control and increasing transparency. They called for the timely implementation of this law, once concerns from the Constitutional Council have been addressed. Directors stressed the urgency to reform the pension system. They also highlighted the need to further reform the tax system.

Directors agreed that monetary policy has been appropriate. Noting the improving macroeconomic situation, they supported transitioning to a more flexible exchange rate regime, in coordination with other macroeconomic policies, as it would foster trade and financial flows diversification while helping preserve competitiveness and better insulating the economy against shocks. Directors welcomed Bank Al-Maghrib’s (BAM) efforts to strengthen the financial supervisory and regulatory framework to ensure continued financial sector soundness. They commended the BAM’s proactive efforts to tackle the supervisory and other challenges linked to the international expansion of Moroccan banks and agreed that the forthcoming central bank law would strengthen the BAM’s supervision and crisis resolution abilities. Directors looked forward to the upcoming FSAP update as it would provide an opportunity for a comprehensive assessment of the financial system.

Directors emphasized that structural reforms remain critical for reducing unemployment, diversifying the economy, and promoting higher and more inclusive growth, including by improving the business environment and strengthening competitiveness. Directors called for further action on enhancing transparency and governance, streamlining administrative procedure, and addressing corruption. Continued efforts toward reforming the labor market, increasing the efficiency of spending on education and vocational training, and raising female participation remain important going forward. (IMF 23.02)

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