Fortnightly, 16 December 2015

The Netanyahu government unanimously approved the bill by Prime Minister Netanyahu and Minister of Finance Kahlon to cut taxes on Israeli companies from 26.5% to 25%. The bill will now move onto its first reading in the Knesset and should be approved by the plenum in its second and third readings by the end of December. The cut will then come into effect on 1 January 2016, as decided by Netanyahu and Kahlon last summer. The cut in company tax follows a cut in VAT from 18% to 17%, which came into effect on 1 October. These measures seek to speed up growth in the economy, with annual growth having slowed to less than 3%. (Globes 13.12)

Back to Table of Contents

1.2 Netanyahu Says Multiple Offshore Rigs Vital to Israel’s Security

Prime Minister Benjamin Netanyahu appeared on 8 December before the Knesset’s Economics Committee, which discussed the natural gas industry framework, and explained the importance and contribution multiple production sites would have to Israel’s energy and national security. The proposed outline seeks to regulate the development, harvesting, and royalties pertaining to the Leviathan, Tamar, Tanin and Karish offshore fields, as well as any future natural gas finds.

Netanyahu, who is also acting economy and trade minister, appeared before the committee to answer its questions on whether the government should be allowed to exercise a controversial article in Israel’s Antitrust Law that would allow it to circumvent the Antitrust Authority’s concerns on the matter. (Various 10.12)

Back to Table of Contents

1.3 New U.S.-Israel Cooperation for First Responders’ Advanced Technologies

The Israel -U.S. Binational Industrial Research and Development (BIRD) Foundation announced that the U.S. Department of Homeland Security (DHS) and the Israeli Ministry of Public Security (MOPS) have signed a collaborative agreement to promote and fund joint U.S.-Israel projects for the development of advanced technologies for First Responders (Law Enforcement, Firefighters and Emergency Medical Services). The new program, “NextGen First Responder Technologies”, will follow the rules and procedures of the BIRD Foundation, which funds up to 50% of the combined budget, limited to $1 million per project and is repaid only if the project achieves revenue. The program is also open to joint U.S.-Israel projects between companies and research institutions. The total expected investment is $12m to be distributed over 3 years and includes private sector funding.

The new program extends and enhances the successful collaboration that already exists between the U.S. and Israel in science and technology to the Homeland Security sector, outlined in a broader agreement signed in 2008 between DHS and MOPS. The deadline for submission of Executive Summaries for the NextGen First Responder Technologies program is 9 March 2015. Approval of projects will take place in June, 2016.

The BIRD (Binational Industrial Research and Development) Foundation works to encourage cooperation between Israeli and American companies in a wide range of technology sectors by providing funding and assistance in facilitating strategic partnerships for developing joint products or technologies. The BIRD Foundation supports projects without receiving any equity or intellectual property rights in the participating companies or in the project itself. BIRD funding is repaid as royalties from sales of technology products that were commercialized as a result of BIRD support. The Foundation provides support of up to 50% of a project’s budget, beginning with R&D and ending with the initial stages of sales and marketing. The Foundation shares the risk and does not require repayment if the project fails to reach the sales stage. (BIRD 15.12)

Back to Table of Contents

2: ISRAEL MARKET & BUSINESS NEWS

2.1 Delaware Secretary of State and Local Lawyers will Visit Israel in January

During the first week of January Delaware’s Secretary of State, Jeffrey Bullock, will lead a 10 person delegation of lawyers in a visit to Israel to discuss changes in Delaware law as it relates to Israeli companies registered there. The group will meet with various law firms and will participate in an all-day session on 7 January sponsored by the Israel Bar Association for its membership to learn more about corporate legal developments in the state. EDI, in its role representing Delaware in Israel, will coordinate and plan the visit.

Back to Table of Contents

2.2 Tel Aviv to House Australian High-Tech Hub

Australia has decided to create two high-tech incubators abroad, one in Tel Aviv and the other in Silicon Valley in California. The country’s $1.1 billion “Ideas Boom” project was announced recently by Australian Prime Minister Turnbull. The project is aimed at helping Australia become a leader in the field of new technologies, while the money allocated to the project will be distributed by the Australian government over the next four years. (YH 09.12)

Back to Table of Contents

2.3 Indiana Cyber Companies Planning Israel Visit in January

The Indiana Economic Development Corporation (IEDC) will lead a group of local companies involved in cyber-security to Israel for the Cybertech 2016 Conference & Exhibition in mid-January. The impetus of the visit came from an earlier visit to Indiana sponsored by SIBAT, the commercialization arm of Israel’s Ministry of Defense and they will host the major part of the mission. EDI, in its role as IEDC’s representative in Israel, will augment the programming.

Back to Table of Contents

2.4 Texas A&M to Open $6 Million Research Center in Israel

Texas A&M University will soon be launching a $6 million marine research center that is expected to contribute to critical projects Israel is pursuing along the Mediterranean Sea. The new center replaced plans for a $200 million campus in Nazareth. The research center, which will open in February in collaboration with University of Haifa, is a departure from plans announced in October 2013, when A&M University System Chancellor Sharp said a “peace university” was planned for Israel’s largest Arab city, Nazareth, that would bring Arabs and Jews together. The plans for an A&M branch were unveiled after consulting with then-Israeli President Peres, an advocate of coexistence between Israel’s Jewish majority and Arab minority.

Research at the Haifa center will complement work A&M students and researchers conduct along the Texas coast. It’s not yet clear how many students will study in Haifa, but it will begin with graduates and then is expected to expand to include undergraduate work. Haifa University Rector Faraggi said the agreement with A&M will create a marine monitoring station, the first of its kind in the eastern Mediterranean Sea. Sustained measurements of ocean data will help researchers forecast long-term trends. (IH 14.12)

Back to Table of Contents

2.5 OurCrowd One of theTop Ten Most Innovative Fintech Companies

OurCrowd has been voted the 10th most innovative Fintech company worldwide in the second annual ‘Fintech 100’ list, the leading Global Fintech innovators report published by investment firm H2 Ventures and KPMG. OurCrowd was the sole crowdfunding platform and the only Israeli company named among the top ten listed. This represents a significant leap from last year, when OurCrowd was ranked #22.

The ‘Fintech 100′ includes the leading 50 established Fintech companies across the globe and the most intriguing 50 ‘Emerging Stars.’ Though OurCrowd is the only equity crowdfunding platform in the top ten, the report identifies two other equity crowdfunding platforms in the top 50: CircleUp (#31) and AngelList (#50).

Jerusalem’s OurCrowd is one of the world’s leading equity crowdfunding platforms for accredited investors to invest in Israeli and global companies. Managed by a team of seasoned investment professionals, OurCrowd vets and selects opportunities, invests its own capital and brings startups to its accredited membership of 10,000 global investors. OurCrowd investors must meet stringent accreditation criteria and invest a minimum of $10,000 per deal of their choice. (OurCrowd 15.12)

Back to Table of Contents

2.6 Frutarom Expands its Presence in China and Southeast Asia

Frutarom Industries announced its acquisition of 100% of the share capital of the Hong Kong based companies Inventive Technology and Prowin International (hereinafter collectively Inventive) for $17 million. The purchase agreement includes a mechanism for future consideration conditional on the company’s business performance over the three year period following the acquisition. The transaction was financed using bank debt.

Inventive was founded in 1998 and engages in the development, manufacture and marketing of flavors and innovative flavor inclusions through the application of innovative solutions and unique technologies for combining flavors with fruit components, chocolate, grains and nuts in many food products, particularly dairy products, ice creams, pastries and beverages.

Herzliya’s Frutarom is a multinational company operating in the global flavors and fine ingredients markets. Frutarom has significant production and development centers on four continents and markets and sells over 43,000 products to more than 19,000 customers in over 150 countries. Frutarom’s products are intended mainly for the food and beverages, flavor and fragrance extracts, pharmaceutical, nutraceutical, health food, functional food, food additives and cosmetics industries. (Frutarom 09.12)

Back to Table of Contents

2.7 Perion Acquires Undertone

Perion Network has acquired New York’s Undertone, a leader in high-impact, cross-screen advertising solutions, for $180 million in total enterprise value. The acquisition will be immediately accretive and continues the strategic evolution of Perion into a global technology company delivering high-quality advertising solutions to brands and publishers.

Holon’s Perion powers innovation. Perion is a global performance-based media and Internet company, providing online publishers and app developers advanced technology and a variety of intelligent, data-driven solutions to monetize their application or content and expand their reach to larger audiences, based on its own experience as an app developer. Their leading software monetization platform, Codefuel, empowers digital businesses to optimize installs, analyze data and maximize revenue. Their mobile marketing unit, Growmobile, enables app marketers to advertise across the industry’s top-performing traffic sources, including Facebook, Twitter and Instagram (by MMR) and Google, and increase user spend, reduce churn and improve retention through CRM engagement campaigns. (Perion 01.12)

Back to Table of Contents

2.8 Revionics Acquires Marketyze to Deliver eCommerce Intelligence

Austin, Texas’ Revionics, a leading provider of End-to-End Merchandise Optimization solutions, has acquired Israel’s Marketyze, a global leader in advanced on-line competitive pricing intelligence, inventory optimization and merchandising solutions. The acquisition brings together powerful capabilities that combine unmatched real-time market, competitive and customer intelligence to execute profitable pricing, promotion and assortment decisions across all channels. This is a key competitive differentiator that will enable pure-play and omni-channel retailers to break down organizational silos, bridge online and physical channels and move at the speed of their customers across all channels. Revionics is the only vendor that now delivers a complete, end-to-end omni-channel solution from competitive data collection to pricing, planning, optimization and management with high frequency, speed and scale.

Revionics selected Ra’anana’s Marketyze for its market-disruptive advanced Big Data pricing intelligence provided via SaaS to both online and traditional retailers. Its capabilities make Revionics’ price, promotion, and space and assortment solutions even more powerful so retailers can break down silos and bridge online and physical channels, harnessing real-time market and competitive data to profit from every input. Marketyze’s unique capabilities include advanced science and proprietary algorithms that deliver the highest matching accuracy in the industry, far beyond competitors’ simplified product matching. Their powerful visualization and drill-down capabilities make competitive insights easily consumable by all types and sizes of retailers. (Revionics 08.12)

Back to Table of Contents

2.9 Ben Gurion Named 4th Best Airport in the World

Tel Aviv’s Ben Gurion Airport has been named the fourth best international airport in the world, according to Conde Nast Traveler’s annual Reader’s Choice Awards. With a Readers’ Rating of 73.414, Ben Gurion Airport falls short of the top slot by ten points to Changi Airport Singapore. According to Conde Nast Traveler, Ben Gurion Airport can attribute its high score to its easy accessibility as well as top security. Known primarily for being one of the world’s most secure airports, 15 million passengers passed through here in 2014 and it has consistently won awards for best airport in the Middle East. (Various 05.12)

Back to Table of Contents

2.10 Frutarom’s Largest Acquisition

Frutarom Industries signed an agreement for the purchase of 100% of the shares of Sagema GmbH of Austria and Wiberg GmbH of Germany (including Wiberg’s 50% ownership share in a Canadian subsidiary and 51% ownership share in a Turkish company) (collectively: Wiberg) for approx. $130.4 million (€119 million). Wiberg sales for 2015 are expected to stand at approx. $172 million (€155 million), achieving impressive rates of growth beyond the growth rates of markets in which it operates, with adjusted EBITDA of approx. $19 million (€17 million). The total value of assets acquired stood at $131 million (€107.8 million) as of 31 December 2014. The transaction will be financed using bank debt. Completion of the transaction is subject to approval from the German and Austrian antitrust authorities which Frutarom expects will be granted at the beginning of 2016.

Frutarom sees great strategic importance for this field, in which now holds a leading market position, and focuses on developing unique innovative natural and healthy products with high added value at its sites throughout the world. Wiberg’s activity is largely synergetic with Frutarom’s global savory activity and will enable Frutarom to reinforce its supply of savory products, with emphasis on the growing field of culinary solutions and on offering Wiberg’s wide selection of products and solutions in this field to its customers throughout the world. Frutarom intends to make the most of its global sales and marketing infrastructure in leveraging and realizing the many cross-selling opportunities generated by this acquisition by expanding the customer base and the product portfolio.

Back to Table of Contents

2.11 Vayyar Imaging Launches Globally

Vayyar Imaging announced a $22 million $Series B funding round led by Walden Riverwood. Series A lead, Battery Ventures, and existing investors including Bessemer Venture Partners, Israel Cleantech Ventures (ICV) and Amiti Ventures also participated in the Series B round bringing the total capital raised to date to $34m. Vayyar Imaging will leverage the new funds to scale its enterprise offering across the globe. Vayyar’s powerful sensor technology will revolutionize cancer detection, robotics, and smart home industries. Its sensors see through skin and tissue to detect breast or other cancer masses, look through walls to detect structural foundations, and can track a person’s location and vital signs as they move through a Smart Home.

Launched in December 2011, Vayyar Imaging has been quietly building its technology and carefully selecting early customers. Vayyar technology is already being used by top Fortune 500 companies and is expanding into multiple industries.

Yehud’s Vayyar Imaging is changing the market of imaging and sensing through its breakthrough 3D imaging sensor technology. Vayyar’s exclusive sensors quickly and easily look into objects or any defined volume and detect even the slightest anomalies and movements – bringing highly sophisticated imaging capabilities to your fingertips. Utilizing a highly sophisticated embedded chip and advanced imaging algorithms, their goal is to help people worldwide improve their health, safety, and quality of life using mobile, low-cost, and safe 3D imaging sensors. (Vayyar Imaging 15.12)

Back to Table of Contents

2.12 PointGrab Raises $5 Million to Tackle Building-Automation IoT Device Market

PointGrab announced an investment totaling $5 million from ABB Technology Ventures (Zurich, Switzerland), EcoMachines Ventures (London, UK), and Flex Lab IX (Milpitas, California, USA). Saar Wilf, PointGrab’s Chairman and first investor, is also participating in this funding round. Through this investment, PointGrab fuels its expansion into the rapidly growing $30 billion home and building-automation market. By embedding deep learning technology into optical sensing IoT devices, PointGrab products provide detailed information about activity within buildings to effectively support energy-saving, facility management, occupant comfort and safety, as well as business intelligence.

Hod HaSharon’s PointGrab is a leading machine learning and computer vision company that has applied its superior technology to win over 27,000,000 installations on devices from consumer electronics giants Samsung, Lenovo, Fujitsu, Acer and others. The company is supported by world leading engineering company ABB and sector expert EcoMachines Ventures of London, and applies a joint development and market approach with global leading lighting and engineering companies. (PointGrab 15.12)

Back to Table of Contents

2.13 Michigan Trade Mission to Israel Planned for January

The Michigan Economic Development Corporation (MEDC) will lead a group of local companies to Israel in late January, coinciding with the Cybertech 2016 Conference & Exhibition. Eligible Michigan companies may receive 50% reimbursement for travel expenses and the participation fee through the State Trade Export Promotion (STEP) grant. EDI will be handling B2B meetings for the delegation.

