Fortnightly, 12 August 2015

Fortnightly, 12 August 2015

August 12, 2015





1.1  Israel’s Cabinet Approves 2015 – 2016 Budget


2.1  Biomed Investment Fund MEDX Raises $30 Million
2.2  ARM Buys Sansa Security for $85 Million
2.3  Israel Railways Begins Laying Jerusalem – Tel Aviv Tracks
2.4  Tel Aviv Light Rail Construction Finally Gets Underway
2.5  E-QURE Corp Signs Second Distribution Agreement in Israel
2.6  El Al to Buy and Lease 15 Boeing Dreamliners
2.7  Bombardier Wins Israel Railways Locomotive Tender
2.8  RADWIN 5000 JET PtMP Selected by ATC Communications in U.S.
2.9  Tahal Wins Water Supply Project in Karnataka, India


3.1  Delta to Reduce Dubai Flights Due to “Overcapacity” By Gulf Carriers in US
3.2  International Dairy Queen Opens First Location in Kuwait
3.3  Saudi Oilfield Chemicals Market to Cross $960 Million by 2020
3.4  Ikea to Open Five Stores Across Morocco
3.5  Guided Therapeutics’ Sells LuViva Advanced Cervical Scans to Turkey


4.1  Environment Ministry to Overhaul Haifa Emissions Standards & Monitoring


5.1  Lebanon Ranked 63rd on World’s “Richest and Poorest List”
5.2  Lebanese Tourism Surged by 15% During First Half
5.3  Iraq Needs 21,000 MW Electricity, But Only 11,000 MW is Available

♦♦Arabian Gulf

5.4  Bahrain Non-Oil Sector Grows by 5% in First Quarter
5.5  Qatari Budgets to Include Plan to Reduce Reliance on Expats
5.6  UAE’s Fuel Price Reform Savings to Hit $500 Million By Year-End
5.7  Internet Users Make Up 88% of UAE’s Population
5.8  Oman’s Oil Revenue Falls 46% to $6 Billion
5.9  Saudi Arabia Aims to Increase its Patriot Missile Stocks
5.10  Saudi Arabia Exports 1.59 Billion Barrels of Crude Oil in 7 Months

♦♦North Africa

5.11  Egypt Celebrates New Suez Canal, But Real Challenges Lie Ahead
5.12  Egypt’s Economy to Grow by 4% in 2015
5.13  Egypt Awards Five Oil & Gas Concessions Worth $100 Million
5.14  Egypt Most Attractive African Country for FDI During 2014
5.15  Egypt Aims to Attract 7 Million Arab Tourists by 2020
5.16 Moroccans Living Abroad Send Home $4.9 Billion Every Year
5.17  Morocco Uses FMS for Chinooks


6.1  Annual Inflation Drops in Turkey
6.2  Turkey’s July Exports Contract by 13%
6.3  Cyprus Parliament Approves Casino Bill
6.4  Greece & Lenders Clinch Bailout Deal After Marathon Talks
6.5  Greek Deflation Steady in July As Prices Fall for 29th Month
6.6  Greece Expects Product Shortages in September Due to Import Drop
6.7  ELSTAT Chief Steps Down
6.8  Consumption Plunge Starves Greek State Coffers



7.1  First Israeli Chosen in Major League Draft
7.2  Transgender Community Welcomed Into National Service Program


7.3  Moroccan Population to Reach 43.7 Million by 2050


8.1  Evogene Announces Novel Plant Targets for Herbicides
8.2  Eximo Medical Completes Series A Round
8.3  Rosetta Genomics Launches OncoGxSelect
8.4  Avraham Pharmaceuticals’ Ladostigil Successful for Mild Cognitive Impairment
8.5  Teva Purchases 51% Equity Share of Immuneering
8.6  Exalenz Collaborates with Galectin Therapeutics to Use BreathID
8.7  Hinoman’s Vegetable Whole-Protein Ingredient Granted GRAS Status
8.8  Evogene First Computational Discovery of Microbial Genes for Insect Control


9.1  Nano Dimension Accelerates Adoption of 3D Printed Electronics Technology
9.2  Elbit to Supply DIRCM Self-Protection Systems for European Customers
9.3  NICE Agrees to Sell its Physical Security Business Unit to Battery Ventures
9.4  Checkmarx Allows Developers to Deliver Secure Mobile Apps
9.5  Silicom Announces Design Win for 100G Bypass Blades with Existing Customer
9.6  Elbit Wins $45 Million Military Communications Systems Contract to Europe
9.7  NICE Wins Technology Award from TMC CUSTOMER Magazine
9.8  ElMindA & Consumer Physics Among WEF’s Promising Tech Companies
9.9  SQream Technologies Wins Best in Biz Award for Best New Product


10.1  Israel’s Foreign Currency Reserves Hit New Record
10.2  Vehicle Deliveries in Israel Up in July


11.1  ISRAEL: ‘A+/A-1’ Ratings Affirmed On Expected Policy Continuity
11.2  ISRAEL: The Locker Commission’s “All Inclusive” Defense Budget
11.3  ISRAEL: Treasury Reports Israel’s Food Prices Rose by 36% Over Past Decade
11.4  ISRAEL: Israel-India Relations Grow Stronger
11.5  JORDAN: IMF Says Jordan’s Economy Sees Progress Despite Series of Shocks
11.6  IRAQ: Fitch Assigns Iraq’s First Rating at ‘B-‘/Stable
11.7  UAE: IMF Executive Board Concludes 2015 Article IV Consultation
11.8  EGYPT: Critics Say Suez Canal Project Falls Short of Expectations
11.9  EGYPT: Egypt Plans to Raise Crops in Sub-Saharan Africa
11.10  MOROCCO: Second Review Under IMF Arrangement
11.11  GREECE: GDP Must Be Priority of Third Program


1.1  Israel’s Cabinet Approves 2015 – 2016 Budget

At nearly 4 am in the morning, the cabinet finally approved the 2015 – 2016 state budget by a large majority of 20 ministers in favor with just one abstention.  Because the discussions went on for so long, most ministers weren’t actually present during the vote, but had gone home after leaving a note saying that they were voting in favor.  The 2015 budget totals NIS 329.5 billion, and the 2016 budget will total NIS 343.3 billion, meaning that the budget would have grown 7.2% in real terms between 2014 and 2016.  The deficit target for 2015 and 2016 is 2.9% of GDP.

During the night agreements were reached with some Likud s, as well as Shas and Habayit Hayehudi ministers.  Following an agreement with Minister of Education Bennett, the ministry will receive an additional NIS 4.9 billion: NIS 530 million for additional assistants in kindergartens and NIS 170 million for reducing the number of pupils in each class.

The Ministry of Health will receive an extra NIS 4.6 billion. NIS 500 million for mental health reform, NIS 200 million for support examinations in hospitals, NIS 120 million for building the hospital in Ashdod, NIS 100 million for shortening waiting lists, NIS 80 million for home hospitalization by health funds, NIS 100 million to strengthen emergency rooms, and NIS 50 million to shorten waiting lists for MRI scans.

The Ministry of Public Security will receive an extra NIS 200 million to strengthen personal security in the Arab sector and NIS 100 million for community police.  The fire service will receive an extra NIS 60 million, with an extra NIS 40 million for the police in eastern Jerusalem.

The Ministry of Welfare will receive NIS 1.3 billion including NIS 580 million for a major hike in benefits for senior citizens living under the poverty line and NIS 160 million to combat domestic violence and families at risk.  NIS 120 million will be allocated to upgrade treatment for populations on welfare, NIS 87 million to develop community services, NIS 36 million for treating people with autism, and NIS 30 million for developing services for the elderly.  (Globes 06.08)

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2.1  Biomed Investment Fund MEDX Raises $30 Million

MEDX, which supports early-stage startups, is an “evergreen” fund which reinvests its profits for philanthropic reasons.  MEDX Ventures Group, which specializes in life sciences and has invested $15 million in the sector, plans to expand its operations.  The investment firm raised $30 million to be used in pre-seed and seed funding for biomed firms in Israel making it a significant player in the sector, with a focus on medical devices.  The majority of the funds were raised from private investors, mainly wealthy Jewish families from the US and Europe who are interested in helping Israel and agree to reinvest the firm’s profits back into its operations benefitting solely from the returns of the fund.

MEDX was founded in 2010 and initially invested in ConTIPI, which was later sold to Kimberly-Clark for $90 million.  It also backed Microbot Medical and XACT Robotics, which specialize in miniature robots for medical procedures one of the fastest growing segments within the biotechnology sector.  Sources familiar with the firm, the companies MEDX has invested in have raised or closed deals worth a total of $120 million.  Beyond the current fundraising effort, the company is seeking to sign a strategic partnership which could add to its coffers and allow it to increase its workforce up to 50 people.  (Globes 02.08)

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2.2  ARM Buys Sansa Security for $85 Million

ARM is to acquire Israeli company Sansa Security (formerly Discretix Technologies), located in Kfar Netter.  The price is estimated at $75-85 million.  The Israeli company has developed security solutions for cellular devices and flash memory.  According to the IVC database, Sansa Security has raised $32 million since it was founded in 2000, meaning that the investors will make back about double their money.  Prominent investors in the company over the years include the Sequoia Capital, Accel Partners, Genesis Partners, Pitango Venture Capital, and Poalim Ventures funds.  ARM will make the company its development center in Israel.

After 15 years of doing business, Discretix was working with leading chip and mobile companies, including Intel, Motorola, and others, and the founders had big plans for the company’s future.  The company began making a profit in 2005, and the fact that its last financing round was completed in late 2006 shows that its revenue and profits kept it afloat for quite a few years.  (Globes 30.07)

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2.3  Israel Railways Begins Laying Jerusalem – Tel Aviv Tracks

Israel Railways reached a major landmark in the construction of the high-speed railway to Jerusalem – the first line to run on electricity.  The company began laying tracks on the western section of the line, in the Ayalon Valley region.  The project is estimated to cost around NIS 7 billion, including the construction of two 56 kilometer tracks from Tel Aviv’s HaHagana Station to the entrance of Jerusalem, near the International Convention Center, as well as five tunnels – totaling 20 kilometers – and eight bridges.

Israel Railways also announced that work was completed on the final section of the Negev line – between Ashkelon and Beer Sheva.  The project connected the rail from Ashkelon to the Goral Junction and to the existing railway in Beer Sheva, as well as the national rail network.  (Globes 03.08)

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2.4  Tel Aviv Light Rail Construction Finally Gets Underway

After endless years of planning, construction of the Tel Aviv light rail system officially began on 2 August.  Several roads in central Tel Aviv were shut to traffic and dozens of construction workers started excavations near the Allenby Street – Yehuda Halevi Street intersection, where one of the light rail stations will be located.  The construction of the light rail system in Tel Aviv is expected to take six years.  Police officials have warned that road closures related to the construction could cause traffic problems through the greater Tel Aviv metropolitan area.  (Israel Hayom 03.08)

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2.5  E-QURE Corp Signs Second Distribution Agreement in Israel

New York based E-QURE Corp., which is engaged in the commercialization of its Bio-electrical Signal Therapy device for the noninvasive treatment of hard to heal chronic wounds, signed its second distribution agreement with Chemipal, an Israeli distributor specializing in medical devices, for the marketing and distribution of the BST device.  Chemipal is a 70 years old, sales, marketing and distribution company in Israel with annual sales exceeding $200m annually.  It specializes in distribution of medical drugs, devices and health products to hospitals, pharmacies and clinics.

The distribution agreement was signed for a period of 10 years with annual minimum purchase obligation increasing up to $3m within 10 years.  In addition to purchase obligations, the distribution agreement defines the commercial terms of the relationship. In principle, devices will be rented to hospitals and clinics at a small monthly monetary rate to cover service and repairs, while the distributor will sell disposable electrodes on “treatment days” basis. E-QURE and Chemipal will share revenue equally between them for days of treatment and device rentals. Marketing efforts will commence before yearend, once AMAR (Israel Marketing Approval) will be renewed.  (E-QURE 03.08)

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2.6  El Al to Buy and Lease 15 Boeing Dreamliners

El Al Israel Airlines announced the largest-ever procurement program for new aircraft in the company’s history.  Israel’s national carrier will conduct exclusive talks with Boeing for the purchase and leasing of 15 Dreamliner wide-bodied planes 787-8 and 787-9 planes with an option for an additional 13 of the aircraft.  The first planes will be delivered in mid-2017.  The cost of the planes including spare engines is estimated at $800 – 900 million.  Estimates are that half of the aircraft will be purchased outright.  El Al said that the planes will replace its current Boeing 747-400 and 767 fleet over the next five years for medium-long haul flights (to New York, Boston, Toronto, Bangkok, Beijing, Mumbai, South Africa and more).  (El Al 06.08)

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2.7  Bombardier Wins Israel Railways Locomotive Tender

Québec’s Bombardier has won the huge Israel railways tender.  Worth NIS 13.7 billion, this is one of the tenders in Israel Railways electrification project.  As part of the project, Israel Railways will buy 62 new electric locomotives from Bombardier with an option to buy 32 more.  The value of the locomotives tender is NIS 1 billion.  The tender that was issued drew four bids: the winning bid from Bombardier and bids from French company Alstom, and Chinese companies CSR and CNR.  However, CSR and CNR merged recently, raising concerns about price rigging and the Chinese companies were disqualified from the tender.  (Globes 05.08)

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2.8  RADWIN 5000 JET PtMP Selected by ATC Communications in U.S.

Tel Aviv’s RADWIN, the global provider of innovative sub-6 GHz broadband wireless solutions, announced that RADWIN 5000 JET Point-to-MultiPoint radios with smart beamforming antennas were deployed by ATC Communications – a leading service provider in Nebraska, U.S.  ATC Communications is using RADWIN 5000 JET to deliver high-capacity broadband services with guaranteed SLAs to enterprise and residential customers.  (RADWIN 06.08)

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2.9  Tahal Wins Water Supply Project in Karnataka, India

Israel based engineering and construction group Tahal Group International signed a deal with Karnataka state in India for a $74m turnkey water project.  The agreement will require Tahal to design, construct and operate a water supply system that serves 131 villages in the state.  Planned to be developed in two stages, the project will include design and construction of a water intake system, a 600km transmission pipeline network, a treatment plant and eight reservoirs in the first one.  The first stage has been scheduled to be completed within 30 months.  The second stage for operations and maintenance will extend over a 60 month period.  The Central Government of India and the Government of Karnataka will be contributing equally to the project.  The project is the first turnkey construction initiative for the company in India.  (Tahal 21.07)

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3.1  Delta to Reduce Dubai Flights Due to “Overcapacity” By Gulf Carriers in US

Delta Air Lines has scrapped a number of its flights to Dubai this winter in an apparent nod to how competition with three Gulf carriers is hurting its business.  Delta, the second-largest US passenger carrier, will fly nonstop to Dubai from its Atlanta hub between four and five times per week starting 1 October, down from daily service this summer.  The airline revised its schedule to reflect the change, part of a broader 15-to-20% cut in capacity to the Middle East and Africa that Delta announced in April.  Delta said months ago that its international capacity cuts were in response to falling crude prices hitting demand in oil-rich markets and to the strong US dollar that has hurt the spending power of foreign travelers.  Yet the latest news underscores a trade row that is rippling through Washington.

Large US unions and airlines, led by Delta, charge that Emirates, Etihad Airways and Qatar Airways have received some $42 billion in subsidies from their home governments in the past decade.  They say this has allowed the Gulf carriers to start dumping capacity into the United States, driving down prices and pushing out competitors.  The Gulf carriers have denied that they are subsidized and say poor customer service has caused US airlines to lose market share.

