Fortnightly, 14 June 2017

Fortnightly, 14 June 2017

June 14, 2017


14 June 2017
20 Sivan 5777
19 Ramadan 1438




1.1  Jerusalem Approves NIS 1.3 Billion “Digital Israel” Program
1.2  Ethiopian Prime Minister Visits Israel, Strengthens Ties Between Countries
1.3  Bank of Israel Governor Flug Says Household Debt Only a Modest Danger to the Economy
1.4  First Visit to Israel by Indian Premier to Begin on 4 July


2.1  OECD Praises Israel’s Growing Economy & Low Unemployment
2.2  Three Israeli Universities in Leading 100 in Filing US Patents
2.3  Zion Oil & Gas Spuds Megiddo-Jezreel #1 Well
2.4  Mobidiag Extends Agreement with PerkinElmer to Offer Amplidiag Diagnostics in Israel
2.5  Partner Communications Announces Netflix Collaboration in Israel
2.6  RedZone Acquired All the Assets of Trendit, Including 3 Technology Patents
2.7  National Australia Bank and OurCrowd – An Australian First Collaboration
2.8  Microsoft Signs Agreement to Acquire Hexadite
2.9  Cognata Raises $5 Million
2.10  PlaySight Raises $11 Million


3.1  Nestlé Middle East Braces for Five-Fold Ramadan Related Business Increase
3.2  Kuwaiti Firm Snapped Up by Food Takeaway Giant “Delivery Hero”
3.3  Signs of Saturation as UAE’s Retail Market Softens Further
3.4  UAE’s Largest Used Car Showroom Set to Open
3.5  US Firm Wins Deal to Oversee Dubai’s District 7 Project
3.6  US Approves $1.4 Billion Massive Saudi Arms Deal
3.7  Saudi Aramco-Hyundai in $5.2 Billion Shipyard Deal
3.8  NCR Brings SelfServ 80 Series ATMs to Turkey


4.1  Canadian Firm Wins Supply Deal for Dubai’s Giant Solar Park
4.2  Dubai Receives Bids for Fourth Phase of Giant Solar Park


5.1  Lebanon’s Trade Deficit Marginally Widened 0.63% Over First Four Months of 2017
5.2  Jordan Drops 3 Spots on World Competitiveness Index
5.3  Jordan’s Trade Balance Deficit Stands at 4% in First Quarter
5.4  Jordan’s Finance Ministry Reports Stable Public Debt & Decreasing Expenditures
5.5  Jordanian Unemployment Surges to 18.2% in First Quarter
5.6  ILO Report on Jordan Highlights 1.2 Million Foreign Laborers
5.7  Jordanian Expatriate Remittances Reach $1.68 Billion in 1st 4 Months of 2017
5.8  Jordan’s Annual Electricity Usage Did Not Increase in 2016 for First Time in History
5.9  IMF Reaches Staff-Level Agreement on Second Review of Stand-By Arrangement in Iraq

♦♦North Africa

5.10  Average Arabian Gulf Government Deficit Exceeds 11% of GDP Amid Oil Price Fall
5.11  UAE Lays Out Plan to Become Major Global Pharmaceutical Hub
5.12  UAE’s Mobile Phone Penetration Rises to 228%
5.13  Dubai Medical Tourism Receipts Rise to $390 Million
5.14  Dubai Regulator Lowers FinTech Regulations with New License
5.15  Saudi Arabia to Start Collecting Expat Levy Next Month

♦♦Arabian Gulf

5.16  Saudi Arabia to Start Collecting Expat Levy Next Month
5.17  Egypt Receives $125 Million from World Bank for Upper Egypt Development Program
5.18  Egypt’s Cabinet Approves Raising Minimum Income Tax Threshold to LE 7,200
5.19  Egypt’s Tourist Visitors Increase 49% Year-On-Year in March
5.20  Sisi & Vasquez Discuss Trade During First-Ever Visit to Egypt by Uruguayan President
5.21  Expat Exodus Slows Libya’s Oil Recovery
5.22  Tunisian Public Health Sector Struggles to Heal Itself
5.23  ECOWAS Gives Agreement in Principle to Morocco’s Joining Organization


6.1  Turkey’s Annual Inflation Eases To 11.7% In May, Edging Back from 8 Year High
6.2  Turkey’s April Trade Deficit Widens to Around $5 Billion
6.3  Turkey’s May Trade Deficit Surges Nearly 50% as Gold Imports Skyrocket
6.4  Turkey’s Economy Grows 5% in First Quarter of 2017, Exceeding Forecasts
6.5  Turkish Construction Companies Set to Halt Work to Protest Sharp Increases in Iron Prices



7.1  Hebrew University Among Best Universities in the World
7.2  Vanuatu Recognizes Jerusalem as Israel’s Capital


7.3  The Top-Ranked University in the UAE
7.4  Abu Dhabi Approves Fees Hike for 24 Private Schools


8.1  Belkin Laser Raises $5 Million
8.2  Sevion Therapeutics & Eloxx Pharmaceuticals Enter Into Acquisition Transaction
8.3  Teva Reports Positive Results for Phase III of Fremanezumab for the Prevention of Chronic Migraine
8.4  Adama’s Merger with Sanonda Approved
8.5  Teva Announces Exclusive Launch of Generic Pataday in the United States
8.6  Weizmann Institute Finds Cells that Rejuvenate the Brain
8.7  CollPlant Files Patent for 3D Bio-Printing of Organs and Tissues


9.1  Hebrew University Wins Government Quantum Communications Tender
9.2  Karamba Unanimously Awarded TU-Automotive’s ‘Best Auto Cybersecurity Product of 2017’
9.3  PacketLight PL-2000ADS Delivers 200G Capacity for Short Haul and Encryption Applications
9.4  Armis Launches from Stealth to Eliminate IoT Security Blind Spot for Enterprises


10.1  Israel Debt Slips for Seventh Straight Year to 62.2% of GDP
10.2  Tourist Arrivals in Israel Reach Record Monthly High in May 2017
10.3  Economy Minister Finds that Toiletries Cost 48% More in Israel
10.4  Smoking Costs Israeli Economy NIS 13 Billion in 2016


11.1  LEBANON: A New Electoral Law for Lebanon: Continuity or Change?
11.2  GCC: Isolating Qatar Reveals Economic Vulnerabilities of the GCC
11.3  BAHRAIN: Outlook Revised to Negative on Weakening External and Fiscal Positions
11.4  QATAR: Fitch Places Qatar’s ‘AA’ IDR on Rating Watch Negative
11.5  EGYPT: A Monetary Theory of Everything: “Printing” New Money and Egypt’s Economic Ills
11.6  TUNISIA: IMF Executive Board Completes First Review under the Extended Fund Facility (EFF)
11.7  TUNISIA: Fitch Affirms Tunisia at ‘B+’; Outlook Stable
11.8  ALGERIA: IMF Executive Board Concludes 2017 Article IV Consultation


1.1  Jerusalem Approves NIS 1.3 Billion “Digital Israel” Program

On 12 June at the weekly cabinet meeting, the Netanyahu government approved the “Digital Israel” program being promoted by the Ministry of Social Equality.  The program is meant as a digital compass for all government ministries and associated agencies at least until 2020. In the 2017-2018 budget it was allocated finance of NIS 1.5 billion.

The program has three main aims.  The first is to narrow social and geographical gaps by dealing with the gap between Israel’s outlying areas and the center, reducing the cost of living and promoting full exploitation of rights in healthcare and welfare.  The second aim is to stimulate faster economic growth by promoting digital industries and businesses, and through the development of infrastructures and of a modern employment market.  The third aim is to make government services smarter and more user-friendly by making government ministries and local government accessible and improving service to the citizen.

For example, in the area of knowing ones’ rights, a “rights engine” will shortly be launched.  This is an internet site with a mobile app that enables a person to receive full information on the rights due to him or her by inputting basic personal details.  Various programs have also been developed for the education and health systems.  A pilot program designed to manage and streamline queues at hospital accident and emergency rooms is currently underway.  (Globes 12.06)

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1.2  Ethiopian Prime Minister Visits Israel, Strengthens Ties Between Countries

Ethiopian Prime Minister Hailemariam Desalegn concluded a state visit to Israel on 7 June, after meeting with Prime Minister Netanyahu in Jerusalem a day earlier.  The two prime ministers and their spouses dined together at the Prime Minister’s Residence.  The Netanya Academic College hosted a much-attended ceremony to conclude the visit.  Desalegn brought an entourage of senior Ethiopian officials, including 12 of his ministers.  He and Netanyahu are very close friends, he said, and noted that strengthening diplomatic ties between the two countries can be a platform from which Netanyahu will broaden Israeli diplomatic relations in Africa.

Desalegn sees his visit in Israel as a driving force for business between Israel and Ethiopia.  During his trip, he also spoke to the business community in Jerusalem, speaking of Ethiopia’s desire to see more investment in Ethiopia, especially in agricultural high-tech.  Ethiopia is working hard on a large-scale project with Netafim, an Israeli agriculture company specializing in drip and micro-irrigation technology, and interested in developing modern technologies for coffee plantations, he said.  Coffee originated in Ethiopia, according to Desalegn, and the country knows that by introducing new technologies it will be able to increase output six fold.

Relations between Israel and Africa have warmed in recent years.  Desalegn’s visit comes after Netanyahu returned from many high-ranking diplomatic meetings in West and East Africa.  Ethiopia, where Netanyahu visited last July, is today considered one of the most stable countries in Africa.  (IH 09.06)

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1.3  Bank of Israel Governor Flug Says Household Debt Only a Modest Danger to the Economy

Globes reported that Governor of the Bank of Israel Dr. Karnit Flug spoke on 7 June at the annual conference of the Israel Economics Association about the short and long-term consequences of growth driven by private consumption.  She dismissed concerns voiced recently about growing household and consumer debt including mortgages.  According to Flug, private consumption has led the economy in recent years, making up for the slowing of exports and investment caused by moderate global growth, and has supported a significant improvement in labor market figures, with an emphasis on economically disadvantaged groups.  Klug stated, “Growth based on consumption comes with risks if it is based on factors that are not sustainable, but the main factor in increased consumption in recent years was increased income from labor.”  Flug explained that over the past 18 months, growth figures were affected by what economists call “noise” (mainly fluctuations in car imports), but that when this noise is excluded, the growth rate in GDP rose, and is currently at 4% in annual terms.

Flug commented, “This is an impressive rate, particularly if we take into account that world trade, which reflects global demand for our exports, increased by an average of about 3% since the global economic crisis, compared with an average of 7.56% in the years preceding the crisis.  Israel’s relatively good economic performance was supported by accommodative fiscal and monetary policies: low interest rates, the Bank of Israel’s foreign exchange purchases, and a relatively high cyclically adjusted deficit.

“Against the background of these developments, private consumption increased by 4.3% in 2015 and 6.3% in 2016, and was the main factor contributing to economic growth in recent years… What is motivating private consumption?.. Income from labor and financial income are decisive factors in determining the level of private consumption in the short and long terms, with elasticities of about 0.3 and about 0.2 respectively.  The rapid increase in home prices in recent years also contributed to increased private consumption, through the wealth effect.  Asset prices, particularly those of financial assets, have the greatest effect on the change in private consumption in the short term.  Change in current income does not affect private consumption in the short term, other than a change in income from transfer payments.  The intensity of the replacement effect of the interest rate is not great.

“How have the variables affecting private consumption developed in recent years?  There has been a real increase of about 6% per year on average in income from labor, as a result of an increase in employment and in wages.  There was an increase in home prices and in the value of financial assets.  Outstanding consumer credit (non-housing credit to households) increased by 25% over the past three years, as interest rates declined.  Together with the lower prices on imported consumer goods, against the background of the appreciation of the shekel in recent years, which led to a rapid increase in the import of consumer goods, these all supported the rapid increase in consumption.”

Flug cited a recent study by the Bank of Israel Research Department which showed that in recent years, the main factor leading the increase in private consumption was the increase in income from labor.  Flug concluded by saying, “Household debt figures show that despite the increase in outstanding mortgages and consumer debt, the debt to GDP ratio and the debt to disposable income ratio increased only moderately.  At the macro level, therefore, the risk is moderate.  However, the rapid increase of consumer credit in recent years requires closer monitoring on the part of regulators, extra caution on the part of the public and credit providers, and an informed examination of repayment capabilities when providing or taking out credit.”  (Globes 08.06)

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1.4  First Visit to Israel by Indian Premier to Begin on 4 July

Indian Prime Minister Narendra Modi is scheduled to arrive in Israel on 4 July for a three-day visit, the first by an Indian prime minister to Israel.  PM Modi is set to meet with Prime Minister Netanyahu on the day he arrives in the country.  Modi will be the first Indian prime minister to make a state visit to Israel.  The historic visit also marks the 25th anniversary of the establishment of diplomatic relations between Israel and India.  In honor of the occasion, Modi plans to hold a celebration for the Indian Jewish community in Israel.

India and Israel have strengthened their financial and military ties in recent years.  In April, Israel Aerospace Industries announced it had signed $2 billion in contracts with the Indian defense industry and that Indian officials had visited Israel to formulate a memorandum of understanding on the deal, which is likely to be signed during Modi’s visit.  (IH 11.06)

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2.1  OECD Praises Israel’s Growing Economy & Low Unemployment

The Organization of Economic Cooperation and Development issued a new laudatory report on the Israeli economy on 7 June.  Handed to Finance Minister Kahlon during a Paris conference, the report said that after economic growth of 4% in 2016, the Israeli economy was expected to grow 3.25% in 2017/8.  Unemployment was projected to remain low.  The OECD also projected that as the economy continued to grow, increased budget allocations would also encourage economic growth by increasing spending on transportation and housing for young families.  These developments will happen faster if additional steps Kahlon announced in his recent tax reform plan are implemented, in the amount of 0.3% of the gross domestic product, to increase the rate of employment among parents of young children and increase pensions.

According to the report, the rise in real estate prices has slowed down, but still stands at about 5% per year, and tensions in the real estate market still need to be addressed by the authorities for the sake of maintaining a stable banking sector.

The OECD report also calls to step up the pace at which reforms are implemented to promote competition in “secured” sectors, leverage the steps that have already been put in place, and increase productivity and salaries while decreasing the cost of living. Increasing competition from international companies, especially in the agriculture and food industries, will reduce the cost of living.  The OECD noted that these projections would worsen if the shekel continued to be revalued or if the geopolitical situation or external processes took a turn for the worse, such as in the case of problematic negotiations over Britain’s exit from the EU or a return to protectionist policies.  (Various 09.06)

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2.2  Three Israeli Universities in Leading 100 in Filing US Patents

The commercialization companies of Tel Aviv University, the Technion and the Hebrew University are in 43rd, 53rd and 87th places, respectively.

The National Academy of Inventors and the Intellectual Property Owners Association, two important intellectual property organizations in the US, have published a list of the 100 academic institutions that registered the most patents at the US Patent and Trademark Office in 2016.  Three Israeli firms place on the list: Ramot at Tel Aviv University was in 43rd place with 54 patents registered, Technion Israel Institute of Technology in 53rd place with 44 patents and Yissum Technology Transfer Company of the Hebrew University of Jerusalem in 87th place with 29 patents.  No other Israeli universities or research institutes are on the list.

The list is based solely on the number of patents; no attempt is made to estimate the potential influence of each patent.  The list uses the first researcher listed on the patent, which is attributed to the institution to which he or she belongs.  Most of the institutions on the list are US research institutions.  The University of California is in first place with 505 patents, following by MIT with 278 patents and Stanford University with 244 patents.  A Chinese institution, Tsinghua University, which cooperates with Tel Aviv University, came in fifth place with 181 patents.  Other countries with institutions on the list include South Korea, with many institutions in the top 100; Saudi Arabia, Singapore, China, Japan, Hong Kong, Switzerland and Taiwan.  (Globes 08.06)

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2.3  Zion Oil & Gas Spuds Megiddo-Jezreel #1 Well

Zion Oil & Gas announced it has spud (started to drill) the Megiddo-Jezreel #1 – a deep, onshore well located in Israel’s Jezreel Valley.  Zion is contracting with world class service providers such has Halliburton, Baker Hughes, Weatherford and highlighted by DAFORA’s F-400 drilling rig.  The rig has a 3,000 HP capacity draw works capable of drilling to over 7,000 meters (~23,000 feet).  This provides more than sufficient horsepower and safety factor to drill our planned well with a target depth of up to 4,500 meters (~15,000 feet).  Depending on the results of the planned exploratory well and subject to adequate cash resources, multiple wells could be drilled from this pad site, as several subsurface geologic targets can be reached using directional trajectories for subsequent wells.

In 2015, an independent study by the international consulting company Beicip-Franlab, concluded that up to 6.6 billion barrels of oil (in-place best estimate) remain to be found in the offshore portion of Israel’s Levant Basin.  Zion’s Megiddo-Jezreel License area, though onshore, is entirely within the Levant Basin and is well positioned to encounter the key geologic ingredients of an active petroleum system.  Zion Oil & Gas explores for oil and gas onshore in Israel and its operations are focused on the Megiddo-Jezreel License (approximately 99,000 acres) south and west of the Sea of Galilee.  (Zion Oil 04.06)

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2.4  Mobidiag Extends Agreement with PerkinElmer to Offer Amplidiag Diagnostics in Israel

Mobidiag, a Finnish molecular diagnostics company, announced the expansion of its distribution agreement with PerkinElmer’s Wallac Oy subsidiary to include distribution of the Amplidiag product line in Israel (and several countries in Africa).  The Amplidiag product line, including in vitro diagnostic tests and compatible systems for the detection of gastrointestinal infections, is now distributed in Botswana, Ghana, Ivory Coast, Kenya, Mauritius, Morocco, Mozambique, Nigeria, Rwanda, Senegal, Uganda and Israel.