Back to Table of Contents

3: REGIONAL PRIVATE SECTOR NEWS

3.1 Star Trek in Dubai Cost $32 Million

Star Trek Beyond had the biggest budget of any film to shoot in Dubai, confirmed Jamal Al Sharif, chairman of Dubai Film and TV Commission. After, Al Sharif told tabloid! that Mission: Impossible – Ghost Protocol — which featured an iconic scene where Tom Cruise scaled the Burj Khalifa — had once been their costliest project, but not anymore. The Star Trek shoot lasted for 20 days. It went over the original schedule of 16 when the crew added locations. The film is set for a worldwide release on 22 July 2016, and will have a red-carpet premiere in Dubai. Al Sharif is expecting the stars to attend, though who shows up will depend on availability.

Abu Dhabi Film Commission offers a 30% rebate as incentive to shoot in the capital city. Furious 7 was the latest film to take advantage of that. In Dubai, a rebate system doesn’t exist. (Gulf News 14.12)

Back to Table of Contents

3.2 United Airlines to Stop Dubai Flights

United Airlines said on 9 December it will cancel flight service between Washington and Dubai starting in late January, meaning no US passenger carrier will fly direct to the Gulf state. The move comes after the US government awarded a government contract for travel on the route in 2016 to rival JetBlue Airways Corp and its codeshare partner Emirates, which will operate the Washington-Dubai flights, parent United Continental Holdings Inc said in an Internet posting. Dubai carrier Emirates will carry an estimated 15,000 US government employees, United said, adding, “We formally protested this decision but were ultimately unsuccessful.”

Delta has planned to end all flights between Atlanta and Dubai starting in February 2016. It cited what it claims is “overcapacity” on routes to the region following the expansion of Emirates, Etihad Airways and Qatar Airways, which now serve a dozen US cities with about 200 flights per week. United said its customers will still be able to book travel to the region via its partners Deutsche Lufthansa AG and Air Canada. (Various 10.12)

Back to Table of Contents

3.3 UAE’s Al Dahra Signs Agreement for Wheat and Barley Deal With Jordan

UAE-based agricultural firm Al Dahra signed an agreement with Jordan for the provision of wheat and barley to improve the country’s food security. They will provide 400,000 tonnes of wheat and another 400,000 tonnes of barley over two years. The contract, which was signed around four weeks ago, is extendable for another two years. The provision of wheat would be made outside the traditional tender process but Al Dahra would have to assure that prices are competitive.

Jordan, a major wheat importer in the Middle East, has purchased around 650,000 tonnes of wheat this year. Tougher tender terms introduced by Jordan this year have made wheat imports more difficult, putting centralized stocks under potential strain as international suppliers shy away. The Ministry of Trade and Industry has sought wheat in public tenders and announced cancellations due to a lack of offers for months.

Al Dahra is a privately held Abu Dhabi firm that trades and processes grains, and has also invested in farmland in a number of countries. It has a strategic partnership with the Abu Dhabi government for food security. (Reuters 07.12)

Back to Table of Contents

3.4 Record Growth for UAE’s Shakespeare and Co. in 2015

UAE-born casual dining restaurant group Shakespeare and Co has expanded across the emirates, with further growth in the Middle East over the last 12 months. The café chain now operates a total of 44 restaurants in 34 locations in the United Arab Emirates and United States, with an additional ten franchised outlets across the MENA region. During 2015, the group has opened ten new outlets in the UAE. These outlets include the first Shakespeare and Co in Ajman, two venues in Al Ain, one in Ras al-Khaimah, plus six new sites located across Dubai and Abu Dhabi. Agreements have also been signed to launch the first Shakespeare and Co. in Umm al Quwain, which will be situated on the seafront.

Planned expansion further afield, includes two new locations in Cairo, Egypt, located at the Capital Business Park and City Stars Heliopolis. The first Shakespeare and Co. has also launched in Erbil, the capital of Iraqi Kurdistan, which is currently witnessing rapid growth in the hospitality industry. (AB 07.12)

Back to Table of Contents

3.5 DynCorp to Support Saudi Land Forces Aviation Command

McLean, Virginia’s DynCorp International has been awarded a hybrid, Firm-Fixed Price/Cost Reimbursable Foreign Military Sale (FMS) contract comprised of a two-year base period and three one-year option periods to provide maintenance management and support for Saudi Arabia’s Land Forces Aviation Command. The base award is funded at $61 million, with a potential, if all options are exercised, for $215 million, with an estimated completion date of January 2021. DynCorp International is a leading global services provider offering unique, tailored solutions for an ever-changing world. Built on more than six decades of experience as a trusted partner to commercial, government and military customers, DI provides sophisticated aviation, logistics, training, intelligence and operational solutions wherever needed. (DynCorp 07.12)

Back to Table of Contents

4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Israel Electric Corp Ordered to Reduce Reliance on Coal

The Ministry of Environmental Protection ordered Israel Electric Corporation (IEC) to reduce its reliance on coal for generating electricity. Instead, the IEC has been instructed to increase its use of natural gas considered to be friendlier to the environment. The order handed down to IEC said to reduce coal use at the Orot Rabin power station by 8-10% in 2016. The ministry directive was a condition for the IEC receiving permission to delay a comprehensive project to install scrubbers at its electricity generation units at an estimated cost of NIS 8 billion. The company had started implementing new systems to lower harmful emissions but was struggling to maintain the timetable that was set and requested to postpone the deadline for the project’s completion.

The Ministry of Environmental Protection that in response to its directive, 1.4 terawatt will be diverted from coal electricity generation to natural gas amounting to 3% of its total generation capacity. It claimed the installation of the scrubbers in all coal-powered generation units would prevent the premature deaths of 234 lives each year and the changes in the Orot Rabin station alone will prevent the premature deaths of 25 people each year. Meanwhile, energy market sources criticized the ministry over its report of the premature deaths, claiming the figure of 25 annual deaths in the Hadera area (caused by the Orot Rabin station’s operations) was never validated by the Ministry of Health. (Globes 14.12)

Back to Table of Contents

4.2 Top Solar Developers Vying for 800 MW Dubai Contract

Dubai’s state utility company has said that a large number of international developers have submitted bids to be involved in the third phase of the Sheikh Mohammed bin Rashid al-Maktoum Solar Park. The tender for the project, an 800 MW power plant, was launched recently and has attracted solar heavyweights such Engie-Marubeni, SunEdison, ACWA Power, EDF-Nebras, FRV- Masdar, and Al-Fanar-Building Energy. The winner is likely to be announced early next year.

The companies lead the list of international consortia that have submitted their qualifications alongside solar panel manufacturers such as Jinko Solar (with RWE) and REC Solar(with Viverdis). New entrants such as M+W & Stumpf Energy, Tetratech and Acciona-Swicorp have also thrown their names into the hat. (AB 09.12)

Back to Table of Contents

5: ARAB STATE DEVELOPMENTS

5.1 Lebanon’s Trade Deficit Continued Narrowing in October

Lebanon’s trade deficit declined by 18.36% year-on-year (y-o-y) by October, to $11.97B, caused by the 19.13% decrease in overall imports, surpassing the 10.66% decline in total exports. The decrease in exports and imports can be attributed to the bearish trends of both, the Euro and oil prices. Total imports, in the first 10 months of 2015, amounted to $14.46 compared to $17.45B during the same period last year.

The three major product categories that were imported to Lebanon by October were mineral products (16.7% share of total imports), “machinery and electrical instruments” (11.83% share of total imports) and “products of the chemical or allied industries” (11.18% share of total imports). Mineral product imports posted a substantial drop of 43.86% year-on-year (y-o-y), to $2.42B, by October. This decline comes from the decline in oil prices as the demand for this essential commodity is inelastic. Similarly, the value of “machinery and electrical instruments” imported and that of “products of the chemical or allied industries” went down by 6.92% and 4.52% y-o-y by October to $1.71B and $1.62B, respectively.

Notably, the three major countries that Lebanon imported goods from were China, Italy and Germany with respective weights of 12.05%, 7.41% and 6.76%. Similarly, total exports fell yearly from $2.79B by October 2014 to $2.49B this year. Specifically, the value of exported “prepared foodstuffs, beverages, and tobacco” (16.15% share of total exports) experienced a yearly contraction of 5.27% to $402.84M in the first 10 months of 2015, however, the volume edged up by 14.21% during the same period. The decline in prices may be aligning with European prices, especially following the Euro depreciation in addition to the drop in costs due to the decline in raw material prices and their impact on input prices. Furthermore, exported “pearls, precious stones, and metals” and “machinery and electrical instruments”, constituting respective shares of 15.20% and 13.77% of total exports, went down by 21.34% and 7.55% y-o-y by October to $379.01M and $343.38M, respectively. The volume of “pearls, precious stones, and metals” dropped 26.76% y-o-y and that of “machinery and electrical instruments” declined by 18.05%. In terms of the major destinations of the Lebanese exports, Saudi Arabia came first with a 12.08% share, followed by UAE and Iraq with respective shares of 10.58% and 7.53%. In October alone, trade deficit narrowed from $1.44B in 2014 to $1.21M in 2015, as imports and exports fell by 12.19% and 6.64%, respectively. (CAS 05.12)

Back to Table of Contents

►►Arabian Gulf

5.2 Gulf States Set Target to Introduce VAT by 2018

Arabian Gulf states have agreed on key issues for implementing value-added tax in the region, moving the six nations closer to introducing direct taxation for the first time. The agreement was reached at a meeting of representatives from Gulf ministries in early December.

Introducing VAT would be a major economic reform in the Gulf Cooperation Council states, which have minimal tax systems and no tax on income, although some levy fees such as road tolls. The plunge of oil prices since last year has slashed government incomes, making it more urgent for them to find new revenue. The UAE – one of the six GCC countries, which also include Bahrain, Kuwait, Oman, Qatar and Saudi Arabia – is expected this year to post its first budget deficit since 2009.

The target for introducing the tax is three years and that it would take 18 to 24 months to implement once a final GCC agreement has been reached. To limit smuggling and damage to competitiveness, analysts say, the Gulf countries should introduce VAT regionally, rather than individually at different times. The six states have been discussing the tax for years, but political and economic issues have delayed the project. No indication of the rate at which VAT will be levied has been given by governments, although the IMF has suggested the UAE consider imposing VAT at a 5% rate. (Reuters 07.12)

Back to Table of Contents

5.3 Qatar’s October Foreign Trade Surplus Halves to $3.6 Billion from Year Earlier

Qatar’s foreign trade surplus halved to QR12.24 billion ($3.6 billion) in October compared to a year earlier because of low oil and natural gas prices, preliminary data from the Ministry of Development Planning and Statistics has showed. Exports of petroleum gases and other gaseous hydrocarbons fell 37.5% in October to QR13.83 billion.

In September, Qatar’s finance minister Ali Sherif Al Emadi said the Gulf state would not scale back economic development projects or cut state subsidies for fuel and food in response to low oil and natural gas prices, because government finances remain strong. The comments set Qatar apart from other wealthy Gulf Arab oil exporting states; the other five members of the Gulf Cooperation Council have begun to curb spending or review costly consumer subsidies because of the plunge of energy prices since last year.

Qatar, the world’s top liquefied natural gas exporter, is in the strongest financial position. Qatari officials have announced plans to spend around $200 billion on infrastructure projects over the next decade or so, many related to Qatar’s hosting of the 2022 soccer World Cup. (AB 12.12)

Back to Table of Contents

5.4 UAE to House 80% of Cheapest Innovative Drugs in GCC

On 14 December, the UAE Ministry of Health launched the 6th initiative of ‘Reduction in Medicine Prices’, meaning that by January 2016, the country will hold 80% of the GCC’s cheapest innovative medications. Effective from 1 January 2016, 24 pharmaceutical companies will be given a two-week grace period to re-price the selected 142 innovative products. The reductions in price will range from 2% to 63%, with more than 30 products (21%) being reduced in price by between 15-20%.

The medications up for re-pricing will cover nine main categories of disease/illness, with the majority – 106 products – used to treat central nervous system disorders. Products used to treat obstetrics, gynecology and urinary-tract disorders will account for 13 of the 142 total count.

The decision came following an extensive meeting held recently between the Ministry of Health and the heads and directors of global pharmaceutical companies and representatives of local factories and agents accredited to the pharmaceutical companies. (AB 14.12)

Back to Table of Contents

5.5 Clarification Requested Concerning Dealings Between UAE and US Banks

The United Arab Emirates wants authorities in the United States to clarify regulations for US banks doing business with UAE banks because the current system is holding up transactions happening via the US dollar clearing service. UAE central bank governor Mubarak Rashid al-Mansouri said that the Gulf state’s banks were facing difficulties working with US correspondent banks due to this heavy regulatory burden.

The impact of the regulations is affecting trade and, more specifically, the large numbers of expatriates based in the UAE – many from Asian and African countries – who are sending money back home. The US regulations, part of a tougher regime introduced since the financial crisis, include scrutiny of potential tax avoidance and anti-money laundering rules, which have imposed extra burdens and costs on banks in the United States and also the banks they do business with.

The high cost of these additional checks has led many US banks to reduce the number of international institutions they deal with, which Mansouri said was impacting banks in the UAE. He said there was a constraint on the availability of dollar clearance services – the ability to process transactions in the US currency – which was contributing to the UAE banks’ problems.

The UAE raised the issue with US authorities in November, asking for clearer compliance guidance to be communicated to US banks, which also needed to understand better the customer base and risk profiles of financial institutions in the Gulf, Mansouri said. (Reuters 09.12)

Back to Table of Contents

5.6 Preliminary Data Shows UAE Non-Oil Trade Grew by 2% in First Half

The UAE’s non-oil trade grew 2% year-on-year clocking at AED534.1 billion in first half of 2015, compared with AED521.8b in the same period a year earlier, based on preliminary statistical data of the Federal Customs Authority (FCA). The figures show that the country’s exports surged by 28%, while imports saw a drop of 1% during the period. YoY exports stood at AED81.4b compared with AED63.6b for 2014, in contrast to imports that amounted to AED337.6b, down from AED340.6b in the past year.

Gold, with a value of AED28.7b, topped the list of exported goods representing 35% of the UAE’s total non-oil exports, while AED50.7b worth of gold and processed gold were the most imported goods in the first six months of the current year.