Delta is the only airline that flies between Atlanta and Dubai.  Its service reduction will leave the Washington-Dubai flights on rival United Continental Holdings as the only remaining daily nonstop on a US carrier this winter.  Emirates operates a freighter service to Atlanta and currently flies passengers to nine US cities from Dubai, with plans to add more.  Qatar Airways will launch Atlanta-Doha flights in July 2016.  (Reuters 09.08)

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3.2  International Dairy Queen Opens First Location in Kuwait

The Dairy Queen system, part of Berkshire Hathaway, has opened a new DQ Grill & Chill restaurant at the Marina Mall in Salmiya, Kuwait.  The opening of this location makes Kuwait the 27th country outside the U.S. and Canada with a DQ presence.  IDQ’s partnership with Durra Khaled for Foodstuffs Co. has allowed them to re-launch their brand in Kuwait.  Durra Khaled for Foodstuffs Co., a subsidiary of KMGC, has signed a long-term franchise agreement with the Dairy Queen system and plans to develop more than 20 DQ Grill & Chill restaurants and DQ Treat stores throughout Kuwait over the next five years.  The opening of the DQ Grill & Chill restaurant in Kuwait follows the DQ brand’s recent store opening in the United Arab Emirates earlier this summer.

International Dairy Queen (IDQ), based in Minneapolis, Minn., is the parent company of American Dairy Queen Corporation (ADQ).  (IDQ 05.08)

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3.3  Saudi Oilfield Chemicals Market to Cross $960 Million by 2020

According to recently published TechSci Research report, “Saudi Arabia Oilfield Chemicals Market Forecast & Opportunities, 2020”, the oilfield chemicals market in Saudi Arabia is projected to surpass $960 million by 2020.  Oilfield chemicals are used across all stages of oil and gas production, from drilling to transportation of oil and gas, with the prime objective of enhancing process efficiency.  Growth in oilfield chemicals market in Saudi Arabia is expected on account of rising oil and gas production, along with anticipated increase in the exploration of shale gas deposits in the country.

Growth in the demand for natural gas in the domestic market is driving natural gas production in Saudi Arabia.  Further, the decline in crude oil prices has also increased focus towards the production of natural gas in the country.  Growth in non-associated gas production from offshore fields, in addition to exploration of shale gas deposits in eastern provinces of Saudi Arabia, is offering lucrative opportunities for oilfield chemicals manufacturers.  The country’s increasing focus to become a net exporter of natural gas instead of a net importer is expected to boost the oilfield chemicals market in Saudi Arabia in the coming years.

Saudi Arabia is home to 100 major oil and gas fields, of which 8 oilfields produce more than 50% of crude oil every year.  Most of these large-capacity oilfields lie in the eastern province of the country, due to which the eastern province continues to dominate the oilfield chemicals market in terms of revenue contribution.  Saudi Arabia oilfield chemicals market is highly consolidated with major players like Baker Hughes, Nalco Champion and REDA Oilfield, collectively accounting for more than two-thirds of the market revenues in 2014.  (TechSci 04.08)

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3.4  Ikea to Open Five Stores Across Morocco

Ikea is expected to open up its first store in Morocco near Casablanca by the end of 2015, ahead of opening four other stores across the country in the near future.  Ikea’s first store will be located in Zenata, between Casablanca and Mohammedia.  It is expected to open in October 2015, as the work is almost finished.  Reports say the company hired over 300 people and is expected to create many indirect jobs after its official opening.  Based on initial studies, the store is expected to attract between1.5 and 2 million customers.  The Swedish brand is planning to open four more stores across Morocco in the long term, in hopes of attracting over 10 million customers.  The company allegedly selected Rabat to open its next store.  The Swedish multinational is already present in 44 countries worldwide, and has now arrived in Morocco to compete with other giants in the same sector that have already gained ground in the kingdom, mainly Mobilia and Kitea.  (MWN 30.07)

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3.5  Guided Therapeutics’ Sells LuViva Advanced Cervical Scans to Turkey

Norcross, Georgia’s Guided Therapeutics announced that its Turkish distributor, ITEM Medical Technologies, has been awarded a new, four-year contract to supply LuViva Advanced Cervical Scans and single-use, disposable Screening Cervical Guides to the Turkish Ministry of Health (MOH).  The contract will generate more than $10 million for Guided Therapeutics.  The contract calls for 450 LuVivas and 450,000 single-use Cervical Guides to be supplied by Guided Therapeutics over three and a half years beginning in Q3/15 and running through 2018.  The delivery schedule calls for 50 LuVivas and 50,000 disposables in the remainder of calendar year 2015 and 200 LuVivas and 200,000 disposables in calendar year 2016 with the remaining 200 LuVivas and 200,000 Cervical Guides evenly distributed over the last two years of the contract.

LuViva is a technologically advanced diagnostic device that scans the cervix with light and uses spectroscopy to measure how light interacts with the cervical tissue.  Spectroscopy identifies chemical and structural indicators of pre-cancer that may be below the surface of the cervix or misdiagnosed as benign.  (Guided Therapeutics 02.08)

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4.1  Environment Ministry to Overhaul Haifa Emissions Standards & Monitoring

Environmental Protection Ministry officials are promoting a plan they say would significantly reduce both industrial and vehicular emissions in and around Haifa.  A team of ministry professionals presented the terms of a National Action Plan for the Haifa Bay Area at a press conference on 11 August, emphasizing the urgency in tackling the existing air pollution problems that plague Haifa and the surrounding towns.  In addition to setting specific targets for emissions reductions at industrial facilities, the plans call for the establishment of the country’s first official Low Emission Zone (LEZ), in which heavy vehicular traffic is limited in a particular zone according to European standards.

The Environment Ministry has amassed a NIS 330 million budget for the project, and will be bringing the plans to the table for public commentary in about two weeks.  Although the plan has been developed in constant coordination with the Haifa municipality, the Health Ministry and other relevant government bodies, the project still must receive the cabinet’s approval.  The project in the Haifa region could also serve as a model for future such plans in other Israeli cities with problematic pollution levels, such as Jerusalem and Tel Aviv.

Presenting the particular details of the plan, the minister first turned to the industrial component, which focuses on halving factory emissions by 2018.  In order to accomplish this goal, new emissions targets would be determined for 26 factories, as would those for the region’s oil refineries.  Also critical would be incentivizing the transition to plant operations on natural gas in place of heavy fuel oil, he continued.  For the ministry’s part in the industrial sector, inspectors would increase the frequency of their visits to the area’s factories as well as perform more spot checks of chimney emissions, according to the plan.  The ministry would also expand its air pollution monitoring system to include additional pollutants.  Ultimately, the changes would achieve an 80% reduction in emissions by 2018, in comparison to 2009.  (JP 11.08)

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5.1  Lebanon Ranked 63rd on World’s “Richest and Poorest List”

According to the “Richest and Poorest Countries in the World for 2013” survey recently released by Global Finance Magazine (GFM) based on data gathered from IMF published reports, Qatar achieved the 1st spot over a total of 184 countries with a GDP per capita (based on PPP) of $105,091.  Luxembourg and Singapore followed with respective GDP per capita of $79,593 and $61,567.  It is worth noting that these 3 countries have maintained the same ranking since 2010.  On the other hand, the poorest countries in the world were the Democratic Republic of Congo, Zimbabwe and Burundi with a GDP per capita of $394, $589 and $649 respectively.

When it comes to Lebanon, it ranked 63rd with a GDP per capita of $16,127 compared to previous rankings of 58th, 59th and 60th revealed in GFM’s reports in 2010, 2011 and 2012.  Thus, Lebanon stood 7th out of the 14 listed Arab countries.  Besides Qatar topping the list, the UAE and Kuwait ranked 2nd and 3rd amongst Arab countries and 8th and 19th worldwide with a GDP per capita of $49,884 and $39,861, respectively.  Notably, the poorest countries within the region were Yemen, Jordan and Egypt with a GDP per capita of $2,351, $6,199 and $6,653, respectively.  (BlomInvest 29.07)

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5.2  Lebanese Tourism Surged by 15% During First Half

Lebanon’s tourism sector improved in H1/15 year-on-year (y-o-y), following the low base reached last year, the skiing season that attracted Arab tourists and the improved political and security situations in the country in light of the developments that are taking place in the region.  Hence, according to the Ministry of Tourism, the number of incomers during by June 2015 reached to 671,393, a 14.72% surge from 585,235 recorded in the same period last year.  The number of Arab tourists, constituting 32.38% of the total, displayed a yearly increase of 9.71%, to register 217,386 by June 2015.  As for Iraqi incomers, their number held the largest share of Arab tourists of 38%, and increased by an annual 42.11% to 81,944 over the same period, knowing that Iraqi tourists are actually refugees that are granted a tourist visa.  The number of Saudi and UAE visitors recorded the most distinct increases going from 12,778 to 23,133 and from 2,217 to 3,597, respectively.  The number of Kuwaitis also progressed by 59.59% annually to 15,496 by June 2015.

The number of European visitors, 32.28% of the total, was augmented by 14.28% y-o-y, to reach 216,216.  France, grasping the largest share of European tourists at 26%, went up by a yearly 43.33% to 56,171.  The number of incomers from Turkey, United Kingdom and the Germany also saw respective improvements of 66.95% to 10,598 and 14.82% to 24,851 and 9.78% to 27,967 y-o-y in H1 2015.  In terms of the number of American travelers, accounting for the third major portion of the total at 17.02%, it reached 114,911 in the first six months of 2015, a 17.32% increase over the same period last year.  In June alone, the number of tourists also progressed by 3.45% y-o-y to 147,064.  The tally of Arab, European and American tourists all grew by 2.58% to 38,290, 14.68% to 46,970 and 15.76% to 34,171, respectively compared to the same month last year.  (MoT 05.06)

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5.3  Iraq Needs 21,000 MW Electricity, But Only 11,000 MW is Available

Iraq’s Electricity Minister, Qassim Fahdawi, says that Iraq’s actual need for electricity is 21,000 MW, whereas the available energy is only 11,000 MW.  He told the Iraqi parliament that 2,490 MW are currently out of service due to lack of fuel and the ministry’s inability to transfer energy from the places of production to the areas where it is needed.  He adds that the ministry has asked the government to allocate $9 billion for projects within the current budget, but it has only been allocated $3b because of the fiscal deficit.  Fahdawi explained that the rest of the capacity of power plants amounts to about 8,000 MW and Baghdad province needs 6,000 MWs of electricity, but the power available now does not exceed 4,000 MW, QNA reported.  (QNA 29.07)

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►►Arabian Gulf

5.4  Bahrain Non-Oil Sector Grows by 5% in First Quarter

Bahrain’s non-oil sector grew by 5% in Q1/15, the Bahrain Economic Development Board (EDB) estimates.  In the latest Bahrain Economic Quarterly, the board said that the non-oil economy, which constitutes more than 80% of Bahrain’s GDP, showed a strong growth even as the hydrocarbons sector experienced a 5.6% year-on-year decline due to seasonal maintenance.  The review also highlights the country’s broad-based real GDP growth of 2.9% on an annual basis and strong labor market activity, with employment increasing by five% compared with the same period last year.

In the sub-sector level, social and personal services – mainly composed of private education and healthcare – overtook the hotels and restaurants sector as the fastest-growing segment, expanding at an annual pace of 8.3%.  The hotels and restaurants sector experienced a slowdown in its annual pace of growth to 3.5% during Q1.  Meanwhile, the construction sector, with 7.5% year-on-year growth, continued the strong momentum that became apparent in the second half of last year as project spending escalated.  The transport and communications sector was the third-fastest in terms of growth with a 7.3% year-on-year expansion.  The manufacturing sector also posted strong growth, expanding by 5.9% year-on-year during Q1.

In spite of oil price volatility in the second half of last year, the country’s fiscal performance also improved.  The report found that, according to the 2014 consolidated final accounts, government revenues rose by 11% in 2014 and expenditures declined by 11%.  Bahrain is set to invest more than $22 billion in key infrastructure projects over the coming years, aiming to spur public and private-sector participation across the manufacturing, energy, healthcare and education sectors.  (EDB 23.07)

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5.5  Qatari Budgets to Include Plan to Reduce Reliance on Expats

Qatari government bodies have been ordered to prioritize nationalization of their workforces in their 2016 budgets.  Budgets must include a plan for replacing existing expatriate employees with skilled professional Qataris in various posts.  Efforts to nationalize the workforce – aims being pursued by most of the Gulf states –  have been in motion for several years but have been made difficult by a lack of qualified Qataris or citizens willing to fill some of the menial roles.  The budgets also will be tough for department heads, with Qatar expected to record its first deficit in more than a decade next year, following the impact of the halving of oil prices since June 2014.  It will be the first year Qatar issues budgets based on the calendar year rather than April-March.  (AB 05.08)

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5.6  UAE’s Fuel Price Reform Savings to Hit $500 Million By Year-End

The government of the United Arab Emirates will save only a modest amount of money from reforms to its fuel price system in 2015 but the savings are likely to rise sharply in coming years, an IMF official said.  In early August the government shifted from a system of fixed, subsidized domestic prices for gasoline and diesel to adjusting prices monthly in response to global trends.  In the first adjustment, gasoline rose 24% and diesel fell 29%.  It was the first big fuel pricing reform in a rich Gulf Arab oil exporting country for many years, and has aroused speculation that others in the region will follow suit to cut the burden of subsidies on state finances.

Kuwait, Oman and Bahrain are considering subsidy reforms; some analysts believe Saudi Arabia may eventually take action.  The IMF estimated the UAE’s reform would save it about $500 million by the end of this year, or a little over 0.1% of GDP.  But annual savings are expected to rise sharply over the medium term to around 0.6% of GDP.  The IMF’s projections assume the UAE’s average crude oil export price will increase gradually from $61.5 a barrel this year to $67.2 next year and $75.0 in 2020.

Under the UAE’s new pricing formula, the government would no longer have to spend growing amounts of money to keep domestic fuel prices down as global oil prices climbed; it could let them rise, increasing the savings to its budget.  The IMF now expects low global oil prices to push the UAE’s consolidated state budget into a deficit of 2.9% of GDP this year, its first deficit since 2009.  (AB 04.08)

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5.7  Internet Users Make Up 88% of UAE’s Population

The United Arab Emirates now ranks tenth on a global listing of top world countries in terms of number of internet users compared with the total population, a new report reveals.  Nearly 88% of the UAE’s citizens are internet users, just ahead of developed world countries such as the US, Germany, Japan, Canada and France, and other countries that have advanced online networking infrastructure.

According to the report by the World Economic Forum, the UAE and Bahrain are the only two Arab countries to make it in the top-ten list along with European countries.  Iceland topped the list with approximately 96.5 of its population using the internet while Norway, Sweden and Denmark followed suit.  The report covered 143 countries and used criteria related to the use of information and communications technology and their contribution to economic development.  (WEF 29.07)

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5.8  Oman’s Oil Revenue Falls 46% to $6 Billion

Oman’s net revenue from oil has dropped a 46.3% during the first five months of the year, according to the latest figures from National Centre for Statistics and Information (NCSI).  Oman’s net revenue from oil dropped to $6 billion this year, down from $11.2b in 2014.  The drop in income has affected the sultanate’s budget figures, which showed a deficit of $3.89 billion at the end of May, down from a surplus of $604 million at the same time last year.

The country’s budget for 2015 includes a government expenditure of $36.6 billion, with an estimated deficit of $6.49 billion.  However, this is based on an average oil price of $75 a barrel, and with average prices not at $52 a barrel and the possibility of Iranian oil coming into the market, the sultanate’s budgetary plans will come under increasing pressure.  (NCSI 03.08)

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5.9  Saudi Arabia Aims to Increase its Patriot Missile Stocks

Saudi Arabia has requested Patriot PAC-3 missiles and auxiliary equipment through a potential $5.4 billion deal, which would modernize the Kingdom’s current stockpile of Patriot missiles.  This DSCA request comes on the heels of a $1.5 billion contract announced by Lockheed Martin earlier this month, which will see Foreign Military Sales partners worldwide upgraded with new PAC-3 and PAC-3MSE interceptors, including Saudi Arabia, as well as another DSCA request from October 2014 for PAC-3 missiles, with that request valued at $1.75 billion.