Amplidiag assays are innovative multiplex tests for the detection of gastrointestinal infections.  They allow screening of panels of the most relevant gastrointestinal pathogens.  Based on well-established real-time PCR technology, they ensure optimal performance, suitability for high-volume screening use and cost-effectiveness in mid-sized to large laboratory settings.  In addition, Mobidiag allows process automation from sample extraction to PCR set-up with the Amplidiag Easy system.  (Mobidiag 30.05)

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2.5  Partner Communications Announces Netflix Collaboration in Israel

Partner Communications Company, a leading Israeli communications operator announced a partnership with Netflix, the world’s leading internet entertainment network, to make Netflix’s services directly accessible through Partner’s new television service which is expected to launch in the coming weeks.  Partner will be the first telecommunications company in Israel to offer the Netflix service on its set-top box, enabling a best-in-class user experience for Netflix members with a fast load time for the application and all the conveniences of a Netflix button on Partner’s remote control.  Partner customers with Netflix memberships will be able to access instantly a broad selection of Netflix original and international TV series, movies and documentaries in high-definition or even Ultra HD 4K, always without any advertisement.  Partner and Netflix will announce additional details of the partnership later this summer.  (Partner 29.05)

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2.6  RedZone Acquired All the Assets of Trendit, Including 3 Technology Patents

Helios and Matheson Analytics and its subsidiary RedZone, creator of the RedZone Map real time crime and navigation app, announced that RedZone has acquired three U.S. patents from Israel-based technology company Trendit, among other assets.

RedZone plans to integrate the patented technology with the RedZone Map app, in order to enable the app to track and analyze real-time crowd behavior, migration and trends.  The patented technology predicts population behavior, along with population size, origin and destination, with an accuracy rate of 85-90%, and tracks demographic segmentation of a population using a population sample of 15%, together with anonymous cellular signals and demographic big data.

The technology collects data from regular cellphone activity, which it tracks and compares with extensive social/economic databases. RedZone believes the technology will enable it to accurately determine crowd size, social/economic status and where a crowd is moving. RedZone plans to use this patented, highly-sophisticated analytical technology to alert RedZone Map app users of potential threats to their personal safety and to inform law enforcement and government officials of the location and migration patterns of known criminal or terrorist individuals and groups.

Ra’anana’s Trendit engineered the technology from the ground up to accurately monitor populations in real time, identify anomaly events, alert for potential hazards and predict population overloads and emergency events.  The technology enables risk management for large events and allows for real-time mass management of crowds and populations.  RedZone plans to integrate the technology with its real-time crime database and apply the technology’s analytical power to understand and predict crime and terror events on a mass scale.  (HMA 05.06)

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2.7  National Australia Bank and OurCrowd – An Australian First Collaboration

The National Australia Bank (NAB), a top 30 global bank and Australia’s leading business bank, announced an innovative collaboration with Israeli company OurCrowd that will provide NAB clients with direct access to exclusive OurCrowd startup investments together with domestic and global networks and events.  The first of its kind in Australia, the collaboration provides direct access for NAB clients to one of the world’s largest equity crowdfunding platforms, which has raised over $440 million from over 20,000 investors across 112 countries for over 120 early stage companies.  OurCrowd entered the Australian market in 2014 and has positioned itself as a leading provider to the local market of global alternative investment opportunities.

Jerusalem’s is the leading global equity crowdfunding platform for accredited investors.  OurCrowd vets and selects opportunities, invests its own capital, and brings companies to its accredited membership of global investors.  OurCrowd provides post-investment support to its portfolio companies, assigns industry experts as mentors, and takes board seats.  (OurCrowd 05.06)

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2.8  Microsoft Signs Agreement to Acquire Hexadite

Microsoft Corp. has signed an agreement to acquire Hexadite, a company delivering agentless, automatic incident investigation and remediation solutions.  The terms of the agreement have not been disclosed.  Once closed, the acquisition will build on the successful work Microsoft is already doing to help commercial Windows 10 customers detect, investigate and respond to advanced attacks on their networks with Windows Defender Advanced Threat Protection (WDATP).  WDATP continues to prove its value in detecting high-profile security cases such as zero-day attacks, ransomware and other advanced cyber-threats.  Today, Microsoft is strengthening its Advanced Threat Protection offering by adding artificial intelligence-based automatic investigation and remediation capabilities, making response and remediation faster and more effective.  With Hexadite, WDATP will include endpoint security automated remediation, while continuing the incredible growth in activations of WDATP, which now protects almost 2 million devices.

Windows 10 is the most secure version of Windows ever, and with ongoing investments in the areas of automating detection and remediation, Windows 10 will continue to drive deployments with customers like the U.S. Department of Defense, Australian Department of Human Services, Kimberly-Clark, MARS Inc., Crystal Group and many others.

Hexadite headquarters are based in Boston, with its R&D center in Tel Aviv, Israel.  Following the close of the deal and after a period of integration, Hexadite will be fully absorbed into Microsoft as part of the Windows and Devices Group.  (Microsoft 08.06)

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2.9  Cognata Raises $5 Million

Cognata announced that it had raised by $5 million in a financing round led by Emerge, Maniv Mobility, and Airbus Ventures.  The Rehovot based company said that it had also launched its simulation engine.  The company will use the funding to accelerate product development and commercialization of its new solution, which combines artificial intelligence, deep learning, and computer vision in a simulation platform.  The platform enables autonomous vehicle developers to shave years off the long, costly process of road-testing autonomous vehicles.

Rehovot’s Cognata provides a realistic virtual automotive environment that simulates real-world test driving and generates fast, highly accurate results.  The simulation engine reproduces sensor input in high fidelity by emulating interactions with real-world materials.  Cognata can also recreate cities anywhere in the world, allowing a dramatically expanded range of testing scenarios beyond the current limited geographies, to the great benefit of any OEM and Tier-1 autonomous vehicle manufacturer.  (Various 08.06)

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2.10  PlaySight Raises $11 Million

PlaySight has raised $11 million in a financing round led by strategic investors Verizon Ventures, golfer Greg Norman and his business partner David Chessler.  The new funds will help the startup in its global SmartCourt expansion and roll-out of its cutting-edge technology into new sports verticals.  Previous investors have included tennis players Novak Djokovic and Billie Jean King as well as D5 Capital, Bill Ackman, Mark Ein, Dr. James Loehr, and Ray Benton.

PlaySight leverages both multi-angle video and proprietary analytics to improve on-field performance and connect the next generation of athletes.  The company has already achieved a dominant position in the tennis marketplace with its technology powering the leading federations, academies, clubs and over 40 NCAA tennis programs, as well as the USTA’s new National Campus and high performance facility in Lake Nona, Florida.  PlaySight is also working with top teams across several other sports including the 2015 NBA Champion Golden State Warriors.

PlaySight is bringing advanced sports video and analytics technology to every court in the world, creating a global and connected community of athletes, coaches and fans.  Technology has changed how sports are coached, played, and consumed at the elite levels, and they are focused on delivering the same cutting-edge experience to all levels of sport, all over the world.  They are becoming the new standard in sports with our cloud-based Smart Court sports video and analytics platform, integrating what happens on-court with an interactive and social online community.  The company is headquartered in New York with its development office in Kfar Saba.  (Globes 02.06)

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3.1  Nestlé Middle East Braces for Five-Fold Ramadan Related Business Increase

Nestlé Middle East is expecting demand for its food and beverage products to surge by more than five times over during Ramadan.  Nestlé said planning for Ramadan began a full year in advance, with plans for next year’s holy month already in place during the execution of the 2017 plans.  Nestlé Middle East works with Mohebi Logistics in the UAE, accounting for around 50% of all volumes at its new 90,000 pallet position distribution center in Dubai South.  The new factory will provide employment for 340 people from 20 countries.  Nestlé already operates two other factories in Dubai Investment Park, one for Nestlé Waters, and another – Nestlé Dubai Manufacturing – covering other products.  (AB 29.05)

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3.2  Kuwaiti Firm Snapped Up by Food Takeaway Giant “Delivery Hero”

Online food takeaway firm Delivery Hero has agreed to buy Kuwait-based food delivery platform Carriage as it seeks to strengthen its presence in the Arabian Gulf region.  Carriage operates a hybrid business model offering both delivery marketplaces and own delivery services in the Middle East, allowing it to add restaurants that either do not offer deliver services themselves or intend to discontinue their own delivery services.  This hybrid business model reflects a wider shift across several regions with a growing demand of customers and restaurants for such combined services.  The company was founded in Kuwait and has extended into several other markets in the region.  The parties have agreed not to disclose financial details of the transaction, the statement said.

Delivery Hero is the leading global online food ordering and delivery marketplace with number one market positions in terms of restaurants, active users, gross merchandise value or website traffic, in more countries than any of its competitors.  It also operates its own delivery service.  The company is headquartered in Berlin and has over 6,000 employees.  (AB 29.05)

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3.3  Signs of Saturation as UAE’s Retail Market Softens Further

Consumer confidence in the UAE remained uncertain in 2016 resulting in the Dubai retail market experiencing further softening in the first quarter of 2017.  Real estate consultancy Knight Frank said well-established malls with higher footfall in the UAE continue to maintain healthy occupancy rates but the delivery of additional retail supply is expected to put pressure on overall occupancy rates.  It added that UAE shopping malls are also expected to experience further competitive pressures from online rivals, as more consumers embrace e-shopping.  Nevertheless, Knight Frank’s long-term view remains optimistic as Dubai’s retail market is strongly supported by the hospitality sector.

Its report noted that the delivery of Dubai’s new theme park complexes along with the Opera District and other demand generators is expected to drive demand for the hospitality market, which will undoubtedly have a knock-on effect on the retail market.  Knight Frank said UAE retailers are now seeing modest single-digit growth in sales due to general macroeconomic conditions while there are signs of saturation as an additional 900,000 sq. m. of space will be delivered over the next couple of years.  The report said traditional retailers are facing competition from e-commerce leaders such as Amazon. E-commerce sales are expected to account for $1.5 billion of the Gulf’s high-end luxury segment within the next four years.  Knight Frank added that mall operators are more often offering promotions and price reductions to entice customers and maintain strong footfall to further enhance and build on the emirate’s strong position as a central shopping hub.  (AB 03.06)

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3.4  UAE’s Largest Used Car Showroom Set to Open

Al-Futtaim Automall, the largest retailer of pre-owned vehicles in the UAE, has announced it will open a new 12,000 sq. m. super sale site in Dubai in July.  Located at Dubai Festival City, the new site will accommodate more than 400 cars from popular brands including Nissan, Toyota, Honda, Hyundai, Kia, Dodge, Ford, Mitsubishi, Chevrolet and Jeep.  It added that leading luxury brands such as BMW, Mercedes, Lexus, Volvo, Infiniti, Jaguar, Land Rover and Porsche will also be represented.  Automall sells cars that are under five years old and that have driven no more than 75,000 km.  Each vehicle goes through a comprehensive 99-point check.

Al-Futtaim Automall was formed in 2001 to serve the needs of customers looking to buy or sell pre-owned vehicles and has seven showrooms throughout the UAE – three in Dubai, two in Sharjah and one each in Ajman and Ras Al Khaimah.  The company saw a 3% rise in demand for used cars between 2015 and 2016 and expectations are for a further 10% increase this year.  (AB 03.06)

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3.5  US Firm Wins Deal to Oversee Dubai’s District 7 Project

US-based Parsons has announced that it has been awarded a contract for the design and construction supervision at District 7 – an AED4 billion project being developed by MAG Property Development in Meydan City, Dubai.  District 7 is a mixed-use community within the Meydan Master Development, comprising 35 residential buildings, a clubhouse, a retail zone, office space, and public green areas.  The architecture and buildings scope includes residential buildings, townhouses, large villas, a sales center, and several utility buildings.  In addition to the concept and detailed design of all of the buildings, Parsons said in a statement that it will also complete the master planning, infrastructure, and landscape architecture for the entire site.

Parsons has been working in the Middle East Africa region for more than 60 years and has offices in the UAE, Qatar, Saudi Arabia, Oman and Bahrain.  Parsons’ portfolio of ongoing work in the region includes buildings, residential communities, mixed-use developments, airports, highways, bridges, rail and transit, ports, water infrastructure, and oil and gas projects.  (AB 29.05)

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3.6  US Approves $1.4 Billion Massive Saudi Arms Deal

The United States approved two large military contracts totaling more than $1.4 billion on 5 June after promising Saudi Arabia a huge arms package to counter any threat from Iran.  Last month, on his first foreign trip, US President Trump visited the Saudi kingdom and promised its leaders access to $110 billion in weapons and training.  Officials say just under a third of that total was accounted for by contracts approved by the previous Obama administration, with several more in the pipeline.  Shortly after the deal was signed, the US State Department allowed the Saudi navy to buy a $250 million training package from Kratos Defense and Security Solutions of San Diego.  On 5 June, the Saudis got the approval for a $750 million contract to train their air force, working with a variety of US contracted firms.  In addition, the kingdom will spend $662 million on 26 AN/TPQ-53(V) truck-mounted medium-range radar systems, which can pinpoint enemy mortar and missile batteries.  (AFP 06.06)

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3.7  Saudi Aramco-Hyundai in $5.2 Billion Shipyard Deal

Saudi Aramco is to build the region’s biggest shipyard in a $5.2 billion joint venture with South Korea’s Hyundai Heavy Industries and others.  The yard, to be constructed on the kingdom’s Gulf coast, will have the capacity to produce four offshore rigs and 40 vessels, including three supertankers.  Lamprell, a United Arab Emirates-based provider of services to the energy industry, and Bahri, the National Shipping Company of Saudi Arabia, have also signed on to the venture.  Located in the new industrial port city of Ras Al Khair, the yard will also provide maintenance services for rigs and vessels.

Lamprell said the yard will cost an estimated $5.2 billion to build, of which roughly $3.5 billion will come from the Saudi government.  The rest will be funded by the joint venture.  It said the deal was conditional on approval by its shareholders.

Saudi Arabia has launched a program to diversify its industrial base after its revenues were badly hit by a 50% fall in world oil prices since 2014.  Around 5% of Saudi Aramco is to be floated on the stock market next year to help form the world’s largest state investment fund.  (AFP 31.05)

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3.8  NCR Brings SelfServ 80 Series ATMs to Turkey

NCR Corporation introduced its NCR SelfServ 80 Series to banks and financial institutions in Turkey.  According to Retail Banking Research, NCR is the leading ATM manufacturer in Turkey with a 56% market share.  With Turkey being one of the early adopters of multi-functional ATMs and video banking, NCR will build on this position with the new ATM family by helping financial institutions redefine the banking experience and changing the way consumers interact with the ATM forever.  The modern design comes with fully customizable, color-coded media entry and exit indicators.  Additionally, a unique 10-cassette cash dispense capability lowers cash replenishment costs.  Paired with NCR’s CxBanking software suite, the NCR SelfServ 80 series unlocks amazing customer experiences across physical and digital banking channels.

NCR Corporation is a leader in omni-channel solutions, turning everyday interactions with businesses into exceptional experiences.  With its software, hardware, and portfolio of services, NCR enables nearly 700 million transactions daily across retail, financial, travel, hospitality, telecom and technology, and small business.  NCR is headquartered in Duluth, Ga., with over 30,000 employees and does business in 180 countries.  (NCR 31.05)

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4.1  Canadian Firm Wins Supply Deal for Dubai’s Giant Solar Park

Canadian Solar, one of the world’s largest solar power companies, has announced it has been selected as the sole module supplier to provide 268 MW of double-glass Dymond modules for the first phase of the 800MW Mohammed bin Rashid Al Maktoum Solar Park in Dubai.  When completed in 2020, the three-phase project will be one of the world’s largest single-location solar parks.  The first phase of the DEWA project will use more than 800,000 double-glass modules upon its completion.  The production and delivery of the modules started this June.

The Mohammed bin Rashid Al Maktoum Solar Park is part of the Dubai Integrated Energy Strategy 2030, which seeks to secure a sustainable supply of energy through diversification in sources.  Dubai aims to reduce its reliance on imported natural gas and increase solar energy to 7% of the total by 2010 and 15% by 2030.  (AB 02.06)

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4.2  Dubai Receives Bids for Fourth Phase of Giant Solar Park

Dubai Electricity and Water Authority (DEWA) has received the lowest international bid of 9.45 US cents per kilowatt hour (kW/h) for the fourth phase of the Mohammed bin Rashid Al Maktoum Solar Park.  Four bids for the 200MW plant were opened at DEWA’s head office.  DEWA said the fourth phase of the giant solar park will be operational by April 2021, with other solar projects eventually generating a total of 1,000MW in Dubai by 2030.  The park will support the Dubai Clean Energy Strategy 2050 which aims to provide 7% of Dubai’s total power output from clean energy by 2020, 25% by 2030, and 75% by 2050.  The 13 MW photovoltaic first phase of the solar park became operational in 2013 while the 200 MW photovoltaic second phase was launched in March.  The 800 MW third phase will be operational by 2020.  (AB 05.06)

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5.1  Lebanon’s Trade Deficit Marginally Widened 0.63% Over First Four Months of 2017

Lebanon’s trade deficit stood at $5.39B in the first four months of the year, widening from the $5.36B recorded in the same period last year.  Total imports grew by 2.11% year-on-year (y-o-y) to $6.36B, while exports rose only by 11.23% y-o-y to $967.66M.  The top products imported to Lebanon were Mineral products with a share of 21.96%, followed by 10.85% for products of the Chemical and allied industries and 9.5% for Machinery and electrical instruments.  The value of imported Mineral products fell from $1.56B to $1.39B by April 2017.  However, the value of products of the Chemical and allied Industries rose by an annual 1.36% to $690.6M.  The value of products of Machinery and electrical Instruments also increased by 3.8% y-o-y to $604.61M over the same period.  Lebanon’s top three import destinations in April 2017 were China, Greece and Italy with shares of 9.0%, 8.1%, and 7.5%, respectively.  As for exports, the top products exported from Lebanon were Pearls, precious stones and metals with a stake of 23.25% of the total, followed by Prepared foodstuffs, beverages and tobacco grasping a share of 16.08% of total exports, and Machinery and electrical instruments with a share of 11.19% of the total.