Revenues from re-exports dropped by 2% recording AED115.2b compared with AED117.6b YoY.

Asia, Australia and the Pacific region remained the UAE’s top non-oil trade partner with a share of AED218.3b, equivalent to 42% of the UAE total non-oil trade, while the European region came second with a share of AED129.2b representing 25% of the total. With regard to the UAE non-oil trade with the GCC countries, the FCA stated that the UAE’s share in the first half of 2015 reached 10% or AED53b of the total non-oil trade. Saudi Arabia was the top trading partner in the region. (AME 01.12)

Back to Table of Contents

5.7 Etihad Rail Gets Green Light to Start Ops on Phase 1 of $11 Billion Network

Etihad Rail has been given the green light to start commercial operations on stage one of the UAE’s $11 billion transport project. Dr Abdulla Bilhaif Al-Nuaimi, Minister of Public Works and chairman of the Federal Transport Authority – Land & Maritime (FTA), on 9 December granted the official safety authorizations. Stage one will transport sulphur from Shah and Habshan to the port of Ruwais on two daily trains, each transporting 11,000 tonnes. This will dramatically decrease the number of trucks on the road.

The safety authorizations were granted during a ceremony in Dubai, which accredited Etihad Rail’s operations partner Etihad Rail DB to begin commercial operations on the 264km route, which forms part of the wider UAE network spanning across 1,200km and the future GCC network. Covering 628km, stage two will involve the completion of the rail network in the Abu Dhabi Emirate by connecting to the Saudi border at Ghweifat and the Omani border at Al Ain, and by connecting vital areas such as Mussaffah, Khalifa Port and Jebel Ali Port in Dubai. Preliminary design and engineering for stage two have been completed and the tender process for six construction packages is in the final stages of evaluation. (AB 09.12)

Back to Table of Contents

5.8 UAE & China Launch $10 Billion Joint Strategic Fund

In Beijing Shaikh Mohammad Bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces held official talks with Chinese President Xi Jinping to bolster strategic bilateral cooperation, and discuss regional and international issues. During the talks, the two leaders witnessed the launch of a $10 billion UAE-China joint strategic investment fund.

Since formal diplomatic relations between the UAE and China were established in 1984, bilateral trade between the two countries has grown from $63 million in 1984 to $54.8 billion today, and is expected to reach $60 billion by the end of the year. The fund will play a critical role in supporting the ‘One Belt, One Road’ strategic initiative, working towards improving connectivity and cooperation with China’s regional partners across Eurasia. Chinese President Xi Jinping said the fund – which is flexible in terms of investments – will contribute to the strengthening and deepening the strategic and economic relations between the two countries. (Gulf News 14.12)

Back to Table of Contents

5.9 Oman’s Natural Gas Production & Imports Stand at 32 Billion Cubic Meters

Oman’s local natural gas output and imports edged up by 4.5% in the first ten months of the current year to a total of 32.8 billion cubic meters, according to Oman’s National Centre for Statistics and Information. Roughly 17.7% of the Sultanate’s output was associated with gas, In terms of use, nearly 54.6% of the country’s natural gas output was used by industrial projects this year, compared with 55.2% in the same period last year. Furthermore, the Sultanate’s oil fields consumed 21.9% of natural gas output while electric power-generation plants used 21.8% of the total output. Local production peaked in August with 3.603b cubic meters while April saw local production at its lowest (2.97b cubic meters).

Noteworthy, Oman’s oil exports amounted to 232.5 million barrels during the first nine months of the year 2015, with annual increase of 5.7%. The data indicates an average daily oil production of 978,000 barrels during the period under study, with an annual increase of 3.2%. (AME 15.12)

Back to Table of Contents

5.10 Saudi Arabia Lifts Ban on Brazilian Beef Imports After Mad Cow Scare Ebbs

Saudi Arabia has agreed to lift a three-year ban on Brazilian beef imports which was imposed after confirmation of a 2010 case of atypical mad cow disease. Brazil and Saudi Arabia has signed an MoU to open the Middle East to Brazilian beef exports, which could lead to Saudi Arabia importing approximately $150 million worth of beef per year. The number serves as a conservative estimate as in 2012, the last year that Brazil shipped beef to the Arab nation, sales amounted to $156 million.

Saudi Arabia’s 2012 ban on Brazilian beef imports was imposed following a report that an animal with symptoms of mad cow disease had died in the Brazilian state of Paraná in 2010, although the animal in question was proven to not have developed the actual condition. News of the ban being lifted has greatly encouraged the market, with meat companies now aiming to return to the 2012 export level of around 36,000 tons. The Saudi move might encourage other Gulf countries such as Qatar, Kuwait and Bahrain that have also banned beef imports, to explore the possibility of opening their market to Brazil, as these imports could potentially amount to 40,000 tons a year. (AB 08.12)

Back to Table of Contents

►►North Africa

5.11 African Development Bank Approves $1.5 Billion Loan to Egypt

The African Development Bank (AfDB) has approved a $1.5 billion loan to Egypt to be paid out over three years. The first $500 million of the loan will arrive within days and will go toward the government’s economic development program and national projects.

Egypt expects to receive an additional $1 billion from the World Bank by the end of the year to support the budget and could discuss potential IMF financing once parliament convenes. A foreign currency shortage has crippled import activity this year and the country has scrambled to find new sources of dollars as shipments have piled up at ports and manufacturing has slowed. Foreign currency reserves, which stood at about $36 billion before the 2011 uprising that toppled Hosni Mubarak, were $16.42 billion at the end of November despite billions of dollars in Gulf Arab aid that Egypt has received since mid-2013. (Reuters 15.12)

Back to Table of Contents

5.12 Egypt Seeks to Become Regional Energy Hub

Tarek El-Molla, Egypt’s Minister of Petroleum, said his country has been tirelessly working to become a regional energy hub through a set of measures and projects. He pointed out that his country has embarked on a multi-year program to reform the energy sector, achieve a more balanced energy mix and address problems in the natural gas sector. El-Molla indicated that the Egyptian government has endorsed the natural gas law under which a regulatory body will be established to control this sector. The minister spoke about a number of measures to increase local production of crude oil and natural gas.

According to the minister, inbound foreign investments amounted to $7.7 billion in the fiscal year of 2014-2015 and $8.6b in 2015-2016. He assured that foreign investment continues to flow to the Egyptian energy sector despite challenges in the global markets. Furthermore, the Egyptian government has managed to pay off roughly 50% of the amount it owes to foreign companies, El-Molla added. (AME 26.11)

Back to Table of Contents

6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1 Turkey’s GDP Growth Higher Than Expected at 4% in 3rd Quarter

Turkey’s economy grew at a rate of 4% in the third quarter from the same period in the previous year, the Turkish Statistical Institute (TUIK) reported on 10 December. The figure exceeded analyst consensus estimates of 2.7%. Growth was up from 3.8% in the second quarter. (AA 10.12)

Back to Table of Contents

6.2 Turkish Central Bank Foresees 6.5% Inflation in 2016

The Turkish Central Bank has forecast the country’s inflation to stand at 6.5% at the end of 2016, according to the bank’s governor, Erdem Basci. Addressing a press conference for the presentation of the bank’s 2016 monetary and exchange rate policy in Ankara, Basci said the bank would maintain its tight monetary policy, while ensuring foreign exchange liquidity. Basci did not discuss plans to narrow the difference between Turkey’s one-week lending rate and overnight lending rate, known as the interest rate “corridor.” The Central Bank had announced these plans on 18 August but has not provided additional details since. Inflation in Turkey rose to an annual 8.1% in November from 7.58% in October, the Turkish Statistics Institute (TUIK) reported on 3 December. (HDN 09.12)

Back to Table of Contents

6.3 Turkey’s Unemployment Continues to Rise as Syrians Enter Workforce

Turkish unemployment edged higher to 10.3% in the September period between August and October from 10.1% at the previous period, but was slightly lower than the same period last year, the Turkish Statistics Institute (TUIK) said on 15 December. A rise in general participation in the workforce and in the number of Syrian migrants hired in the country has played a role in pushing up the unemployment rate, according to experts.

The unemployment rate was announced at 10.3% in September with a decrease of 0.2%age point compared to the same period of 2014. In the same period, non-agricultural unemployment rate realized as 12.4% with a 0.3%age point decrease from the same period of 2014, according to official data. While youth unemployment rate, which includes those aged from 15-24, realized as 18.5% with a 0.6% decrease, unemployment rate for 15-64 age group appeared as 10.5% with a 0.2% decrease.

Turkey’s economy grew at a surprising 4% in the third quarter from the same period in the previous year, beating expectations and showing the economy in better shape than many analysts had forecasted. The 9-month growth rate has reached 3.4%.

According to a joint study by the Turkish Confederation of Employer Associations and the Ankara-based Hacettepe University’s Center for Migration and Political Studies, there are around 2.2 million Syrians in Turkey now, most of whom plan to live permanently in the country. At least 300,000 Syrians have been forecast to work unregistered as they still cannot legally register in the system. (HDN 15.12)

Back to Table of Contents

6.4 Bulgaria & Greece Sign Natural Gas Pipeline Investment Agreement

Bulgaria and Greece signed an agreement to start building a pipeline linking the two countries’ natural-gas grids, which will help Bulgaria diversify its gas supply and connect Greece to the rest of the European network. State-owned Bulgarian Energy Holding and IGI Poseidon, a joint venture between Greek state-owned gas supplier DEPA SA and Italy’s Edison SpA, signed a final investment agreement on 10 December. The pipeline, scheduled to become operational in 2018, is estimated to cost €220 million ($241 million), of which the European Union will provide €45 million.

The 182-kilometer (112-mile) link will have annual capacity of 3 billion to 5 billion cubic meters and will run between the Greek city of Komotini and the Bulgarian city of Stara Zagora. The EU’s poorest country in terms of per capita output, depends almost entirely on flows of Russian gas shipped through Ukraine, while the 28-nation bloc seeks to diversify energy sources by improving cross-border gas and power links. [Bloomberg 10.12)

Back to Table of Contents

7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Fast of the 10th of Tevet

The tenth of Tevet (Asarah BeTevet), the tenth day of the Hebrew month of Tevet, is a fast day in Judaism. Falling this year on 22 December, it is one of the minor fasts observed from before dawn to nightfall. The fasting commemorates the beginning of the siege of Jerusalem by Nebuchadnezzar II of Babylon, an event that eventually culminated in the destruction of Solomon’s Temple (the First Temple) and the conquest of the Kingdom of Judah (today southern Israel).

Back to Table of Contents

*REGIONAL:

7.2 24 December Declared a Paid Holiday for UAE Workers

24 December has been declared a paid holiday for all public and private workers in the UAE, it was announced. The holiday is to celebrate the birthday of Prophet Mohammad and was postponed from 23 December. Saqr Ghobash, the UAE Labour Minister, confirmed the holiday will be for both public and private sector workers. The Department of Tourism and Commerce Marketing confirmed in a circular that bars, hotels and restaurants in the emirate will not service alcohol between 17:00h on 22 December and 18:30h on 23 December, as a mark of respect for the birthday of the Prophet Mohammed. Alcohol will be served as normal on 24 December. 25 December is also likely to be a holiday for some UAE workers as Christians celebrate Christmas. (WAM 14.12)

Back to Table of Contents

7.3 Saudi Arabia Elects 17 Women in Landmark Election

Saudi Arabians voted 17 women into public office in municipal elections in the conservative Islamic kingdom on 12 December, the first to allow female participation. The election was the first in which women could vote and run as candidates, a landmark step in a country where women are barred from driving and are legally dependent on a male relative to approve almost all their major life decisions. However, the election was for only two thirds of seats in municipal councils that have no lawmaking or national powers, and follows men-only polls in 2005 and 2011.

Under King Abdullah, who died in January and who announced in 2011 that women would be able to vote in this election, steps were taken for women to have a bigger public role, sending more of them to university and encouraging female employment. However, while women’s suffrage has in many other countries been a transformative moment in the quest for gender equality, its impact in Saudi Arabia is likely to be more limited due to a wider lack of democracy and continued social conservatism. (Various 14.12)

Back to Table of Contents

7.4 Divorced & Widowed Saudi Women to Get Greater Legal Powers

Saudi Arabia will let divorced women and widows manage family affairs without approval from a man or a court order, a state-aligned newspaper said on 2 December, a major step to lift some of the legal powers men hold over female relatives. Under the late King Abdullah, the autocratic Islamic kingdom made some reforms to give women more rights, but these remain severely restricted. Efforts to emancipate women are held back by a powerful clergy and an ultra-conservative society.

The Al Riyadh newspaper said the Interior Ministry will issue family identity cards not only to men, but also to divorcees and widows, granting them powers that will include accessing records, registering children for schools and authorizing medical procedures. In a country where men hold legal powers over female relatives in almost all their interactions with the state, the change will significantly change the lives of divorced or widowed women, particularly for those bringing up children alone.

Until now, women had to get permission from a divorced husband, and apply to courts if that failed, to perform any of these basic activities. Family status cases account for 65% of all those before courts, clogging up an already stretched judicial system. Saudi Arabia is the only country where women are barred from driving, and in which they are the legal wards of a male “guardian”, usually a father, husband or brother, who is empowered to make big life decisions for them. No changes have yet been proposed for male guardianship of female relatives beyond the reported plans for widows and divorced women. (Reuters 02.12)

Back to Table of Contents

8: ISRAEL LIFE SCIENCE NEWS

8.1 CollPlant Reports Positive Final Trial Results for VergenixFG Wound Filler

CollPlant announced positive final trial results for Vergenix FG (Flowable Gel), designed for the treatment of chronic, hard to heal wounds and surgical wounds. The 20 patient, open, single arm trial was conducted at a number of wound clinics within Israel. The trial objective was achieved, demonstrating the safety of Vergenix FG and its performance in patients with chronic, hard to heal lower limb ulcers. All patients in the trial received a one-time treatment with Vergenix FG, followed by a four-week follow-up. Product performance was examined according to several indicators, including the percentage of wound closure achieved.

Diabetic foot ulcers only represent about one quarter of the total chronic wound market, indicating that the target market for VergenixFG is several magnitudes greater than the diabetic foot ulcer market alone. CollPlant also sees the opportunity for expansion of VergenixFG beyond chronic wounds into the treatment of surgical wounds. Earlier this year CollPlant announced that it had submitted its CE Technical File to the European Notified Body to obtain CE Marking for Vergenix FG.