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5.10  Saudi Arabia Exports 1.59 Billion Barrels of Crude Oil in 7 Months

Saudi Arabia exported approximately 1.59 billion barrels of oil during the first seven months of the current year at a value of SAR338b.  The kingdom’s oil revenues for the January-July period suffered a major plunge of 49%.  Local consumption, at 588 million barrels, accounted for roughly 27% of the total output during the seven-month period.  The figures come at a time when the Organization of Petroleum Exporting Countries (OPEC) asserts that it will not cut production despite the price plunge.  (AME 04.08)

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►►North Africa

5.11  Egypt Celebrates New Suez Canal, But Real Challenges Lie Ahead

Egypt opened an expansion to the Suez Canal on 6 August, marking an important step in President Abdel Fattah El Sisi’s plans to restore confidence in the country’s economy but he is likely to face some stiff challenges to fully execute his ambitious plan.  World leaders, including dignitaries from neighboring Arab nations and Western countries attended the $30 million celebration.  A 150-year-old presidential yacht, El-Mahroussa, the first ship to cross the canal when it was first opened in 1869, has been specially commissioned to ferry El Sisi and his guests across the waterway.  The new shipping lane, which is expected to boost revenues from the international waterway, is El-Sisi’s flagship major project as his government seeks to restore confidence in an economy battered by more than four years of political upheaval.

The canal holds great symbolic importance in the minds of Egyptians, who came out en masse to finance its expansion with $8.2 billion collected in just over a week through local currency investment certificates.  The collected sum is divided between the 72 kilometer expansion project and the digging of six new tunnels under the canal.  (Various 06.08)

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5.12  Egypt’s Economy to Grow by 4% in 2015

Egypt’s economy is projected to grow by more than 4% in the current year for the first time since 2010.  The robust growth is mainly driven by a more stable political environment, financial aid from Gulf countries and a growing business climate, a report by the National Bank of Kuwait (NBK) indicates.  The Egyptian government sector continues to push the pace of growth forward through a number of major public initiatives and ventures.

The report goes on to highlight a number of challenges facing the Egyptian economy, such as the massive financial deficit, which remains a prime woe despite reforms.  Strong financial assistance by GCC countries have helped prop up public finances, but those are unlikely to be sustained in the medium term.  However, the country’s markets remain confident that authorities are implementing the required reform steps, the report notes, referring to Egypt’s recent US dollar bond issuance as a good example of reforms.  (AME 04.08)

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5.13  Egypt Awards Five Oil & Gas Concessions Worth $100 Million

Egypt has awarded five oil and gas concessions that are expected to bring in minimum total investments of about $100 million, the oil ministry said, as the country seeks to boost investment in the key energy sector.  Egypt has gone from exporting energy to being a net energy importer and wants to boost local production to help the country cope with its worst energy crisis in decades.

A consortium of the Emirati firm Pacific and Malaysia’s Hibiscus Petroleum will explore in the 26 square mile Southeast Ras el-Ush concession in the Gulf of Suez, with a minimum investment of $68 million.  Elsewhere Kieron Megawish will explore in the 194 square km North Megawish concession in the Gulf of Suez, with a minimum investment of $23 million.  Three other concessions were awarded with minimum investments of $7 million.  State-owned Ganoub El Wadi Petroleum Holding Co (Ganope) had opened bidding at the end of 2014 on 10 concessions in the Gulf of Suez, Eastern Desert and west and east of the Nile in the areas of al-Naqra and Kom Ombo.  (Ahram 03.08)

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5.14  Egypt Most Attractive African Country for FDI During 2014

Egypt ranked first in the list of the most attractive destinations for foreign direct investment (FDI) among African countries.  In 2014, the country attracted 71 projects valued at $57.9 billion and provided jobs for nearly 51,634 people, an increase by 61.4% when compared with 2013.  Egypt succeeded in attracting more than 30% of Africa’s investments in the real estate and hospitality sectors during 2014.  UAE companies alone launched 30.5% of those projects.

It is noteworthy that net foreign direct investment flow to Egypt amounted to approximately $2.7b, during the period between December 2014 and July 2015.  It is noteworthy that foreign direct investments in Egypt reached $5.7b during the first nine months of the FY 2014-2015, where Arabian Gulf countries provided grants, aids and deposits valued at $35b to Egypt to reduce the budget deficit of the state during 2015.  (Aliqtisadi 29.07)

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5.15  Egypt Aims to Attract 7 Million Arab Tourists by 2020

The Egyptian General Authority for Tourism Promotion aims to attract seven million Arab tourists by 2020.  The number of tourists expected to come from Arab countries represents 35% of the country’s strategic plan’s guest targets for 2020.  According to the Authority’s director, Egypt’s strategic plan aims to attract 20m visitors to Egypt over the next five years through projects and plans that will increase tourism revenues to $26 billion.  The ETA’s office in Abu Dhabi is a substitute for the Istanbul office that was closed in accordance with a comprehensive plan to restructure Egyptian tourism.  (AME 30.07)

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5.16  Moroccans Living Abroad Send Home $4.9 Billion Every Year

Remittances from Moroccan immigrants and migrant workers abroad to family or for investments back home is a booming business, as the money transfers reached MAD 50 billion ($45 million) a year.  Every day, thousands of citizens across Morocco head to the nearest money transfer outlet to receive money sent by their relatives living abroad, who represent 15% of Morocco’s inhabitants, 5 million people.  The amount of remittances increased from MAD 23 billion in 2008 to MAD 50 billion starting in 2010.  The financial transfers by Moroccans living abroad are an important part of the Moroccan economy, not only as support to household incomes, but also as an additional contribution to savings and as a key source of currency.  Official figures in 2011 said Moroccans living abroad fund 8% of the country’s GDP.  Their transfers total up to 40% of the value of exports and absorb 80% of the trade deficit.  Morocco’s new constitution acknowledges the importance of Moroccans living abroad and takes the expatriate population into account.  These measures are a response to the demands of Moroccans living abroad who want their political power to match the economic weight of their transfers.  (Morocco World News 10.08)

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5.17  Morocco Uses FMS for Chinooks

Morocco will receive three ex-US Army CH-47D Chinook helicopters, after the completion of seven months of refurbishment.  The delivery of the helicopters is part of a US Army Security Assistance Command Foreign Military Sale program valued at $78.9 million, with Columbia Helicopters undertaking the refurbishment work with a $6 million contract awarded in August 2014.

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6.1  Annual Inflation Drops in Turkey

Inflation in Turkey declined for the second month in July in line with expectations, according to data released by the Turkish Statistics Institute (TUIK) on 3 August.  The annualized inflation rate fell to 6.81% in July from 7.2% in June, decreasing to the lowest level in the last two years, mainly due to the base effect and improvement in core inflation indicators, according to analysts.  The Consumer Price Index saw a 0.39% decline in July from June.  (TUIK 03.08)

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6.2  Turkey’s July Exports Contract by 13%

Turkish exports shrank by 13% in July compared to the same month a year ago, according to the Turkish Exporters Assembly (TIM).  TIM said that exports dropped by 13% year-on-year in July and stood at $10.9 billion, adding to losses in the first half of the year.  Compared to the first seven months of 2014, the contraction reached 8.8% in the same period this year, pushing down the aggregate export volume from $92.5 billion to $84.3 billion between January and July.  Exports totaled $148.5 billion for the last 12 months, a 4.9% decrease from the previous period.

Even though the volume of Turkish exports, on a unit basis, increased both in July and in the first seven months of the year, total revenue on exports failed to rise accordingly primarily due to declining commodity prices in the world, which is also a result of unfavorable euro-dollar parity.  Around 45% of Turkish exports are paid for in euros, and Turkish exporters pay the cost of intermediary goods mostly in US dollars.  The euro has lost as much as 18% of its value against the dollar over the last 12 months, weakening the purchasing power of parties paying in euros.  Turkish exporters’ parity losses had already reached $7 billion in the first seven months of the year.

Turkey’s top export partners including Germany, France and Italy posted around a 15% decrease in their total import volumes in the first five months according to recent data.  The top three export sectors of Turkey in June were the automotive, textile and chemical industries with revenues of $1.64 billion, $1.5 billion and $1.3 billion, respectively.  (TIM 01.08)

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6.3  Cyprus Parliament Approves Casino Bill

The Cyprus parliament passed legislation paving the way for a first-ever casino resort in the government-held south of the Mediterranean island.  The minimum requirement for the complex is 100 gaming tables and 1,000 machines.  In addition, the operator will be permitted to have a smaller satellite casino, and another three-machine-only outlet.  The project is being fast-tracked to boost tourism and employment on the island, and it is estimated 25,000 jobs will be created by the integrated resort development.  The winning bidder for the 30-year license will choose where to build the casino and the government hopes it could be open by 2018 if everything goes smoothly.  This “Super Casino” is projected to include malls, restaurants, shopping and entertainment venues unlike any other in the EU or the Middle East and will rival some of the casinos currently seen in Las Vegas and is expected to attract an additional half to one million tourists a year.  (RGI 06.08)

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6.4  Greece & Lenders Clinch Bailout Deal After Marathon Talks

Greece and its international lenders reached an €85 billion bailout agreement on 11 August after talking through the night, saving the country from financial ruin and raising hopes it can make a major debt repayment next week.  After a 23-hour session that began the previous morning, exhausted Greek officials emerged in a central Athens hotel to announce the two sides had agreed on terms of the three-year agreement barring a couple of minor issues that were being ironed out.

Finance Minister Euclid Tsakalotos confirmed only “two or three small issues” were pending.  Greek shares rose, with the banking index surging 6%, while two-year bond yields fell more than 4%.  The deal reached by creditor institutions still needs political approval from euro zone member countries.

An agreement would close a painful chapter of aid talks for Greece, which fought against austerity terms demanded by creditors for much of the year before relenting under the threat of being bounced out of the euro zone.  After a deal in principle last month on keeping Greece in the euro, the latest round of talks began in Athens three weeks ago to craft an agreement covering details of reform measures, the timeline for their implementation and the amount of aid needed.

A Greek Finance Ministry official said the pact would be worth up to €85 billion ($94 billion) in fresh loans over three years.  Greek banks would get €10 billion immediately and would be recapitalized by the end of the year.

Greek officials have said they expect the accord to be ratified by parliament on Thursday and then vetted by euro zone finance ministers on Friday.  This would pave the way for aid disbursements by 20 August, when a €3.2 billion debt payment is due to the European Central Bank.

The overnight talks also found common ground on final fiscal targets that should govern the bailout effort, aiming for a primary budget surplus — which excludes interest payments – from 2016.  Adapted from an earlier baseline scenario, the targets foresee a primary budget deficit of 0.25% of GDP in 2015, and surpluses of 0.5% in 2016, 1.75% in 2017, and 3.5% in 2018, the official said.  (Reuters 11.08)

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6.5  Greek Deflation Steady in July As Prices Fall for 29th Month

Greek consumer prices fell by 2.2% year-on-year in July, with the annual pace of deflation unchanged from the previous month, data from the country’s statistics service showed.  Greece’s EU-harmonized deflation rate picked up, showing prices fell by 1.3% in July from a fall of 1.1% in June.  Greek consumer prices fell by an average of 1.3% in 2014 compared to a year earlier.

For years an inflation outlier in the Eurozone, Greece has been in deflation mode for the last 29 months as cuts in wages and pensions and a deep recession exerted downward pressures.  Deflation in Greece hit its highest level in November 2013, when consumer prices registered a 2.9% year-on-year decline.  (Reuters 06.08)

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6.6  Greece Expects Product Shortages in September Due to Import Drop

The Greek market is expecting to face shortages this September in all sectors except for food and drugs, as the lack of raw materials, or their slow rate of import, is hampering production.  Although the situation after the recent easing of capital controls has improved compared to the first few weeks of July, raw material imports continue at a very slow pace, with entrepreneurs saying that “the damage is already done and we are just trying to minimize the consequences.”

The problem for local industries is even bigger because of the fact that the foreign companies which supply them usually shut down or slow down work in August.  At the same time, Greek enterprises, 50% of which forced their staff to take leave in July because business was slow, will have to operate as normal in August.

The numbers show clearly why the absence of raw materials will create shortages in the local market.  Greece is self-sufficient in raw materials by just 20% and has to import goods that cost on average €3.5 billion per month.  The increase to the international payment approval limit to 100,000 euros for last week meant that the daily amount of imports made reached €20 million, against €14 million before that measure.

At that rate the value of imports will drop to just half a billion euros per month and cannot reach a total of €1 billion even after adding the special approvals by the Banking Transaction Approval Committee of the State General Accounting Office and the imports covered by funds that Greek importers have in foreign banks.  Even if the capital controls were to be lifted now, the remaining businesses would have to redraft their strategy on the basis that a major part of their turnover has been lost, exceeding 40% in most cases.  (Ekathimerini 02.08)

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6.7  ELSTAT Chief Steps Down

The head of the Greek statistics office stepped down on 2 August, adding new complexity to Greece’s bailout negotiations with its European Union partners.  A veteran IMF statistician, Andreas Georgiou was appointed head of ELSTAT in 2010 in an effort to restore the credibility of Greek statistics a few months after the country’s debt crisis erupted.  Georgiou could have stayed on until a replacement was appointed, but he said he was not interested in having the finance minister renew his term and that it was a personal choice to leave.  He said he and his team had worked to make the statistics office independent, impartial, objective and transparent, sometimes against a series of “unsubstantiated and totally unfounded accusations”.

In 2013, a prosecutor brought felony charges against Georgiou and two other agency employees, accusing them of falsifying 2009 fiscal data.  A former ELSTAT employee had claimed that Georgiou had inflated the deficit numbers to justify austerity measures.  He denied the accusation and the charge was dropped last month.

In the run-up to joining the Eurozone, which it did as a founder member in 2001, Greece under-reported its budget deficit for years.  Since then, unreliable statistics with frequent revisions were blamed in part for pushing the country to a financial crisis.  Since Georgiou took over, however, the European Union’s statistics office Eurostat has fully accepted the debt figures provided by Greece.  The independence of ELSTAT remains a key concern as Greece seeks a new bailout from its European Union partners.  (Reuters 03.08)

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6.8  Consumption Plunge Starves Greek State Coffers

The Greek state’s losses from indirect taxes alone in the first couple of weeks of capital controls and the shuttering of banks is more than half a billion euros, according to a study published on by the Hellenic Confederation of Professionals, Craftsmen and Merchants (GSEVEE).  The drop in consumption in the first two weeks after 28 June amounted to 50%, or €3.8 billion, with corporate turnover falling 48% on average. This meant the state coffers missed out on €570 million in taxes.  Nine out of 10 enterprises reported a decline in turnover, with three in 10 seeing a drop of at least 70%.  The medium-term impact will be more serious, argued the report, as it is unknown for how long the capital controls will remain in place, and small and medium-sized enterprises are in a difficult position as the measures came during a period when they were completely defenseless.  (Various 03.08)

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7.1  First Israeli Chosen in Major League Draft

When the San Diego Padres selected Israeli baseball player Dean Kremer in the 38th round of the MLB draft recently, the pitcher made history in becoming the first Israeli ever to be selected in the major league draft.  The 19-year-old said he would “love to be the person to get Israel baseball on the map.”  Kremer, who holds both Israeli and American citizenship, says he was “definitely honored” to be the first blue-and-white draftee but has chosen to delay his major league entry and instead play college ball.  The 6-foot-2 Kremer will start his frosh year at the University of Nevada Las Vegas on a baseball scholarship this fall.  “We are obviously proud of it. We want the world to know that we have a guy who was just selected,” Nate Fish, the Israel Association of Baseball’s first paid full-time national director.  “It’s tough to say what is going to happen with the guy, but he has all the things you need to be successful at that level and get to the major leagues.” (Israel21c 04.08)

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7.2  Transgender Community Welcomed Into National Service Program

For the first time, the Shlomit national service placement organization has opened its doors to the transgender community in Israel, launching a program that aims to make transgender teens feel like equals among their peers.  The national service program is a voluntary alternative to mandatory military service for individuals who cannot or do not wish to serve in the IDF.  The Shlomit organization places volunteers where they are needed, in areas such as health care services, schools, care of unprivileged children and day care centers.  A group of 14 transgender Israelis celebrated the completion of their first year in the program on 5 August in a festive ceremony held at the Gay Center in Tel Aviv.  Nine of them will continue on for another year of service.  The Shlomit organization has been placing volunteers in national service programs for 20 years.  (Israel Hayom 06.08)

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7.3  Moroccan Population to Reach 43.7 Million by 2050

A recent study by the United Nations Department of Economic and Social Affairs (UN DESA) entitled “The 2015 Revision of World Population Prospects” stated that the population in Morocco in 2015 is 34.4 million.  The forecast figure by 2050 will be 43.7 million, an increase of 29%.  In other countries of the Maghreb region the highest population growth will be in Mauritania, whose population will increase 142%, from to 4.1 million as of 2015, to 8 million in 2050.  Algeria will witness the second highest population growth in the Maghreb region with an estimated 51% growth.  Algeria’s population will reach 56.5 million in 2050 up from 39.7 as of 2015.  Libya ranks 3rd with a growth of 36%.  There are 6.3 million Libyans today and there will be 8.4 million in 2050.  Morocco is 4th ahead of Tunisia, which will only increase in an estimated 20%, from 11.3 million as of 2015 to 13.5 million Tunisians in 2050.  (MWN 02.08)

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8.1  Evogene Announces Novel Plant Targets for Herbicides

Evogene announced the discovery and successful validation in plants of the first set of novel plant targets, representing a key milestone in its product program for new chemical herbicides.  Targets for herbicides are vital plant macro-molecules taking part in essential biological processes in weeds (‘modes of action’).  The Evogene discovered targets will now be the subject of a unique methodology for the discovery of chemical molecules that can inhibit their functionality, resulting in weed death.  These chemical molecules would then serve as the basis for the development of the active ingredients in commercial herbicide products.  The milestone follows an earlier announcement this year on the completion of a dedicated start-to-end discovery infrastructure for the herbicide program.