In details, the value of Pearls, precious stones &metals rose from $149.84M by April 2016 to $225.02M by Apr. 2017 driven by 42.8% higher volumes and average gold prices that increased from $1,196.72 by April 2016 to $1,231.16 by April 2017.  Prepared foodstuffs, beverages and tobacco also recorded an incremental uptick of 0.53% y-o-y to reach $155.58M in the same period.  However, the value of Machinery and electrical instruments decreased by 9.48% y-o-y to $108.26M in the first four months of 2017.  The top three export destinations in April 2017 were: South Africa with 13%, followed by Syria with a 10% stake, and the UAE with a 9% share of exported goods.  In April 2017, the deficit narrowed by 14.39% y-o-y, to stand at $1.17B, as exports marginally fell by 0.13% to $235.37M and Imports declined by 12.3% to $1.41M.  (CAS 31.05)

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5.2  Jordan Drops 3 Spots on World Competitiveness Index

Jordan dropped 3 points in the International Institute for Management Development (IMD)’s 2017 World Competitiveness Ranking, from last year’s 53rd place.  In the overall, compared to Jordan’s first competitive ranking, the Kingdom has dropped 8 spots in only a few years.  Among Arab countries, Jordan ranked last.

Worldwide, Jordan’s rank is among the lowest 10, out of 63 countries surveyed in the report.  Meanwhile, UAE and Qatar came in 10th and 13th, respectively.  Hong Kong, Switzerland and Singapore achieved the three highest scores, followed by the US in fourth place, according to the IMD report, which has been issued since 1997.  Scores are based on a country’s economic achievements, infrastructure, and government and corporate efficiency.  (AlGhad 05.06)

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5.3  Jordan’s Trade Balance Deficit Stands at 4% in First Quarter

Jordan’s trade balance deficit in the first quarter of 2017 stood at 4%, thanks to the increase in national exports by 4.5% and the drop of imports by 0.4%, the Department of Statistics (DoS).  National exports in the first three months totaled JD998 million, marking a 4.5% rise compared to the same period last year, said the DoS.  The value of re-exported items in the January-March period stood at JD240 million, up by 16% compared to the same period last year.  DoS data showed that the Kingdom’s imports in 2017’s first quarter dropped by 0.4% to JD3.440 billion, compared with JD3.460 billion registered in the same period of 2016.  The value of total exports (national and re-exported) in the first three months of the year went up by 6.7% to JD1.240 billion.  (JT 06.06)

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5.4  Jordan’s Finance Ministry Reports Stable Public Debt & Decreasing Expenditures

Jordan’s public debt ratio to GDP stabilized in the first quarter of the year, compared with 2016 end-of-year data, while public expenditures dropped in the same period, Finance Ministry figures showed.  The public debt totaled JD26.5 billion at the end of March, constituting 95.1% of GDP, while at the end of December 2016, the figure was JD26.1 billion, and the public debt to GDP ratio 95.1%.  Meanwhile, the government spending in Q1/17 decreased by JD12 million to stand at JD1.755 billion, or by 0.7% compared with Q1/16 when public spending stood at JD1.767 billion.  The ministry reported that local revenues increased in the first quarter of this year by JD51 million, reaching JD1.513 billion while foreign grants received to support the state budget dropped to JD50 million in the first quarter of 2017 compared with JD130 million in the first quarter of last year.

Sales tax revenues showed an increase from JD689 million to JD706 million while non-tax revenues increased from JD420 million to JD494 million in the same comparison period.  Moreover, income tax revenues decreased to JD208 million in the first quarter of this year compared with JD247 million in the same period last year, Petra reported, noting that income tax revenues reflect the economic activity of the year before.  Financial performance led to reducing the deficit in the state budget before the grants in this year’s first quarter to JD242 million compared with JD305 million in the first quarter of 2016.  Deficit after grants stood at JD192 million compared with JD174 million in the same comparison period.  (JT 29.05)

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5.5  Jordanian Unemployment Surges to 18.2% in First Quarter

Unemployment soared to 18.2% during the first quarter of 2017, rising by 3.6 points compared with the same period in 2016, the Department of Statistics (DoS) said on 29 May.  The agency said that the new figure is the result of a new mechanism and methodology used to measure joblessness in the country, heeding recommendations by the International Labor Organisation.  The DoS figures were based on a survey involving a sample of 16,000 families across Jordan.  By the end of March this year, unemployment among males stood at 13.9%, according to the report, while 33% of women surveyed were unemployed.  In the fourth quarter last year, the joblessness rate was 15.8% according to DoS.  (DoS 29.05)

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5.6  ILO Report on Jordan Highlights 1.2 Million Foreign Laborers

The International Labor Organisation (ILO) released a report on Jordan’s labor components, focusing on the three main elements of the Kingdom’s labor market: national labor, imported labor, Syrian refugees.  The report explores employment aspects in five sectors; agriculture, construction, the house maids sector, industrial sectors, and tourism.  The purpose of the study is to address issues and prospects of energizing the domestic labor market, national employment, Syrian refugee labor integration and implementation of decent working conditions for all laborers.

Meanwhile, official reports have cited 1.2 million foreign and imported laborers working in Jordan.  Amman has repeatedly said that there are currently no more than 45,000 Syrians working with permits, unofficial estimates stand at 160,000.  More so, the report will announce findings and outcomes during the ceremony which will be held in Amman, as part of a global labor integration solutions framework project for the year 2018.  Notably, the organization’s study is funded by the Swiss Agency for Development and Cooperation, which focuses on issues of mixed refuge and jobs in Jordan.  (AlGhad 29.05)

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5.7  Jordanian Expatriate Remittances Reach $1.68 Billion in 1st 4 Months of 2017

Remittances of Jordanian expatriates rose by 2.4% at the end of April, 2017 standing at $1.168 billion (JD 820 million) compared to $1.114 billion in the same period of 2016.  Expat remittance is one of the major sources of foreign exchange along with tourism income as well as grants and foreign loans.  (Petra 31.05)

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5.8  Jordan’s Annual Electricity Usage Did Not Increase in 2016 for First Time in History

Jordan’s national grid did not record an increase in daytime electricity load “for the first time in the country’s history”, compared to an annual estimated increase of 5 to 6%, according to the Production Planning Director of the National Electric Power Company.  Citing the use of renewable energy as the main reason for the stable rate, several renewable energy projects — including mosques, schools, factories, hospitals and shopping centers — have contributed to limiting the annual growth rates of daytime electricity loads, while nighttime loads registered a growth rate of 4%.  The average annual growth rate for electricity loads in the Kingdom stand between 5 and 6%.

The electricity system tends to record a decrease in loads during Ramadan because of shortened working hours.  The electricity generation capacity in the Kingdom amounts to around 4,000 MW, including the energy generated from renewable energy projects.  On 1 February this year, the highest electricity load at night stood at 3,220 MW and the maximum daytime load reached 3,020 MW.  In other months, the maximum load usually does not exceed 2,700MW, except for July and August, when air conditioning units are used extensively.  (JT 13.06)

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5.9 IMF Reaches Staff-Level Agreement on Second Review of Stand-By Arrangement in Iraq

The Iraqi authorities and an International Monetary Fund (IMF) team reached a staff-level agreement on the second review of the Stand-By Arrangement (SBA) that was approved by the IMF Executive Board on 7 July 2016.  The SBA aims to restore fiscal and external balance and to improve public financial management while protecting social spending. Iraq completed the first review under the SBA on 5 December 2016 and received a disbursement of SDR 0.46 billion ($0.6 billion).  Completion of the second review will release a further disbursement of SDR 0.6 billion ($0.8 billion).

The Iraqi authorities and the IMF team have reached agreement on a supplementary budget for 2017, objectives for the 2018 budget, and strengthened procedures to keep expenditure under control.  Both the supplementary 2017 budget and the 2018 budget will keep the fiscal consolidation, necessitated by the fall in oil prices, on track, while protecting social spending.  Once agreed prior actions have been implemented, the IMF Board could consider the second review of the SBA in August.  (IMF 05.06)

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►►Arabian Gulf

5.10  Average Arabian Gulf Government Deficit Exceeds 11% of GDP Amid Oil Price Fall

Arabian Gulf governments collectively registered a budget deficit of more than 11% of gross domestic product (GDP) in 2016 due to low oil prices, according to PwC.  Its latest Middle East research note said Oman was hardest hit with a deficit exceeding 20% of GDP last year while Kuwait coped best with the oil price slump, resulting in a deficit of 3.6% of GDP.  According to PwC economists, 2016 was probably the low point for oil exporters including most of the Gulf countries.  They added in the report that economic prospects in 2017 should improve, helped by stronger oil prices over the year.

PwC also said fiscal reforms in the Gulf region are hard to do and even harder to sustain – energy subsidies were cut across the board (resulting in a GCC average of 2.8% inflation).  It added that while this environment creates challenges for business, such as managing new taxes, the report identified a growing number of opportunities, particularly as the major Gulf economies look for alternative sources of financing.  This includes the debt markets and privatization initiatives.  PwC said foreign investors will want to see that governments have credible and committed plans to control the public finances. Introduction of VAT and excise tax in the GCC is an early opportunity for GCC governments to signal to international investors their commitment to fiscal reforms.  (PwC 03.06)

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5.11  UAE Lays Out Plan to Become Major Global Pharmaceutical Hub

The UAE has unveiled plans to establish itself as a global hub for international pharmaceutical companies, with the number of manufacturing factories set to double by 2021.  The UAE Ministry of Health and Prevention and Jafza, a DP World company, have signed a memorandum of understanding for the development of the healthcare and pharmaceutical sector in the country.  Under the agreement, the UAE aims to attract more than 75 major pharmaceutical firms by 2021 up from the current 54 today, with investments of up to AED2 billion annually.  The number of drugs manufacturing factories is expected to grow from 17 to 34 in the same period.

The agreement is part of Jafza’s efforts to enhance the healthcare sector by providing the environment for companies to grow and establish Made in Dubai pharmaceutical products.  It added that Jafza will develop details for the licensing of pharmaceutical factories within the Free Zone and help them promote public health.  Both organizations said they will exchange knowledge and remove any barriers to the development of the pharmaceutical sector in the Free Zone. They will also review the process of obtaining approvals and permits from the Ministry, enabling Jafza to attract more foreign investment in the sector.

In 2016, the market value of drugs in the UAE amounted to AED9.61 billion.  By 2020, spending on medicine is expected to reach AED13.13 billion and by 2025 AED21.74 billion, driven by population growth, changing morbidity and the use of modern medicines such as biotechnology drugs, the statement said.  Multinational companies in the healthcare and pharmaceutical sector are currently based in Jafza, such as Johnson & Johnson, Colgate, Roche, Sanofi, GlaxoSmithKline and Quest Vitamins.  (AB 09.06)

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5.12  UAE’s Mobile Phone Penetration Rises to 228%

Mobile phone usage in the UAE increased to 228.3 phones per 100 people in the first quarter of 2017, according to statistics issued by the Telecommunications Regulatory Authority (TRA).  There was also an increase of more than 132,000 new subscriptions in March compared to February.  This led to a jump in the total number of subscriptions to 19.8 million.  The authority’s statistics highlighted that the largest increase in subscriptions was in prepaid mobile phone services, which gained around 104,000 in March, while contract services increased by 28,000 during the same period.  The UAE is ranked first in the Arab region in terms of the readiness of its telecommunications networks, according to a study published by the World Economic Forum and 26th globally.  (AB 29.05)

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5.13  Dubai Medical Tourism Receipts Rise to $390 Million

Medical tourism in Dubai yielded revenues of around AED1.42 billion ($390 million) in 2016, up marginally from AED1.40 billion in the previous year, according to new figures.  Dubai Health Authority (DHA) said that the number of incoming wellness tourist arrivals amounted to 326,640 in 2016, a 9.5% growth over the previous year.  Ages of wellness tourists who visited medical facilities in Dubai from outside the country ranged from 25 to 45 years; the medical specialties that were in heavy demand were orthopedics, dermatology and ophthalmology.  Dubai aims to attract more than 500,000 medical tourists by 2020.  (AB 09.06)

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5.14  Dubai Regulator Lowers FinTech Regulations with New License

The Dubai Financial Services Authority (DFSA) is lowering the barriers for FinTech firms with a new license to foster and encourage innovation in financial technologies in Dubai.  Dubai’s financial regulator is making it easier for FinTech startups and firms to gain entry and offer new services in the region through the introduction of its Innovation Testing License (ITL).  CCN reported on the regulator’s plans to bestow the license to FinTech companies and startups in early March upon unveiling a roadmap of a consultation paper.  The regulator revealed its intention not to regulate unless needed, claiming it would be “flexible, responsive, innovative and adaptable” with FinTech firms.  Qualifying firms will be able to benefit from the license by developing and testing new services and concepts within the Dubai International Financial Center (DIFC), a sprawling 110-hectare free-zone district that allows companies to hold 100% ownership of their base without the need for a local partner.

The DFSA revealed that firms will be able to use the ‘restricted’ financial services license for testing innovative products or services between a six to 12-month period.  The regulator will consider extending that period for ‘exceptional cases’.  The authority’s FinTech-forward agenda is markedly inclined with the wider technology remit adopted by Sheikh Mohammed Bin Rashid Al Maktoum – Ruler, Prime Minister and Vice President of the United Arab Emirates.  (DFSA 26.05)

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5.15  Saudi Arabia to Start Collecting Expat Levy Next Month

Starting next month, Saudi Arabia will be collecting a new tax from expatriates and their dependents, a move that is seen to boost the country’s revenues amid weak oil prices.  The new fee, to be implemented from 1 July, will be 100 Saudi riyals (Dh97.93) per dependent per month.  The amount is expected to increase gradually every year until 2020. By next year, the figure will double to 200 Saudi riyals and increase to SAR300 in 2019 and SAR400 in 2020.  According to a briefing paper prepared earlier by PWC, reforms such as the levy on foreign workers may help augment government revenues, but they can increase the cost of doing business in the kingdom.

Companies in Saudi Arabia currently spend 200 Saudi riyals per month to cover the levy for every non-Saudi employee.  This applies to organizations where foreigners exceed the number of local workers.  Starting next year, the fee will be increased gradually until 2020.  For foreign workers not exceeding the number of Saudi staff, the fee will no longer be waived, but will be imposed at a discounted rate.  However, proposals to collect income and remittance taxes have yet to be decided on.  (GN 11.06)

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►►North Africa

5.16  Egypt’s Core Inflation Eases Slightly to 30.57% in May

Egypt’s core inflation declined to 30.57% year-on-year in May from 32.06% in April and 32.25% in March, the Central Bank of Egypt announced on 8 June.  On a monthly basis, core inflation increased to 1.99% from 1.10% recorded in April.  The core consumer price index that the CBE uses to measure price levels — which excludes essential commodities such as fruit and vegetables — started to hit double digits in May last year, when it reached a then-seven-year-high of 12.2%.

Egypt’s annual headline inflation rate, the annual urban price inflation, eased to 30.9% this May, down from 32.9% in April and up from 12.2% in May 2016, state statistics body CAPMAS announced earlier on 8 June.  Egypt’s inflation rate has been rising since the central bank floated the exchange rate last November, as part of a set of reforms aiming to revive the country’s flagging economy.  (CBE 08.06)

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5.17  Egypt Receives $125 Million from World Bank for Upper Egypt Development Program

Egypt received $125 million from the World Bank allocated to support the Upper Egypt Development Program.  The money is the first tranche of a World Bank fund worth $500 million, according to the ministry’s official website, to be pumped into growing investment and industrial development in the governorates of Sohag and Qena.  The World Bank loan will focus on the competitive advantage of each of [those governorates] to attract more local and foreign companies to invest.  Egypt and the World Bank launched the Upper Egypt Local Development Program in March.  The $500 million loan is intended to help create jobs in Upper Egypt by enhancing the business climate and improving infrastructure and the delivery of services.

Sohag and Qena were chosen based on population size, poverty rates, geographic location, and economic potential to achieve equality in the allocation of resources and raise the living standards for residents of those governorates.  The program aims to raise economic growth rates, create sustainable job opportunities by improving the business environment, and build the infrastructure required for growth in productive sectors and developing industries such as food.  The fund also aims to develop industrial fields in the economic zones of Upper Egypt, and expand basic service provision including water, sanitation, roads and gas.