Ness Ziona’s CollPlant is a clinical-stage regenerative medicine company leveraging its proprietary, plant-based rhCollagen technology for the development and commercialization of tissue repair products, initially for the orthobiologics and advanced wound care markets. The Company’s cutting-edge technology is designed to generate and process proprietary recombinant human collagen (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 biofunctionality, superior homogeneity and reduced risk of immune response. (CollPlant 30.11)

Back to Table of Contents

8.2 Algatechnologies Introduces New Grade of AstaPure Natural Astaxanthin

Kibbutz Ketura’s Algatechnologies (Algatech) launched its AstaPure 5% Natural Astaxanthin oleoresin, derived from Haematococcus pluvialis microalgae. This latest addition to the AstaPure family completes Algatech’s line of natural astaxanthin oleoresin delivery platforms, with three concentrations: 5%, 10% and 20%. This standardized ingredient is sourced from a rich astaxanthin microalgal biomass developed at the Algatech facilities. The oleoresin is produced utilizing an advanced CO2 extraction technology that enables delicate separation without organic solvents, keeping astaxanthin’s natural bioactive properties intact.

Algatech’s cultivation process employs an environmentally controlled process energized by natural sunlight for the production of high-purity astaxanthin ingredients. The company’s proprietary production methods make it possible to standardize natural astaxanthin to almost any requested concentration. All AstaPure products can be used across multiple forms of dietary supplements, cosmeceuticals, foods and beverages. Algatech, a global biotechnology company specializing in the commercial cultivation of microalgal ingredients, holds Kosher, Halal ISO 9001-2008, HACCP and GMP international certifications, and is a member of the Natural Algae Astaxanthin Association (NAXA). (Algatechnologies 07.12)

Back to Table of Contents

8.3 Teva & Eagle Announce FDA Approval of BENDEKA

Teva Pharmaceutical Industries and Woodcliff Lake, NJ’s Eagle Pharmaceuticals announced that the U.S. FDA has approved BENDEKA, (bendamustine hydrochloride) injection, a liquid, low-volume (50 mL) and short-time 10-minute infusion formulation of bendamustine. BENDEKA is approved for the treatment of patients with chronic lymphocytic leukemia (CLL) and for the treatment of patients with indolent B-cell non-Hodgkin lymphoma (NHL) that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen. Efficacy in CLL relative to first-line therapies other than chlorambucil has not been established. BENDEKA was granted Orphan Drug Designations for both CLL and indolent B-cell NHL.

Under the February 2015 exclusive license agreement for BENDEKA, Teva is responsible for all U.S. commercial activities for the product including promotion and distribution. Teva expects to make BENDEKA commercially available to prescribers during Q1/16.

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions to millions of patients every day. Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area. In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. (Teva 08.12)

Back to Table of Contents

8.4 Pluristem Signs MOU with Fukushima to Study Acute Radiation Syndrome

Pluristem Therapeutics signed a Memorandum of Understanding (MOU) for collaboration with Fukushima Medical University, Fukushima Global Medical Science Center. The purpose of the collaboration is to develop Pluristem’s PLX-R18 cells for the treatment of Acute Radiation Syndrome (ARS), and for morbidities following radiotherapy in cancer patients.

ARS is caused by exposure to dangerously high levels of radiation, such as could occur in a nuclear catastrophe, and incorporates potentially lethal damage to the gastrointestinal tract, lung, skin and bone marrow, as well as other systems. In this new collaboration PLX-R18 cells will be studied primarily as a potential treatment for radiation-induced damage to the skin, lungs and gastrointestinal tract. The parties intend to develop preclinical models of radiation damage in these tissues, and then use them in trials. Pluristem will contribute PLX-R18 cells and scientific knowledge, while Fukushima Medical University will conduct the studies, and provide the required resources.

The collaboration will proceed alongside research supported by the U.S. National Institutes of Health (NIH), which is studying PLX-R18 as a potential treatment for the hematologic component of ARS. Insufficient blood cell production by the bone marrow, which may be caused by various reasons including ARS and cancer treatments, can be life threatening because it may lead to hemorrhage, the inability to fight infection, and anemia.

Haifa’s Pluristem Therapeutics is a leading developer of placenta-based cell therapy products. The Company has reported robust clinical trial data in multiple indications for its patented PLX (PLacental eXpanded) cells. The cells release a cocktail of therapeutic proteins in response to inflammation, ischemia, hematological disorders, and radiation damage. PLX cell products are grown using the Company’s proprietary three-dimensional expansion technology. They are off-the-shelf, requiring no tissue matching prior to administration. (Pluristem 03.12)

Back to Table of Contents

8.5 BASF & Evogene Collaborate for Novel Herbicide Development

Germany’s BASF, the world’s leading chemical company, and Evogene signed a three-year collaboration for the discovery and development of novel herbicides. Under the terms of agreement, Evogene will utilize its biology-driven computational discovery approach to identify potential candidate chemicals for novel herbicides. BASF will use its proprietary advanced plant platform to screen the candidate chemicals in order to experimentally validate their biological effects on weeds. Successful candidates from this collaboration will be further developed by BASF. The collaboration will be for a period of three years. Additional details of the agreement were not disclosed.

Rehovot’s Evogene is a leading company for the improvement of crop productivity and economics for the food, feed and biofuel industries. The Company has strategic collaborations with world-leading agricultural companies to develop improved seed traits in relation to yield and a-biotic stress (such as tolerance to drought), and biotic stress (such as resistance to disease and nematodes), in key crops as corn, soybean, wheat and rice, and is also focused on the research and development of new products for crop protection (such as weed control). (Evogene 08.12)

Back to Table of Contents

8.6 Egalet Agreement with Teva to Commercialize SPRIX Nasal Spray

Wayne, Pennsylvania’s Egalet Corporation, a fully integrated specialty pharmaceutical company focused on developing, manufacturing and commercializing innovative treatments for pain and other conditions, announced a collaboration agreement with Teva Pharmaceutical Industries, Israel’s leading global pharmaceutical company. With this agreement, Egalet granted Teva exclusive marketing and commercialization rights to SPRIX (ketorolac tromethamine) Nasal Spray in Israel, Gaza and Judea & Samaria. Teva, a leader in the commercialization of central nervous system (CNS) products, including many in pain management, will be responsible for registering, marketing, distributing and selling SPRIX Nasal Spray in these territories. Under the terms of the agreement, Egalet will receive an undisclosed upfront payment, sales-based milestones and will share in the profits from net sales of SPRIX in these territories.

SPRIX Nasal Spray is a non-steroidal anti-inflammatory drug (NSAID) indicated in adult patients for the short-term (up to five days) management of moderate to moderately severe pain that requires analgesia at the opioid level. (Teva 14.12)

Back to Table of Contents

8.7 KAHR Medical Raises $12 Million in Series B Private Equity Financing

KAHR Medical raised $12m at the first closing of a $15m Series-B private equity financing. A second closing of the round, in which the additional $3m will be invested, is anticipated to take place prior to 15 February. Proceeds of the new financing will be used primarily to fund the clinical development of KAHR’s lead product, KAHR-102, which recently received regulatory approval in Israel to initiate a Phase-I/IIa in lymphoma, as well as pre-clinical development of KAHR-101 and new pipeline programs.

Korea Investment Partners, Mirae Asset Venture Investment and DSC Investment, participated in the first closing, along with an existing investor, Flerie Invest AB, a company controlled by Thomas Eldered, CEO and a major shareholder in Recipharm (RECI-B.ST), one of the largest pharmaceutical Contract Development and Manufacturing Organizations (CDMO) in Europe.

Jerusalem’s KAHR is an Israeli biotech company developing a drug platform known as DSP (Dual Signaling Proteins), bi-functional fusion proteins that are based on the TNF-superfamily, the proteins that control the immune system. KAHR’s technology allows the construction of biological drugs with two functional sides that allow these drugs to block or activate two reinforcing biological signals at the same time. KAHR’s DSP platforms, named DSP-Hexamers and DSP-Clusters, form a new generation of biological drugs with great diversity and superior efficacy for the treatment of multiple cancer and autoimmune disease indications. (KAHR 15.12)

Back to Table of Contents

8.8 Kitov’s Pivotal Phase III Trial Meets Primary Efficacy Endpoint

Tel Aviv’s Kitov Pharmaceuticals, an innovative biopharmaceutical company focused on late-stage drug development, announced that the Phase III, double-blind, placebo-controlled clinical trial for its leading drug candidate, KIT-302, successfully met the primary efficacy endpoint of the trial protocol as approved by the U.S. FDA. Data from the trial further revealed that KIT-302 was more efficacious at reducing hypertension than the widely used hypertension drug amlodipine besylate. Kitov plans to file its New Drug Application (NDA) for marketing approval of KIT-302 with the FDA in the second half of 2016.

A combination drug, KIT-302, simultaneously treats pain caused by osteoarthritis and treats hypertension, which is a common side effect of stand-alone drugs that treat osteoarthritis pain. KIT-302 is comprised of two FDA approved drugs, celecoxib (Celebrex) for the treatment of pain caused by osteoarthritis and amlodipine besylate, a drug designed to treat hypertension.

Kitov Pharmaceuticals Holdings is a biopharmaceutical company focused on the development of therapeutic candidates for the simultaneous treatment of various clinical conditions. In particular, Kitov focuses on developing combinations of existing drugs in advanced stages of development. Kitov’s lead drug, KIT-302, is formulated for the simultaneous treatment of two clinical conditions – pain caused by osteoarthritis (OA) and hypertension (high blood pressure), which can be pre-existing or caused by the treatment for OA. KIT-302 is based on celecoxib, the active ingredient of a known and approved-for-use drug designed primarily to relieve pain caused by OA, and the generic drug amlodipine besylate. (Kitov 15.12)

Back to Table of Contents

9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Plarium Announces First Cross-Platform Game with Nords for iOS and Android

Plarium announced the official release of the massively multi-player online strategy game Nords: Heroes of the North, for iOS and Android devices with cross-platform capabilities. Players are now able to seamlessly experience Nords across Facebook, Android and iOS with one singular account. Nords is set in the fantasy world of Shingord where players lead an army of Elves, Dragons, Northmen and Orcs who have set aside their differences to defend their land against an evil Ice Queen and her swarm of the undead as they aim to conquer the world. Nords was released and featured on Facebook in May to much success. Along with Plarium’s signature MMO Strategy gameplay fans have come to expect, Nords features never-before-seen 3D battle animation in the game and all-new RPG features.

Founded in 2009, Herzliya’s Plarium Global is dedicated to creating the best mobile and social experience for hardcore gamers worldwide. With over 150 million registered users, we’re proud to be consistently ranked among Facebook’s top hardcore game developers. Plarium employs more than 1000 individuals and is headquartered in Israel with five offices and development studios across Europe and the United States. (Plarium 08.12)

Back to Table of Contents

9.2 Shopicks New Shopping Platform Streamlines Online & Mobile Shopping

During the holiday season, Shopicks launched a new shopping platform that revolutionizes the art of online and mobile shopping by streamlining the process with a built-in web browser and a mobile app solution. Shopicks allows shoppers to save time and money, and make more informed purchase decisions. Currently available on Google Chrome and iOS, Shopicks provides users with the ability to capture their online shopping discovery moments, mobile navigation to preferred stores, get sale alerts on saved items, and share collections with friends to get feedback.

With Shopicks, users can create collections of their favorite items from any website and manage all shopping choices from one central place – taking the chaos out of online shopping and enhancing traditional in-store shopping. The Shopicks desktop solution features an intuitive toolbar that pops up at the bottom of a webpage when shoppers want to use it. Users simply drag items found on any website into the toolbar and sort them into different collections. The mobile app syncs automatically with the web platform, allowing users to take their items with them on-the-go and find their preferred stores nearby using the Shopping GPS, whether shopping locally or while abroad. The mobile app also offers users the ability to shop on their device’s browser, collect their favorite items and capture them right into their app.

With Ramat Gan’s Shopicks, shoppers save time and money while making more informed purchase decisions. Shopicks is a must-have for anyone who shops, as well as small business owners and professional shoppers ready to experience the easiest way to discover, collect, organize, and manage all of their shopping. Shopicks is currently available for Google Chrome and iOS. (Shopicks 08.12)

Back to Table of Contents

9.3 ECI & CESNET Report Successful Trial of 400G Flex-Grid Blade Over Live Network

ECI announced the successful live trial of ECI’s Apollo 400G flex-grid blade on the Czech Educational and Scientific Network (CESNET). The 400G flex-grid blade, which provides flexible data rates and modulation schemes, runs on any member of the Apollo line, even in a cage as small as 2U. The trial demonstrated the capabilities of ECI’s equipment in delivering new services over alien lambdas with great reliability, high speeds and bandwidth without the need for any modification.

CESNET develops and operates the national e-infrastructure, for science, research, development and education comprising communication network, data storages and computing facilities as main e-infrastructure components. The e-infrastructure connects the universities and research institutes in all of the major cities across the Czech Republic. The tests were performed on ECI’s Apollo platform with 400G flex-grid blade together with CESNET’s Czech Light Optical Amplifiers, to determine how optical networks can quickly evolve to meet future demands without the need for huge infrastructure investments.

Petah Tikva’s ECI is a global provider of ELASTIC network solutions to CSPs, utilities as well as data center operators. Along with its long-standing, industry-proven packet-optical transport, ECI offers a variety of SDN/NFV applications, end-to-end network management, a comprehensive cyber security solution, and a range of professional services. ECI’s ELASTIC solutions ensure open, future-proof, and secure communications. (ECI 09.12)

Back to Table of Contents

9.4 Anodot Disrupts BI with Predictive Analytics & Secures Funding

Anodot exited stealth mode, introducing its real-time anomaly detection solution, which will disrupt the static nature of today’s Business Intelligence (BI) with patented machine learning algorithms for big data. Pinpointing performance issues and business opportunities in real time, Anodot enables its customers to increase operational efficiency and maximize revenue generation.

The company also announced it closed a $3 million Series A funding round led by Disrupt-ive Partners, bringing total funding in the company to $4.5 million. The company will use the funding to accelerate its product roadmap and expand its sales activity, focusing on the ad tech, e-commerce, IoT and manufacturing industries in the U.S. and EMEA.

Anodot is already being used in production by dozens of organizations, including Avantis that develops the most advanced desktop tools and monetization platforms in the world and Wix, a leading cloud-based Web development platform with millions of users worldwide.