Utilizing Evogene’s proprietary target identification platform PoinTar, the newly discovered and validated targets have been prioritized based on their predicted role in essential biological processes in plants, their ability to interact with chemical molecules, and other considerations relating to desired product attributes.  The next major milestone in the program will utilize PointHit for identification of chemical molecules that are designed to inhibit the activity of the discovered targets.  Once discovered and validated on a wide range of weeds and crops, these chemical molecules could then serve as the active ingredients for the development of next generation herbicide products, a major unmet market need in worldwide agriculture.

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 29.07)

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8.2  Eximo Medical Completes Series A Round

Eximo Medical has completed its Series A funding round of $1.6 million.  Accelmed, a leading medical device Investment Fund, led the round, with the participation of the Alfred Mann Institute at the Technion (AMIT), the Technion R&D Foundation and a private investor.

Eximo has developed a patented hybrid catheter, Cathi, which is connected to a pulsed laser system that operates at 355nm UV.  The catheter’s tip combines laser ablation capabilities with a mechanical blunt blade.  This combination will potentially improve accuracy, and enable superior precision when passing through a vessel blockage, regardless of the type of lesion or size of the vessel.  Eximo’s Cathi technology has the potential to optimize safety and performance expected to reduce the risk of vessel perforation.  The performance of the system and its catheters in treating PAD will soon be tested in human studies in Europe and Israel during Q4/15.

Eximo’s first set of catheters will offer a range of unique solutions for different blockage pathologies during atherectomy procedures in patients with Peripheral Artery Disease (PAD); a multi-billion dollar market affecting 8-12 million Americans.

Rehovot’s Eximo Medical, founded in 2012, is dedicated to developing safe and efficient transluminal solutions for interventional vascular and gastrointestinal procedures. The company’s Cathi catheters are based on innovative technology comprising a proprietary hybrid laser and “blunt” blade components and a compact laser system with a tiny footprint.  (Eximo Medical 29.07)

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8.3  Rosetta Genomics Launches OncoGxSelect

Rosetta Genomics announced that OncoGxSelect, Admera Health’s latest next-generation sequencing (NGS) oncology panel, has been approved for clinical use by The New Jersey Department of Health (NJDH).  OncoGxSelect will be the sixth new product introduced by Rosetta Genomics in 2015.  The Company expects to launch its seventh new product, a microRNA-based assay for accurate thyroid nodule classification, by the end of this quarter.  OncoGxSelect leverages Admera Health’s industry-leading NGS technology.  It interrogates 5 genes associated with highly-prevalent lung cancer types including KRAS, BRAF, EGFR, ROS1 and ALK.  It detects point mutations, small insertion/deletions (indels) and gene fusions to provide clinically actionable results.  OncoGxSelect is performed on a modest-sized pathology sample in the standard format of FFPE (formalin fixed paraffin embedded) tissue, the same as Rosetta’s other clinical microRNA-based diagnostics.  In lung cancer, the addition of OncoGxSelect adds to an already broad, comprehensive lung-specific menu to assist in answering the most difficult clinical questions that face clinicians treating lung cancer patients.

Rehovot’s Rosetta develops and commercializes a full range of microRNA-based and other molecular diagnostics.  Rosetta’s integrative research platform combining bioinformatics and state-of-the-art laboratory processes has led to the discovery of hundreds of biologically validated novel human microRNAs.  Building on its strong patent position and proprietary platform technologies, Rosetta is working on the application of these technologies in the development and commercialization of a full range of microRNA-based diagnostic tools.  (Rosetta Genomics 28.07)

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8.4  Avraham Pharmaceuticals’ Ladostigil Successful for Mild Cognitive Impairment

Avraham Pharmaceuticals announced successful second interim results in a Phase 2b clinical trial for the evaluation of the safety and efficacy of ladostigil, for the treatment of mild cognitive impairment (MCI).  After 2 years of treatment, the results point to a positive trend of the ladostigil treated group in comparison to the placebo treated group in the number of patients who did not progress from MCI to Alzheimer’s disease.

The interim results reflect data from all MCI patients who completed up to 2 years of treatment. The primary end point is to determine whether ladostigil can delay or prevent the onset of Alzheimer’s disease.  The conversion from MCI to Alzheimer’s disease is determined using the Clinical Dementia Rating scale (CDR), a common measurement tool for determining the stage of dementia.  In addition, an independent expert committee evaluated the safety data on all patients participating in the trial.  The expert committee concluded that there are no safety issues preventing continuation of the trial. There were no serious or unexpected adverse events related to the drug.

Founded in 2010, Yavne’s Avraham Pharmaceuticals develops ladostigil, a unique, multi-functional drug substance for the treatment of mild cognitive impairment, currently undergoing a Phase IIb clinical trial.  Investors in the Company include Yissum Research Development Company, the technology transfer arm of the Hebrew University, Clal Biotechnology Industries, the Pontifax Fund, Integra Holdings and the Technion Research and Development Foundation.  (Avraham Pharmaceuticals 28.07)

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8.5  Teva Purchases 51% Equity Share of Immuneering

Teva Pharmaceutical Industries and Cambridge, Massachusetts’ Immuneering Corporation announced that the companies have entered into an agreement in which Teva will purchase a 51% equity share of the genomic-analysis company.  Immuneering uses advanced proprietary techniques to identify hidden signals and biological insights across an array of genetic, genomic and proteomic data that can direct research for enhanced discovery, development and clinical success.

Teva and Immuneering have worked together over the past several years to unlock significant findings into genetic biomarkers, therapy-specific gene expression signatures and breakthrough work in characterizing non-biological complex drugs (NBCDs).  Teva’s majority holding in Immuneering provides right of first refusal in projects relating to the Company’s stated objective of developing, personalizing and improving treatment of disorders of the Central Nervous System (CNS).

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.  In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products.  (Teva 03.08)

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8.6  Exalenz Collaborates with Galectin Therapeutics to Use BreathID

Exalenz Bioscience announced a collaboration with Galectin Therapeutics of Norcross, Georgia to use the BreathID test to monitor patients in a Phase II study evaluating GR-MD-02. GR-MD-02 is an investigational treatment for patients with cirrhosis associated with nonalcoholic steatohepatitis (NASH Cirrhosis).  The 156 patient, multicenter, randomized, placebo-controlled, double-blind clinical trial will evaluate the safety and efficacy of GR-MD-O2 for the treatment of liver fibrosis and portal hypertension in patients with NASH Cirrhosis.  As part of the study, Exalenz will investigate the clinical utility of BreathID to follow up the effect of treatment on patients with NASH Cirrhosis, compared to standard medical tests including hepatic venous pressure gradient (HVPG), liver biopsy results, and liver stiffness testing.  Exalenz recently received approval from the U.S. FDA of an investigational device exemption (IDE) for the trial.

This study is part of Exalenz’s growing clinical pipeline of investigational diagnostic applications utilizing BreathID to diagnose for serious liver diseases.  In addition to two trials related to NASH, the company has ongoing clinical trials for detection of primary liver cancer (Hepatocellular Carcinoma – HCC) and diagnosis of Clinically Significant Portal Hypertension (CSPH).

Modi’in’s Exalenz Bioscience develops and markets diagnostic and monitoring systems that use the breath to diagnose and help manage GI and liver conditions.  The company’s flagship BreathID Hp test detects the presence of the H. pylori bacteria, associated with various illnesses including gastric cancer.  (Exalenz 03.08)

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8.7  Hinoman’s Vegetable Whole-Protein Ingredient Granted GRAS Status

Hinoman has been granted self-affirmed GRAS (Generally Recognized as Safe) status for its Mankai, a vegetable whole-protein ingredient with high nutritional value.  The GRAS designation is for the use of Mankai in functional foods and beverages, and was confirmed based on scientific methods, as well as corroborated by extensive history of use in Asia Pacific.  The status was endorsed by a third party-appointed panel composed of some of the top food toxicologists in the U.S. This approval clearly demonstrates Mankai’s preeminence in tests of food safety and purity.

The nutritional composition of the Mankai microgreen ingredient has been determined to be high in protein (at least 45-48%), low in fat (7-8%), with 24-45% carbohydrate content.  Analysis of the amino acid composition reveals the protein to be a rich source of the entire group of essential amino acids.  Mankai is produced in an advanced hydroponic system that optimizes yield throughout the year.  This precisely regulated aquaculture platform is highly controlled, operating under remote cultivation management and regulation.  As a result, it ensures plant purity so that Mankai is clean and free from all pesticides and heavy metals, to a level that exceeds nutritional grade.

Tel Aviv’s Hinoman’s food tech platform enables exceptional scalability for cultivation, with a minimal ecological footprint.  Hinoman developed an optimal, precision-agriculture solution to produce a safe, nutritious vegetable protein source.  (Hinoman 3.08)

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8.8  Evogene First Computational Discovery of Microbial Genes for Insect Control

Evogene announced a key milestone in its insect control program with the successful completion of the first computational discovery round for microbial genes with insecticidal properties.  The discovery round utilized a unique computational technology infrastructure consisting of a proprietary microbial-based database and a dedicated analysis platform, BiomeMiner.  The candidate genes will be validated against target insects at the Company’s dedicated R&D site located in St. Louis, Missouri.  Validation is expected to be completed next year.

The first computational discovery round using BiomeMiner yielded a set of novel candidate genes with insecticidal properties to be validated against Coleoptera and Lepidoptera insects.  These families of insects include some of the most devastating insects to crop yields such as corn rootworm and corn earworm.  In addition to these novel candidate genes, the platform also identified previously known genes that are already recognized for their insecticidal properties, providing a proof of concept for the predictive power of Evogene’s discovery platform.  Evogene has utilized its core competencies to meet this challenge with the development of a proprietary microbial-based database and BiomeMiner, a data analysis platform.

Rehovot’s Evogene is a leading company for the improvement of crop productivity and economics for the food and feed 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 04.08)

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9.1  Nano Dimension Accelerates Adoption of 3D Printed Electronics Technology

Nano Dimension announced that Nano Dimension Technologies, a fully owned subsidiary of Nano Dimension, is collaborating with a Fortune 100 company to investigate the suitability of 3D printed electronics technology.  The goal of the work is to establish the applicability of Nano Dimension’s 3D PCB printing technology to a broad range of aerospace electronics development challenges.  The partner company wishes to accelerate electronics development time cycles while simultaneously reducing development risk.  As a result of the collaboration, Nano Dimension will gain valuable exposure to the global market and aims to shorten the adoption time for its revolutionary 3D printing technology.

Ness Ziona’s Nano Dimension was founded in 2012 and focuses on the research and development of advanced 3D electronics printing, including a printer for printing PCBs (printed circuit boards), and the development of nanotechnology- based ink products, which are complementary products for 3D printers.  Nano Dimension uses a unique, novel technology which combines three technologies: inkjet, 3D printing and advanced nanotechnology, enabling the use of conductive ink for printing the conductors on PCBs. By integrating innovative, groundbreaking technologies, Nano Dimension is developing a unique and innovative 3D printer, which is capable of printing multi-layer PCBs, and supplies conductive Nano-inks to other fields in the electronics market.  (Nano Dimension 03.08)

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9.2  Elbit to Supply DIRCM Self-Protection Systems for European Customers

Elbit Systems was recently awarded two contracts for its MUSIC family of directed infra-red countermeasures (DIRCM) airborne multi-spectral self-protection systems, representing expansion of the customer base in this strategic business area for Elbit Systems.  The first contract is a follow-on contract from an Asian country, to supply its mini MUSIC systems for the customer’s Blackhawk helicopter fleet.  This is the second order awarded by this customer this year.  An additional order, received from a NATO member European country, calls for the supply of C-MUSIC systems. Both contracts will be performed during 2015 and are in amounts that are not material to Elbit Systems.

Elbit Systems’ MUSIC family of DIRCM systems are under contract for numerous customers worldwide including the Israeli national program for protection of the commercial fleet for platforms such as the B747, B737, B757, B767, B777 and A320; the Italian Air Force for the C130J, C27J and CSAR AW101; the KC-390 for Embraer and the Brazilian Air Force; the German Air Force’s Airbus A400; Blackhawk helicopters for Asian customers, VIP helicopters and other aircraft.

Haifa’s Elbit Systems is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world.  The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance, unmanned aircraft systems, advanced electro-optics, electro-optic space systems, EW suites, signal intelligence systems, data links and communications systems, radios and cyber-based systems.  (Elbit 03.08)

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9.3  NICE Agrees to Sell its Physical Security Business Unit to Battery Ventures

Ra’anana’s NICE Systems entered into an agreement to sell its Physical Security business unit to Battery Ventures, a technology investment firm, for a total consideration of up to $100 million, comprising of $85 million in cash and up to additional $15 million based on future performance.  NICE’s Physical Security business unit provides video surveillance technologies and capabilities to security-aware organizations.  This divestiture will allow NICE to focus on its key markets and enterprise software business as part of the execution of its long-term strategic plan.  NICE Systems is the worldwide leading provider of software solutions that enable organizations to take the next best action in order to improve customer experience and business results, ensure compliance, fight financial crime, and safeguard people and assets.  (NICE 03.08)

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9.4  Checkmarx Allows Developers to Deliver Secure Mobile Apps

Checkmarx launched an enhanced solution for increased mobile application security.  As the number of existing clients using Checkmarx’s products to scan their mobile application rises rapidly and now exceeds 58%, the company is stepping up its offering to address market demand for an application solution for mobile developers.  Checkmarx’s Mobile Application Security allows static code analysis of both native and hybrid applications.  Recent enhancements increase the depth of coverage for native mobile applications, and introduce support for the open-source multi-platform development framework PhoneGap. PhoneGap has become one of the most popular ways to create mobile applications, allowing developers to create mobile apps in HTML, CSS and JavaScript which are automatically compiled for Android, iOS, Windows Mobile and more.  In addition, Checkmarx confirmed its mobile security offering supports apps created for iOS 9.

Checkmarx allows developers to scan their source code with no need for compilation. Results are delivered directly to the developer clearly pointing out the detected flaws along with detailed instructions how to resolve the vulnerabilities.  These additional enhancements are added to the functionality of Checkmarx CxSAST – a powerful Source Code Analysis (SCA) solution designed for identifying, tracking and fixing technical and logical security flaws from the root: the source code.  CxSAST identifies and tracks application layer security vulnerabilities and can be integrated seamlessly into the Software Development Life Cycle (SDLC), enabling the early detection and mitigation of crucial security flaws in all major programming languages.  CxSAST shows where and how to fix the vulnerability with a single click.