Egypt is also set to receive in December the third and final $1 billion tranche of a $3 billion loan from the World Bank.  In late March, the World Bank announced that it had handed over the second $1 billion tranche to Egypt, with the funds intended to help with fiscal consolidation, ensuring Egypt’s energy supply and enhancing competitiveness in the private sector.  Egypt received the first tranche of the loan in September, 2016.  (Ahram Online 12.06)

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5.18  Egypt’s Cabinet Approves Raising Minimum Income Tax Threshold to LE 7,200

Egypt’s cabinet approved raising the minimum income tax threshold to EGP 7,200 ($398) a year from EGP 6,500, Deputy Finance Minister for fiscal policies, Amr Al-Munir told a news conference.  The decision has yet to be approved by parliament.  The Finance Minister Amr El Garhy said that the government has decided on a social security package for EGP 43 billion for 2017/18 beginning in July, including a 15% rise for pensioners and a 14-20% rise in salaries.  (Reuters 29.05)

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5.19  Egypt’s Tourist Visitors Increase 49% Year-On-Year in March

The number of tourists visiting Egypt during March 2017 increased by almost 49% compared to the same month last year, recording 654,900 tourists compared to 440,700 tourists in March 2016, CAPMAS announced on 29 May.  CAPMAS announced that the biggest increase was in visitors from Western Europe, rising by 31%, while Middle Eastern visitors came in second at 24.6%, followed by Eastern Europeans at 21.6%.  The number of tourist arrivals from Arab countries reached 197,900 during March 2017, compared to 151,200 last year, an increase of 30.9%.

Germany topped the list of countries sending tourists, increasing by 43.9%, while in the Middle East, Saudi Arabia was on top, rising by 37. 6%.

During the first quarter of 2017, from January to March, the number of tourists visiting Egypt rose by 51%, compared to the same period last year, an official source at the tourism ministry told Ahram Online in late April.  In early May, the tourism ministry said that Egypt saw $1.6 billion in tourism revenues from around 1.7 million tourists who visited the country in the first three months of 2017, compared to around 1.2 million tourists in same period last year.  The country’s tourism receipts recorded around $1.5 billion in revenues from January to March last year.

Egypt’s tourism industry has been suffering since a Russian passenger jet crashed in Sinai in October 2015, killing all 224 people on board, most of them holidaymakers.  Since the deadly incident, Russia, which was the number-one source of tourists visiting Egypt, suspended flights to the country pending the implementation of tighter security measures at all Egyptian airports.  Egypt’s revenues from tourism dropped to $3.4 billion in 2016, a 44.3% decline from the previous year, the Central Bank of Egypt said in January.  The figure is a far cry from the $11 billion in revenues generated by the sector in 2010, when 14.7 million tourists visited the country.  (Ahram Online 23.05)

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5.20  Sisi & Vasquez Discuss Trade During First-Ever Visit to Egypt by Uruguayan President

Egyptian President Abdel-Fattah El-Sisi held talks with Uruguay’s President Tabare Vazquez in Cairo recently, where they discussed boosting ties and trade between the two countries.  Vazquez’s visit to the Egyptian capital is the first by a Uruguayan president since the start of diplomatic relations between the two countries in 1932.  The two leaders said they aim to bolster trade between the two countries, with a focus on food and agricultural products.

El-Sisi and Vasquez said that a free trade agreement signed by Egypt with the South American trade bloc Mercosur in 2010, which should come into effect “soon,” will “bolster economic ties” and “promote trade exchange” between the Egypt and the bloc’s member countries.  Earlier this month, Argentina’s parliament ratified the agreement, completing the endorsement of the four Mercosur countries; Uruguay, Brazil, Argentina and Paraguay.  Trade between Mercosur bloc members and Egypt amounted to $3 billion in 2016.  El-Sisi and Vasquez also discussed international efforts to resolve regional challenges as well as Egypt’s anti-terrorism efforts.  Vazquez has invited El-Sisi to visit his country.  (Ahram Online 31.05)

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5.21  Expat Exodus Slows Libya’s Oil Recovery

Oil industry analysts are predicting that Libya’s ability to pump more oil will be limited by the availability of foreign staff, who are reluctant to work in Libya due to the security situation.  While production has more than doubled to over 800,000 bpd in the past year, consultants say that without bringing in foreign expertise to carry out deeper maintenance, there is only so much local teams can do.  At the same time, the decaying infrastructure and a fragile peace are additional downside risks to Libyan production.  Many feel that it would be a considerable achievement to push output above 1 million bpd on a sustainable basis, as the security and political situation still is extremely fragile.  (Bloomberg 06.06)

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5.22  Tunisian Public Health Sector Struggles to Heal Itself

Developing the health sector has been a key priority for Tunisian governments since the country gained independence from France in 1956.  Today, the North African country’s 11 million people are served by some 166 hospitals and 2,100 health centers, according to official figures.  But public health services have deteriorated since the 1990s and are failing to meet modern demand, according to a report last year by the health section of the powerful UGTT union.  The sector suffers from corruption, regional inequalities in access to advanced equipment and “medical deserts” — entire regions suffering a scarcity of healthcare professionals.  The UGTT study said Tunisia risked backtracking on the advances it has made since independence from France in 1956.

Tunisia’s public services were saturated with staff following massive recruitment into menial and administrative jobs after the 2011 revolution.  Yet hospitals also lack qualified medical staff — across the country, the sector has a shortfall of almost 14,000 staff.  Hospitals are also burdened with some $207 million of debt.  In response, local health authorities also point out that general life expectancy in Tunisia has risen from 66 to 73 in just a decade, a sign the health service is doing its job.  Private clinics have mushroomed to serve wealthy clients and an influx of Libyan patients.  But because of their cost, most are out of reach for many Tunisians, who are forced to rely on public health services.  (AFP 29.05)

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5.23  ECOWAS Gives Agreement in Principle to Morocco’s Joining Organization

The Economic Community of West African States (ECOWAS) Conference in Monrovia has given its agreement in principle to Morocco’s request to join the regional grouping.  It also decided to invite King Mohammed VI to the next ordinary session of ECOWAS, the final communiqué sanctioning the work of the 51st Ordinary Summit of the ECOWAS Heads of State and Government.  The leaders of West Africa have thus “agreed in principle for the accession of the Kingdom of Morocco to ECOWAS, given the strong and multidimensional ties of cooperation” that link Morocco to the States of this sub-regional organization.  The summit instructed the ECOWAS Commission to examine the implications of such accession in accordance with the provisions of the revised ECOWAS Treaty and submit the results to its next session.  (MWN 07.06)

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6.1  Turkey’s Annual Inflation Eases To 11.7% In May, Edging Back from 8 Year High

Turkey’s annual consumer price inflation stood at 11.72% in May, easing off from the 8-year high that it hit a month earlier at 11.87%, official data showed on 5 June.  The annual rate is still far from the Central Bank’s 5% target.  Consumer prices rose 0.45% in May from the previous month, data from the Turkish Statistics Institute (TUIK) showed.  The highest monthly increase was 5.9% in clothing and footwear, according to TUIK data.  The highest annual increase was 21.7% in alcoholic beverages and tobacco.  Food and non-alcoholic beverages followed it with 16.9% and transportation with 15.8%.  Producer prices rose 15.26% year-on-year in May, and were up 0.52% month-on-month, the data showed.  (TUIK 05.06)

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6.2  Turkey’s April Trade Deficit Widens to Around $5 Billion

Turkey’s foreign trade deficit rose to 4.95 billion in April with a 16.7% year-on-year increase.  While the country’s imports surged 9.9% year-on-year to $17.7 billion, exports rose 7.4% to $12.8 billion, according to data from the Turkish Statistics Institute (TUIK).  In April, exports coverage imports was 72.2% while it was 73.8% in April 2016.  In the first four months, the deficit was $17.5 billion, with a 7.1% increase compared to the same period in 2016.  Compared to the same month of the previous year, exports to the EU-28 increased 2.2% in April, rising from $5.65 billion to $5.77 billion.  The proportion of EU countries, however, declined to 45% in April from 47.3% in the same month of 2016.

Germany again became Turkey’s largest export market (with $1.1 billion in April), followed by the United Arab Emirates ($1.02 billion), Iraq ($857 million) and the United Kingdom ($737 million).  Most imports came from China (with $1.64 billion), then Germany ($1.62 billion), Russia ($1.4 billion) and the U.S. ($980 million).  The ratio of high-technology products in manufacturing sector’s exports was 3.1% in April.  The ratio of medium-high-technology products in manufacturing industries’ products was announced at 33.6%.  The ratio of high-technology products in manufacturing industries’ imports was 15.1% in April, while the ratio of medium-high-technology products in manufacturing industries’ products was 42.8%, according to TUIK data.  (TUIK 31.05)

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6.3  Turkey’s May Trade Deficit Surges Nearly 50% as Gold Imports Skyrocket

Turkey’s foreign trade deficit soared 49.5% in May due to a sharp increase in gold imports despite robust car exports, preliminary data from the Customs and Trade Ministry showed on 2 June.  The trade deficit rose to $7.65 billion in May, according to the ministry’s data.  Exports rose 9.5% to $13.22 billion and imports climbed 21.4% to $20.88 billion.  Turkey’s trade gap rose to $25.2 billion in the first five months of the year with a 17.2% year-on-year increase.  While the exports rose to $63.9 billion with an 8.9% increase in the mentioned period, its imports saw $89 billion with an 11.1% year-on-year increase.

According to analysts, a dramatic rise in gold imports in May just ahead of the country’s hot wedding season played a key role in opening the trade gap.  People also flocked to gold as a “safe haven” amid several uncertainties, they added.

Gold imports to Turkey rose to 48 tons in May, up from 23.9 tons in April, and marking the highest monthly imports since August 2008, data from the Istanbul bourse also showed on 31 May.  According to the ministry data, while Turkey made $1.4 billion worth precious metal exports in May 2016, it imported $2.23 billion in imports in this area this May.  The sector thus became the second largest importer in May 2017.  Turkey’s precious metal exports, however, regressed to $991 million in May with a 30% year-on-year decrease.

The automotive sector continued to be the largest exporter in Turkey, with the sector accounting for more than 40% of the $5.2 billion increase in exports in the first five months of 2017.  Meanwhile, Turkey’s top importing sector continued to be the energy sector in May at around $2.9 billion, a 36% year-on-year increase.  (Various 02.06)

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6.4  Turkey’s Economy Grows 5% in First Quarter of 2017, Exceeding Forecasts

Turkey’s gross domestic product (GDP) growth rate increased by five% in the first quarter of 2017 compared to figures in the same period last year, data from the Turkish Statistical Institute (TUIK) showed on 12 June.  The growth forecast for the country was 4%.  A rebound in domestic demand and exports played a key role in pushing up the economic growth, according to TUIK.   Calendar adjusted gross domestic product increased by 4.7% while seasonally and calendar adjusted gross domestic product was increased by 1.4% compared with the previous quarter.

Exports of goods and services increased by 10.6%, while imports of goods and services increased by 0.8% in the first quarter of 2017.  The lira has lost over 20% against the dollar over the last year, although it has rallied slightly in recent months. Imports however increased only 0.8%.  Household final consumption expenditure increased by 5.1%, government final consumption expenditure increased by 9.4% and gross fixed capital formation increased by 2.2%.

Gross domestic product with production method increased by 14.3%, reaching TL641.58 billion at current prices.  The total value added increased by 3.2% in the agricultural sector, 5.3% in the industry sector, 3.7% in the construction sector and 5.2% in the services sector (wholesale and retail trade, transport, storage, accommodation and food service activities) compared to the same quarter of 2016 in the linked volume index.  (TUIK 12.06)

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6.5  Turkish Construction Companies Set to Halt Work to Protest Sharp Increases in Iron Prices

A total of 120,000 Turkish construction companies are set to halt activities on 9 June to protest a skyrocketing rise in iron prices and a visible undersupply in the material.   The protests are expected to last one month, according to sector representatives.

In response to the sector’s demand to decrease iron prices, Turkish authorities said earlier in May that there was no problem with iron production in the country, adding that they would take measures to ease the price increases.  A leading sector player said the country overcame a tough three years which were full of a series of elections and that the sector was waiting for a revival in activities, only to be thwarted by the iron shortage.

The head of the Construction Contractors Confederation (IMKON) and of the Construction Sector Assembly of Turkey’s leading business organization, TOBB, said a total of 120,000 companies from five federations had decided to halt activities in a bid to call for an urgent action to resolve the iron problem.  Noting that it did not make sense for Turkey to face an iron shortage and a significant rise in iron prices given that the country is one of the world’s top five iron producers.  Over the last four months, the cost of a kilogram of iron rose to TL 2,100 – 2,250 from TL 1,600.  The head of the Steel Producers Association of Turkey said in response that iron costs no more than TL 1,900 per kilo.  (HDN 29.05)

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7.1  Hebrew University Among Best Universities in the World

According to the new 2018 QS World University Rankings, the Hebrew University of Jerusalem is Israel’s leading school and ranks 145th in the world, rising three spots from last year.  The rankings place the Hebrew University among the top 15% of the 980 higher education institutions surveyed by QS and among the top 1% of the 26,000 universities in the world.  To compile the rankings, QS analyzed 75 million citations from 12 million papers and 115,000 survey responses from employers and academics, as well as considered more than 4,000 universities before evaluating 980 of them.  The leading Israeli institutions were ranked as follows:

145                   The Hebrew University of Jerusalem

205                   Tel Aviv University

224                   Technion – Israel Institute of Technology

352                   Ben Gurion University of the Negev

551-600          Bar-Ilan University

601-650          University of Haifa (Various 09.06)

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7.2  Vanuatu Recognizes Jerusalem as Israel’s Capital

The small Pacific island nation of Vanuatu has recognized Jerusalem as the capital of Israel, Israel Hayom has learned exclusively.  The decision follows the United Nations Educational, Scientific and Cultural Organization’s passing of a pro-Palestinian resolution in October 2016 that denied Jewish ties to the Temple Mount.  That resolution led to a harsh Israeli response that sought to send a strong message to the member states that did not oppose the resolution, which began to yield positive results recently.  The lower chamber of the Czech parliament passed two pro-Israel resolutions, one calling on the government to recognize Jerusalem as Israel’s capital and the other calling for withholding funds from UNESCO over its anti-Israel stance.

Vanuatu’s President Baldwin Lonsdale, an evangelical Christian who has a strong connection to the Jewish people and to Israel, recently made a similar move.  During a meeting with Vanuatu’s honorary consul to Israel, the issue of the UNESCO vote came up.  Lonsdale said in the meeting he had been sorry to hear how the vote unfolded and his country’s lack of opposition to it.  Lonsdale later signed a document stating that Jerusalem should be recognized as Israel’s capital and condemning the UNESCO resolution.  He also asked to explore with the Prime Minister’s Office the possibility of visiting Israel, which would be the first by a president of Vanuatu.  (IH 01.06)

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7.3  The Top-Ranked University in the UAE

The United Arab Emirates University (UAEU) has been ranked as the nation’s best university – and now stands among the top 400 in the world.  The QS World University Rankings 2018, have seen UAEU reclaim its place in the top 400, having risen 23 places since the 2017 edition.  While ranked the highest in the UAE, ahead of the American University of Sharjah, the top-rated universities in the Gulf region were named as the King Fahd University of Petroleum & Minerals (173) and King Saud University (221), both in Saudi Arabia.  UAEU, which was established in 1976 and is currently home to almost 14,000 students and more than 800 faculty, was placed 390th in the global rankings.  Its new position among the 1.5% best universities globally is based on there being approximately 26,000 universities around the world.  The results showed that UAEU ranked strongest in the International Faculty indicator – a measure for determining the attractiveness of a university to academic staff – where it was placed 12th globally.  (AB 10.06)

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7.4  Abu Dhabi Approves Fees Hike for 24 Private Schools

Abu Dhabi Education Council (ADEC) has approved a fee hike request from 24 private schools in the UAE capital starting from the 2017-2018 academic year.  The average increase in fees is about 3%.  In addition, ADEC rejected requests from another 60 private schools to raise fees.

Currently, 34% of private school students pay less than AED10,000 in annual fees, 24% pay between AED20,000 and 30,000, 12% pay between AED30,000 to 50,000, and 6% pay more than AED50,000.  A total of 84 schools had submitted the request to increase fees.  ADEC said that all the applications were analyzed and reviewed by the Private Schools and Quality Assurance (PSQA) sector.  ADEC said it continually monitors tuition as well as other fees and ensures that schools refrain from imposing additional charges without obtaining its approval.  (AB 06.06)

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8.1  Belkin Laser Raises $5 Million

Belkin Laser, a portfolio company of the RAD Biomed accelerator of the Zisapel Family, has closed a $5 million financing round.  The funding comprises $2.5 million from Singapore’s Zicom Holdings and China’s Rimonci Capital and €2.5 million in an EU grant as part of the GLAUrious Program initiated and led by Belkin Laser in collaboration with four European partners.  The company had previously raised $1.5 from Israel’s Chief Scientist’s Office, the RAD Biomed accelerator (run by David Zigdon), Gur Muntzer CEO of Care Medical Services and additional private investors.

Belkin Laser has already performed a successful human clinical trial in Israel.  The current round is meant to round up the product, hold a large scale clinical trial in multiple medical centers in the UK and Italy and receive the EU CE mark.  . Belkin’s idea originated in the breakthrough discovery that laser energy can be transmitted to the inner eye’s aqueous humor drainage area with no need for direct hit of the laser on the area being treated.  As a result, the laser ray can be directed at the outer white part of the eye (sclera) with no need for a lens that aims the laser ray on the area that needs the therapy.  The result is a 1-second treatment.