Based in Sunnyvale, Calif. and Ra’anana, Israel, Anodot is disrupting the static nature of the Business Intelligence (BI) market with a unique technology for real-time analytics and automated anomaly detection for big data. Using patented machine learning algorithms, Anodot automates the discovery of outliers in vast amounts of data, isolates issues and correlates them across multiple parameters. Operating in real time, Anodot delivers business insights immediately, predicts events before they happen and supports rapid business decisions that help maximize revenues and production for Web-based, e-commerce, ad tech, IoT and manufacturing businesses. (Anodot 11.12)

Back to Table of Contents

9.5 CYREN Accredited as Friendly WiFi Approved Provider in UK

CYREN received accreditation as a “Friendly WiFi” approved provider in the UK. The designation scheme, which launched in July 2014, was developed by the UK Council for Child Internet Safety (UKCCIS) with support by the government and is administered by trade organization RDI. The accreditation, designated by the scheme’s official logo (attached), verifies that CYREN’s cyber security solutions block known pornography and child abuse websites for public WiFi deployments.

CYREN partners and users can now offer the third-party designation as additional assurance that CYREN is committed to enabling safe WiFi experiences for children and families where its technology is relied upon in public areas. Several WiFi providers and channel partners already depend on CYREN cyber security solutions to protect thousands of public WiFi installations in UK hotels, schools, sport arenas, universities and various other types of public areas.

Founded in 1991, Netanya’s CYREN is a long-time innovator in cyber security. Through full-function Security as a Service (SecaaS) and embedded deployment options, CYREN provides web, email, mobile and endpoint security solutions that are relied upon by the world’s largest IT companies to protect against today’s advanced threats. (CYREN 14.12)

Back to Table of Contents

9.6 Friendly Technologies Launches LWM2M Embedded Client

Friendly Technologies announced the general availability (GA) release of its OMA Lightweight M2M (LWM2M) embedded client for constrained IoT and M2M devices and sensors. Friendly’s LWM2M client has a notably small CPU and memory footprint designed specifically with the IoT concept in mind, and it targets LTE Category 1, Category 0 and Category M devices. As a member of the OMA (Open Mobile Alliance) Forum, Friendly Technologies is committed to developing its LWM2M client according to OMA specifications and standardization. Friendly’s LWM2M client offers a highly efficient communication protocol, which facilitates reduced traffic and minimizes power consumption.

Friendly’s LWM2M embedded client simplifies the development of M2M applications, lowers development costs, and shortens time to market. Because it is standards-based, it offers full interoperability with all LWM2M servers – or, alternatively, with Friendly’s own LWM2M server. Friendly’s LWM2M GA release supports DTLS for security and all eight-object models: L2M2M Security, L2M2M Server, Access Control, Device, Connectivity Monitoring, Firmware, Location, and Connectivity Statistics.

Ramat Gan’s Friendly Technologies is a leading provider of carrier-class device management software for IoT/M2M, Smart Home and Triple Play services. With its best-of-breed approach, Friendly enables service providers to avoid device dependency and manage multiple types of devices on a single platform. Friendly provides support for standard protocols including TR-069, OMA-DM, LWM2M, MQTT and SNMP, in addition to non-standard protocols. Friendly’s solutions allow service providers and their customers to control, monitor and manage all device types including routers, STBs, RGs, mobile hotspots, Smart Home hubs, sensors and appliances, smartphones, dongles, IP phones, M2M devices, smart power and water metering devices, health care devices and more. (Friendly Technologies 14.12)

Back to Table of Contents

9.7 Mellanox 10/40 Gigabit Ethernet Switches Approved for DoD Networks

Mellanox Technologies announced the Defense Information Systems Agency (DISA) has approved the Mellanox SwitchX series of 10/40 Gigabit Ethernet switches for use on U.S. Department of Defense (DoD) networks. This move comes as a direct result of the DISA awarding Mellanox Federal Systems the Unified Capabilities Approved Product List (UC APL) certification for the Mellanox SwitchX series of Ethernet switches. This UC APL certification is mandatory for all switch hardware to be sold for use on DoD programs of record and is testimony to the rapidly expanding success of Mellanox’s Ethernet switches being approved for use on large DoD tactical programs. The certification ensures that Mellanox Ethernet hardware can be utilized for the production system of the DoD network and also grants the hardware recognition from additional federal agencies and foreign governments.

Yokneam’s Mellanox Technologies is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage. Mellanox interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance capability. Mellanox offers a choice of fast interconnect products: adapters, switches, software, cables and silicon that accelerate application runtime and maximize business results for a wide range of markets including high-performance computing, enterprise data centers, Web 2.0, cloud, storage and financial services. (Mellanox 14.12)

Back to Table of Contents

9.8 MTI Wireless Edge New MIMO Dual Band Antennas

MTI Wireless Edge released a number of new high performance antennas catering to changing customer demands. Among the new antennas are 4×4 MIMO dual band 2.3-2.7/4.9-6.0 GHz flat panel antennas for indoor or outdoor high density WiFi access, as well as 2×2 and 3×3 MIMO dual band flat panel antennas for outdoor 802.11ac applications. Other additions include high gain 4.9-6.1 GHz dual polarity (V+H) 1 foot directional antenna and high gain sector and directional antennas for the evolving 7-8 GHz band. These antennas incorporate 2, 3 or 4 antennas with different polarities under one radome. The new antennas are joining the current single and dual band MIMO product line that already include large selection of directional antennas, and sector antennas. All antennas are built to withstand the toughest electrical and environmental requirements according to the international standards while maintaining low cost.

Tel Aviv’s MTI Wireless Edge is a leader in the development and production of high quality, low cost, antenna solutions for wireless applications such as WiMAX, Wi-Fi, LTE, Broadband Wireless Access and RFID. MTI has over 40 years’ experience in supplying antennas for both military and commercial applications from 100 KHz to 90 GHz. MTI flat panel antenna range includes base station, subscriber and Omni Directional antennas for all broad and narrow band wireless applications in both licensed and unlicensed bands. MTI Military antennas are installed on numerous airborne, ground and naval, including submarine, platforms worldwide. (MTI 15.12)

Back to Table of Contents

9.9 Plexistor Revolutionizes Computer Paradigm with Software-Defined Memory

Plexistor will soon be unveiling a Software-Defined Memory (SDM) platform for next-generation data centers, bringing convergence of memory and storage technologies together, enabling high capacity persistent storage and near-memory speed by providing a direct data path from the application to the memory storage device. SDM will support a wide range of memory and storage technologies such as volatile DRAM and emerging Non-Volatile memory devices such as NVDIMM-N and 3D XPoint as well as traditional flash storage devices such as NVMe and the upcoming NVMe over Fabric, enabling a scalable infrastructure to deliver persistent high capacity storage at near-memory speed.

SDM solutions will utilize standard, heterogeneous, off-the-shelf persistent memory devices, and present them using standard APIs in a way that hides the internal complexity. Plexistor’s SDM implementation will go further, enabling users to run large working data sets at lower costs, and offer backward compatibility with traditional storage-based applications to achieve near-memory performance levels.

Plexistor has built a new Software-Defined Memory (SDM) platform to leverage volatile DRAM and emerging persistent memory, such as NVDIMM-N and the forthcoming 3DXPoint, with large capacity, persistence of storage and performance of memory. Plexistor’s solution upgrades infrastructure to ultra-low latency converged primary storage that enables in-memory applications to run large data sets at memory speeds. 100 times faster than flash SSD. Plexistor was founded in Israel in 2013 and is headquartered in Mountain View, with its R&D in Herzliya, Israel. (Plexistor 15.12)

Back to Table of Contents

9.10 Display.io Solves Disconnect Between mCommerce Advertisers and Users

Torqmo, a leading mobile advertising partner for major app developers like Machine Zone and Cheetah Mobile has launched a re-engagement platform that solves the mobile app deeplinking problem for users and advertisers alike. As part of the launch, Torqmo will become known as display.io

Have you ever clicked a mobile ad for a product that you really liked only to be led to a random page on the advertiser’s mobile site, even though the app is already installed on your device? The new display.io platform solves this problem by offering app advertisers a fully managed service to re-engage their mobile audiences with customized promotions that seamlessly transport the user to the specific product inside the app.

Founded in 2013, display.io has already been working with hundreds of major app developers like Glide, BigFish and Snapdeal to drive engaged new users. This growth is reflected in a strong 160% increase in revenues for 2015 and a move to new offices opposite the stock exchange in downtown Tel Aviv. The re-brand and launch of the new re-engagement platform solidifies the startup’s position as a leading technology based service provider that enables app advertisers to engage their audiences across the full lifecycle of the user. (display.io 15.12)

Back to Table of Contents

10: ISRAEL ECONOMIC STATISTICS

10.1 Israel’s CPI Falls More Steeply Than Expected in November

Israel’s Consumer Price Index (CPI) fell 0.4% in October, the Central Bureau of Statistics reported on 15 December, far steeper than expected. Expectations on the capital market were for a 0.1% fall in the index. In 2015 to date, the CPI has fallen 0.9%, well below the government’s inflation target range of between 1% and 3%. Outstanding price falls in November included tomatoes (16.9%), vehicle fuel (1.8%) and fresh fruit (4.3%). Outstanding price rises in November included clothing (3%), and cucumbers (20.7%). (CBS 15.12)

Back to Table of Contents

10.2 Israel’s Income Deficit Drops 46% in 2015

Israel’s deficit between January and November 2015 was NIS 7.8 billion ($2 billion), 46% lower than the level for the same period last year, the Finance Ministry announced. The ministry said the deficit grew by about NIS 500 million ($130 million) in November. According to the ministry’s figures, the deficit for the past 12 months has been about 2% of GDP, a particularly low figure. The deficit target for 2015-2016 was set at 2.9%. Barring any unexpected economic turbulence in December, the final deficit for 2015 is likely to be significantly lower than the NIS 31.4 billion ($8.2 billion) forecast for this year.

November’s data can be explained by increased tax revenues. According to the Israel Tax Authority, direct taxes brought NIS 11.2 billion ($2.9 billion) to state coffers, a 16% increase from the same period last year. For the first 11 months of this year, direct taxation generated 11% more revenue than the equivalent period in 2014.

Some NIS 767 million ($200 million) came from real estate taxes in November, compared to NIS 650 million ($169 million) in the same period in 2014. Although this marks an 18.8% increase, it is lower than the overall trend in the first 11 months of 2015, which saw tax revenue soar by 38.5% from 2014. This appears to suggest that the housing market, long considered a tax bonanza for the government due to the ever-increasing demand, is cooling off.

Government spending for the first 11 months of 2015, excluding debt servicing, currently stands at NIS 239.8 billion ($62 billion), a 5.2% increase from the same period last year. Civilian expenditures increased by 4.4% in 2015, while defense spending increased by 7.8% from the same period last year.

Overall tax revenue for November was 6.5% higher than in November 2014, when it was particularly low because of value added tax rebates for October, amounting to NIS 300 million ($78 million). Revenue from direct taxation in November grew by 13.7% compared to the previous year. No change was noted in revenue generated by indirect taxes

The VAT was lowered from 18% to 17% in October 2015, and corporate income tax will decrease from 26.5% to 25% starting in 2016. These changes will cost the state some NIS 5.7 billion ($1.5 billion) in lost revenue over 12 months. (Various 05.12)

Back to Table of Contents

11: IN DEPTH

11.1 LEBANON: Fitch Affirms Lebanon at ‘B’; Outlook Negative

On 11 December 2015, Fitch Ratings affirmed Lebanon’s Long-term foreign and local currency IDRs at ‘B’ with a Negative Outlook. The issue ratings on Lebanon’s senior unsecured foreign- and local-currency bonds are also affirmed at ‘B’. The Country Ceiling is affirmed at ‘B’ and the Short-term Foreign-Currency IDR at ‘B’.

Key Rating Drivers: Lebanon’s ‘B’ IDRs reflect political risks exacerbated by the ongoing Syrian war, very weak public finances and anemic economic performance. The ratings also capture the country’s strong external liquidity, resilient banking system and other structural strengths such as high GDP per capita and human development indicators.

Political risks remain high and are a key driver of the Negative Outlook. After a period of improved security since end-2014, bomb attacks in November, including in the capital Beirut, highlighted Lebanon’s ongoing vulnerability to spillover from the war in Syria. Lebanon has proved unable to choose a President since May 2014 and the government and parliament have been largely paralyzed during this period. Popular protests have emerged in response to worsening public services. While a rare legislative session in November indicated that a modicum of political cooperation is possible and talks are intensifying to choose a President, there is no clear sign that Lebanon can break out of its political deadlock while the Syrian conflict persists.

The war in neighboring Syria has severely affected Lebanon’s economic performance and outlook. Despite the fall in oil prices and the central bank’s ongoing stimulus program, Fitch expects minimal real GDP growth of 1.2% in 2015 and no major improvement in growth prospects before the end of the Syrian conflict. Although the large Syrian refugee population (estimated at around 25% of Lebanon’s population) may contribute to sustaining domestic consumption, it does not balance the weak performance of traditional growth engines (including tourism and real estate).

Public finances are very weak. General government debt is the fourth highest among Fitch-rated sovereigns at an estimated 131% of GDP in 2015. High debt levels have contributed to an exceptionally high interest bill, at nearly 40% of government revenues. Despite the positive effect of lower oil prices on spending, large structural budget deficits will persist due to the lack of fiscal reforms and high current spending. This will contribute to further increases in the public debt stock in 2016-17.

Financing of these needs has proven resilient, with the banking system attracting sufficient deposits to fund government borrowing while ensuring moderate growth of credit to the private sector. However, total deposit growth has been slowing in 2015 in percentage (5% yoy in September 2015) and absolute terms. Deposit growth is currently not sufficient to meet the annual financing needs of the government and private sector, estimated at around $9b.

Lebanon has maintained strong external liquidity despite persistently large current account deficits (estimated at 17% of GDP in 2015). Its stock of foreign reserves (including gold) was $42b at end-September 2015, supported by deposit flows from the Lebanese diaspora. Excluding gold, foreign reserves accounted for 61% of LBP deposits. This underpins confidence in the currency peg, as illustrated by the stability in the dollarization rate of deposits (64.6% at end-September 2015).

GDP per capita and broader human development indicators are well above ‘B’ category peers and more in line with the ‘BBB’ median, although governance indicators are slightly weaker than peers. The government also has an unblemished track record of public debt repayment.

Rating Sensitivities: The Negative Outlook reflects the following risk factors that may, individually or collectively, result in a downgrade:

Major destabilization of Lebanon induced by spill-overs from the Syrian conflict, terrorist attacks or a severe intensification of sectarian tensions.
Cessation of the domestic banking sector’s ability to continue to attract sufficient deposits to keep funding the government.
Deterioration in public debt dynamics beyond our base case assumptions.

Given the Negative Outlook, Fitch’s analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to an upgrade. However, future developments that may, individually or collectively, lead to a revision of the Outlook to Stable include:

Evidence of further resilience in Lebanon’s financing model notwithstanding ongoing domestic and regional political risk.
Greater confidence in the sustainability of the domestic political environment.
An improvement in public debt dynamics, whether through fiscal tightening or improved economic performance.
A sustained de-escalation of the war in Syria.