Tel Aviv’s Checkmarx is a leading developer of software solutions used to identify, fix and block security vulnerabilities in web and mobile applications.  It provides an easy and effective way for organizations to introduce security into their Software Development Lifecycle (SDLC) which systematically eliminates software risk before applications are released.  (Checkmarx 04.08)

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9.5  Silicom Announces Design Win for 100G Bypass Blades with Existing Customer

Silicom announced a Design Win for 100G Bypass Blades with an existing customer in the Traffic Management industry. Initial-quantity production has begun and is expected to ramp up to approximately $1 million per year.  Silicom’s Bypass switches are fail-safe mechanisms that assure the continued flow of traffic in high-traffic in-line appliances in times of failure, whether due to loss of power, software malfunction or other occurrence.

Kfar Sava’s Silicom is an industry-leading provider of high-performance networking and data infrastructure solutions.  Designed primarily to increase data center efficiency, Silicom’s solutions dramatically improve the performance and availability of networking appliances and other server-based systems.  Silicom’s products are used by a large and growing base of OEM customers, many of whom are market leaders, as performance-boosting solutions for their offerings in the Cyber Security, Network Monitoring and Analytics, Traffic Management, Application Delivery, WAN Optimization, High Frequency Trading and other mission-critical segments within the fast-growing data center, enterprise networking, virtualization, cloud computing and big data markets.  (Silicom 04.08)

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9.6  Elbit Wins $45 Million Military Communications Systems Contract to Europe

Elbit Systems announced that it was awarded an approximately $45 million contract from a European country for the supply of military communications systems.  The contract will be performed over a two-year period.  The mobile communications systems, part of the CNR-9000 and HF-6000 product families, will be provided to a wide range of users, from the individual soldier to the division level, in dismounted and mounted configurations, for both medium and long-range distances.  Tens of thousands of these systems are already in use by numerous armed forces around the world.

Haifa’s Elbit Systems is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world.  The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance (C4ISR), unmanned aircraft systems, advanced electro-optics, electro-optic space systems, EW suites, signal intelligence systems, data links and communications systems, radios and cyber-based systems.  (Elbit 05.08)

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9.7  NICE Wins Technology Award from TMC CUSTOMER Magazine

NICE Systems was a recipient of CUSTOMER magazine’s 2015 Contact Center Technology Award for the NICE Engage Platform and Advanced Interaction Recorder (AIR).  In its tenth year, the Contact Center Technology Awards honor companies that have embraced technology as a key tool for customer service excellence.  This award distinguishes their success as innovators, thought leaders, and market movers in the contact center and customer care industries.  NICE Engage and AIR have been selected for demonstrating innovation, quality and unique features, which have had a positive impact on the customer experience.

NICE Engage and AIR provide multi-channel interaction capturing, real-time stream forwarding and archiving, as well as power NICE’s broad portfolio of real-time applications such as analytics and authentication, at unrivaled scale, speed, and low cost of ownership.  Designed for flexibility and comprehensiveness, NICE Engage and AIR can be adapted to meet any contact center’s unique operational requirements.  This technology, which supports thousands of concurrent channels from various data sources in a single platform, is used to ensure regulatory compliance, quality management and deliver insights.  It also lays the foundation for NICE’s Customer Engagement solutions, which help organizations better understand their customers, engage employees to deliver better customer service, and drive real-time action.

Ra’anana’s NICE Systems is the worldwide leading provider of software solutions that enable organizations to take the next best action in order to improve customer experience and business results, ensure compliance, fight financial crime, and safeguard people and assets.  NICE’s solutions empower organizations to capture, analyze, and apply, in real time, insights from both structured and unstructured Big Data.  (NICE 04.08)

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9.8  ElMindA & Consumer Physics Among WEF’s Promising Tech Companies

Jerusalem’s OurCrowd, the world’s leading equity crowdfunding platform, announced that two of its portfolio companies, ElMindA and Consumer Physics were named by the World Economic Forum to their prestigious list of “Technology Pioneers 2015,” a selection of 49 of the world’s most innovative companies.  This annual award is granted to companies “poised to have a significant impact on business and society.  Consumer Physics and ElMindA were selected from among hundreds of applicants by a selection committee of 68 academics, entrepreneurs, venture capitalists and corporate executives.

Award winner Consumer Physics is the maker of SCiO, the world’s first molecular sensor that fits in the palm of your hand. SCiO allows users to explore physical materials, so they can scan food in the market to make sure you choose the sweetest watermelon or the best cheese.  ElMindA has developed the Brain Network Activation (BNA), a non-invasive technology that allows physicians to accurately differentiate between the function of a healthy brain and the dysfunction of an injured brain.  This will provide the ability to assess and treat the brain across a broad range of previously elusive conditions such as concussion, depression, pain, or memory loss.  (OurCrowd 06.08)

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9.9  SQream Technologies Wins Best in Biz Award for Best New Product

SQream Technologies, provider of the world’s fastest big data analytics database, announced that its SQream DB solution was named a Bronze winner in the Best New Enterprise Product category of the Best in Biz Awards 2015 International program, the only independent global business awards program judged by members of the press and industry analysts.  SQream’s big data analytics SQL database is the most rapid, petabyte-scale big data analytics SQL database available today. Its GPU-based (Graphic Processing Unit) columnar SQL database uses aggressive compression resulting in up to forty times the savings and blazing speeds for query execution – resulting in faster insights and significantly greater efficiency for countless organizations.

Tel Aviv’s SQream Technologies provides organizations with the most rapid, cost-effective, petabyte-scale big data analytics SQL database available on the market today.  With SQream, organizations are able to get the answers they are looking for, quickly, and gain significant industry leadership advantage.  SQream introduces the first patent-pending innovative technology that boosts analytics performance through massive parallel computing, using a GPU-based technology (Graphic Processing Unit). The revolutionary technology delivers up to 100 times faster big data analytics than any other key market player, with scalability capabilities surpassing existing database analytics by orders of magnitude – representing a new era for the Telecom, Genome, Cyber, Finance and IoT industries.  (SQream Technologies 06.08)

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10.1  Israel’s Foreign Currency Reserves Hit New Record

Israel’s foreign exchange reserves at the end of July 2015 stood at a record $88.424 billion, up $245 million from their level at the end of June 2015, the Bank of Israel announced.  The figure at the end of June was a new record, surpassing the previous record-high foreign currency reserves of $87.628 billion recorded in August 2014.  The latest increase was the result of foreign currency purchases by the Bank of Israel in July totaling $510 million, of which $260 million was bought as part of the purchase program intended to offset the effects of natural gas production on the exchange rate.  Government transfers from abroad boosted the reserves by about $372 million and a revaluation increased them by about $264 million.

These rises were partially offset by a decline of $199 million derived from private sector transactions and a revaluation that decreased the reserves by about $438 million.  (Globes 06.08)

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10.2  Vehicle Deliveries in Israel Up in July

Israelis are still buying more cars than ever.  In July, 23,000 new vehicles were delivered, up 17% from July 2014 and the highest July figure for five years.  Since the start of 2015, 167,393 vehicles have been delivered, up 7.6% from last year, which was itself a record year.  The continued rise is due to orders from the leasing companies for leasing, rentals and resale.  Prices can be as much as 30% under the price list due to the strength of the shekel against the dollar and especially the euro. Low interest rates also encourage buyers to take loans to purchase cars.

Hyundai continues to lead in terms of numbers of new cars delivered in Israel with 21,861 deliveries since the start of the year, up 3.7% on last year.  Kia is in second place with 21,348 deliveries, up 33% from last year.  Toyota is third with 18,937 deliveries, up 7.7% and Mazda is fourth with 11,567 deliveries, down 1%.  In fifth is Mitsubishi with 10,577 deliveries, up 32% and in sixth is Skoda with 10,464 deliveries, up 16%.  (Globes 03.08)

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11.1  ISRAEL:  ‘A+/A-1’ Ratings Affirmed On Expected Policy Continuity


  • We expect Israel’s new coalition government will broadly support the previous government’s fiscal strategy, maintaining a stable debt burden, despite some additional expenditure commitments in coalition agreements.
  • We are therefore affirming our ‘A+/A-1’ foreign and local currency sovereign credit ratings on Israel.
  • The stable outlook reflects our expectation that the government will maintain stable public finances and that the impact of security risks on the Israeli economy will be contained over the next two years.

Rating Action

On Aug. 7, 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.


The ratings are supported by Israel’s prosperous and diverse economy, strong external balance sheet, and flexible monetary framework.  The ratings are constrained by Israel’s high debt and interest burden and significant security and geopolitical risks.

With per capita GDP at an estimated $38,000 in 2015, the economy is prosperous and well diversified, with high value added manufacturing and service sectors.  This is underpinned by high expenditure in research and development, amounting to 4.2% of GDP in 2013, the highest among OECD countries.  The information and communication sector has a 9.8% share of gross value added (GVA) and scientific and technical activities have 2.8%.  Services sectors dominate the economy, followed by manufacturing (21% of GVA), whereas agriculture and mining contribute only 4.2% in total.  We assume Israel’s economy will grow at an average rate of about 3% in 2015-2018.  We expect the key drivers of this growth will be robust private consumption, continued corporate investment activity, and healthy exports. In per capita terms, this equates to growth of 1.5% per year.

The March 2015 general elections resulted in a right-wing government coalition.  As there is only a provisional budget for 2015 – only one-twelfth of the 2014 budget can be spent per month – we estimate that the general government deficit will be around 2.8% of GDP this year, owing to the limitations of last year’s budget.  Despite the political concessions made to form a new coalition government, we expect the general government deficit will remain below 3% in the coming years.  We expect most spending pressure will come from a reversal of entitlements to child allowances, grants to soldiers, and subsidies to Jewish religious schools and the elderly as of 2016.  The general government deficit in 2014 amounted to 2.6% of GDP.  The Gaza military action, which cost around new Israeli shekel (ILS)7 billion (or 0.6% of GDP), was offset by spending cuts in the civilian budget and use of fiscal reserves, and was not affected by the cancellation of a planned tax increase.

Subtracting liquid assets (at close to 4% of GDP, mostly in the form of deposits at the central bank) from gross government debt, we project that net debt will remain at about 64% of GDP at the end of 2015.  Even without taking into account possible land sales and privatization proceeds, which need to be used for debt repayment, we expect the net debt ratio will decline moderately by about 1% per year in 2015 – 2018.  We expect the interest expenditure as a percentage of general government revenue will remain above 10%.

Following strong export performance and sustained current account surpluses, Israel’s external balance sheet is 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 liquid external assets would outstrip its gross external debt by over 20% of current account receipts (CARs) over the next three years.  This dynamic is also lowering the country’s gross external financing needs, which will likely only require 76% of CARs and usable reserves in 2015 – representing low dependency on external financing.

We also consider Israel’s monetary policy flexibility to be credit strength.  The Bank of Israel (BoI, the central bank) 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. We consider the exchange rate regime to be a managed float, which somewhat hampers monetary policy flexibility.

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 0.1% in March 2015.  Given the current low inflation and our assessment of the BoI’s high monetary policy credibility and policy effectiveness, we consider a move toward unconventional monetary policy possible.  The currency had benefitted from a current account in a slight surplus and strong inward net foreign direct investment (to average 1.7% of GDP in 2015-2018), mitigated by net capital outflows on the financial account, but its strength could challenge the export sector.  Currently, we believe that exports have high valued added and therefore stronger pricing power.  Nevertheless, the exchange rate poses a pricing risk, adding to the need for constant innovation to remain externally competitive.

One of the key challenges to monetary policy continues to be Israel’s rising house prices.  After years of relative stability, real house prices have increased by close to 60% since 2008, surpassed during that period only by Brazil and also marginally by Hong Kong.  The new government plans to increase supply, which is a bottleneck.  Freeing up more land for development and speeding up administrative processes for construction permissions should assist this goal, although it might only offer a medium-term solution.  Further tightening of macro-prudential measures should reduce systemic risks to Israel’s banking industry, but any abrupt correction in house prices could still have other negative economic effects.

Institutional and governance structure in Israel are generally effective, with a satisfactory degree of transparency and accountability.  However, we consider that the persistent territorial dispute with the Palestinians contributes to a lack of political stability and weighs on policy predictability.

The ratings remain constrained by geopolitical risks.  Repeated violent clashes with the Palestinians not only inflict social and economic costs, but could also risk reactions by the international community.  On the northern border, the conflict in Syria-Iraq, as well as 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 deterred investment, weakened the economy’s growth potential, or strained fiscal flexibility.  We do not expect that the nuclear deal between Iran and the international community will affect the ratings on Israel.


The stable outlook on Israel reflects our opinion that the new government will continue to conduct prudent macroeconomic policy and ensure the stabilization of government debt over 2015-2018, despite higher spending concessions agreed by the new coalition government.  We also expect the impact of security risks on the Israeli economy will continue to be contained.

We could consider raising our ratings if fiscal consolidation exceeds our expectations, resulting in a significantly lower net debt burden or interest cost, or if there is marked progress in defusing external security risks.

Conversely, we could lower the ratings if the general government’s budget deficits were to increase again, if a substantial deterioration in security results in significant fiscal pressure and more subdued economic activities, or if the perceived loss of international support were to adversely affect Israel’s export sector.  (S&P 07.08)

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11.2  ISRAEL:  The Locker Commission’s “All Inclusive” Defense Budget

Shmuel Even wrote in INSS Insight on 3 August that although the Locker Commission report deals with matters of extreme importance, it leaves the impression that significant portions of the document require further research in order for them to be ready for debate.  For example, the report requires in-depth staff work regarding the feasibility of its recommendations in the realm of human capital.  The absence of the big picture is especially conspicuous with regard to the following questions: What are the underlying premises of the report?  What threats will the IDF be required to address, and what will remain unaddressed?  What will the army look like, and what kind of security will it provide?  For these reasons, the government would be prudent to discuss the multi-year Gideon plan prepared by Chief of Staff Lt. Gen. Gadi Eizenkot and his staff as the basis for IDF operations, and leave the recommendations of the Locker Commission for further examination and subsequent implementation in areas that can enhance the efficiency of the system.

The June 2015 Locker Commission report is primarily a collection of recommendations pertaining to the defense budget, yet while each recommendation is worthy of careful consideration, it is difficult to accept them as a package.  The commission’s recommendations are formulated as directives, and some lack the data and analysis necessary for weighing their relative merit.  However, the most important question that arises from the report is not what the Israeli defense budget will be five years from now, but rather what kind of army Israel will have in the years to come and what tasks will it be able to execute successfully if the recommendations are implemented.  Moreover, the commission’s recommendations were submitted more than six months later than what was originally stipulated, and in the meantime Chief of Staff Lt. Gen. Gadi Eizenkot and his staff have already drawn up the multi-year “Gideon” plan for the IDF.

The following are a number of methodological comments regarding the report:

Updating the Security and Operational Concepts

The commission recommends updating the IDF’s security and operational concepts – undoubtedly important recommendations.  The problem, however, is that updating these concepts is a necessary precondition for the formulation of budgetary recommendations regarding force buildup and the human resources system recommended by the commission.  The defense budget is not an end in itself – it is the monetary expression of the work plan, which is supposed to be based on an operational concept, which in turn is derived from a security concept. If the security concept and the operational concept are not updated, how can profound changes to the structure of the IDF be contemplated and implemented?

Determining the Defense Budget

“The commission recommends that between the years 2016 and 2020, the base budget stand at NIS 59 billion, be ‘all inclusive,’ and be linked to the consumer price index.”  The commission recommends a “net budget,” not including “income-dependent expenditures” (such as special US aid and income from sources within the defense establishment), estimated at NIS 7-8 billion per year.  On this basis, the full (gross) defense budget will stand at approximately NIS 65 billion, comparable to the proposed 2015 budget that was approved by the Israeli government (prior to the elections).  This presumably will be the scope of the defense budget for 2016 in any event.  The report contains no explanation of the basis for this figure: What were its premises?  Which threats will it address and where will the risks lie?  What level of security will be achieved in return?  Most important, does this figure reflect a thorough new cost estimate of the country’s security needs, as should be expected from the commission?