Tel Aviv’s BELKIN Laser is designed to make glaucoma laser treatment accessible through general ophthalmologists.  This means that over 200,000 ophthalmologists worldwide will have the opportunity to offer their patients BELKIN Laser’s therapy as a first-line choice, representing a compelling target market for the BELKIN Laser treatment.  (Globes 04.06)

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8.2  Sevion Therapeutics & Eloxx Pharmaceuticals Enter Into Acquisition Transaction

San Diego’s Sevion Therapeutics and Eloxx Pharmaceuticals signed a definitive agreement on 31 May 2017 for an acquisition transaction.  Under the terms of the agreement, Eloxx will become a wholly owned subsidiary of Sevion.  Upon completion of the transaction, Sevion will change its name to Eloxx Pharmaceuticals and intends to apply to have its shares listed for trading on NASDAQ.  Under the terms of the agreement, Eloxx shareholders will receive shares of Sevion’s common stock reflecting approximately 70% of Sevion’s issued and outstanding share capital, subject to further adjustment.  The parties expect to raise at least $24 million in private equity investment rounds as a condition prior to consummation of the acquisition transaction.  The executive team of Eloxx Pharmaceuticals will manage the combined Sevion-Eloxx entity, which will be based out of Eloxx Pharmaceuticals’ current corporate offices in Waltham, Massachusetts and Rehovot, Israel.

Rehovot’s Eloxx Pharmaceuticals is a clinical stage company developing first in class therapeutics for the treatment of genetic disease caused by non-sense mutations.  Eloxx was co-founded by Dr. Silvia Noiman and Pontifax, a leading VC in the Life Sciences arena.  Eloxx technology is originated from the Technion – Israel Institute of Technology in Haifa, Israel.  The technology is licensed from the Technion through its technology transfer company, Technion Research and Development Foundation.

Approximately 3-4% of newborns manifest a genetic disease or major birth defect, and about 12% of all mutations reported are caused by nonsense mutation. Non-sense mutations introduce premature stop codons in the reading frame of a gene.  When the mutated sequence is translated into a protein, the resulting protein is incomplete and shorter than normal.  Consequently, most nonsense mutations result in nonfunctional proteins.  Nonsense mutations account for some of the most severe phenotypes in genetic diseases and often have devastating effects in critical target organs.  Eloxx lead compound, ELX-02, provides unique opportunity to potentially be the first disease-modifying therapy for treatment of these set of devastating diseases, for which there are no effective treatments.  (Eloxx 02.06)

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8.3  Teva Reports Positive Results for Phase III of Fremanezumab for the Prevention of Chronic Migraine

Teva Pharmaceutical Industries announced positive results from a Phase III HALO study of fremanezumab, an investigational treatment for the prevention of migraine.  In the chronic migraine (CM) study, patients treated with fremanezumab experienced statistically significant reduction in the number of monthly headache days of at least moderate severity vs. placebo (-2.5 days) during the 12 week period after first dose, for both monthly (-4.6 days p<0.0001) and quarterly (-4.3 days p<0.0001) dosing regimens.  Similar to the Phase II trials, both patients that were on monotherapy and stable doses of prophylactic medications were included in the trial.

In addition, patients treated with fremanezumab experienced significant improvement compared to placebo on all secondary endpoints for both monthly and quarterly dosing regimens, including: response rate, onset of efficacy, efficacy as monotherapy, and disability.  The results were positive, and of 13 hierarchical comparisons, p was <0.0001 in 12 of them, being 0.0004 in the remaining.  The most commonly-reported adverse event in the study was injection site pain, with similar rates in the placebo and active groups.  Based on these results, Teva plans to submit a Biologics License Application to the U.S. Food and Drug Administration (FDA) for fremanezumab later this year.  Teva’s Phase III HALO study in Episodic Migraine (EM) will report topline results in the coming weeks.

In the CM study, 1,130 patients were randomized (around 376 patients per treatment group). Patients were randomized in a 1:1:1 ratio to receive subcutaneous injections of fremanezumab at 675 mg at initiation followed by monthly 225 mg for two months (monthly dose regimen), fremanezumab at 675 mg at initiation followed by placebo for two months (quarterly dose regimen), or three monthly doses of matching placebo. The primary efficacy endpoint of the CM study was the mean change from baseline (28-day run-in period) in the monthly average number of headache days of at least moderate severity during the 12-week period after the first dose of fremanezumab.

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions used by approximately 200 million patients in 100 markets every day.  Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,800 molecules to produce a wide range of generic products in nearly every therapeutic area.  In specialty medicines, Teva has the world-leading innovative treatment for multiple sclerosis as well as late-stage development programs for other disorders of the central nervous system, including movement disorders, migraine, pain and neurodegenerative conditions, as well as a broad portfolio of respiratory products.  (Teva 31.05)

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8.4  Adama’s Merger with Sanonda Approved

Adama Agricultural Solutions reported that the M&A Panel of the China Securities Regulatory Commission (CSRC) has unconditionally approved its merger with Beijing’s Sanonda, paving the way for the consummation of the transaction, which is now expected in the coming weeks.  Upon completion, the combined company will be floated on the Shenzhen Stock Exchange.  The trading of Sanonda’s shares, which had recently been suspended during the CSRC’s final review process, resumed on 2 June.

Adama’s combination with Sanonda is expected to create, in one coordinated move, the only integrated Global-China crop protection company, with combined 2016 sales of $3.35 billion.  At its outset, it will be the sixth largest global crop protection company and the largest in China, as well as the first global one to be publicly traded on the flagship A-share market.  In the context of the transaction, the combined company intends to raise around $250 million in new equity, which will be used to accelerate its growth.  At current market prices, the combined company’s pro-forma equity is valued at approximately $4.6 billion, placing its pro-forma enterprise value at approximately $5.7 billion.

Upon receipt of the relevant corporate approvals, the combined company will operate under the ADAMA name and brand and will be led by Adama’s global management team, to be joined by colleagues from China engaged with the combined China operation.  The central functions of the combined company will continue to be run from Israel, including global R&D, registration and operations.  The combination is still subject to certain additional regulatory approvals, which are expected to be obtained in the coming weeks.

Tel Aviv’s ADAMA Agricultural Solutions is one of the world’s leading crop protection companies.  ADAMA strives to Create Simplicity in Agriculture – offering farmers effective products and services that simplify their lives and help them grow.  (ADAMA 04.06)

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8.5  Teva Announces Exclusive Launch of Generic Pataday in the United States

Teva Pharmaceutical Industries announced the launch of generic Pataday®1 (olopatadine hydrochloride ophthalmic solution) 0.2%, in the U.S.  Olopatadine hydrochloride ophthalmic solution 0.2% is a mast cell stabilizer indicated for the treatment of ocular itching associated with allergic conjunctivitis.  Teva is committed to strengthening its generics business through continued investment in complex, high-quality products.  With nearly 600 generic medicines available, Teva has the largest portfolio of FDA-approved generic products on the market and holds the leading position in first-to-file opportunities, with over 100 pending first-to-files in the U.S.  Currently, one in six generic prescriptions dispensed in the U.S. is filled with a Teva product.

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions used by approximately 200 million patients in 100 markets every day.  Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,800 molecules to produce a wide range of generic products in nearly every therapeutic area. In specialty medicines, Teva has the world-leading innovative treatment for multiple sclerosis as well as late-stage development programs for other disorders of the central nervous system, including movement disorders, migraine, pain and neurodegenerative conditions, as well as a broad portfolio of respiratory products.  (Teva 09.06)

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8.6  Weizmann Institute Finds Cells that Rejuvenate the Brain

Alzheimer’s disease is often associated with local inflammation.  In the absence of a clear understanding of the contribution of the systemic and brain immune cells to disease pathology, many scientists have interpreted the local brain inflammation that accompanies Alzheimer’s disease as a negative outcome of excessively aggressive microglia and the uncontrolled entry of immune cells from the periphery into the brain. Anti-inflammatory treatments were therefore attempted, without success, leaving the researchers in the field puzzled as to the function of immune cells in neurodegenerative diseases.

Prof. Schwartz of the Weizmann Institute of Science’s Neurobiology Department has shown over the years that mobilizing cells from the systemic immune system does not always cause harm, and in fact, if well controlled, even help in coping with various brain pathologies.  Schwartz, together with members of other research groups, now provide an answer to this question, along with a new research approach toward finding ways of treating the disease.

The scientists studied a genetically engineered mouse model of Alzheimer’s disease, whose genetic makeup includes five mutant human genes that cause an aggressive form of Alzheimer’s disease.  The scientists employed advanced single-cell genomic sequencing technology – a “genetic microscope” developed in Amit’s lab in recent years – which enables scientists to fully sequence the genetic material of single cells, allowing them to identify the unique function of these immune cells, even when they are extremely rare – in other words, separating the wheat from the chaff.

In this study, the scientists sequenced the RNA content of all the immune cells in the brains of the Alzheimer’s disease mouse model (an endeavor that, until very recently, could not have been undertaken).  Since Alzheimer’s is a progressive disease, they repeated this experiment at different points in time along disease progression and compared the results with those from healthy mice.  This led them to a fascinating finding: a subset of unique microglial cells not found in healthy mice, which gradually change as the disease progresses. They called these cells disease-associated microglia (DAM).

The scientists found that the development of this unique type of cell depends on the reduction in the expression of regulatory proteins (checkpoints) that restrain microglia activity in the brain, as well as an increase in the expression of a protein complex that recognizes the accumulation of foreign lipids (fat-like molecules) and dead cells, including a protein called TREM2.  A mutation in this protein is accompanied by an early – and dramatic – onset of the disease.  When the researchers used a mouse model for Alzheimer’s disease that does not express TREM2, the microglia failed to acquire the repair pathways of the DAM cells to remove the beta-amyloid plaques.  An examination of the brains of the Alzheimer’s mouse model and a postmortem of Alzheimer’s patients revealed that these unique cells are located in close proximity with aggregates of brain amyloid “plaques,” suggesting a connection between the mechanism that leads to the activation of these unique microglia and their mode of activity.  In fact, the newly discovered microglia express many proteins that have been previously classified as disease “risk markers” in Alzheimer’s patients, which highlights  their important beneficial role in these patients.  In other words, mutations in proteins expressed by these cells cause dysfunction of plaque disposal and are therefore accompanied by an earlier onset and more severe disease.  These discoveries signify new potential targets in searching for a therapy in Alzheimer’s disease.  (Weizmann 08.06)

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8.7  CollPlant Files Patent for 3D Bio-Printing of Organs and Tissues

CollPlant has filed a patent application in the United States for bio-ink based on its rhCollagen, for three-dimensional printing of tissues and organs.  The patent application is a part of the company’s strategy to establish its position as a leader in 3D bio-printing, and as a basis for collaborations with leading companies in the field of organ printing, in which CollPlant will constitute the biological ink supplier, in various formulations.  The patent application refers to formulations of biological ink based on recombinant human collagen, which is an ideal building block for bio-ink.  CollPlant’s bio-ink enables the printing of three-dimensional scaffolds combined with human cells and / or growth factors as a basis for tissue or organ formation.  In addition to the collagen, CollPlant’s bio-ink formulations can include other proteins and/or polymers, they are compatible with various 3D bio-printing technologies, and to the printed organ Characteristics.

Ness Ziona’s CollPlant is a regenerative medicine company leveraging its proprietary, plant-based recombinant human collagen (rhCollagen) technology for the development and commercialization of tissue repair products, initially for the orthobiologics, 3D Bio-printing of tissue and organs, and advanced wound care markets.  The Company’s cutting-edge technology is designed to generate and process proprietary rhCollagen, among other patent-protected recombinant proteins.  Given that CollPlant’s rhCollagen is identical to the type I collagen produced by the human body, it offers significant advantages compared to currently marketed tissue-derived collagen, including improved bio-functionality, superior homogeneity and reduced risk of immune response.  (CollPlant 12.06)

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9.1  Hebrew University Wins Government Quantum Communications Tender

The Quantum Information Science Center at the Hebrew University of Jerusalem has won a NIS 7.5 million tender from the Government of Israel to lead the construction of a national demonstrator for quantum communications technologies.  The goal of this project is to develop Israeli expertise and technology for a national quantum communications system that will prevent eavesdropping, protect data privacy and secure national infrastructure.

The NIS 7.5 million contract was awarded by the Ministry of Defense, which is tasked with developing a secure communications infrastructure to improve privacy and secure national infrastructure.  Also participating in the project are Rafael Advanced Defense Systems and Opsys Technologies, and an additional researcher from Tel Aviv University.

To help drive this field forward, in 2013 the Hebrew University founded the Quantum Information Science Center and recruited an interdisciplinary team of over 20 researchers from physics, computer science, mathematics, chemistry, philosophy and engineering.  Representing the vanguard of Israel’s quantum researchers, this group is advancing our understanding of quantum information science and the development of quantum technologies.  As part of this project, researchers will build a communication system at the Hebrew University’s laboratories based on single photons representing quantum bits.  Quantum bits make it possible to perform calculations in new ways that are not possible in current communications systems or even supercomputers.  (Globes 12.06)

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9.2  Karamba Unanimously Awarded TU-Automotive’s ‘Best Auto Cybersecurity Product of 2017’

Karamba Security was awarded Best Auto Cybersecurity Product/Service by TU-Automotive.  Karamba was selected in a unanimous decision by TU-chosen expert judges and announced at a reception in Novi, Michigan.  The 2017 TU-Automotive Awards winners were judged based on the following criteria: Innovation, Industry Engagement, User Experience and Market Update.

Karamba Security was selected for its innovative approach to prevention software that seamlessly protects the car, based on its factory settings, and blocks hacking attempts as they deviate from the car’s factory settings.  This deterministic approach ensures consumer safety by preventing the attack before hackers succeed to infiltrate the car and do harm.  Until Karamba, there were no preventive solutions with zero false positives, and many questioned whether it was even achievable.  Now that the industry is aware that prevention is attainable, it is choosing Karamba, and in doing so, enabling safe outcomes.

Since coming out of stealth at the end of March 2016, the company has been actively engaged with 16 different projects throughout the industry with car manufacturers and Tier-1 providers.  In addition, Karamba was recognized with the 2017 North American Frost & Sullivan Award for Automotive New Product Innovation.

Hod HaSharon’s Karamba Security provides industry-leading autonomous cybersecurity solutions for connected and autonomous vehicles.  Karamba’s software products automatically harden the ECUs of connected and autonomous cars, preventing hackers from manipulating and compromising those ECUs and hacking into the car.  Karamba’s Autonomous Security prevents cyberattacks with zero false positives, no connectivity requirements and negligible performance impact.  (Karamba 07.06)

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9.3  PacketLight PL-2000ADS Delivers 200G Capacity for Short Haul and Encryption Applications

Packetlight Networks launched the PL-2000ADS, a 200G 1U multi-protocol multi-rate ADM/muxponder/transponder for short haul and encryption applications.  The solution provides enterprises and data centers with modular, cost-effective high transport capacity of up to 200G by aggregating 10G/40G/100G Ethernet, 8G/16G/32G FC, STM64/OC192, OTU2/2e and OTU4 into dual 100G OTU4 uplinks.  PL-2000ADS reduces overall cost and operational expenditure through its low power consumption and rack space savings.  The PL-2000ADS can also function as a standalone 200G Layer-1 encryption solution, allowing enterprises with a DWDM network to benefit without altering their infrastructure.  The product complies with FIPS 140-2 Level 2 security requirements, and provides GCM-AES-256 bit encryption and key exchange based on the Diffie-Hellman (DH) protocol, without compromising performance.

Tel Aviv’s PacketLight Networks offers a suite of leading 1U metro and long haul CWDM/DWDM and OTN solutions, as well as Layer-1 optical encryption, for transport of data, voice, and video applications, over dark fiber and WDM networks.  PacketLight Products are distinguished by providing the entire optical layer transport solution within a highly integrated compact platform.  (PacketLight 07.06)

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9.4  Armis Launches from Stealth to Eliminate IoT Security Blind Spot for Enterprises

Armis launched from stealth with $17 million in funding from Sequoia Capital and Tenaya Capital.  Armis is the only technology platform that lets enterprises see and control compromised and unmanaged devices and rogue networks accessing their systems, effectively eliminating the IoT security blind spot that exists in all businesses today.  Armis has also been named a Cool Vendor in the May 2017, report titled, “Cool New Vendors in Security for Midsize Enterprises” from Gartner.

According to Gartner there are 8.4 billion connected things in use worldwide this year, which will number 20.4 billion by 2020.  This fast growing, dynamic ecosystem of everything from smartphones to webcams and keyboards presents a complex security challenge.  In early deployments Armis has shown that businesses are unaware of 40% of the devices in their environment.  They have limited visibility into which devices are accessing their networks, which exposes them to botnet attacks, network breaches, ransomware, and data loss.

Armis eliminates the IoT security blind spot, protecting enterprises from the threat of unmanaged or rogue devices and networks.  Armis is a privately held company and headquartered in Palo Alto, California, with an office in Tel Aviv.  Armis provides an agentless IoT security platform that gives enterprises a complete view into activity and threats on devices and networks.  Frictionless to deploy, Armis integrates with existing IT infrastructure and gives businesses visibility into and management over any device, whether on or off the corporate network.  With Armis, enterprises are able to gain the productivity benefits of using IoT devices without sacrificing security.  (Armis 06.06)

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10.1  Israel Debt Slips for Seventh Straight Year to 62.2% of GDP

The Finance Ministry announced on 11 June that Israel’s public debt as a proportion of economic output fell 1.7% in 2016 to reach 62.2% amid tighter government spending and very low interest rates.  The debt-to-gross domestic product ratio has dropped seven straight years, from 63.9% in 2015 and 74.8% in 2009.  Public debt totaled NIS 740.8 billion ($210 billion) last year, compared with NIS 726.7 billion in 2015.  The ministry’s data showed a slightly smaller drop for 2016 than a preliminary estimate of 62.1% it published in January.  (MoF 11.06)

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10.2  Tourist Arrivals in Israel Reach Record Monthly High in May 2017

The Ministry of Tourism announced that May 2017 marked a record monthly high in the number of incoming tourists arriving in Israel, thanks in part to increased funding for the tourism market and a change in how Israel tourism is marketed internationally.  Since the start of 2017, tourism has brought Israel a revenue of $2.18 billion.