Key Assumptions: Fitch assumes that sporadic security incidents will prevail as long as conflict in Syria continues, but that Lebanon will not itself descend into full-scale civil conflict.

Fitch assumes that international oil prices will on average remain lower in 2016 and 2017 than in 2010-14, therefore limiting budget transfers to the state electricity company EDL. (Fitch 11.12)

Back to Table of Contents

11.2 KUWAIT: Fitch Affirms Kuwait at ‘AA’; Outlook Stable

On 04 December, Fitch Ratings affirmed Kuwait’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘AA’. The Outlooks are Stable. The Country Ceiling has been affirmed at ‘AA+’ and the Short-Term foreign currency IDR at ‘F1+’.

Key Rating Drivers

Kuwait’s key credit strengths are its exceptionally strong fiscal and external metrics and, at around $48/barrel, one of the lowest fiscal break-even Brent oil prices among Fitch-rated oil exporters. Forecast fiscal and external surpluses will continue to add to the country’s existing buffers, if at a lower rate than historically. These strengths are tempered by Kuwait’s heavily oil-dependent economy, a degree of geopolitical risk, and weak scores on measures of governance and ease of doing business.

Kuwait has ample assets to cover medium-term spending needs. We expect total assets managed by the Kuwait Investment Authority (KIA) to reach $472b (377% of GDP) in FY2015/16 (FY15) and continue to rise beyond that due to investment returns and on-going transfers of revenue. Based on unofficial, publicly available sources, we estimate KIA assets were $456b (298% of GDP) at the end of FY14, up from $424b at the end of FY13. KIA assets could be used to cover more than six years’ worth of government spending, and we expect this coverage ratio to be maintained. At an expected 8.3% of GDP in 2015, debt will be one of the lowest for Fitch-rated sovereigns.

Even as total KIA assets rise, we expect that its General Reserve Fund (GRF), the purpose of which is to cover immediate government spending needs, will slowly shrink from the estimated $85b in FY14. The GRF, which is mostly invested domestically, receives the balance of revenue and expenditure excluding investment income and after the transfer of at least 10% of total revenue to the Reserve Fund for Future Generations (RFFG), which is entirely invested abroad. The transfer to the RFFG has been 25% of revenue in each of the past three years, but we assume that from FY15 it will revert to the 10% specified by law. GRF should still continue to be able to cover at least one year of government spending. We expect external assets managed by the KIA to rise to $405b (324% of GDP) in FY15.

We expect the general government to maintain a surplus of KWD1.8b (4.9% of GDP) in FY15, down from KWD8b in FY14, including investment income but before transfers to the RFFG. This is driven almost entirely by a fall in oil-related receipts. Similarly, we forecast that the current account balance will fall to $5b (4.1% of GDP) in 2015, interrupting a history of double-digit surpluses since 1999. Under our baseline oil price assumptions, fiscal and external balances will recover in 2016-2017, although they will be held back by a pick-up in capital spending and the domestic economy.

In response to the deterioration in revenues, the government is implementing cuts to current expenditure as per its FY15 budget passed in July this year (three months into the fiscal year, which starts in April). Goods and services expenditure was down 50% yoy in the first six months of the FY and subsidy payments have fallen, both as a result of the lower oil prices; the wage bill has remained roughly constant. Our assumptions for the full FY are aligned with these outturns. Capital spending has grown in the first six months, and we expect it to edge up to KWD2.2b from KWD1.8b for the full year.

The government is considering fiscal reforms for implementation in the FY16 budget. These include the introduction of VAT and a business profit tax, an expenditure cap below forecast FY15 levels, and a reform that would standardize pay across the public sector and constrain growth of the government wage bill. The authorities also considering a gasoline subsidy reform for implementation in early 2016, following partial elimination of diesel and kerosene subsidies in early 2015.

We estimate that real GDP will grow by 0.8% in 2015, after a 1.6% drop in 2014, accelerating to 3.5%-4.0% over the following two years. The oil sector has held back real total growth over the past two years, and we expect it to fall by 0.5% in 2015 and rise by 3% a year thereafter, reflecting the Kuwait Oil Company’s plans to increase capacity. We expect non-oil growth to be 2% in 2015 and accelerate to 4% in the years beyond, after an increase of 1.2% in 2014. Capital spending will contribute more than half of overall growth. Consumption will also be a steady contributor, as reflected in the growth of private credit and card transactions.

Oil directly accounts for 50% of GDP and 60%-70% of fiscal and external revenues, and government contracts support much of the private sector. Kuwait ranks better than only around 50% of all countries in terms of the World Bank’s governance and ease of doing business measures, compared with 80% for the median ‘AA’ country. The gap between Kuwait and is regional and rating peers has been increasing. Although the overall economic policy framework is a weakness, prudent and strict regulation by the Central Bank of Kuwait has contributed to a well-capitalized, liquid and profitable banking sector.

Rating Sensitivities

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

Sustained low oil prices that erode fiscal and external buffers.
Spill over from a regional geopolitical shock that impacts economic, social or political stability.
Adverse domestic political developments that are much more severe than the 2012 protests.

The main factors that individually or collectively could lead to positive rating action are improvement in structural weaknesses such as reduction in oil dependence, and a strengthening in governance, the business environment and the economic policy framework.

Key Assumptions

We forecast that Brent crude will average $55/b in 2015-2016, and $65/b in 2017. We expect Kuwait to maintain stable or gradually rising production volumes, in line with its regional peers and plans to increase oil production capacity. We assume that regional geopolitical conflicts will not directly impact Kuwait or its ability to trade. We assume that the current parliament will maintain its broadly constructive relationship with the government, that any leadership succession will be smooth, and that the domestic political scene will be stable. (Fitch 04.12)

Back to Table of Contents

11.3 BAHRAIN: Fitch Revises Bahrain’s Outlook to Negative; Affirms at ‘BBB-‘

On 04 December, Fitch Ratings revised Bahrain’s Outlook to Negative from Stable and affirmed its Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB-‘and ‘BBB’, respectively. The issue ratings on Bahrain’s senior unsecured foreign and local currency bonds have also been affirmed at ‘BBB-‘ and ‘BBB’, respectively. The agency has simultaneously affirmed Bahrain’s Country Ceiling at ‘BBB+’ and Short-term foreign currency IDR at ‘F3’.

Key Rating Drivers

The revision of the Outlook to Negative reflects the following key ratings drivers and their relative weights:

High: Fitch’s lower oil price forecasts are outweighing the effects of a greater policy response than previously anticipated on Bahrain’s fiscal position. Fitch forecasts a wider double-digit deficit of 12.5% of GDP in 2015 and 10.7% of GDP in 2016, remaining in high single digits by 2017, up from 5.5% of GDP in 2014. This adds to recorded fiscal deficits every year since 2008. Fitch estimates a break-even oil price of $122/b in 2015 and $118/b in 2016 versus average oil price assumptions of $55/b in both 2015 and 2016 and $65/b in 2017.

Fiscal adjustment measures introduced so far have proven insufficient to offset lower oil prices, as social and competitiveness constraints hinder the pace of policy response. As a result, total revenues will fall to 17% of GDP in 2015 and 2016, from 24% of GDP in 2014. Fitch expects double-digit fiscal deficits to lift general government debt substantially to 58.6% of GDP in 2015 and 65.2% of GDP in 2016, from 46.1% of GDP in 2014. This is well in excess of the ‘BBB’ median of 42.8% of GDP in 2015.

The affirmation also reflects the following factors:

Real growth has been relatively resilient to lower oil prices. Fitch forecasts favorable growth of 3.3% in 2015 and 3% in 2016 and 2017, somewhat below 4.5% in 2014 as oil production remained flat in 2015. GCC projects have been ramped up significantly this year and will continue to be so over the forecast horizon. Growth will be supported by the non-hydrocarbon sector expanding by 4.4% in 2015, and remaining around 3.5% in 2016 and 2017 underpinned by manufacturing, construction, tourism and social and personal services.

Bahrain’s external balance sheet remains stronger than its ‘BBB’ rated peers. The net external creditor position of 56% of GDP compares with a peer median of -4.2% of GDP. A small current account deficit of 2.3% of GDP is forecast in 2015 recovering to surplus in 2016. Although gross oil exports are over 40% of current external receipts (CXR), Bahrain also imports oil from Saudi Arabia to refine for export products, meaning net oil exports are around 20% of CXR.

Governance indicators are below the peer median. There has been no progress in resolving the political stalemate since the opposition Wefaq party boycotted the elections of November 2014. The boycott appears to have lost Wefaq support and the government does not seem inclined to deal with the party’s current leadership. Sporadic low-level violence continues in some Shia villages, but the government has this under control and there is no disruption to business activity.

A $1.5b bond issuance this year highlights continuing financing flexibility after a $1.25b issuance at a 30-year maturity in August 2014. Bahrain is a regular Eurobond issuer and benefits from good domestic financing access, which provides the main source of its funding. Active conventional and Islamic issuance programs also supports flexibility with a 10-year domestic sukuk issued in January 2015.

GDP per capita and broader human development indicators exceed the ‘BBB’ median and the business environment is favorable. The strong regulatory framework and local skill base, combined with low costs, are key supports to the financial sector.

Rating Sensitivities

The main factors that could lead to a downgrade are:

Failure to reduce the fiscal deficit sufficient to stabilize the government debt-to-GDP ratio.
Severe deterioration of the domestic security situation.

The rating Outlook is Negative. Consequently, Fitch does not currently anticipate developments with a material likelihood of leading to an upgrade. However, the following factors could lead to positive rating action:

Implementation of fiscal measures which reduce the budget deficit and are consistent with the stabilization and then decline of the government debt-to-GDP ratio in the medium term.
A broadly accepted political solution that eases political unrest.
A recovery in oil prices that improves public finances.

Key Assumptions

Economic and fiscal forecasts are based on Brent crude averaging $55/b in both 2015 and 2016, increasing to $65/b in 2017, compared with forecasts of $65/b in 2015 and $75/b in 2016 at the time of the previous rating review in June 2015.

Fitch assumes that Bahrain will continue to benefit from savings through the implementation of GCC development projects financed by Kuwait, Saudi Arabia, and the UAE. Lower oil prices are not assumed to impact the flow of funds from these countries.

Fitch assumes there will be no challenge to the rule of the royal family or the current succession. Fitch assumes no material deterioration in the internal security situation but also does not expect a comprehensive political solution to be achieved in the near term.

Bahrain is in a volatile region, and existing tensions and conflicts are expected to continue. Fitch assumes that regional geopolitical conflicts will not directly impact Bahrain or its ability to trade. (Fitch 04.12)

Back to Table of Contents

11.4 BAHRAIN: Fitch Says Subsidy Cuts ‘Insufficient’ To Offset Cheap Oil

Fitch Ratings has revised Bahrain’s outlook to negative from stable as it forecasts a wider double-digit budget deficit of 12.5% of GDP in the Gulf kingdom in 2015. The ratings agency, which also affirmed the country’s long-term foreign and local currency issuer default ratings at ‘BBB-‘and ‘BBB’ respectively, said in a statement that the revision comes as low oil prices continue to impact Bahrain’s economy.

It said fiscal adjustment measures introduced so far have proven “insufficient” to offset lower oil prices, as social and competitiveness constraints hinder the pace of policy response.

As a result, Fitch said total revenues will fall to 17% of GDP in 2015 and 2016, from 24% of GDP in 2014.

Bahrain’s minister for industry and commerce said last month that it is planning more subsidy cuts and intends to impose charges for government services next year in order to boost revenues hit by slumping oil prices.

Like other Gulf oil-exporting states, Bahrain has for many years subsidized goods and services such as food, fuel, electricity and water, keeping prices ultra-low in an effort to maintain social peace.

But since its oil income began to plunge last year, the government’s budget deficit has widened and the subsidies have become much harder for Bahrain to afford.

Fitch added that it forecast a 12.5% of GDP budget deficit this year, followed by 10.7% in 2016 and remaining in high single digits by 2017, up from 5.5% of GDP in 2014. This adds to recorded fiscal deficits every year since 2008 while Fitch said it estimates a breakeven oil price of $122 per barrel in 2015 versus average oil price assumptions of $55 per barrel.

Fitch said real growth has been relatively resilient to lower oil prices, with forecasts of 3.3% in 2015 and 3% in 2016 and 2017, compared to the 4.5% growth seen in 2014. It added that growth will be supported by the non-hydrocarbon sector expanding by 4.4% in 2015, and remaining around 3.5% in 2016 and 2017 underpinned by manufacturing, construction, tourism and social and personal services. (Fitch 06.12)

Back to Table of Contents

11.5 EGYPT: A New Direction for the Central Bank of Egypt

Brendan Meighan wrote on 1 December on Sada that low global import prices give the new governor of Egypt’s Central Bank an opportunity to depreciate the value of the Egyptian pound and resolve Egypt’s foreign currency shortage.

Tarek Amer began work as governor of the Central Bank of Egypt (CBE) on 27 November, following the resignation of Hisham Ramez on 21 October. His appointment represents a dramatic and much-needed change in Egypt’s monetary policy and a tacit admission by the government that the relative strength of the pound (EGP) is no longer sustainable. The move has been lauded by Egyptian businessmen and investors, who have been suffering from a shortage of foreign currency in recent years. Despite Amer’s economic credentials—he served as deputy governor of the CBE from 2003 to 2008 and then turned the failing National Bank of Egypt around in the four years that followed – the severity of the foreign currency crisis and the dire conditions afflicting the rest of the economy put him in an exceptionally difficult situation.

Egypt’s net international reserves dwindled to $16.3 billion as of September 2015, roughly $20 billion less than it had prior to the 2011 revolution. This has largely been due to the CBE’s efforts to defend the value of the pound in the face of falling demand for Egypt’s exports. Despite receiving more than $40 billion in loans and grants from Gulf countries and issuing a $1.5 billion Eurobond, Egypt has not had enough foreign currency to successfully bolster the Egyptian pound. Attempts to eliminate the black market for U.S. dollars through limits on dollar deposits only exacerbated the shortage of U.S. dollars available to importers.

In addition to the central bank’s policy, a number of external factors have also worsened Egypt’s macroeconomic position. First, in the wake of two popular uprisings and, more recently the bombing of Metrojet Flight 9268, which killed 224 people, there has been a sustained drop-off in the tourism sector, an important source of foreign currency. Second, the depreciation of the euro and the yen against the dollar, to which the Egyptian pound is pegged, has erased much of the depreciation the pound has thus far seen over the past two years. Under normal circumstances, this would be a positive development, but given that the Egyptian pound is overvalued and Egypt is trying to boost exports, a relative appreciation (or lack of depreciation) eliminates any export-boosting advantages Egypt would otherwise gain from depreciation. Third, the government is still working to repay a number of international oil companies for appropriating natural gas intended for the international market that was instead pumped into the Egyptian national gas grid, planning to pay down another $500 million in arrears before the end of the year.