The recommendation to approve a defense budget until 2020 in advance would mean removing it from the purview of government considerations, along the lines of drafting a five-year state budget ahead of time.  Adopting the recommendation of a horizontal budgetary approach (a set amount for each year) will result in a low level of flexibility in the annual discussion regarding the composition of the defense budget (by preventing the discussion of alternatives of lower or higher cost).  In practice, the defense establishment and decision makers will presumably make changes to the budget in accordance with the circumstances, and the budget will decrease under severe economic constraints and increase substantially in circumstances of severe security threats.

Basic data is conspicuously absent from the report, such as the size of past defense budgets; the disparity between planned budgets and budgets in practice; details regarding the components of past defense budgets; the percentage of the budget that is funded by taxes; and how this information figures in the proposed budget.  According to the report, US aid to the defense budget totals $3.1 billion.  However, the “Proposed State Budget, 2015” booklet refers to aid amounting to $3.75 billion, as well as the provision of an additional $650 million of “designated aid” (for projects).  This amounts to NIS 15.8 billion, approximately one-quarter of the total defense budget (according to an exchange rate of NIS 3.7 to the dollar, including VAT on purchases), and not approximately 20% of the budget as indicated in the commission’s report.  The fluctuation in US designated aid is another reason why it is preferable to refrain from instituting an all-inclusive fixed basic defense budget.  For example, if the Israeli government decides to arm itself with more anti-missile defense systems than what the United States agrees to fund within this framework, it will be required to fund them using a different source in the defense budget or supplement the budget with other resources.

The comparison between Israel’s civilian expenditures (with regard to GDP) and those of foreign countries (such as Korea, Greece, and Denmark, in 2012) is not helpful.  The report’s contention that Israel’s defense expenditures in 2014 amounted to 5.8% of the country’s GDP, in comparison to the OECD average of 1.5%, is also irrelevant for decision making, not just because the threats faced by OECD countries cannot be compared with those faced by Israel, but also because they are countries with large populations and large GDPs. Moreover, the Israeli figure also includes American aid, whereas the defense expenditures of most OECD countries are based on collective defense and do not reflect the security role played by US forces operating under the auspices of NATO.  Israel’s favorable economic situation relative to most of these countries in question, which is also affected by the defense sector’s contribution to the economy (which is not analyzed in the report), indicates that this sector does not constitute a heavy burden on the economy, as may be inferred from the report.  The commission’s report also reveals that the Defense Ministry pays the Israeli treasury approximately NIS 7 billion per year in taxes, including VAT for military acquisitions based on US aid and excise on fuel for warships.  In other words, a relatively large portion of the defense budget returns directly to the coffers of the Finance Ministry, and this should be considered when dealing with the size of the defense budget and the burden on the economy.

The commission’s recommendation regarding increased transparency in the defense budget – i.e., providing the Finance Ministry and the National Security Council with information by the military – is clearly in order, if such transparency does not already exist.

The Future of Human Capital in the IDF

Most of the commission’s recommendations pertain to human capital, which is the heart of the IDF. The report contains no systemic analysis of what the IDF will look like five years hence in the event that the commission’s recommendations are implemented in full – with the reduction of mandatory service to two years; the reduction of the standing army; the termination of bridging pensions; and other such measures.  For example, how would the implementation of the report’s recommendations impact on the potential of the senior command echelon, the reserves, technological units, academic reserve tracks, pre-military service tracks, and members of the junior command?  Where will experienced sergeants and deputies come from if compulsory service is reduced to two years and standing army positions are also cut?  What compensatory mechanisms should be established for this purpose, if at all?  Finally, will the human resources of the IDF fit the needs posed by the desired level of security?

The commission recommends the dismissal (with increased compensation) of all standing army personnel who are not promoted to the rank of lieutenant colonel by the age of 36.  Does this mean that all IDF personnel over the age of 36 will hold the rank of lieutenant colonel or higher?  What is the rationale for stripping the military of the older majors and master sergeants serving in administrative, research, and maintenance positions?  How would such a decision affect the willingness of junior officers to sign on for service in the standing army or to extend their service?  What surveys did the commission conduct to clarify this issue?

The recommendation to terminate bridging pensions for standing army personnel is presented as follows: “Individuals age 42 and older will be able to conclude their service and be awarded a one-time grant.”  It is unclear, however, whether they will “be able to” do so or be dismissed. If the choice is theirs to make, what will the IDF do if large numbers of administrative standing army personnel wish to continue serving until between the ages of 60 and 67, as is common in the public sector?  A more fundamental question is whether the IDF will succeed in enlisting human resources that are well suited for a three-decade service track (in exchange for a net grant that is not particularly large).  The report’s assertion that “army service is demanding and the personnel serving in it are not motivated by the material remuneration they will receive for their service but by a sense of duty and mission,” is not sufficiently consistent with the changing reality to establish the proposed model.  This could have also been assessed using a survey.  Logic dictates that the state must find the right way of remunerating standing army personnel in a manner that enables them to fulfill the needs of the army in the long term – with suitable margins of safety – considering the changing terms of alternative employment in the civilian sector, the nature of military service, and the need for long term engagement of human resources (the IDF is not an incorporated company).  How this is done in other countries should have been investigated. In the meantime, the method of a one-time grant, which might be used up quickly, appears to be inferior to the method of bridging pensions, which provides a “security net” for the discharged soldier, even if it amounts to a gross sum of the same current worth.

Who is Responsible for Implementing the Report?

“The commission is of the opinion that the ultimate authority for actualizing its recommendations rests with the Israeli government, the Defense Minister and the Chief of Staff.”  The status of the commission’s report, however, is that of recommendation alone. The government is the supreme commander of the IDF and the Chief of Staff is responsible for preparing and implementing a work plan in accordance with the level of risk management stipulated by the government.  This is the background to Lt. Gen. Eizenkot’s preparation of the Gideon plan.


Although the Locker Commission report deals with matters of extreme importance, it leaves the impression that significant portions of the document require further research in order for them to be ready for debate.  For example, the report requires in-depth staff work regarding the feasibility of its recommendations in the realm of human capital.  The absence of the big picture is especially conspicuous with regard to the following questions: What are the underlying premises of the report?  What threats will the IDF be required to address, and what will remain unaddressed?  What will the army look like, and what kind of security will it provide?  For these reasons, the government would be prudent to discuss the Gideon plan as the basis for IDF operations, and leave the recommendations of the Locker Commission for further examination and subsequent implementation in areas that can enhance the efficiency of the system.  (INSS  03.08)

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11.3  ISRAEL:  Treasury Reports Israel’s Food Prices Rose by 36% Over Past Decade

Globes reported that Israel’s Ministry of Finance Chief Economist department announced that food prices in Israel soared 36% in 2004 – 2012, due mostly to increased concentration of the main food manufacturers.  The Ministry of Finance says that the spurt in prices is substantially greater than the rise in the Consumer Price Index during this period, and was not correlated with the pace of GDP growth.

The Ministry of Finance said that the nominal aggregate profit of the major food manufacturers in 2005 – 2012 skyrocketed 3.4 times over – a 278% increase in real terms.  The average salary in these companies grew only 23% in real terms during this period, and their expenses in comparison with their turnover did not change significantly.

The Ministry of Finance chief economist analyzed the profit margin and amount of aggregate profit in the food sector in 2003-2012, and the changes in the level of concentration in the sector during this period.  According to his findings, profit margin and aggregate profit jumped from 4% in 2003 to 9% in 2010, then dropped slightly to 8% in 2011 due to the social protest, and to 7% in 2012.  The Ministry of Finance notes that despite the decline in profit in 2011-2012, it is still significantly higher than the profit in the first half of the preceding decade.

The Ministry of Finance adds that the major food manufacturers posted a rise in profit in 2012, while profits in the sector as a whole (including the small manufacturers) declined.  Partial figures for 2013 indicate continued growth in profit for that year.

The Ministry of Finance examined the 20 largest food producers in Israel, and found that the sharp drop in profit among the food companies in 2002-2005 (when their profit was almost halved) came at a time of economic recovery from the recession of the second intifada and the shekel appreciation during those years.  The food companies’ profit rose steeply in 1997-2002, while the shekel was depreciating sharply.

“Even if the shekel appreciation in 2006-2008 played a role in the rise in the food companies’ profit margin, this variable cannot by itself explain the changes that took place in the food companies’ profit margin over the past two decades,” the Ministry of Finance wrote.  (Globes 02.08)

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11.4  ISRAEL:  Israel-India Relations Grow Stronger

Efraim Inbar wrote in BESA Center Perspectives on 6 August that relations between India and Israel are changing and improving.  It was recently announced that Indian President Pranab Mukherjee will make a state visit to Israel in October, while Prime Minister Narendra Modi is also expected to visit early next year – the first visit of an Indian prime minister to Israel.  In February 2015, Israeli defense minister Moshe Ya’alon visited India, during which the two countries finalized a major defense deal worth more than $1.5 billion.

No less significantly, we have witnessed a shift in India’s traditionally pro-Palestinian stance at the United Nations.  Last month, New Delhi abstained from voting on a UN Human Rights Council motion in favor of the Palestinians The vote was to accept the Inquiry Commission Report on the 2014 Israeli strikes in Gaza and transfer the file to the International Criminal Court).  Indeed, India had already abstained in June on a vote to give UN recognition to an NGO with Hamas links.  However, it should be noted that India still does not vote with Israel and the United States and that both abstentions were related to Hamas (an Islamist terrorist organization).  It remains to be seen whether a similar shift can be expected on other Palestinian issues.

This long-awaited shift in India’s position toward Israel is the result of several domestic and international developments:

India’s ruling Hindu nationalist Bharatiya Janata Party is more sympathetic to Israel than its opponents.  The Hindu nationalist Bharatiya Janata Party (BJP) returned to power in May 2014.  The BJP has always been more favorably disposed toward the Jewish State – a natural ally against Muslim extremism – than the left-leaning Congress Party.  Moreover, the BJP’s charismatic leader, Prime Minister Modi, has been a good friend of Israel.

The BJP is also less sensitive to the large Muslim minority in India (180 million), which is more critical of close ties with Israel.  In any case, Islam in that part of the world is more tolerant than in the Middle East.  While for many Muslims around the globe, Islam is the dominant component of their identity, this is not necessarily true of India’s Muslims.  The Indian component of their identity, several thousand years old, precedes the Muslim one.  Indeed, about 8% of India’s Muslims voted for Modi.

Second, a large part of the Indian political and bureaucratic establishment, which in the past had evinced a lukewarm attitude toward Israel, nowadays shares the view that the bilateral relations that have intensified since the mid-1990s are very beneficial to India.  Multifaceted interactions in the areas of defense industries, counter terrorism, intelligence, agriculture, health, science and technology have blossomed in recent years.  Defense ties, in particular, have been a significant factor in the increased closeness between Jerusalem and New Delhi.  Moreover, the lobbies of the two states cooperate in Washington.

As India acquires greater global importance, it feels less pressure to please the Arab-Islamic world.  Israel understands the importance of India as a rising global power and has directed efforts toward increasing its presence there.  The Begin-Sadat Center for Strategic Studies at Bar-Ilan University has led the way in making inroads with think tanks and academics in India, while being very explicit in calling for a change in India’s UN voting patterns.

Third, international factors that had inhibited good relations with Israel have lost some of their power. As India gradually acquires greater global importance, it feels less pressure to please the Muslim, and particularly the Arab, bloc.  The Arab world is in the midst of a deep sociopolitical crisis that will probably last for decades.

Moreover, the balance of power in the international oil market has shifted largely towards the buyer.  Despite the fact that over eight million Indians are employed in the Gulf, and that most of Indian’s oil comes from that area, the international leverage of the Arab countries has been weakened. India has also been bitterly disappointed by the lack of support it receives from Arab states on the Kashmir issue.

Fourth, India can still plausibly claim that its abstentions at the UN are not a betrayal of its historic support for the struggle of the Palestinians.  Nevertheless, New Delhi realizes that Muslim and other states merely pay lip service to the Palestinian issue.

The shift in India’s position on Israel also reflects several international trends.  First, it shows that India is gradually growing into its elevated status on the world scene and increasingly behaves in accordance with its own interests, and with diminished sensitivity to other actors.  Although India has always claimed a special role in international affairs, following the end of the Cold War and the liberalization of the Indian economy its potential for great power status is coming to fruition.

Second, it reveals the true power of the Arab world.  As the Arab tragedy unfolds, particularly since the so-called Arab Spring, the Arab world is in disarray and unable to wield much international pressure.

Third, it indicates that the Indo-Israeli relationship has matured and entered into a new stage.  India recognizes the importance of relations with the Jewish State and is willing to take into consideration Israel’s interests.  Obviously, the contents of the bilateral relationship are more important than votes at the United Nations – a morally bankrupt institution. But India’s gesture is welcome nonetheless.

Finally, India’s shift is likely to resonate beyond the corridors of the United Nations, and Third World countries might follow its example.  After all, India is considered one of the leaders of the Third World bloc.  We have already seen how African countries such as Nigeria have sided with Israel at the United Nations.  Israel is a strong country with much to offer the international community, while its Arab enemies are losing influence in the international arena.  Indeed, one important lesson from India’s behavior is that the fears of international isolation among Israelis are greatly exaggerated.

Efraim Inbar, a professor of political studies at Bar-Ilan University, is the director of the Begin-Sadat Center for Strategic Studies and a fellow at the Middle East Forum.  (BESA 06.08)

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11.5  JORDAN:  IMF Says Jordan’s Economy Sees Progress Despite Series of Shocks

  • Jordan maintains economic stability while coping with refugees, regional shocks
  • Next phase to focus on creating jobs and improving business climate while continuing to strengthen public finances
  • Sustained donor support will be essential to deal with the humanitarian crisis

Jordan has made good headway toward stabilizing its economy in the face of a series of severe external shocks.

The IMF Executive Board approved on 31 July the final review under the $2 billion Stand-By Arrangement agreed in 2012.  With the Board’s approval of the final disbursement of about $400 million, Jordan becomes the first Arab country in transition to successfully complete an IMF-backed program.

In an interview, IMF mission chief Kristina Kostial discusses the country’s achievements over the course of the three-year program and the challenges that lie ahead.

IMF Survey: Why did Jordan need a program?

Kostial: In the run-up to the program, Jordan was hit by a series of exogenous shocks. Jordan had been getting gas below market price from Egypt, but that supply of gas, which was used to generate electricity, was disrupted because of repeated sabotages of the Arab Gas Pipeline.  Jordan thus had to substitute expensive fuel products for this gas, with the result that the electricity company began to run large losses amounting to 5% of GDP in 2011.

On top of that, the “Arab Spring” started that same year and, in response, the Jordanians increased current spending, including through higher subsidies and wages.  As a result, the central government’s fiscal deficit increased by 5% of GDP.  So they had an expansion in the combined public sector deficit (central government deficit plus losses of the electricity company) by about 10% of GDP in just one year.  Despite a large grant from donors, Jordan had difficulty financing this gap, and the central bank was losing reserves. That’s when the authorities sought IMF assistance.

IMF Survey: But once the program was agreed, the economy continued to sustain shocks that no one anticipated.

Kostial: During the course of the program, Jordan was hit by further shocks, the worst being the Syrian refugee crisis. Jordan has received a huge flow of refugees – the authorities estimate that there are more than one million refugees, or about 20% of Jordan’s population.  On top of that came the emergence of the Islamic State in Iraq and the Levant (ISIS). Iraq is Jordan’s largest trading partner and the destination of some 20% of its exports.  There have been a lot of disruptions to these exports as well as to tourism in Jordan.

So when you consider that the country faced a difficult situation to begin with and a worsening external environment over the course of the program, what the authorities accomplished is remarkable.

IMF Survey: What has the program achieved?