According to the Ministry, May saw 347,000 tourists enter Israel, an increase of 16.7% over May 2016.  In the first five months of 2017, 1.43 million tourists entered Israel, an increase of approximately 25% over the same period the previous year, and some 23% higher than the first five months of 2015.  The numbers for May 2017 are slightly higher than those for May 2014, which held the previous record for incoming tourism.  A total of 303,000 tourists flew into Israel in May. Another 44,000 came by land from Egypt or Jordan.  (MoT 09.06)

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10.3  Economy Minister Finds that Toiletries Cost 48% More in Israel

At a press conference on 8 June, Minister of Economy and Industry Eli Cohen presented the findings of a comparative survey on toiletries in Israel.  According to the survey, there are significant differences in prices between Israel and 13 other countries in the world.  The survey is part of the government campaign to lower the cost of living in Israel.  In view of the findings, the Ministry of Economy and Industry summoned the authorized importers, who recently gave their comments about the differences.

Cohen added, “50% of the population in Israel earns less than NIS 7,000 a month.  According to OECD figures, the basket of products is 19% more expensive in Israel than in the rest of the world, meaning that our money is worth less.  I come from the business sector, but I believe in fair trading, not in piggish profits… The Israeli consumer will no longer be a sucker; I won’t let others make a profit at his expense.”

Examples of the report’s findings: Colgate family toothpaste, on average 36% more expensive in Israel; Colgate Total Whitening toothpaste, on average 46% more expensive; Colgate Total Clean Mint 61% more expensive; Colgate MaxWhite 91% more expensive; Gillette Speed Stick Power deodorant 69% more expensive; Lady Speed Stick Gel 78% more expensive.  (Globes 08.06)

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10.4  Smoking Costs Israeli Economy NIS 13 Billion in 2016

On 1 June, a report by the Israeli Ministry of Health about smoking in 2016 was published, focusing on the extent of smoking among various population groups.  The report also addresses the economic aspects of smoking.  According to the report, 22.7% of the population over 18 in Israel smoked in 2016.  Some 31% of adult men smoked, compared with 15.8% of adult women; 23.4% of adult Arabs smoked, compared with 22.3% of Jews.  While 43.9% of Arab men smoked, 27.8% of Jewish men smoked, although only 9.8% of Arab women smoked, compared with 17.7% of Jewish women.

18% of those with higher education smoked, compared with 27% of those with little education and 30% of those with medium education.  The average age at which smoking began was 18.1 among Jewish men, 19.5 among Jewish women, 19.4 among Arab men and 25 among Arab women.

30.9% of men in Israel smoked, higher than the 25.6% overall average in the EU; 16.0% of women in Israel smoked, lower than the 16.9% EU average.  Smoking has declined among Israeli young people – 8% of students report smoking at least one cigarette a week, compared with 15% in 2002.  The proportion of smokers among IDF recruits in 2016 was 24.8% for men and 14.9% for women.

2016 state tax revenues from purchase tax on cigarettes were estimated at NIS 6.03 billion: NIS 5.4 billion from imported cigarettes, NIS 570 million from locally produced cigarettes, and NIS 310 million from taxes on other tobacco products, such as tobacco for water pipes, cigars, etc.  An estimated 280 million packs of cigarettes were imported in 2016, and 30 million more packs of cigarettes were produced locally.

Estimates of the direct and indirect cost of smoking damage to the health system are around NIS 1.7 billion a year.  Other indirect costs estimated at NIS 1.9 billion result from lower productivity caused by loss of earning capacity and days off from work because of illness.  (Globes 01.06)

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11.1  LEBANON:  A New Electoral Law for Lebanon: Continuity or Change?

David Schenker posted in the Washington Institute’s PolicyWatch 2815 on 6 June 2017 that although the new legislation constitutes another win for Hezbollah, potential shifts in Lebanese political alignments may not be in the militia’s favor.

On 21 June, Lebanon’s parliamentary term is set to end. Unable to agree on a new electoral law, the current legislature has already voted to extend itself twice, in 2013 and 2014, making 2009 the last time the Lebanese people actually voted for their representatives.  With the deadline fast approaching, the long-deadlocked negotiations saw a breakthrough last week. Instead of reverting to the decades-old status quo, a tentative agreement was reached to institute a proportional representation system on a one-time basis.

In some ways, the new legislation is a win for the Iranian-backed Shia militia cum political party Hezbollah.  But the organization did not get everything it wanted, and Lebanon’s shrinking Christian community may also benefit.  Whether the deal is finalized or not, the negotiation process between the (Sunni) Future Movement and its (Christian) political adversaries in the Free Patriotic Movement (FPM) appears to have strained the latter’s relations with its coalition partner, Hezbollah.

A Complex New Law

In January, recently elected president and FPM founder Michel Aoun told the cabinet that he would not allow the parliament to extend its term again without a new election law, saying that he would choose “a vacuum” over another indefinite extension.  This mindset no doubt stemmed from the long void in the presidency itself — the parliament took more than two years to fill that office, finally electing Aoun last October.  Since then, politicians have haggled over various formulations, producing a complex new bill that maintains the post-civil war 50-50 allocation between Muslims and Christians (64 seats each), but stipulates that members of parliament must be elected by proportional representation in reorganized districts (versus the current winner-take-all approach).

The full details of this arrangement have yet to be hammered out, but preliminary reports indicate that Lebanon will be divided into fifteen constituencies with seats allocated per district based on religious affiliation.  Voters will have two ballots – one for party, the other for a preferred candidate within that party’s list.  Seats will be allocated by list percentage received, with voters determining the order of the list via their second ballot.  As part of the deal, the current parliament’s term will be extended by up to a year to allow for preparation and voter education.  The new law will replace the so-called “Syrian law,” a decades-old arrangement in which nearly half the Christian legislators in multiple districts were chosen by non-Christian voters, diluting the Christian vote.

Sanctions and Other Problems

Although Hezbollah has benefited from the years-long vacuum in Lebanese politics, the group’s leader, Hassan Nasrallah, spoke forcefully against allowing a void in parliament on 2 May, warning that the country stood “at the edge of the abyss.”  According to a 4 June article in the pan-Arab daily al-Hayat, the latest agreement was reached only after a “decisive” meeting between Nasrallah and FPM leader Gibran Basil, the president’s son-in-law. Nasrallah reportedly used the meeting as an opportunity to dictate the outlines of the new law.  Hezbollah has long advocated a proportional system, so the new arrangement is suitable; technically, the group would prefer a single constituency in order to further cement its political dominance, but it has more pressing concerns at the moment.

Consider that Hezbollah has had to open a second mammoth graveyard in Beirut’s southern suburb of Dahiya to ease overcrowding for its “martyrs” killed in Syria.  Dahiya has also been the epicenter of frequent gun battles pitting criminals – some tied to Hezbollah – against the police.  These incidents are seen locally as a symptom of increasing economic pressures on the Shia community, perhaps related to diminished Iranian largess for Hezbollah or beefed-up U.S. sanctions against the group.

Washington’s 2015 Hezbollah International Financing Prevention Act (HIFPA) has been particularly burdensome on the militia, complicating its access to the financial sector and exacerbating the difficult economic situation in primarily Shia and Hezbollah-controlled areas of Lebanon.  Hezbollah and the Shia Amal Party are concerned that new U.S. legislation – the so-called HIFPA II – will make things even worse, in part by deterring foreign direct investment.  In June 2016, a bomb was detonated outside a Beirut branch of Blom Bank, one of the state’s leading financial institutions.  While no one was hurt by the nighttime explosion, the incident was widely understood as Hezbollah’s not-so-subtle way of warning the Central Bank not to be overly ambitious in implementing U.S. sanctions.

Yet despite some low-level Shia discontent about economic difficulties in Lebanon and the high rate of casualties in Syria, Hezbollah is rather confident about its position.  With the group’s help, the Assad regime is on the offensive again next door, backed by Iran, Russia, and Iraqi Shia militias.  At home, the group has repeatedly flaunted its ongoing control of the south and its excellent working relationship with the national intelligence organs that man checkpoints en route to the border.  In April, for instance, it brought more than a dozen international journalists on a tour of Lebanon’s frontier with Israel.  In May, it turned over several of its Syria border observation posts to the Lebanese Armed Forces (LAF).  Although this smooth handover and the ongoing cordial negotiations about more sensitive border locations might suggest increased LAF capabilities, they also point to Hezbollah’s comfort with the level of coordination, communication and de-confliction it has achieved with the army.  By handing over border posts, the group could free up additional troops and resources for Syria and/or the south.

Christian-Sunni Detente?

At the same time, Hezbollah may be growing concerned about the burgeoning ties between the FPM and the Future Movement.  While serving as FPM leader in February 2006, Aoun signed a memorandum of understanding that aligned his party with Hezbollah.  Yet when Aoun was elected president last year, he received less-than-enthusiastic support from Hezbollah.  Consistent with the memorandum, Aoun continues to defend the group’s possession of weapons outside state control and its “resistance” agenda against Israel.  But on other issues, Hezbollah may not be able to count on the former maverick general.  For example, the militia is said to be disappointed in his choices for LAF chief and several other top army posts, including the head of military intelligence.

Meanwhile, Aoun’s election came with the consent of Future Movement leader Saad Hariri, despite the longstanding rivalry between their two parties.  Current FPM leader Basil is reportedly forging a close working relationship with Future Movement consigliere Nader Hariri, as evidenced by their daily consultations, joint family vacations, deep coordination on the electoral law and assorted business deals that some critics have described as shady.  It remains to be seen whether this detente will continue – and, if so, whether it has more to do with boosting shared commercial interests or readjusting stagnant political alignments.

Another interesting development is Aoun’s apparent rapprochement with his erstwhile rival Samir Geagea, leader of the Christian party Lebanese Forces.  While Geagea remains a fierce critic of Basil’s purportedly prodigious corruption, he has come to accept the Aoun presidency, raising the possibility of a more unified Christian bloc in the coming parliamentary elections.  Yet it is unclear whether this acceptance is a long-term strategic shift or a temporary tactical step in his struggle with Basil to succeed the allegedly ailing octogenarian president.  Either way, according to al-Hayat, Nasrallah’s intervention on the electoral law may have been a “high caliber” message to the FPM that it “should not go very far in its new alliances,” either with the Future Movement or the Lebanese Forces.

Implications for Washington

In recent years, U.S. policy toward Lebanon has focused on sanctioning Hezbollah, arming and training the LAF, and providing financial support for the state’s 1.5 million Syrian refugees.  While limited in scope, this approach has been relatively successful in preventing a more precipitous deterioration inside the country – despite the flood of refugees and Hezbollah’s ongoing participation in the Syria war, Lebanon has largely maintained its stability and security.

At the same time, Beirut has continued its slide toward Iran.  This trend was accentuated during the waning days of the Obama administration, when Saudi Arabia grew fed up with the perceived tilt toward Tehran, cut aid to Lebanon, and distanced itself from Saad Hariri, its leading Sunni ally in the state.

For now, it is unclear what trajectory U.S. policy will take under President Trump.  His administration’s recently submitted State Department draft budget for 2018 would zero out funding for the LAF and dramatically cut assistance for the country’s Syrian refugees.  Even so, there are other steps the administration can take to promote U.S. interests there.  Additional sanctions targeting Hezbollah economic interests in Lebanon and abroad would put more pressure on the organization.  Raising the cost for Hezbollah in Syria would also increase the group’s difficulties with its constituents at home.  Meanwhile, the administration could leverage its revitalized ties with Riyadh to encourage greater Saudi generosity toward the pro-Western Saad Hariri and his Future Movement.  Finally, U.S. diplomats in Beirut should try to build on the recent signs of improved Christian unity and Sunni-Christian political ties. Regardless of how the electoral law saga turns out, the realignment of Lebanese political coalitions could help marginally undercut Hezbollah and Iranian dominance.

David Schenker is the Aufzien Fellow and director of the Program on Arab Politics at The Washington Institute.  (TWI 06.06)

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11.2  GCC:  Isolating Qatar Reveals Economic Vulnerabilities of the GCC

Karen E. Young posted in the AGSIW blog on 6 June that the Saudi, Bahraini and Emirati efforts to isolate Qatar diplomatically and logistically from its Gulf Cooperation Council partners highlights structural weaknesses in many of the Gulf states, not just Qatar.

There are a number of shared weaknesses within Gulf economies, mostly because of their dependency on revenue from oil and gas exports, but also because they do not produce their own food, they are extremely sensitive to reliability of electricity generation for both power and water desalination, their geography leaves them very sensitive to threats to air and sea port access, and their labor markets are dependent on foreigners.  This island mentality and structural dependency can be exploited, but it can also be a source of unity, as was the intention of the formation of the Gulf Cooperation Council.

One of the GCC’s most successful efforts at economic integration has been at the individual level, in which citizens of one member state have equal rights to purchase property, access state health care and insurance privileges, the right to wholly own and operate a business, and the right to hold stock ownership of a company in another member state.  The ongoing tensions between Qatar and its neighbors in Saudi Arabia, Bahrain, and the United Arab Emirates will extract a heavy price on Gulf citizens, especially on the free mobility of those living, working, and studying in a neighboring country.  Qatari citizens have two weeks to leave the UAE, Saudi Arabia and Bahrain, while diplomats were offered 48 hours.

The shared goal of expanding private sector growth across the GCC states is threatened by retaliatory action against citizens living, working, and investing in a neighboring country.  Moreover, the burgeoning sense of khaleeji identity, in which GCC citizens might foster a collective Gulf identity, bolstered by increasing intermarriage, studying abroad and business ties, is under threat.  For university students, young families, and entrepreneurs in the Gulf, recent events will be a deterrent to exchange and travel for some time to come.

Perhaps right now, the greatest weakness on display across the Gulf is state capacity in strategic communications, and a reciprocal low level of social trust within Gulf societies.  The hoarding behavior on display in Qatar speaks to natural reactions to a sense of shortage and siege, but also a deeper lack of confidence in government information and strategy.

Historically, GCC economic integration leaves much to be desired, as trade flows between the Gulf states continue to grow at a slow pace.  However, what is traded between GCC states is vital, particularly food and gas.  Food price inflation has been a problem, especially for Qatar, for the last decade as population growth has accelerated.  With a threat to imported supplies of staple items like sugar, the trend will spike.  The closure of the border between Saudi Arabia and Qatar complicates delivery of food imports, though Qatar’s reliance on re-exports of food from Saudi Arabia is limited in scope (about 10% of Qatari food imports and largely dairy items).  Qatar relies on many of the same food trade partners as other GCC states, which could be a source of leverage in any downward spiral of retaliatory measures.  Trade partners may feel forced to choose sides, further isolating Qatar and discouraging bilateral agreements as well as private sector deal flows.

The delivery of gas exports from Qatar to the UAE and on to Oman via the Dolphin pipeline is another issue of concern, though more for the recipients than exporters.  The UAE is dependent on the imported gas for its production of electricity.  While the contract remains in effect, there is an underlying vulnerability to delivery of gas via the Dolphin pipeline from its origination point in Qatari waters.

More immediate, there is concern that gas exports from Qatar, and affiliated delivery of gasoil (diesel) products and refueling of liquefied natural gas tankers might be affected, moving product from the Gulf to Asia.  As tankers move through the Gulf and around the tip of Oman stopping routinely at multiple ports, the UAE’s Port of Fujairah Harbor Master announced that any vessels flying flags of Qatar or vessels destined to or arriving from Qatari ports are not allowed to call at the Port of Fujairah and Fujairah Offshore Anchorage, regardless of their nature of call.  Maersk, the world’s biggest container shipping line, announced it would no longer be able to transport goods in or out of Qatar after Arab countries imposed restrictions on trade with the Gulf state.

In financial intermediation, Qatar saw an impact in its stock market, with bank, telecom and utility providers all sliding down about 10% in trading.  According to Reuters, Qatar National Bank has recently opened a retail office in Riyadh and planned to apply to operate as an investment bank in Saudi Arabia.  It is not clear how Qatari businesses, especially those with ties to the state or outright state ownership will be treated by Saudi, Emirati and Bahraini authorities.  The UAE central bank plans to distribute “unwinding” instructions to banks and businesses with Qatari ties, according to Reuters.  For Qatari banks, this could create some liquidity issues and problems with interbank funding in other Gulf states.  According to a June 6 research report by Standard Chartered, Qatari banks’ foreign liabilities have grown to 35% of their total liabilities in 2017, up from 23% at the end of 2014.  These liabilities are made up of interbank borrowing and nonresident deposits.

Air transport links are the most immediately affected, though it is early to quantify the losses of Qatar Airways and the increased costs of its fuel in new routes necessary to avoid flying over Qatar’s neighbors.  The compounded effects of reduced business travel between Gulf capitals and financial hubs of Doha, Abu Dhabi and Dubai will affect hotel and retail business in Qatar, and disrupt staffing operations of professional service firms.

The urgency of a diplomatic resolution to the standoff between Qatar and its GCC partners Saudi Arabia, Bahrain, and the United Arab Emirates is evident in these areas of vulnerability.  That said, efforts to forge economic ties and people-to-people ties within the Gulf states will be curtailed, even if a solution to the current impasse is quickly found.