In short, Amer’s options to address Egypt’s foreign exchange crisis are limited. While his precise steps will depend on dynamic, on-the-ground conditions, there are three major policy actions that Amer can make in the coming months, all of which will have major impacts on the economy and investment environment.

First is to lift domestic banks’ limits on dollar deposits, a move for which the private sector has been clamoring. The policy of limiting dollar deposits was originally implemented in February 2015 as part of a plan to eliminate the foreign exchange black market, which was thought to have encouraged speculation and hoarding, putting depreciative pressure on the pound and reducing dollar liquidity. While the deposit limits did initially reduce the volume of the black market and close the gap between the official and black-market pound-to-dollar conversion rates, the gap has reemerged. On the black market, the dollar is now trading at EGP 8.60, 0.77 pounds more than the official rate of EGP 7.83 to the dollar.

Instead, the move dramatically limited the amount of dollars available to importers, who relied on dollars to buy their goods on the international market. To address the growing shortage, the government prioritized imports of basic goods, such as food and medicine, at the expense of more sophisticated imports, such as computers and specialized machine parts. While Egypt has been fairly successful in staving off starvation and plague, the limited availability of dollars has had a deleterious effect on the private sector and, ironically enough, has limited exports due to the difficulty exporters have had in importing intermediate goods.

The second option is to depreciate the pound. This is more complicated than it may seem. The pound is certainly overvalued, and a downward slide in its value is inevitable, but the CBE also has an interest in allowing some short-term appreciation. By creating “two-way risk” in allowing the value of the pound to fluctuate within a small range, the CBE can encourage traders to take both long and short positions, offsetting the disproportionate number of short sales of the pound that can push down its value, and also help importers clear out backlogged imports. In the weeks prior to Amer’s appointment, the CBE made its first appreciative move on 10 November, pushing the value of the pound up by 20 piasters, from EGP 8.03 to the dollar to EGP 7.83 to the dollar.

But the effectiveness of this short-term move to increase the value of the pound is highly limited. The CBE gains little from burning short-term speculators, and according to a report issued by Pharos, a Cairo-based investment bank, many importers are already basing their 2016 budgets on an eventual depreciation to EGP 9.00 or more to the dollar.

Instead, Egypt’s long-term concerns regarding deprecation are more closely related to increases in the price level for imports. However, these concerns are largely overblown. While there will be some increase in prices, due partially to the fact that importers are already budgeting for depreciation, external inflationary pressures are at a minimum. Both international energy prices and international food prices are at their lowest levels in five years. Additionally, core inflation in the Egyptian economy has averaged 7.12% over the first eight months of 2015, the lowest level since 2012. While this could offer the CBE an opportunity to defer the inevitable pain of depreciation, the pressure on the pound will only increase if the U.S. Federal Reserve opts to raise interest rates later this month. Depreciation of the pound needs to come at some point, and now is an ideal time given the relative lows in import prices.

If these first two measures are executed with minimal economic or political disruption, the third major policy decision Amer could make is to take a loan from the IMF. Egypt has taken loans from a number of international organizations recently, including $4.5 billion over three years from the World Bank and African Development Bank. However, IMF loans typically come with more stringent conditions and are meant to help countries that have already made some progress on implementing structural reforms. Because of these conditions and required reforms, IMF loans are unique in their ability to attract international investors. In a 2012 interview with Al-Ahram, Amer himself stated that an IMF loan can “boost the confidence of the world’s investors in Egypt [encouraging them] to start doing business in the country.”

These three policy decisions are not inevitable. Any number of factors, emanating from within Egypt and from the broader global economy could throw these reforms off course. However, if Tarek Amer, who has a reputation as a pragmatist and a reformer, is serious about attracting foreign investment, the Egyptian government’s route forward will almost certainly follow this path. A depreciation of the pound and a freeing up of the foreign exchange market will reduce uncertainty in the investment environment, allowing foreign investors more confidence in their ability to import needed inputs and repatriate profits abroad.

Brendan Meighan is an economic researcher at the American Chamber of Commerce in Egypt. (Sada 01.12)

Back to Table of Contents

11.6 EGYPT: Sisi Supporters Secure Second Round Election Victory

Results of the second round of parliamentary elections held 22 and 23 November painted the features of the Egyptian parliament’s political composition with the emergence of coalitions and alliances associated with the political regime. These coalitions and alliances are expected to back the regime inside Egypt’s parliament, particularly in the absence of a political party linked to, or representing, President Abdel Fattah al-Sisi in the legislature.

Ayah Aman Posted on 1 December in Al Monitor that according to final results announced by the Supreme Electoral Commission on 25 November, 29.83% of eligible voters participated in second round electoral districts. The governorates of Sinai, Kafr el-Sheikh and Dakahlia registered the highest rates, for reasons that observers linked to clan and family mobilization in favor of particular candidates in those districts. The Cairo governorate recorded the lowest percentage, despite the momentum engendered in the capital’s electoral districts by the candidacy of a number of public figures with media fame.

For the second time, the regime-backed “For the Love of Egypt” list won all 60 seats allocated for lists in the second round of elections. It thereby became the only list to achieve victory in the first and second rounds of parliamentary elections, with a total of 120 seats, or 20% of parliamentary seats.

On the other hand, voting for the 222 individual seats saw victories achieved by only eight candidates in the second round of elections, most of whom are businessmen and media personalities, such as political analyst Samir Ghattas, businessman Talaat al-Suweidi and former Cabinet minister during Hosni Mubarak’s reign, Ali al-Mseilhi.

Thus candidates from three political parties will have runoff elections to fill the remaining 214 seats: 55 candidates from the Free Egyptians Party, 50 from the Mostaqbal Watan Party (Future of a Nation), 43 from the Wafd Party and only eight candidates from the Salafist Nour Party. These candidates, who are contesting the runoff round from 30 November – 2 December, included 100 candidates associated with the dissolved National Democratic Party in addition to 12 women and 14 Coptic Christians.

In that regard, parliamentary affairs researcher Yosri al-Azbawi told Al-Monitor, “Second round results were heavily skewed in favor of parties, due to the fact that major political parties attempted to entice and attract the most influential candidates. The Free Egyptians Party, the Mostaqbal Watan Party and the Wafd Party will continue to dominate the political scene due [to] their parliamentary representative strength; while leftist parties suffered major setbacks due to various reasons — most importantly their lack of financial resources and inability to compete in a battle mainly ruled by political money.”

Al-Azbawi added, “Despite the influence of political money in deciding the outcome of a large number of seats, the process of buying votes was unsuccessful in many districts. Among them Nasr City east of Cairo, where a Coptic candidate won, despite competition from a number of businessmen there.”

The political money phenomenon saw a strong resurgence in the second round when compared to the first round of elections held from 17 – 28 October, with 1,000 Egyptian pounds ($127) paid per vote in some electoral districts, as monitored by the Joint Local-International Election Observation Mission.

The Supreme Electoral Commission, however, contented itself with issuing a decision on the first day of voting 22 November barring the taking of post-voting cellphone photos of ballots, which was the method used by candidate representatives to ascertain how people voted prior to paying them money.

The first round results that were announced 30 October pointed to a pre-runoff landslide victory by candidates and parties not known for opposing the regime. Since then, preparations began under the leadership of the For the Love of Egypt list, which won a majority in the four nationwide electoral districts, to form a majority coalition of 300 parliamentarians, as Maj. Gen. Sameh Seif al-Yaza, the General Rapporteur of the said list.

Despite the fact that nine Mostaqbal Watan candidates won as part of the For the Love of Egypt list, the unexpected successes of this newest party to the political scene amplified the ambitions of its representatives in parliament. In that regard, the party’s spokesperson, Ahmed Hassan, told Al-Monitor, “We shall not take part in any parliamentary coalitions, but shall form our own coalition therein. The party’s success in winning the largest number of seats in the face of long-established political parties is proof of our party’s great ability to gain the confidence of voters. It is also largely due to the presence of a young popular base that mobilized to achieve the results seen.”

In this context, the Salafist Nour Party is the biggest loser in this electoral battle, having vacillated between participating or withdrawing from the elections after its leadership’s unexpected defeat. This is despite it being a key element of the prevailing political scene on 30 June and its support of the army in the overthrow of the Muslim Brotherhood’s regime.

Shaaban Abdel Alim, the party’s assistant secretary-general, explained to Al-Monitor, “The party fell victim to a fierce disinformation campaign by official and private media outlets, in keeping with the agendas of state intelligence institutions and businessmen. Electoral bribery and voter reluctance to participate were additional reasons for the party’s electoral failures. Yet the party’s lackluster parliamentary representation does not equate to the end of our work on the political scene, and is not indicative of weakness. The results may have been disappointing, but we shall examine the underlying reasons and endeavor to strongly return to the political arena.”

The instability in north Sinai continues, particularly after the killing of two of the judges overseeing elections in a suicide attack that targeted their headquarters in el-Arish on 24 November. A number of judges had received anonymous threats, warning against their participation in the first round of elections. In light of this, the Supreme Electoral Commission reaffirmed the holding of runoff elections in four of the governorate’s districts.

The electoral race raged on until the second round runoff elections ended on 2 December, to be followed by the swearing in of a new parliament, which is expected to be less vocal against, and more acquiescent to, the government and political regime, with the political scene dominated by symbols and parties loyal to the president. (Al-Monitor 01.12)

Back to Table of Contents

11.7 EGYPT: Continued Conflict Clogging Up Renaissance Dam Negotiations

CAIRO — Egypt has been trying for a year and a half to resolve issues surrounding construction of the Grand Ethiopian Renaissance Dam, but there is no solution in sight.

Ayah Aman posted on 4 December in Al Monitor that Egypt may have procrastinated itself into a corner as it passively awaits a solution to concerns about how the already-underway Grand Ethiopian Renaissance Dam will affect its water supply.

Technical negotiations between Egypt and Ethiopia are marred by a deep disagreement that’s impeding any clear solution to reduce the dam’s negative impact on Egypt’s historical annual quota of Nile water, which amounts to about 55 billion cubic meters (14.5 billion gallons) per year.

The ninth round of talks by the Tripartite National Committee (TNC) took place 7 – 8 November in Cairo. The TNC, which first met in Khartoum in August 2014, includes experts from Egypt, Sudan and Ethiopia. However, the only outcome of the most recent meeting was an agreement to try to schedule another meeting. No date had been set as of this writing.

Egypt has been waiting — and waiting — for an impact study on the hydraulic, social, environmental and economic impacts of the dam on Egypt and Sudan, in accordance with recommendations of a report by the International Panel of Experts (IPOE). The study has been stalled by disagreements between the firms hired to conduct it and between the firms and the TNC. Meanwhile, Ethiopia already has completed a significant part of the construction of the first stage of the dam.

An Egyptian official with the negotiating committee told Al-Monitor on 20 November, on condition of anonymity, “We sent multiple messages expressing our refusal to resume the technical talks in the absence of a decisive political decision to set a timeline for the completion of the required studies and of Ethiopia’s abidance by their results.” The official continued, “We handed the Ethiopian side a report including the Egyptian objections on the method of conduct of the negotiations. The Ethiopians did not answer our objections and postponed their examination until the six-party meeting. “We have other alternatives to the technical negotiations, which cannot continue under the current situation that does not guarantee their implementation.”

Hani Sewilam, a professor of water resources management at RWTH Aachen University in Germany, told Al-Monitor there is no need for new studies. “There are [already] international research studies tracking the expected negative impacts of the dam on Egypt and Sudan,” he said.

Since the first phase of construction will be complete before new studies can be conducted, “it will be impossible by that time to negotiate amendments to the dam construction specifications or storage capacity,” Sewilam said.

He explained, “The most optimistic scenario to minimize the expected damage on Egypt as a result of the construction of the dam is the assumption that it will be filled in 50 years. But this assumption is not going to materialize, since Ethiopia will not wait 50 years to start optimal power generation from the dam.”

The most likely scenario is that the reservoir will be filled in seven years, “which will reduce Egypt’s water supply by 25% and will reduce Egypt’s water quota by 11% during the filling years,” said Sewilam, warning of the high risk level. Ethiopia could even decide to fill the dam in just three years, he noted. “There is no technical solution at this time unless Ethiopia agrees to stop construction immediately and cooperates on the reassessment of reservoir capacity — to reduce the storage capacity.”

He added, “The continued negotiation on technical issues relating to the specifications or impacts of the dam is just a matter of procrastination. Time is not on Egypt’s side, but serves Ethiopia.”

Egypt had indirectly signaled that it accepted the dam despite concerns about potential dangers to the Egyptian water supply. In an August 2014 press conference in Khartoum, Egyptian Minister of Irrigation Hossam Maghazi confirmed there was no dispute over the first phase of construction.

That places Egypt in an awkward position. It now must seek to gain the support of the international community once again — as it had during a diplomatic campaign in 2013 and early in 2014 to restrict construction funding in the hopes that an alternative could be found that would reduce risks.

Rawia Tawfik, a professor of political science at Cairo University, spoke with Al-Monitor about Egypt’s political position on the ongoing dam negotiations. “The pressure cards that [Egypt] might use in these negotiations — such as strengthening its ties with neighboring African countries [to counter Ethiopian clout] — might not have a direct impact of the settlement of the crisis with [Ethiopia] at the moment,” Tawfik said. Tawfik continued, “It seems that Cairo has no other option now; the only solution is to continue the negotiations on the technical and political levels.”

Cairo’s options are very limited as it seeks to preserve its annual quota of Nile water, which already is not nearly enough to cover its internal water needs. On the other hand, Ethiopia and its Nile Basin neighbors have high aspirations and hope and seek to exploit the river’s waters for development purposes.

Ayah Aman is an Egyptian journalist for Al-Shorouk specializing in Africa and the Nile Basin, Turkey and Iran and Egyptian social issues. (Al-Monitor 04.12)

Back to Table of Contents

11.8 EGYPT: How Solar Energy Is Sparking New Business In Egypt

Eman El-Sherbiny posted in Al-Monitor on 14 December that Egypt hopes renewable power will cut its reliance on fossil fuel imports and solve some of its energy and economic problems. The entrepreneurial co-founders of a solar startup company want to help.

Egypt, which currently gets 90% of its energy from fossil fuels, is trying to take advantage of its plentiful sunshine through solar power. The country wants to get 20% of its energy from renewable sources by 2022, according to the Ministry of Electricity and Renewable Energy.