Kostial: The program had three main objectives: maintaining macroeconomic stability; ensuring fairer, more equitable policies for the population; and increasing growth prospects for Jordan.  Overall, the program has been a success.

The biggest success was on the first objective, maintaining macroeconomic stability, because the country suddenly found itself with a huge deficit coupled with already high public debt (amounting to 71% of GDP at the end of 2011).  The big achievement under this program was the gradual reduction of the combined public sector deficit by some 5.3% of GDP over the past three years.  This came from two things: energy sector reform and measures by the central government.

On the objective of making Jordan’s economy more fair and equitable, it was a mixed success.  Early on, the authorities abolished the general subsidies on fuel pump prices and replaced them with targeted cash transfers, which go to some 70% of the population (provided when the oil price is above $100 per barrel).  That was a bold move, even if a program of cash transfers to such a large share of the population is still pretty broad.  Also, we see the limited reform to income taxes as a missed opportunity to bring more taxpayers into the tax net (less than 3% of the population are paying income taxes).

The third objective of the program was to increase Jordan’s growth potential.  This task is difficult in a situation with so much regional uncertainty, because it makes prospective investors think twice.  But despite this uncertainty, the authorities could still move forward on structural reforms.  There has been some progress – they’ve put in place new investment and private-public partnership laws.  We’ve seen some improvement in the public investment framework and progress on improving access to finance.

IMF Survey: The IMF displayed a fair amount of flexibility with regard to Jordan.

Kostial: We showed flexibility in terms of fiscal targets, because there were unanticipated government outlays related to the Syrian refugees in Jordan and to gas flows from Egypt coming to an almost complete halt.  Additional grants coming in from the international community allowed us to be flexible.

We also had flexibility with regard to the timing of the program policies.  Some of the things that we had agreed on were desirable to have early on, most notably the medium-term energy strategy, the lack of which was giving rise to a large deficit.  But we needed to make sure that the authorities had sufficient time to consult with stakeholders and put this strategy in place.

IMF Survey: Where is there room for more progress?

Kostial: One area where reform has fallen short is creating more jobs. In Jordan, unemployment is relatively high – 13% overall, 20% for women and 30% for the youth.  It’s structural in nature, so even when Jordan had high growth rates, unemployment did not fall much.

What is also striking is the low workforce participation, which means that a lot of people are giving up on seeking work.  Female labor force participation is particularly problematic, even when compared to elsewhere in the region, and only 10% of the women of working age are actually working.

Jordan needs reforms to raise potential growth and create jobs.  There is a need address labor market challenges.  More also needs to be done to increase access to finance – there is no robust law for collateral, insolvency, or bankruptcy, and that inhibits lending.  Finally, the government could take further steps to improve the business environment and make it easier for investors to come to Jordan.

IMF Survey: You mention the need to raise potential growth. What’s the current growth rate and how do you see that evolving?

Kostial: Jordan had high growth rates from 2000 to 2009, on average 6.5%.  With the global financial crisis, growth tanked.  More recently growth has hovered at about 3%, and we hope that, over time, Jordan can return to its medium-term target potential of 4.5% growth.

Is this enough to make a dent in unemployment?  No.  According to our calculations, Jordan needs a growth rate of some 6% just to absorb new entrants into the labor force.  What the economy really needs is structural reforms to grow faster and to translate this growth into higher employment.

IMF Survey: Will the country need additional financial assistance?

Kostial: Jordan is now on a sounder fiscal footing and public debt is broadly stabilizing, but at a pretty high level – 90% of GDP.  Jordan has done the bulk of its fiscal adjustment, but it’s not over yet.  The authorities should bring the electricity company back to cost recovery. And there is room for additional central government measures.  For example, we believe there is scope for widening the income tax base.

So, financing needs are still going to be high for the next couple of years.  The authorities will need to carry out further reforms that will ensure they can reduce debt from the current 90% to their target of about 70% by 2020, which we regard as a safe threshold for an emerging economy.

Because it’s expensive for Jordan to host the Syrian refugees, the help of the donor community continues to be indispensable.  It’s important for the country to stay engaged with the international community – the country cannot shoulder this burden alone.  (IMF 05.08)

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11.6  IRAQ:  Fitch Assigns Iraq’s First Rating at ‘B-‘/Stable

On 7 August, Fitch Ratings assigned Iraq a Long-term foreign currency Issuer Default Rating (IDR) of ‘B-‘ with a Stable Outlook.  The agency has also assigned a Country Ceiling of ‘B-‘ and a Short-term IDR of ‘B’.

Key Rating Drivers

The ratings reflect the following factors:

Political risk and insecurity are among the highest faced by any sovereign rated by Fitch.  Sectarian conflict has raged with varying intensity since 2003, IS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak.

Iraq holds the world’s fifth largest oil reserves and significant amounts of gas.  Oil production has risen rapidly to 3.3m bpd in May 2015, from an average of 2.4m bpd in 2010, with Iraq becoming the world’s second largest exporter in 2014.  Production costs are low.  The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity.  Investment is under way to further raise production capacity, although infrastructure bottlenecks remain a constraint and investment plans were set back by payment arrears in 2014.

Iraq’s fiscal position has deteriorated rapidly since 2013 and Fitch forecasts a double-digit fiscal deficit for 2015, owing to lower oil prices, higher military spending and costs associated with civil conflict.  Savings buffers built during previous years of high oil prices have been largely eroded and the deficit will be financed by debt, likely including a Eurobond and funding through an IMF rapid financing instrument that was approved in July.  Rising oil production and prices should lead to a narrowing of the budget deficit in 2016, although it will remain large and another more substantive IMF program is likely in 2016.  We forecast a small deficit for 2017.  The government has cleared the $9b of payment arrears to international oil companies that were run up in 2014.

Government debt is forecast by Fitch at 51% of GDP at end-2015, in line with the ‘B’ range median and sharply up on the end-2014 level owing to deficit financing and a contraction in nominal GDP.  Debt/GDP is forecast to peak in 2016.  Debt reflects the inclusion of funds (and accumulated interest) provided by GCC countries during the 1980-1988 Iran-Iraq war amounting to 22% of estimated 2015 GDP.  Iraq faces no pressure to repay the GCC debt, which has not been subject to a haircut of 80% in line with terms to the Paris Club (in a 2004 restructuring covering debt under the pre-2003 regime).

Commodity dependence is among the highest of all rated-sovereigns.  Oil accounts for around 40% of GDP and over 90% of fiscal and current external receipts.  Despite some modest initiatives to introduce new excise and consumption taxes this year, there is little prospect of revenue diversification over our forecast period to end-2017.  Limited economic policy tools complicate the response to oil price volatility.

Fitch estimates Iraq’s net external creditor position to have totaled 22% of GDP at end-2014, reflecting current account surpluses averaging 7.5% of GDP in the decade to 2014.  However, we forecast a current account deficit of 7.4% of GDP for 2015; this should gradually narrow as oil revenues rise.  Foreign exchange reserves, at $67b at end-2014, were sufficient to cover over 10 months of current external payments. External debt service ratios are well below the peer median.

Non-oil GDP contracted by an estimated 9% in 2014 and Fitch forecasts it to decline faster in 2015, owing to the impact of the lack of security in the country.  This is offsetting the boost to GDP from rising oil production.  A return to growth looks possible in 2016.  Inflation is lower than peers, averaging 3.7% over the five years to end-2014, supported by the nominal anchor of the exchange rate peg to the $.  Weak domestic demand and subdued external price pressures have pulled down inflation to below 2% so far in 2015.

The banking sector is under-developed and fundamentally weak.  Private sector credit-to-GDP was just 8.1% at end-2014, the lowest of any rated sovereign.  The two large state-owned banks Al-Rafidain and Al-Rasheed, which have high NPLs and exceptionally low capital adequacy, dominate the sector.  There has been little progress in restructuring these banks; an exercise that Fitch assumes will require recapitalization by the government.

Monetary policy flexibility is constrained by the exchange rate peg, weak banking system and limited monetary and credit transmission in the economy.  At times this year, a small spread between the parallel market and official exchange rate has opened up as the central bank holds limited auctions of foreign exchange.

Iraq scores the worst of all Fitch-rated sovereigns on the composite World Bank governance indicator, reflecting not only insecurity and political instability but also corruption, government ineffectiveness and weak institutions.  Doing Business indicators are below the peer median, although there is outperformance in some areas. GDP per capita, at $5,300, is almost 50% greater than the peer median, but the Human Development Index is in line.

Rating Sensitivities

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

– A sustained period of oil prices in excess of our current forecasts, particularly if combined with higher oil production and leading to an improvement in Iraq’s public and external finances.

– A fundamental improvement in the country’s security that allows for stronger non-oil economic development.

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

– Further deterioration in the country’s security, particularly if insecurity spreads to new geographical areas or hinders oil production or exports.

– A failure to narrow the budget deficit and a rapid build-up of government debt, or a failure to secure adequate financing for the budget deficit.

Key Assumptions

Fitch forecasts Brent crude to average $65/b in 2015, $75/b in 2016 and $80/b in 2017. Iraqi oil production is conservatively forecast to increase to an average of 4.2m bpd in 2017.  Fitch assumes that the Kurdish region will not try to break away over the forecast period and that periodic tensions will not descend into serious military confrontation with the federal government or result in serious damage to oil export infrastructure.  Fitch assumes ongoing serious security threats, with large parts of the north east outside of the government’s control.  (Fitch -7.08)

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11.7  UAE:  IMF Executive Board Concludes 2015 Article IV Consultation

On July 29, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation and endorsed the staff appraisal without a meeting.

Lower oil prices are eroding long-standing fiscal and external surpluses, but the UAE has continued to benefit from its perceived safe haven status and large fiscal and external buffers that have helped limit negative spillovers from lower oil prices, sluggish global growth, and volatility in emerging market economies.

Nonoil growth remained robust at 4.8% in 2014, driven by construction, notably owing to capital spending in Abu Dhabi, and services underpinned by Dubai’s transportation and hospitality sectors.  Real estate market prices have edged down since mid-2014. With past increases in rents only feeding gradually into consumer prices, inflation increased to 4.3% year-on-year in May 2015, also reflecting upward adjustments of electricity and water tariffs in Abu Dhabi.  Credit to the private sector has picked up. GREs have continued to strengthen their finances.

The economic outlook is expected to moderate amid lower oil prices.  Nonoil growth is projected to slow to 3.4% in 2015, before increasing to 4.6% by 2020, supported by the implementation of megaprojects and private investment in the run-up to Expo 2020.  Growth in oil production will likely to moderate given the global supply glut. Annual inflation is projected to pick up to 3.8% in 2015.  The overall fiscal balance this year is expected to turn negative for the first time since 2009 to record a deficit of 2.9% of GDP, but is expected to return to surpluses from 2016.  The current account surplus is also projected to decline substantially, to 5% of GDP and will slowly increase with the projected gradual recovery in oil prices.  Credit growth is expected to remain supportive of the activity.

Executive Board Assessment

In concluding the 2015 Article IV consultation with the United Arab Emirates, Executive Directors endorsed staff’s appraisal, as follows:

Lower oil prices have increased macro-financial stability risks.  Prudent economic policies, progress in economic diversification, and the safe-haven status of the UAE have helped build large fiscal and external buffers and strengthen the resilience of the economy.  Also, the implementation of megaprojects and private investment in the run-up to Expo 2020 are expected to support activity over the medium term.  However, lower oil prices are eroding fiscal and external surpluses, and going forward a hike in the US interest rate could lead to a tightening of financial conditions.  These risks could be exacerbated by high volatility in stock markets, high NPLs, and low banking system liquidity if government and GREs withdraw deposits.

The macroeconomic policy mix should focus on gradual fiscal consolidation, while maintaining the peg and easing liquidity management if needed.  The authorities’ plan to consolidate the fiscal position is appropriate, and would reduce fiscal vulnerability and ensure intergenerational equity.  Fiscal consolidation will also help bring the external position closer to the level consistent with medium-term fundamentals. However, its pace should take into account the available fiscal buffers and the impact on the broad economy.  The authorities’ monetary policy framework which aims to maintain the peg while strengthening liquidity management and deepening money markets, is appropriate.  In an adverse scenario with a decline in deposits, liquidity management could be eased to support credit growth.  Government deficit financing should avoid a tightening in liquidity in the banking system.

Fiscal consolidation requires rationalization of spending, but the quality of spending cuts is crucial to avoid damaging the country’s competitiveness and long-term growth prospects.  Government investments should be preserved relative to nonhydrocarbon GDP to support infrastructure, while the implementation of GRE megaprojects should be gradual, in line with the expected demand.  Public sector wage bill growth should be controlled while energy subsidies and capital and other transfers should be reduced.  Raising more nonhydrocarbon revenues through new tax measures should also be considered.  Fiscal policy implementation requires further strengthening annual budget processes, including strong Public Finance Management Systems, and integrating and operationalizing medium-term budget frameworks.  Close oversight and continued strengthening of debt management frameworks are crucial.

Plans to strengthen the banking regulatory and supervisory framework by the CBU, with no exemptions in holding banks accountable, are welcome.  The banking sector is resilient and has enough capital and liquidity buffers to withstand an adverse shock.  The CBU plans to phase in Basel III capital and liquidity standards over 2015 – 19 and to strengthen its risk-based supervision are welcome and should be timely implemented.  As the corporate sector structure in the UAE is characterized by large GREs and family groups, compliance by banks with the loan concentration limits for GREs and local governments is challenging and should be monitored, including the planned transition paths for banks exceeding the limits with no-exemption.  Developing domestic debt markets would reduce the reliance on external funding and bank lending, helping banks comply with loan concentration limits.  Over the medium term, the authorities should consider developing resolution frameworks, and establishing deposit insurance mechanisms.  Efforts on strengthening the AML/CFT framework should continue.

Authorities should strengthen their macro-prudential framework, building on their successful implementation of real estate-specific measures.  Macro-prudential policies such as maximum LTVs for mortgages and DSTI limits help reduce excessive exposures by the banking system associated with systemic risk.  However, the current macro-prudential policy framework needs to be strengthened in line with best practices such as formalizing a financial stability mandate in the central bank law, establishing a Financial Stability Committee at the central bank level, and institutionalizing coordination with the Ministry of Finance and other relevance agencies.  Continued strengthening of GREs balance sheets and active management of their upcoming debt repayments, while raising risk-weights of bank lending to GREs if needed, will be important in reducing macro-financial vulnerabilities.

Structural reforms should aim at further diversifying the economy and accelerating private sector-led job creation for nationals.  These could include: further opening up foreign direct investment, improving selected areas of business environment, transitioning toward a knowledge-based economy, easing access to finance for startups and SMEs, and creating the right incentives for entrepreneurship and job creation.

Staff encourages the authorities to build on recent progress in improving statistics.  Staff welcomes efforts in implementing an inter-agency project to compile the International Investment Position, which will close an important statistical gap, including for the reporting of foreign assets and debt.  It will be important to press ahead with this project and provide adequate resources for improving the quality of overall balance of payments statistics. It will also be essential to develop more comprehensive demographic and labor markets statistics, while disseminating complete data on Dubai GRE debt.  (IMF 04.08)

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11.8  EGYPT:  Critics Say Suez Canal Project Falls Short of Expectations

Al Monitor posted Safiaa Mounir’s 30 July comments that the new Suez Canal, which opened on 6 August, allows for more vessels and faster transit, all while adding to the country’s coffers.  Not everyone, however, is on board with the project.  Some experts and civil society members say the project could have done a better job capitalizing on Egypt’s resources.

The Suez Canal, which connects the Mediterranean Sea with the Red Sea, is the oldest artificial waterway in the world and a source of foreign currency for Egypt.  The new 45 mile section is one phase of the Suez Canal Corridor Area Project, which is designed to turn Egypt into an international trading and logistic hub and increase the capacity of the canal from 49 vessels a day in 2014 to 97 in 2023.

The plan also aims to almost triple Suez Canal revenues from $5.3 billion at present to about $13.2 billion in 2023.  Such an achievement would increase hard currency, boosting Egypt’s gross national product.  The project also will create new jobs for residents of the Canal Zone, the Sinai and neighboring governorates, and result in new urban sites being developed.