Market Watch is a blog conceived by AGSIW Senior Resident Scholar Karen E. Young seeking to provide insights from the crossroads of Gulf politics and finance.  (AGSIW 06.06)

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11.3  BAHRAIN: Outlook Revised to Negative on Weakening External and Fiscal Positions

On June 2, 2017, S&P Global Ratings revised its outlook on the Kingdom of Bahrain and the Central Bank of Bahrain (CBB) to negative from stable and affirmed the ‘BB-‘ long-term foreign and local currency sovereign credit ratings on Bahrain.  S&P also affirmed the ‘B’ short-term foreign and local currency sovereign credit ratings on Bahrain and CBB.


Bahrain’s external and fiscal metrics remain weak, with official reserves covering less than one month’s current account payments and a 2016 fiscal deficit of 13.5% of GDP.  We expect that fiscal deficits will reduce only gradually over the forecast period and that their financing will further worsen Bahrain’s net external asset position.  We continue to factor the potential for external support, particularly from Saudi Arabia, into our ratings.

We note that Bahrain’s economy is small relative to Saudi GDP (which is 20x that of Bahrain’s) and also relative to the substantial external assets held by regional sovereign wealth funds.  Our assumption of external support from Saudi Arabia is based on evidence of past financial support from Saudi Arabia in 2003 and military support in 2011.

Despite Bahrain’s weak credit metrics, we note that its economy and financial system continue to perform relatively strongly.

At the end of February 2017, gross foreign exchange reserves stood at $1.7 billion, down from nearly $6 billion at the end of 2014.  This implies less than one month of current account payment coverage. Furthermore, deducting Bahrain’s monetary base from reserves – because we view currency convertibility into foreign currency as a requisite for pegged arrangements – results in negative usable reserves.  However, notwithstanding a large outflow of portfolio investment in 2016, the trend of capital outflow remains muted and nonresident deposits stable.  We believe that this is partly explained by a substantial amount of relatively sticky funds emanating from the rest of the Gulf Cooperation Council (GCC).

Following the government’s $600 million Eurobond tap in March 2017, we expect foreign exchange reserves to have increased.  However, we expect that they will fall again as the government draws upon them for fiscal financing.  Positively, we expect that current account deficits will narrow through the forecast period on the back of modestly improving oil prices and fiscal consolidation, which should gradually alleviate the strain on reserves.  We also note that CBB receives daily foreign currency inflows from the sale of oil (through the national oil companies).  We understand that daily foreign currency requests from banks to CBB have fallen over the first few months of 2017, but with no indication of lower private sector demand for foreign currency, we believe this could lead to an increase in financial sector external liabilities as banks search for alternative nonresident foreign currency lines to fund domestic assets.  This could include lines from Bahrain’s large wholesale banking system. We could reassess the risk contingent liability wholesale banks pose to the government if the interlinkage between the wholesale banks and the domestic economy were to increase.  However, we do not expect that CBB would act as a lender of last resort for offshore banks.  We expect that the coverage of external liabilities by liquid external assets (narrow net external debt) will continue to fall as a result of this accumulation of bank foreign liabilities, plus an increase in public sector debt.  Annual payments to nonresidents (gross external financing needs) are high, but much of this relates to the presence of resident wholesale banks that have offsetting external assets.

For the contingent liability assessment, we refer only to the resident retail banking sector because, in our view, the cost of the wholesale banks’ potential financial distress would not be fully borne by the government, given the high share of foreign ownership.  This is not the case, however, in our external ratio analysis, where the international investment position contains both resident retail and resident wholesale banks.  Despite Bahrain’s large financial sector (domestic retail banks) with gross assets estimated at 252% of GDP and a large number of majority-government-owned companies, we consider the government’s contingent liabilities to be limited.  On average, banks display high regulatory capital positions, and our Banking Industry Country Risk Assessment for Bahrain is ‘7’ (on a scale of 1-10, with ‘1’ being the lowest risk and ’10’ the highest).

Bahrain’s retail banks, the main domestic intermediators, remain healthy in terms of liquidity, asset quality, capitalization, and leverage, with a loan-to-deposit ratio of 65%.  However, foreign liabilities account for nearly 50% of total liabilities and the sector is in a net external liability position of 6% of GDP.  The wholesale banking sector (Bahraini and non-Bahraini registered) has just 8% of its total assets in Bahrain, but as a proportion of GDP, these exposures represent 30%.  We understand that the majority of these exposures are funded by domestic liabilities and are to large industrial exporters, but also reflect interbank lending.  Excluding the external assets and liabilities of the wholesale sector, Bahrain’s narrow net external asset position would likely turn to a liability position in the region of 20% of current account receipts.

Bahrain’s fiscal imbalances are expected to moderate over the forecast, from 13.5% of GDP in 2016 to 7.5% by 2020.  The government has introduced numerous measures since 2015 to control public finances in response to a revenue side shock and have managed to control the nominal growth of expenditures over 2016 (maintained at the same level as the previous year) versus an average growth of 7% per year over 2012 to 2014.  The main contributor to this has been the reduction of sometimes politically sensitive subsidies and transfers, which have reduced to 25% of total expenditures from 28.5% in 2014.  Still, in nominal terms, the burden of consolidation in our forecasts falls on the revenue side, and incorporates our increasing oil price assumptions and also the introduction of value-added tax.  On the latter, we assume a 1.8% of GDP (3% of nominal consumption–the agreed amount is 5%) impact to be introduced over 2018 and 2019 (0.9% of GDP each year).  The rationale behind doing this lies with an uncertainty over the timing of its introduction, which is scheduled for 2018. If fully implemented in 2018, this would imply a greater reduction in the fiscal deficit.

We project debt to increase to above 90% of GDP by the outer year of our forecast, or above 60% on a net basis.  We view this level of debt as a constraint on fiscal flexibility.  We assume a broadly 50-50 split between external and domestic debt issuance by the government as in 2016.  Over 2016, the government accrued Bahraini dinar (BHD) 2 billion (17% of GDP) of debt, with BHD350 million (3% of GDP) used for meeting maturities.  The government’s debt maturity profile is relatively smooth over 2017, ramping up to BHD670 million (5.6% of GDP) in 2019. To derive net government debt, we net off cash and available for sale securities at the social security system, Mumtalakat (the government holding company) and the Future Generations Fund from gross debt.

The maintenance of nominal fiscal expenditures has contributed to robust economic growth in 2016 of 3%, as have increased disbursements from the GCC funds ($10 billion, or 30% of 2017 GDP, pledged from the GCC and of which about $1 billion has been disbursed.  Separately, private sector growth, particularly in healthcare, private education, and financial services continued apace.  This reflects Bahrain’s relatively diversified economy, proximity to the large market of Saudi Arabia, its strong regulatory oversight of the financial sector, a relatively well-educated workforce, and its low-cost environment.  Bahrain’s population growth has continued at a high pace (3%-4% per year) and is consistently above the pace of real growth.  Despite these positive factors, we expect an unsupportive external environment, confidence effects associated with frailty in the government’s fiscal position and low foreign currency reserves to hamper consumption and investment, and that fiscal consolidation will also act as a drag on future growth, leading to slower average growth over the forecast (2% over 2017-2020).

In our view, monetary policy flexibility is limited because the Bahraini dinar is pegged to the U.S. dollar.  That said, the peg has provided a stable nominal anchor for the economy and we note stable levels of inflation and consistent economic growth.  Reflecting the strength of the U.S. dollar versus other key currencies, since April 2014, Bahrain’s real effective exchange rate has appreciated by about 16% (according to Brussels-based economic think tank Bruegel).  In our view, this represents a deterioration in international competitiveness, which is likely to dampen non-oil GDP growth absent any offsetting factors, such as improved efficiency or technological capacity.

In our view, instances of politically related violence and street protests have increased recently, and we view the overall security environment in Bahrain as tense.  In our opinion, this illustrates the entrenched polarization between the Shia and Sunni communities, and internal communal divisions.  We consider that the implementation of sensitive fiscal austerity measures has the potential to stoke unrest, thereby constraining the government’s policy choices.  We note, however, that fiscal consolidation measures already introduced have not had any security-related repercussions.  Still, we anticipate that Bahrain’s political tensions will continue, with the potential for security incidents to occur.  Given these sensitivities, the overall transparency of policy-making is also constrained and accompanied by variable disclosure of information, in our view.


The negative outlook reflects our view that Bahrain’s net external asset position could weaken to a level that we could consider insufficient to mitigate the effects of oil price volatility on Bahrain, or that foreign exchange reserves could drop further below already low levels.  The negative outlook also reflects the risk that net general government debt could exceed our expectations (for example, if it were to exceed 60% of GDP sooner than we currently expect) or that we could reassess the contingent liability wholesale banks pose to the government should their systemic relevance increase.  The ratings could also come under pressure if expected regional support were not evident if needed.

We could revise the outlook to stable if Bahrain’s net external asset position stabilizes, perhaps due to the Bahraini government undertaking additional steps to improve its structural fiscal position and reduce its accumulation of external debt.  (S&P 02.06)

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11.4  QATAR:  Fitch Places Qatar’s ‘AA’ IDR on Rating Watch Negative

On 12 June 2017 Fitch Ratings placed Qatar’s ‘AA’ Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) on Rating Watch Negative (RWN).  The Short-Term Foreign- and Local-Currency IDRs of ‘F1+’ and the issue ratings of ‘AA’ on Qatar’s long-term foreign-currency senior unsecured bonds have also been placed on RWN. Fitch has affirmed the Country Ceiling at ‘AA+’.

Key Rating Drivers

The RWN on Qatar’s ratings reflects the heightened uncertainty resulting from the decision of Saudi Arabia, the United Arab Emirates (UAE), Bahrain, Egypt and some other Arab countries to sever diplomatic and logistical ties with Qatar.  While some discussions have taken place to resolve the crisis, it is becoming more likely that the crisis will be sustained and negatively affect Qatar’s economy and its credit metrics.

Saudi Arabia and its allies have banned all land, sea and air transport between themselves and Qatar, with the apparent exception of the Dolphin oil pipeline that brings Qatari gas to the UAE.  This has immediate repercussions as Qatar has been dependent on imports from its neighbors and on goods shipped from outside the region via the key port of Jebel Ali in the UAE.  It is likely that given its vast resources Qatar will be able to handle strains on supplies of food and other goods, but at a cost, which might eventually be borne by the government.

The countries involved have so far only imposed limited restrictions on financial flows and exposures to Qatar.  An outright ban on financial relations with Qatar could lead to disruptions in the Qatari financial industry, but the authorities have the financial resources, in the form of central bank reserves as well as Qatar Investment Authority assets, to contain these strains.

However, if the imposed isolation lasts for a longer period, the implications for Qatar’s business environment and economic model would become more serious.  Qatar’s drive for diversification has focused on establishing the country as a regional hub and a destination particularly for tourists from the region.  Prolonged isolation could undermine the business model of Qatari companies, including SOEs, potentially requiring costly bail-outs.  The isolation could also adversely affect the public finances.

The risk of further logistical and financial restrictions is increasing, and the risk of the use of military force, while still remote, can no longer be entirely excluded.  Domestically, the isolation could lead to strains between those advocating reconciliation with Saudi Arabia and those supporting the highly independent position that Qatar has pursued so far, bringing political stability into question.

The ‘AA’ ratings reflect Qatar’s large sovereign assets (sufficient to finance more than 20 years of present budget deficits), along with the country’s fiscal adjustment efforts, a large hydrocarbon endowment and one of the world’s highest GDP per capita ratios.  Qatar’s hydrocarbon dependence is a key rating weakness, with oil and gas extraction averaging 50% of GDP and 80% of external receipts and government revenue.  Other weaknesses include a government debt level above those of rated peers, and mediocre scores on the World Bank’s measures of governance and the business environment (both below the 70th percentile).

Rating Sensitivities

The RWN reflects the following risk factors that may individually or collectively result in a downgrade of the ratings:

– Absence of a timely resolution to Qatar’s isolation;

– Further escalation of measures against Qatar;

– Evidence that the measures taken against Qatar are having a significant impact on the economy or other credit metrics.

Factors that could result in a removal of the RWN and the affirmation of ratings include:

– Timely normalization of Qatar’s external relations without an adverse impact on the economy or other credit metrics.

Key Assumptions

Fitch assumes that the authorities have access to sufficient liquid assets, in terms of central bank reserves and QIA assets, that it can address any short-term supply disruptions and liquidity issues in the financial markets.  (Fitch 12.06)

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11.5  EGYPT:  A Monetary Theory of Everything: “Printing” New Money and Egypt’s Economic Ills

Osama Diab posted on 30 May in the Tahrir Institute for Middle East Policy that recently, the Central Bank of Egypt (CBE) unexpectedly decided to raise interest rates by 2% to mitigate spiraling inflation.  While academic economists and observers of financial markets hold a wide range of opinions about the likely effects of the rate hike (to say nothing of its wisdom), the high inflation in Egypt—cited by the CBE as the reason for the tightening – is undisputed.  The peg of Egyptian pound (LE) to the dollar gave rise to a parallel black market over the past several years, and the gap between the official bank exchange rate and the black-market rate widened throughout 2016, until the peg was removed and the pound floated in November.

The CBE’s decision to float the pound was controversial, not least because of the inflation it is perceived to have caused.  However, contrary to popular belief, the incredible rise of the dollar against the pound was one of the results, not the cause, of high inflation.  The fundamental cause of inflation is the increase in the money supply: the amount of Egyptian pounds in circulation has increased at unprecedented rates.

Demand-side economists argue that economic activity is best boosted by boosting the purchase power of the lower and middle classes, because they are the social groups who spend much of their income on immediate consumption in the local economy, rather than saving it for later use.  Thus, during times of recession or economic slowdown, a calculated increase in the money supply may be beneficial to boost economic activity even if it means a boost rise in prices as well.  The distributive logic of this new money supply decides how fair and justly the new wealth is distributed.  When money creation spirals out of control, it can lead to the loss of trust in the economy and have a drastic impact on the economic and social rights of the population.

Money is valuable relative to how much of it is in circulation.  Very simply put, owning a million pounds in an economy that has a trillion pounds in it makes you twice as rich as owning a million pounds in an economy that has two trillion pounds in it – given that output (amount of production) and the velocity of money (how quickly it circulates among the population) remain constant.  Egypt’s money supply has increased from LE 1.02 trillion pounds in August 2011 to LE 2.7 trillion in January 2017.  This means the amount of money in the Egyptian economy has increased about 165% in just over five years, whereas output has grown by only about 17% during the same period.  So, of the 165% increase in money supply, only 17% has no inflationary impact and the remaining 148% is causing inflation, with other things held constant namely the velocity of money.

In other words, the CBE has created more pounds in five years than all the cash that was already extant five years ago.  According to official inflation rates, prices have more than doubled over the same period, which is in line with the estimate above of the amount of new money that did not correspond with an increase in GDP.  This makes perfect sense: If the amount of money in circulation doubles without a corresponding increase of output, then it is only natural for prices to double as well, given no significant change in the velocity of money.

If we consider the dollar as a product that has a price against the pound, the global dollar supply over the same period of time increased by about 30%.  Of course what decides the exchange rate is the amount of foreign currency in a certain economy (not the entire world), but this – very roughly and simply put – means that part of the massive increase in the dollar could be attributed to an increase in the pound supply and therefore demand for the dollar, and not only a decrease in the dollar supply.  In other words, Egypt had too many new pounds chasing the same amount of dollars, not the same amount of pounds chasing fewer dollars.

The price of the dollar went up (in pound terms) because it is like any other product whose supply has not increased as quickly as the pound’s.  Again, it is the uncalculated increase in money supply that is the primary cause that has led to the price hikes and not the shortage of the dollar.  Research conducted by the Egyptian Initiative for Personal Rights challenges the idea that a decrease in dollar supply led to this astronomical increase in its exchange rate.

Why this massive increase in money supply leads to inequality and widening socioeconomic gap?

  1. Inflation is a tax against the poor, and a hidden one at that.

 Inflation caused by money creation is generally regarded as a form of hidden taxation that primarily targets the poor.  Governments often choose to create money instead of raising taxes, in order to avoid the criticism and calls for accountability that often accompany tax hikes (and to reduce their real debt burden).  Creating new pounds makes the pounds in people’s possession lose value, and gives the government more purchasing power (as taxes do).  This is where the idea of money as a store of value becomes very important. In times of high inflation, people try to find stores of value to prevent their wealth from being eaten away by this new money supply and the resulting inflation, and Egyptians seem to have turned to foreign currency, property and gold as popular stores of value.  The wealthy, then, are much less affected than those with cash savings in local currency and who lack access to banks and financial markets.

  1. The new money takes the form of credit which mostly goes to wealthy investors or the government.

Early recipients of the newly created money also tend to benefit the most from the creation of new money, which is normally injected into the economy in the form of new credit extended by commercial banks.  When the CBE wants to create new money, it purchases government bonds from commercial banks, then pays the commercial bank for the bonds in the form of extra cash reserves in the commercial bank’s account at the central bank.  This allows banks to create more money and lend it to their clients, lowering interest rates due to the higher supply of loans and making borrowing cheaper.  This means that the first recipients of the new money are borrowers, who have access to new cheap money.  The advantage an early recipient of new money has is that they have the money before prices have adjusted to the injection of the new cash.