Al-Monitor sat down with the co-founders of SolarizEgypt, a company that designs, installs and commissions photovoltaic solar power systems, to learn about the firm and the industry. Yaseen Abdel-Ghaffar is managing director of the Cairo business, while Rana Alaa is technical director. Solar energy is evolving into a malleable new technology that accommodates a variety of needs, Abdel-Ghaffar explained.

Solar cells concentrate light to generate heat. There are two kinds of photovoltaic cell systems: grid-connected and off-grid. Under the former type, users install solar cells that are connected to the government’s power grid. The cells provide consumers with energy, but when they need more power, or at night, they can pull energy from the national power grid, Abdel-Ghaffar said. “The whole idea is that it provides cost savings as long as there is sun,” he added.

Off-grid systems use a battery to store energy during the day and provide energy when sunlight is not available. Grid-connected systems are more expensive to install. However, while off-grid systems are cheaper initially, they require batteries that are costly and must be replaced regularly.

SolarizEgypt’s young entrepreneurs, both graduates of the American University in Cairo, said they chose a solar energy startup because Egypt has been on an economic and political roller coaster. Both partners pursued technical subjects in their graduate studies and both worked in the oil and gas sector. They have always been passionate about the environment, and Alaa got her master’s degree in environmental engineering.

Solar energy was a no-brainer to them: Egypt has a lot of sun and a lot of power outages, so why not?

“We hated seeing Egypt’s resources go to waste and realized that if there was anything to be done, we needed to do it now, ourselves,” Abdel-Ghaffar said. “We really believe in the business model and technology.”

When asked what challenges the business has faced so far, he cited government bureaucracy. “We were basically waiting for the government to let us do our job.”

Also, because SolarizEgypt must import panels and materials from abroad, it has been difficult to set a budget. It can be hard to sell the concept of solar power to the public without having a working prototype, Abdel-Ghaffar said. “We come up with a lot of proposals with a hit rate of 1-2%, but we spend most of our time spreading awareness of the topic rather than closing deals because people are still reluctant to change,” Alaa added.

Al-Monitor asked why the government would encourage people to install solar panels, knowing it would lose customers. Alaa explained, “It costs the government more money to supply your electricity because it is heavily subsidized. That is why there is a feed-in tariff incentive program in place, to push people to get acquainted with the idea of solar.”

The feed-in tariff provides renewable energy producers with long-term contracts at guaranteed prices as an incentive to kick-start such projects. Also, investors know electricity consumption is bound to rise as the population increases and development continues — especially since 90% of Egypt’s energy currently comes from fossil fuels.

SolarizEgypt has handled 18 business-to-consumer projects so far and is getting requests for a lot more, the partners said. In such cases, consumers can put their idle rooftops to use providing solar energy for their own homes while also contributing kilowatt-hours to the grid. They are selling electricity to the government, but the government still saves money in the exchange.

The real cost of a kilowatt-hour is around 20 cents when all subsidies are removed from the equation. If the government pays solar-panel consumers 12 cents per kilowatt-hour, for example, it saves a substantial amount. The process helps the government keep up with demand.

Ministry of Electricity and Renewable Energy spokesman Mohamed Soliman al-Yamany told Al-Monitor, “Our main goal is to eliminate all power outages. Bearing in mind energy subsidies are to be lifted, we are working toward managing our power resources without negatively impacting Egyptian citizens.”

Yamany reaffirmed the ministry’s commitment to implement clean and renewable energy, highlighting the late-November launch of a €270 million ($297 million) wind turbine farm funded by KfW Development Bank, the European Commission, the German government and the European Investment Bank.

Until now, SolarizEgypt has successfully handled relatively small projects. Larger projects present a challenge because of Egypt’s cap on the amount of US dollars that can be deposited in its banks. “Some of our customers are willing to pay us in US dollars and receive their revenues in the same currency, but since I cannot deposit more than $50,000 per month, it seems like a handicap,” Abdel-Ghaffar said.

In 2012, Egypt’s oil bill reached $16 billion. Abdel-Ghaffar said the country is using most of its natural gas to supply electricity. Solar power eventually would fill almost half of that need for natural gas, he said. Otherwise, “It’s like instead of burning firewood to get warm, you’re burning your money.” (Al-Monitor 14.12)

Back to Table of Contents

11.9 LIBYA: The Prize: Fighting for Libya’s Energy Wealth

The Crisis Group’s Middle East and North Africa Report N°165 on 3 December by Claudia Gazzini said Libya’s economic conditions could turn sharply for the worse, as rival authorities vie to control rapidly shrinking national wealth. The struggle affects oil fields, pipelines and export terminals, as well as the boardrooms of national financial institutions. Combined with runaway spending due to corruption and dwindling revenue because of falling exports and energy prices, the financial situation – and with it citizen welfare – faces collapse in the context of a deep political crisis, militia battles and the spread of radical groups, including the Islamic State (IS). If living conditions plunge and militia members’ government salaries are not paid, the two governments competing for legitimacy will both lose support, and mutiny, mob rule and chaos will take over. Rather than wait for creation of a unity government, political and military actors, backed by internationals supporting a political solution, must urgently tackle economic governance in the UN-led talks.

Since the Qadhafi regime fell in 2011, Libya has been beset by attacks on, labor strikes at and armed takeovers of oil and gas facilities, mostly by militias seeking rents from the fledging central government. Initially brief and usually resolved by government concessions, the incidents gradually took on a life of their own, in an alarming sign of the fragmentation of political, economic and military power. They show the power accrued by militias during and since the 2011 uprising and the failure of efforts to integrate them into the national security sector. The dysfunctional security system for oil and gas infrastructure presents a tempting target for IS militants, as attacks in 2015 have shown.

One aspect of the hydrocarbon dispute is a challenge to the centralized model of political and economic governance developed around oil and gas resources that was crucial to the old regime’s power. But corruption that greased patronage networks was at that model’s center and corrupt energy sector practices have increased. A federalist movement some consider secessionist controls a number of the most important crude-oil export terminals. It exploits the situation by pursuing its own sale channels, adding to the centrifugal forces tearing Libya apart.

This complicates efforts to resolve a political conflict that in July 2014 triggered a split between rival parliaments, governments and military coalitions – one based in the capital, Tripoli, the other in the east, and both with support from competing regional players. Convinced of its legitimacy, each fights to control key institutions. As the most important, the Central Bank of Libya (CBL) and the National Oil Company (NOC), are under Tripoli’s control, the internationally recognized parliament in Tobruk and its government in al-Bayda are trying to set up parallel institutions. The sides also contest the assets of the Libyan Investment Authority (LIA, the sovereign wealth fund), in international courts. In anticipation of a unity government, most regional and all other international actors with a stake remain committed to the established CBL, NOC and LIA. They understand that these institutions jointly represent upwards of $130 billion and have senior technocratic expertise critical to rebuilding the state.

The longer negotiations stall, however, the greater the risk the Tobruk/Bayda authorities (which consider the Tripoli-based CBL and NOC biased against them) will be able to create rival institutions or weaken the existing ones. At the same time, Libya’s once-significant wealth (derived almost entirely from oil and gas sales) is hemorrhaging, due to corruption and mismanagement. Combined with reduced crude-oil exports because of damage to production and export sites, pipeline and other infrastructure blockades and the sharp decline in international oil prices, this makes remedial action urgent. Poor economic management already causes some shortages of fuel and basic goods; a wider economic crisis like a sudden, uncontrolled devaluation of the dinar, would severely harm millions. This would likely cause new security crises, encouraging more predatory behavior by militias whose salaries the state pays, increasing the importance of the parallel economy (notably smuggling) and spurring new refugee flows.

Even as UN-led negotiations for a Government of National Accord (GNA) continue, several steps should be taken, including at a minimum:

reiterating international determination that there can be only one CBL, NOC and LIA, with a GNA to appoint their senior managers; and oil sales or related contracts outside official channels will not be tolerated;
prioritizing economic governance in the UN-led talks so as to secure agreement on short-term economic policy and interim management of key institutions. This should be done in a separate negotiating track, including representatives of both authorities and with the support of international financial institutions such as the IMF and the World Bank;
brokering of local ceasefires in the UN-led talks’ security track, or other channels where relevant, to increase revenues in the short term by allowing reopening of blockaded oil fields, pipelines and export facilities. Security arrangements for repair and reopening of damaged facilities should be negotiated in the longer term; and
making the question of the armed groups guarding oil facilities another priority security-track topic. Some of these have considerable arsenals and allies across Libya and are largely autonomous, so cannot be ignored. Including these armed groups could also help improve the protection of oil and gas infrastructure against attacks by IS affiliates.

The slow progress of the UN-led talks on political questions should dissuade neither the belligerents nor the internationals from encouraging such interim steps. That Libya has kept, against all odds, a minimum level of economic governance and even briefly increased oil exports shows that interim economic arrangements are possible; they could even deliver political gains by building confidence and demonstrating that compromise can be mutually beneficial. But this needs a push from outside, the resolve of both local and international actors – notably regional powers that have oscillated between backing a political solution and supporting one side or another – to maintain the integrity of the financial institutions and perseverance from negotiators. Above all, it entails convincing the two sides they are fighting over a rapidly diminishing prize and would be better off agreeing to these steps so as to share a bigger pot. (TCG 03.12)

Back to Table of Contents

11.10 TURKEY: Foreign Investors Are Trembling Over Turkey

The European Union and the United States topped the list for foreign direct investments in Turkey in July and August, respectively, a welcome surprise for Turkey after Asian countries led the list earlier in the year. Investor sentiment, however, seems to have soured in September, with official figures indicating a sharp decline.

Mehmet Cetingulec posted on 1 December in Al-Monitor that foreign direct investments in Turkey dropped dramatically in September despite some encouraging signals from European and American investors earlier in the year.

According to Economy Ministry statistics, FDI stood at $1.15 billion in May, $1.1 billion in June, $3.38 billion in July and $1.99 billion in August. In September, however, foreign investors put only $791 million into the country.

The figures include foreign purchases of real estate. Excluding those purchases, FDI from Asian countries topped the list in May and June with $384 million and $390 million respectively, before declining to $88 million in July, $53 million in August and $34 million in September.

In July, the surprise came from EU countries, whose entrepreneurs invested $2.9 billion in Turkey, making the bulk of the total of $3.06 billion, excluding real estate buys. Monthly FDI from the EU had ranged between $170 million and $439 million during the first half of the year, which makes the $2.9 billion figure for July even more striking.

Where did EU investors put their money? The Economy Ministry data show that $2.2 billion of the July FDI went to the establishment of financial intermediary institutions.

In August, the surprise this time came from US investors, who put the unusually high amount of $1.3 billion in Turkey. The August boom followed minimal inflows in the first seven months of the year that ranged between $1 million and $60 million per month and totaled $136 million. With the $1.3 billion in August, total US FDI in the first eight months of the year reached $1.44 billion, the highest in six years. FDI by Americans had stood at $323 million in 2010, $1.4 billion in 2011, $439 million in 2012, $326 million in 2013 and $325 million in 2014.

The change in sentiment among EU and US investors appeared to be linked to Turkey’s election calendar. Both groups appeared to have begun positioning themselves in Turkey after the 7 June general elections. Unlike their European counterparts, who focused on setting up financial intermediaries, US investors primarily put their money into the manufacturing sector. EU entrepreneurs established 906 new companies in Turkey in the first nine months of 2015, while those created with US money numbered 88.

The total FDI data shows the new foreign-capital companies are concentrated mainly in wholesale and retail commerce followed by rental real estate and manufacturing. In the manufacturing category, the chemical industry tops the list of sectors where foreign-capital companies are the most active, followed by the textile, food, beverages and tobacco, and machinery and equipment sectors.

Another interesting figure pertains to “zero” investments. Along with Canada, countries from Africa, Central and South America and the Caribbean put no money into Turkey during the first nine months of the year.

With two parliamentary elections in five months over, dissipation of political uncertainty had been expected to improve investor sentiment. Following the major victory by the Justice and Development Party (AKP) in the 1 November snap elections, international credit rating agencies said political uncertainty in Turkey had diminished, but warned that serious risks persisted.

In a 2 November statement, Moody’s said the AKP victory had reduced near-term political uncertainty, but the impact on sovereign credit quality would depend on its strategy to combat low growth, high inflation and volatile capital flows. Banks in Turkey still face elevated risk aversion toward emerging markets and elevated geopolitical risks despite the lowering of political uncertainty, it stressed.

In a similar vein, Fitch said, “Resolving policy uncertainty and unpredictability and implementing reforms that promote durable economic growth and rebalancing that reduce external vulnerabilities would be positive for the sovereign rating.”

Indeed, the dissipation of political uncertainty alone has failed to increase Turkey’s appeal to investors. The government was supposed to use the post-election window of opportunity to work for internal peace. Yet, the national unity rhetoric has so far proven empty on the ground. The government has maintained its politically-motivated onslaught on companies close to the Fethullah Gulen movement. Following the seizure of the management of Koza Ipek Holding, which includes two newspapers and two television channels, shortly before the 1 November polls, the companies of Kaynak Holding met the same fate in the wake of the elections last month. The operations have sparked fear in the entire business community, discouraging foreign investments and causing even Turkish investors to look for opportunities abroad.

The ongoing conflict in the mainly Kurdish southeast and simmering tensions with Russia have emerged as further serious risks for foreign investors.

For the first nine months of 2015, total FDI in Turkey amounted to $12.6 billion, including real estate purchases, up 32.3% from the same period last year. But despite the increase, the figure remains far behind FDI levels in earlier years. In 2006 and 2007, Turkey had attracted $20 billion and $22 billion respectively. Eight years later, FDIs are down to some $12 billion in a stern reminder that Turkey is far from overcoming the foreign investment crisis.

Mehmet Cetingulec is a Turkish journalist with 34 years professional experience, including 23 years with the Sabah media group during which he held posts as a correspondent covering the prime minister’s and presidential offices, economy news chief and parliamentary bureau chief. For nine years, he headed the Ankara bureau of the daily Takvim, where he also wrote a regular column. He has published two books. (Al-Monitor 01.12)

Back to Table of Contents

The Fortnightly newsletter is a free service of Atid, EDI. We are a team of economic and trade development consultants, headquartered in Jerusalem, but active throughout the region and beyond. EDI works with an international clientele interested in identifying and researching business opportunities in the region. We also serve as the regional representative offices for a number of U.S. states and bilateral Chambers of Commerce, as well as European clients.

Fortnightly, 16 December 2015

Fortnightly, 16 December 2015

Leave a Reply Cancel reply