However, the project is not without critics.  Hisham Khalil, a member of the Supreme Commission of the Egyptian Social Democratic Party, believes a new canal is not needed.  Speaking to Al-Monitor, he pointed out that, according to the project’s statistics, the average number of vessels going through the canal per day was 47 in 2014, compared with 45.5 vessels in 2013.  Even at its peak in 2008 — just prior to the global financial crisis, which affected trade movement — only 59 vessels were registered.  Khalil contends that, in light of weak global trade growth, there was no need to build a new canal to accommodate 97 vessels.

Construction began a year ago, funded by interest-bearing investment certificates of 10, 100 and 1000 Egyptian pounds (EGP) ($1.28, $12.78 and $127.82, respectively) issued to Egyptians.  Keen to encourage Egyptians to buy these certificates, the government increased the interest rate to 12% — the average interest is 10% in banks — to be paid every three months.  The move succeeded in collecting more than the targeted amount of EGP 60 billion over a few days following the offer.  A total of EGP 61 billion was collected.

Based on the initial plan, the new Suez Canal was expected to be built within three years.  Yet, President Abdel Fattah al-Sisi demanded that the project be implemented in one year.

Wael Kaddour, a former member of the Suez Canal Authority, told Al-Monitor that cutting the construction time to one year doubled the construction cost.  Total excavation cost for the new canal is estimated at EGP 19.5 billion – broken down into EGP 4 billion for dry excavation, EGP 500 million for revetment and EGP 15 billion for dredging.

Former President Mohammed Morsi had announced in May 2013 the Suez Canal Corridor Area Project and the building of the new canal; the latter was strongly opposed at the time.  A group of people formed the Popular Front for the Suez Canal Corridor to offer support and assistance as well as follow-up and close monitoring.

But Kaddour said the Suez Canal Corridor Area Project gave hope to Egyptians.  “It was promoted at a time when a sharp political dispute prevailed over the Egyptian society.  Therefore, there had to be a national project supported by all parties,” he said.

After a call for tenders that included 14 firms, the consortium Egypt’s Shair & Partners (Dar al-Handasah) was chosen 19 August 2014, to develop the master plan for the Suez Canal Corridor Area Project — the entire project in Suez, Ismailia and Port Said.

According to the initial plan of Shair & Partners, the entire Suez Canal Corridor Area Project will create 1 million jobs over the next 15 years, until 2030.  The project will also help develop of a number of industries, including heavy industries such as iron and cement factories, or simple industries such as food factories.  The investment cost of the facilities reaches $15 billion for the implementation of the plan in the area close to the Suez Canal.

Rasha Kenawi, a member of the Popular Front for the Suez Canal Corridor, told Al-Monitor, “It would have been better for the state to focus on the implementation of the Suez Canal Corridor Area Project instead of building a new canal, and on exploiting the funds used in the excavation works to speed up the implementation of the Suez Canal Corridor Area Project, which would help increase economic growth, job opportunities and the state’s resources.”

Kenawi added that the plan for the Suez Canal Corridor Area Project includes about 75% of the projects that the front envisions could be developed.  Yet, one of the plan’s flaws, he said, is that it lacks the necessary studies for shipbuilding and marine services.

For his part, Kaddour criticized Shair & Partners because its plan does not focus on the containers industry.  He said the project should have included a container manufacturer, which would have provided hard currency, as a 20-foot container can cost as much as $2,500.  Each container passing through the canal would have had to pay $60, he said, which would have ensured a constant flow of revenue.  Moreover, the plan does not include stations to supply fuel for the equipment that transports containers, nor is a facility to repair containers available.

Kaddour added that the plan did not focus on building all sizes of vessels, although Egypt is in need of those industries, as it spends billions of dollars per year to transport its exported and imported goods.

He also said the plan should have provided for the manufacturing of turbine blades to generate wind power, given that the Suez Canal zone is one of the best areas for wind power generation.

Egypt aims to produce 20% of power from renewable energies by 2020 and build solar and wind power plants with combined capacity of 4,300 megawatts in the next three years.  (Al Monitor 30.07)

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11.9  EGYPT:  Egypt Plans to Raise Crops in Sub-Saharan Africa

Walaa Hussein posted in Al Monitor on 3 August that amid Egypt’s water scarcity, which threatens to worsen the country’s food shortage, Cairo is working to form agricultural alliances outside its borders.  The efforts — which have been in place as limited experiments since the 1980s under Egyptian President Hosni Mubarak — include sending Egyptian farmers to cultivate land in Sudan and Congo, transfer their expertise to those countries and take advantage of the available water to cover the food needs of the Egyptian people.  The efforts also aim at establishing model farms for strategic crops in a number of countries, including Mali, Niger and Zambia.

Egypt plans to agriculturally integrate with a number of water-rich countries in Africa to address the worsening food shortages in Egypt and the country’s inability to increase the size of agricultural land because of a lack of water.

The countries covered by the Egyptian project for foreign agriculture have an abundance and diversity of water sources, but declining agricultural development due to lack of funding and agricultural machinery.  In Sudan, which has a surface area of 1.8 million square kilometers (445 million acres), cultivated areas do not exceed 45 million acres, according to the latest statistics by the Central Bank of Sudan.  That is about a fifth of the country’s arable area, estimated at 200 million acres.

The surface area of the Democratic Republic of Congo, the second-largest African country, is 2.35 million square kilometers (581 million acres).  The country has 1.3 million square kilometers (321 million acres) of forest areas.  Several rivers — such as the Nile and the Congo rivers — supply the Congo with a lot of water and the country’s arable land is of excellent quality.  Nevertheless, 95% of the country’s population suffers from hunger.

At the Arab Summit in March, Sudanese President Omar al-Bashir put forth an initiative for Arab food security to have the troubled Egyptian program cultivate thousands of acres in Sudan.

In April, the Sudanese government announced the allocation of Sudanese land in several water-rich areas where the Egyptians can implement joint projects in food security and by using the agricultural integration program.  The latter aims to achieve self-sufficiency when it comes to agricultural and food production.  The program was announced in a meeting in Khartoum on 24 April, in the presence of five ministers concerned with agriculture and irrigation issues from the two countries.

The Sudanese government had allocated 200,000 acres in Damazin and Kassala as the project’s first stage in Egypt.  The Egyptians chose cotton crops and sunflower as a start to cultivate Damazin, where 20,000 acres are currently being cultivated, out of a total of 100,000 acres.

Efforts on the part of the Egyptian Farmers Union had preceded the latest governmental measures to achieve agricultural integration.  These efforts started in December. Mohamed Burgos, the head of the union, told Al-Monitor that the union was given 100,000 acres by the Sudanese Ministry of Investment.

“We are currently working to establish a mechanism to allocate 10 acres per Egyptian farmer who would live there and cultivate the land with wheat and oil crops such as flax, soybean and sunflower.  Sudanese officials granted me 100,000 acres as a gift for Egyptian youths in the northern province in Sudan, in my capacity as leader of Egypt’s farmers.  It has nothing to do with the rest of the land that the Egyptian government, represented by the Ministry of Agriculture and the Ministry of [Water Resources and] Irrigation, has agreed to receive for cultivation,” Burgos said.

Burgos pointed out that this land will be irrigated by Nile water and its output will be split 50-50 between the two countries.  He said, “Distributing these lands to the youths will be through a benefit program until the land is cultivated, and once [the youths] prove their seriousness, ownership of the lands will be handed down to them.”  He said he welcomed the agricultural integration program with Congo, but expressed fear that the security conditions in Congo would hinder the resettlement of Egyptian farmers.

Hossam el-Moghazy, Egypt’s minister of water resources and irrigation, said that the agricultural integration program between Egypt and its neighbors, especially Sudan, is an important step to achieve food security.  He told Al-Monitor, “This integration will provide food for our people.”

On the other hand, water experts in Egypt fear the consequences of the expansion of the agricultural areas in Sudan and the impact on Egypt’s water quota. Haitham Awad, the president of the Irrigation and Water Hydraulics Department in the faculty of engineering at Alexandria University, spoke to Al-Monitor about Egyptian cultivation in Sudan.  He said, “We are growing crops outside of Egypt by using water that was originally coming to us.  And this is useless.  However, Egyptian agriculture benefiting from the river water in Congo is acceptable.  In a previous experience, 800,000 acres in Brazil were cultivated in our favor in 1987.  We also tried growing wheat in our favor in America.”

Mohamed Nasreddin Allam, former minister of water resources and irrigation, told Al-Monitor, “Any future agricultural expansion in Sudan will subtract from Egypt’s share of the Nile water.”

Moghazy reacted on this by stressing that Egyptian agriculture in Sudan will depend on more than one source of irrigation, adding that the 100,000 acres in Damazin currently being cultivated by Egypt and by the Egyptian-Sudanese integration company is based on rain-fed agriculture.  He also noted positive steps will be taken to take advantage of rainwater harvesting by building small dams that take advantage of stored water in times of drought.

Moghazy announced in a press conference attended by Al-Monitor on 29 July that the area that is to be cultivated has been increased to 1 million acres instead of 100,000 acres, as had been agreed upon at an earlier stage.  This increase will cover the Blue Nile, Sennar and Kassala.  Hilal confirmed that this has been agreed upon with officials in Sudan on the sidelines of his visit to Khartoum to attend negotiation meetings about the Renaissance Dam.

Both Allam and Awad welcomed agricultural integration with any state that does not use Nile water, particularly Congo.

On 30 May, Moghazy visited Congo to activate the cooperation protocols whereby Egyptian farmers would contribute to the cultivation of land in Congo.  Egypt is working to establish a farm in the Menkao area in Malaku city, which lies 70 kilometers (43.5 miles) north of the Congolese capital, Kinshasa.  The farm’s size will be 600 hectares (1,482 acres), of which 300 hectares (741 acres) will be cultivated with crops currently unavailable in Congo, such as corn, sunflowers, soybeans and rice.  The farm output will be divided evenly between the two sides.

Cultivating land in developing countries has become Cairo’s way to overcome the water shortage hindering the expansion of agricultural land in Egypt.  (Al-Monitor 03.08)

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11.10  MOROCCO: Second Review Under IMF Arrangement

The IMF believes the Moroccan economy is recovering and the outlook is favorable, but still subject to significant risks.  After slowing to below 2% in 2014, growth is expected to be close to 5% in 2015, boosted by a strong agricultural output and a gradual acceleration of activity in other sectors.  Fiscal policy is on track to achieve the annual deficit objective of 4.3% of GDP.  The external position has improved rapidly, benefiting from lower oil prices and strong export performance. Inflation remains low.

However, more remains to be done to reduce unemployment, especially among the youth.  Assuming steadfast implementation of reforms, growth should gradually accelerate over the medium term.  However, the outlook remains subject to the risks of a structurally weak growth in key advanced economies, tighter or more volatile global financial conditions, and increased volatility of energy prices. Important progress has been made on key reforms; sustaining these efforts will be important to foster higher and more inclusive growth.

Significant progress was made in reforming the subsidy system, thereby reducing its costs and associated fiscal risks.  At the same time, social programs on health and education were expanded.  The adoption of the new organic budget law in May 2015 was a crucial step in improving the fiscal framework, while progress has also been made in upgrading the financial policy framework.

Timely reform of the pension system is needed to ensure its viability while extending its coverage.  Sustaining efforts to improve the business environment, competition, governance and transparency, as well as the functioning of the job market and the quality of education and vocational training, will also be important for increasing competitiveness, growth, and employment.  The program remains on track and Morocco continues to meet the PLL qualification criteria.

Both March 2015 quantitative indicative targets were met comfortably.  Morocco continues to perform strongly in three out of the five PLL qualification areas, while not substantially underperforming in the fiscal and external areas.  Staff recommends the completion of the second review under the arrangement.  (IMF 30.07)

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11.11  GREECE:  GDP Must Be Priority of Third Program

Ekathimerini stated that the start of negotiations between the Greek government and the lenders over the new bailout program and the internal political developments in the ruling SYRIZA party have dominated the news lately.  However, at the end of the day, the outcome of all deliberations will be judged by the ability of the Greek economy to grow in coming years.  A credible agreement could contribute to this extent.

The deal struck at the Eurozone summit on 13 July was based on three pillars.  Greece had to deliver a set of milestones by passing packages of legislation through Parliament to obtain bridge financing and initiate talks for a new, three-year ESM program, totaling up to €86 billion.  Greece did so and got a bridge loan of more than €7 billion from the EFSM facility, which enabled it to and clear arrears to the IMF and redeem Greek bonds held by the Eurosystem worth about €3.5 billion on 20 July avoiding default.  Negotiations over the new program are ongoing but it is not easy to predict whether they will be concluded in time to allow for a bailout disbursement to pay off bonds worth €3.2 billion held by the ECB on 20 August.  If this is not possible, the country will have to get another bridge loan from the EFSM or another entity to avoid bankruptcy.

The second pillar of the summit agreement consisted of potential, additional official sector debt relief subject to Greece delivering on its commitments, following the conclusion of the first review of the ESM program.  This review could take place in the fall and even later.  Debt restructuring will be along the lines of the agreement reached at the Eurogroup in November 2012.  It will take the form of re-profilng the Greek debt by extending maturities, providing interest holidays and perhaps converting floating interest rates into fixed.  Additional debt relief has become necessary after demands by the IMF but Greece has to deliver to get it from its European lenders-partners.

The third pillar of the summit agreement is the creation of a new development fund in Greece to which public assets worth €50 billion could be transferred for privatization.  Many doubt whether the state has these assets and the ability to produce similar privatization proceeds.  The process will take many, many years and the initial plan was for part of the funding to be used for paying back ESM funds used for bank recapitalization.  Another chunk will be used for debt repayment and the rest for growth initiatives.

The new, total potential bailout is estimated at between €82 and €86 billion.  About €30 billion will be directed towards debt repayment to the IMF, the Eurosystem and private investors, and about €17 billion or so will be interest payments.  Up to €25 billion will go towards the recapitalization of the banking sector.  The rest of the money will settle arrears etc.

It is really unfortunate for a country getting ready to exit the second bailout last year to have to go through this process again.  However, it is also an opportunity for both Greeks and the lenders to correct past mistakes and build on successes.

Although everybody talks about structural reforms, most fail to recognize that Greece was graded top of the class by the OECD in the overall reform responsiveness in the 2007-2014 period.  They also fail to mention that the country’s ranking rose to 62nd place in the World Bank’s ease of doing business survey in 2015 from a dismal 108th in 2008.  This is in addition to the tremendous turnaround in public finances, depicted in small primary surpluses in 2014 and 2013 from a primary deficit of 10% of GDP in 2009.  A similar picture emerges from the current account and the unit labor costs.

However, all these successes have been marred by the dramatic fall in GDP and employment.  Fewer people are employed today than in 2000.  This is the weak point of all economic policy programs so far and has been the case despite considerable progress in reforms and the stabilization of public finances.

Undoubtedly, Greece has to undertake more structural reforms to ensure fiscal consolidation given the adverse impact of demographics on pensions, and promote competition in product and input markets to facilitate private investments and boost exports. In this context, significant debt relief should also be an upfront feature of the new program to help ease fiscal adjustment, add credibility to the country’s expected effort to access world markets in a year or two and remove uncertainty about a potential Grexit.

The cyclically-adjusted primary budget, which denotes the underlying fiscal stance, could be used in setting the new yearly targets of the ESM program to avoid imposing excessive austerity and hurt growth prospects.  Moreover, the relevant authorities should move swiftly to over-recapitalize banks in order to restore confidence and ease the restrictions of capital controls on economic activity.

The new ESM program should pay more attention to growth-enhancing initiatives to be successful. In this respect, further fiscal adjustment should be minor while debt relief and efforts to restart the banking sector and boost investments and exports should take precedence.  This way, the transition to the country’s new economic model, dominated by exports and investments, will speed up and the Greek economy will enter a long period of sustainable growth.  (Ekathimerini 02.08)

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