According to CBE figures, domestic credit in local currency increased from LE 866.1 billion in July 2011 to just above LE 2.28 trillion in January 2017 with an increase of LE 1.42 trillion (or 164%).  Of this new credit, LE 1.05 trillion (74.3%) has gone to the government, mostly in the form of securities.  The public business sector has received LE 69.7 billion (or about 4.9%) of this new money, while the private business sector has received LE 165 billion (11.6%), and the household sector received about LE 130 billion or about the remaining 9.1%.

This period in Egypt provides a classic example of crowding out: When the government over-borrows, it absorbs the economy’s lending capacity, making it more difficult for the private sector to access finance.  Looking at how domestic credit was divided among different sectors back in 2011, we find that the claims on the government amounted for only 60.5% of total domestic credit, which rose to 69% in January 2017.  Claims on the business sector (public and private) declined from about 28.3% in 2011 to only 16.8% in January 2017.  The share of the household sector also declined from about 11% to 9.9%.

Due to a lack of data, it is difficult to determine how much of this new money had reached low- and middle-income groups to boost economic activity and aggregate demand, and help them adjust to inflationary pressure, but we have some indicators based on previous figures that this has not been the case.  Only around 8% of new credit has been extended to households, and much of this went to high-income groups to finance home purchases.  While businesses were able to borrow, cost-push inflation and modest aggregate demand so far appear to have limited the new money’s ability to stimulate the economy, and wages have stagnated in real pounds and declined in dollar terms.  Though the government has raised wages for civil servants and other state employees, those too have barely kept up with inflation and devaluation, and subsidies, grants, and social spending have decreased in real terms.


Conclusion and Recommendations:

  1. Avoid excessive creation of money for the sake of social, fiscal, monetary, and political stability. The increase of the money supply should be reduced to normal rates of around five or 10%, depending on growth rates.  This should help stabilize prices and markets without leading to contraction.


  1. New money and credit should be more justly distributed to end wealthy individuals’ and companies’ preferential access to finance, which makes them early recipients of new cash. New credit should be extended to micro- and small-sized businesses, and the portion that goes to the government should be spent on low-income civil servants and pensioners to prop up economic activity, and on social support to the most vulnerable groups.


  1. Avoid excessive borrowing. The government’s share of new domestic credit has been increasing, and that affects how much the productive business sector can access finance, and therefore produce and create jobs.  According to CBE figures, the government has received 69% of new credit in the last five years, leaving the business sector (both private and public) with about only 21% and the household sector with about 10%.  In order to avoid crowding out and competing with the business sector over available funds, and also to avoid adding further to the debt burden, the government should be a more prudent borrower and allow a larger chunk of available credit to go to the private sector, especially smaller enterprises.


  1. Have a better tax collection strategy. If Egypt needs to limit its money printing and borrowing, then how would it finance its quite large budget deficit?  Less spending or austerity is one option, but this can kill growth and have serious social and political consequences as we have seen in Greece recently.  Egypt still has massive untapped potential when it comes to tax collection.  Egypt only collects about 12.4% of GDP in tax, whereas developed countries in Europe and North America range between 25 and 45%, and middle-income countries normally have around a fifth of their GDP paid in taxes.  This untapped potential seems to be mostly in areas of corporate tax, property tax, and professional income tax (such as doctors’ clinics and law offices).  In recent years, there has been an overreliance on consumption taxes, which is a regressive tax that mostly impacts the poor and has both an inflationary and recessionary impact because it raises prices and taxes consumption.  Accordingly, Egypt should have a target for tax revenues to reach 20 to 25% of GDP in the coming years, primarily by better collection of property taxes and professional income taxes.  Enforcing the property tax would be ideal for Egypt because it does not distort markets and will decrease the speculative nature of Egypt’s real estate market, which should stabilize the prices of property.


Osama Diab is a Nonresident Fellow focusing on development and economic issues who is currently completing his Ph.D. in political science with the Middle East and North Africa Research Group at Ghent University in Belgium.  Besides his academic research, Mr. Diab is also a researcher, advocate, and campaigner at the Egyptian Initiative for Personal Rights (EIPR), producing analysis of Egypt’s macroeconomic policies on the realization of economic and social rights. Formerly a business reporter, Mr. Diab has developed a passion for long form and investigative journalism, working on a number of projects for the BBC and Mada Masr on issues of financial secrecy.  His opinion articles on a wide range of social, economic, and political topics has appeared in a number of international and Egyptian publications including the Guardian, the New Statesman, Jadaliyya, al-Ahram, al-Shorouk, and Mada Masr.  (TIMEP 30.05)

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11.6  TUNISIA:  IMF Executive Board Completes First Review under the Extended Fund Facility (EFF)

On June 12, 2017, the Executive Board of the International Monetary Fund (IMF) completed the first review of Tunisia’s economic program supported by an arrangement under the Extended Fund Facility (EFF).  The completion of the review allows the authorities to draw the equivalent of SDR 227.2917 million (about $314.4 million), bringing total disbursements under the arrangement to the equivalent of SDR 454.5837 million (about $628.8 million).

The four-year EFF arrangement in the amount of SDR 2.045625 billion (about $2.83 billion, 375% of Tunisia’s quota) was approved by the Executive Board on 20 May 2016.  The government’s reform program supported by the EFF aims at reducing the fiscal deficit to stabilize public debt below 70% of GDP by 2020 while raising investment and social spending, and more exchange rate flexibility combined with maintaining inflation below 4%.  It also aims at ensuring pension sustainability and better protecting vulnerable households, as well as accelerating reforms to improve governance and foster private sector-led, job-creating growth.  In completing the review, the Executive Board approved the authorities’ request for waivers for non-observance of performance criteria on net international reserves, net domestic assets, and the primary fiscal deficit.  The Executive Board also approved the authorities’ request for re-phasing of remaining access into six semi-annual installments.

Following the Executive Board discussion on Tunisia, Mr. Mitsuhiro Furusawa, Deputy Managing Director, and Acting Chair, said:

“The Tunisian authorities remain firmly committed to macroeconomic stability and sustainable increases in youth employment and improvement in standards of living of Tunisia’s population.  They plan to intensify their policy effort to overcome slower growth and delays in policy implementation.  Their fiscal plans aim to achieve gradual debt reduction and increase spending on investment and social programs.  Continued tightening of monetary policy and exchange rate flexibility will help contain inflation, improve competitiveness, and preserve international reserves.  Reforms to restructure public banks, enhance governance, and improve the business climate will strengthen the foundation for inclusive growth and strong job creation.

“To achieve a growth-friendly and socially-conscious fiscal consolidation, it will be critical to adopt and implement the 2018 tax package and make the new Large Taxpayers Unit operational, which will increase revenues as well as fairness.  The authorities intend to re-apply the fuel price adjustment mechanism to avoid regressive subsidies, move ahead quickly with civil service reform to improve service quality and reduce the wage bill, and enact comprehensive reforms to ensure pension sustainability and establish an effective safety net for vulnerable households.  There is also room for improving the management of public enterprises.

“The Central Bank of Tunisia recently increased its policy interest rate.  Further hikes may be warranted if inflationary pressures persist. The implementation of the FX auction mechanism will improve the operation and transparency of the FX market.

“The authorities have made important progress in restructuring public banks.  Next steps include changes in the regulatory and legal frameworks to support the reduction of non-performing loans.  It will also be important to implement further bank supervision measures, such as the start of the resolution committee’s operations.

“The authorities are committed to enhancing governance and improving the business environment.  The establishment of the high anti-corruption authority, new institutions such as the planned one-stop shop for investors, and Tunisia’s participation in the G20 Compact with Africa will support these objectives.  The continued support of the donor community for Tunisia’s reform efforts remains crucial.”  (IMF 12.06)

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

On 26 May 2017, Fitch Ratings affirmed Tunisia’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘B+’.  The Outlook is Stable. The issue ratings on Tunisia’s senior unsecured bonds have also been affirmed at ‘B+’.  Fitch has affirmed the Short-Term Foreign- and Local-Currency IDRs at ‘B’ and the Country Ceiling at ‘BB-‘.

Tunisia’s ‘B+’ IDRs with Stable Outlook reflect the following key rating drivers:

Tunisia has a high and growing government debt burden and external sector imbalances, relatively high contingent liabilities stemming from weak state-owned enterprises and banks, and limited reform momentum in the context of a fragile social and political context.  These factors are balanced with international support that provides external financing and foreign currency liquidity, strong structural features relative to ‘B’ peers including human development and governance, and a clean debt service record.

Episodes of social unrest have intensified, as the combination of high unemployment (at 15.3% in Q1/17), rising inflation, and a weakening currency is putting increasing pressure on household purchasing power, despite the government’s attempt to channel more investment to under-developed areas.  On 10 May, Tunisia’s president ordered a deployment of the army to protect oil and phosphate production sites, where in some cases protest activity has interrupted production.  The move should allow production from these sites to resume.  However, there is a risk, and some early evidence, that the government’s firm response may exacerbate tensions.

On the other hand, the government’s strengthened security apparatus has so far proven effective at preventing further incidents since the series of terrorist attacks in 2015 and early 2016 near the Libyan border.  While security risks remain elevated, maintaining stability would contribute to a normalization in economic conditions.  After GDP growth of 1.1% in 2016, Fitch projects growth of 2.3% in 2017 and 2.5% in 2018, to be driven by private consumption (supported by wage growth), a pickup in tourist inflows, and investment (aided by the passing of an investment law in April).  Estimates for Q1/17 growth (of 2.1% versus 0.7% a year earlier) are in line with Fitch’s full year forecast.

External imbalances have worsened, with a wider current account deficit in Q1/17 leading to exchange rate pressures. The current account deficit reached 3.1% of GDP in Q1/17 compared with 1.9% in Q1/16.  The deterioration was due to a 57.3% increase in the trade deficit compared with the same period in 2016, as the 20.3% growth in imports, caused primarily by the rise in oil prices, outpaced that of exports (7.4%).  Borrowing, remittances and FDI inflows were not sufficient to cover the ensuing gap (of around $130 million for Q1/17).

Against this backdrop, depreciation of the TND accelerated in April, triggered by an exchange rate policy miscommunication.  In reaction, the central bank adopted a number of measures including raising the key interest rate by 50bp to 4.75% in April and again to 5% in May, and a one-time $100 million market injection to ease liquidity strains.  This weaker external finance position has been reflected in reserves, which have declined by around $600 million since the end of 2016, and by over $1 billion since early 2015.  Fitch expects reserves to be partly replenished by scheduled foreign funding disbursements in H2/17, but the lower external buffer limits the capacity of authorities to deal with external shocks.

Fitch expects balance of payments pressures to ease in H2/17, in line with the 19% narrowing of the trade deficit in April relative to April 2016.  Government proposals to introduce higher tariffs on some non-essential products, as well as the passing of Ramadan (after June), will contribute to the slowdown in import growth from the Q1/17 level.  Fitch expects exports growth to be aided by higher GDP growth in Europe, and the projected recovery in tourism, as suggested by a doubling of confirmed bookings this year compared with 2016.  Nonetheless, we expect that a structural current account deficit will remain a weakness of Tunisia’s sovereign credit profile for the foreseeable future, with the deficit forecast at 10.5% of GDP in 2017 (from 9.0% in 2016) and 9.7% of GDP in 2018.

Inflation accelerated to 5.0% y-o-y in April from 3.7% in 2016, partly due to the exchange rate depreciation, but also reflecting higher food demand in the run up to Ramadan, higher public sector wages, and the energy price increase in Q1/17.  Fitch expects inflation to decelerate slightly starting in H2/17, aided by the rate rises, to 5.2% for the year 2017 and 4.9% for 2018.

Without fiscal consolidation to reduce foreign financing needs, Fitch expects strains on external balances to continue.  The agency estimates Tunisia’s fiscal external funding needs to be equivalent to 7% of GDP in 2017.  In addition to the €850 million Eurobond issued in February and the $1 billion Qatari guaranteed bond issued in April, Tunisia is relying on multilateral funding to cover the remaining gap.  While concessional financing from multilateral and bilateral lenders, representing around 53% of funding sources for this year, remains a key supporting factor for the rating, financing risks related to future disbursement delays cannot be ruled out, in Fitch’s opinion.  Such delays would leave Tunisia reliant on less predictable or more expensive market financing.

The lack of progress in containing wage growth was among the reasons for a postponed IMF disbursement (of about $320 million) following the first review of the program agreed in May 2016.  A subsequent review was completed in Q1/17 (and disbursement is now expected in June), but the implementation of unpopular reform measures is complicated by the delicate social context and ahead of municipal elections.  The agency is projecting a general government deficit of around 6.5% of GDP in 2017 (incorporating a 5.6% of GDP central government deficit and projected social security and local government balances) and 6.2% in 2018.

With 67.5% of gross general government debt (GGGD) denominated in foreign currency as of March 2017, increased reliance on foreign funding has rendered public debt vulnerable to exchange-rate fluctuations.  Applying the depreciation of the dinar to date from the beginning of 2017 (of about 12% versus the euro and 5% versus the dollar) adds over $1 billion to Fitch’s 2017 foreign debt stock projection.  At the same time, the agency’s higher GDP deflator forecast has partially offset the rise in terms of GGGD-to-GDP, with Fitch forecasting GGGD-to-GDP to reach 68.5% this year, and to top 70% by 2018.

The rapid rise in net external debt, from 20.8% of GDP in 2010 to 46% in 2016, at more than double the ‘B’ median and forecast by Fitch to surpass 55% by 2018, further increases Tunisia’s vulnerability to external shocks.

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

– Political destabilization of the country, for example from social unrest or major terrorist attacks, with adverse impact on the nascent economic recovery.

– Continued weakening in external finances, such as a widening of the current account deficit and renewed pressure on international reserves leading to a marked increase in net external debt-to-GDP.

– Worsening of the fiscal deficit or a materialization of contingent liabilities, for example from the weak state-owned banks, leading to an increase in government debt/GDP.

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

– Improved growth prospects, for example related to structural improvements in the business environment and/or the security situation.

– Reduction in budget deficits consistent with lowering the debt-to-GDP ratio in the medium term.

– A structural improvement in Tunisia’s current account deficit, leading to reduced external financing needs and stronger international liquidity buffers.

Key Assumptions:  Fitch assumes that Brent crude will average $52.5/b in 2017 and $55/b in 2018.

Fitch assumes that concessional lending from multilateral and bilateral lenders, which constituted 62.5% of external government debt as of March 2017, will remain in place over the medium term.  (Fitch Ratings 26.06)

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11.8  ALGERIA:  IMF Executive Board Concludes 2017 Article IV Consultation

On 26 May 2017, the Executive Board of the International Monetary Fund (IMF) concluded the 2017 Article IV consultation with Algeria.

Algeria continues to face important challenges posed by lower oil prices.  Overall economic activity was resilient, but growth in the nonhydrocarbon sector slowed to 2.9% in 2016, partly under the effects of spending cuts.  Inflation increased from 4.8% in 2015 to 6.4% in 2016 and stood at 7.7% year-on-year in February 2017. Unemployment was 10.5% in September 2016 and remains particularly high among the youth (26.7%) and women (20.0%).  Despite fiscal consolidation in 2016, the fiscal and current account deficits remained large, and public debt increased, reflecting in part the assumption of a government-guaranteed debt. International reserves, while still ample, declined rapidly.  External debt remains very low.

Executive Board Assessment

Executive Directors noted the significant challenges facing the Algerian economy and commended the authorities’ ongoing efforts to adjust to the oil price shock.  Directors emphasized that a balanced policy mix along with ambitious structural reforms will be important to ensure fiscal sustainability, narrow external imbalances, reduce reliance on hydrocarbons, and raise potential growth.

Directors welcomed the authorities’ commitment to pursue sustained fiscal consolidation, within a clear medium-term budget framework.  They supported the steps being taken to reduce the fiscal deficit, namely to raise more nonhydrocarbon revenue, control current spending, expand the subsidy reform while protecting the poor, and increase the efficiency of public investment and reduce its cost.  Directors were generally of the view that tapping a broader range of financing options, including prudent external borrowing and the sale of state assets, combined with greater exchange rate flexibility, could provide room for a more gradual and growth-friendly fiscal consolidation than currently envisaged and reduce potential adverse impact on economic activity.

Directors emphasized that wide-ranging structural reforms are needed to diversify the economy and promote a dynamic private sector.  They welcomed the steps taken to improve the business environment, and the ongoing work on a long-term strategy to reshape the country’s growth model.  Directors stressed the need for timely action to reduce red tape, improve access to finance, and strengthen governance and transparency.  Attention should also be given to reducing skills mismatches, improving the functioning of the labor market, fostering greater labor participation of women, and further opening the economy to trade and foreign direct investment.  Directors underscored that the overall strategy should be carefully designed and sequenced so that reforms reinforce each other and the burden of economic adjustment is shared equitably.

Directors noted that net international reserves remain comfortable, but that the current account balance is significantly weaker than warranted by medium-term fundamentals.  They emphasized that greater exchange rate flexibility, along with fiscal consolidation and structural reforms, would help address external imbalances and support private sector development.  Directors also called for measures to deepen the official foreign exchange market and curtail parallel market activity.

Directors welcomed the introduction of open market operations by the central bank to manage liquidity. They recommended that the central bank should phase out bank financing via the discount window without delay to encourage banks to manage their liquidity more effectively.  Considering inflationary pressures, Directors encouraged the authorities to stand ready to increase the policy rate.

Directors noted that the banking sector as a whole is adequately capitalized and profitable.  However, financial sector policies should be further strengthened to address growing financial stability risks resulting from the oil price shock.  They encouraged the authorities to accelerate the transition to a risk-based supervisory framework, enhance the role of macroprudential policy, strengthen the governance of public banks, and develop a crisis resolution framework.  (IMF 01.06)

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