Fortnightly, 16 November 2016

Fortnightly, 16 November 2016

November 16, 2016


16 November 2016
15 Cheshvan 5777
16 Safar 1438




1.1  Bill Limiting Access to Online Pornography Passes Preliminary Reading
1.2  Haifa Plans for 55,000 More Residents By 2025


2.1  Mayors of Montréal & Toronto Joint Economic Mission to Israel
2.2  Daimler to Open R&D Center in Israel
2.3  IAI Signs a Strategic Cyber Deal in Asia Worth $15 Million
2.4  Tailor Brands Raises $4 Million
2.5  Israeli Police Receive Advanced Helicopters
2.6  Social Network Wisdom Company Feelter Raises $4 Million
2.7  TripAdvisor Invests in Israeli Social Dining Company EatWith
2.8  Cargo Trains Begin Operating on Jezreel Valley Line
2.9  Delek Wins Canadian Exploration License
2.10  TAU, Microsoft & GE Set Up $20 Million IoT Fund
2.11  Intel Inaugurates New Israel Production Line
2.12  Inomize and Verisense to Merge
2.13  SeaLights Moves from Stealth to Beta Mode with $11 Million in Funding to Modernize Testing


3.1  Soraa Modernizes Lighting at Iconic Nicolas Sursock Museum in Lebanon
3.2  Innovus Pharma Signs Exclusive Agreement with Elis Pharmaceuticals for Zestra in Lebanon
3.3  Driverless Cars’ Test Run Begins in Dubai’s Business Bay
3.4  Saudi Car Insurance Prices Said to Surge 400%


4.1  BIRD Energy to invest $4 Million in Cooperative Israeli-U.S. Clean Energy Projects
4.2  Japanese Firm Seeks to Conquer Morocco’s Solar Energy Industry
4.3  Morocco Reveals the World’s First Electric Pickup Truck


5.1  Moody’s & Fitch Expect Positive Prospects for Lebanon after Presidential Elections
5.2  Lebanon’s Trade Deficit Grows to $11.94 Billion by September 2016
5.3  Lebanon’s Tourist Arrivals Increase in September 2016
5.4  October Sees Further Contraction of Lebanese Private Sector Economy
5.5  Jordan Receives €160 Million German grant to Support Kingdom’s Water Sector
5.6  Largest Number of Jordanians Ever Studying in US

♦♦Arabian Gulf

5.7  Oman Government Budget Deficit Grows to $11.4 Billion

5.8  Central Bank Says Saudi GDP to Grow by 1.8% this Year

♦♦North Africa

5.9  Egypt’s Central Bank Floats Pound, Reports Historic Foreign Currency Auction
5.10  Egypt’s Central Bank Floats Pound, Reports Historic Foreign Currency Auction


6.1  Turkey’s Annual Inflation Eases for Second Month in October
6.2  Turkish Trade Deficit Widens in October
6.3  Turkey May Make Further Tax Cuts to Boost Flagging Growth
6.4  Unemployment in Turkey rises to 11.3% in August
6.5  Auto Sales in Turkey Rise Almost 30% in October
6.6  Cyprus’ Deflation Rate Accelerates to 1.2% in October
6.7  Cyprus’ Registered Unemployed Figure Drops to 33,706 in October



7.1  Mortality Rate for Premature Babies in Israel Drops by 7.6% Since 1995
7.2  Japan Awards Two Israelis “Order of the Rising Sun”


7.3  Hariri Named Lebanese Prime Minister Despite Hezbollah’s Abstention
7.4  Prince Turki – Brother of Saudi’s King Salman – Passes Away


8.1  Amgen To Invest In Israel-Based eHealth Ventures
8.2  NRGene & Kazusa DNA Institute Reveal Complex Genome of Strawberry Using Illumina Data
8.3  Nutrinia Announces First Patient Enrolled in Phase III Trial
8.4  OWC Pharmaceutical Research Corp Signs Investment and JV with Michepro Holdings
8.5  Kedrion & Kamada Achieve FDA Acceptance of BLA for Human Rabies Immunoglobulin
8.6  Teva Announces Approval of Generic Tribenzor in the United States
8.7  PolyPid Raises $5.3 Million
8.8  RHӦN-Innovations Makes an Investment in Inovytec


9.1  LightCyber Increases Precision of Behavioral Attack Detection with Added VPN Granularity
9.2  BioCatch Launches Next-Generation Behavioral Biometrics Platform for Enterprises
9.3  OriginGPS’ New Analytic Sensor is a Game Changer for IoT Tracking Applications
9.4  Connect One Introduces Pico WiReach IoT Wi-Fi Module
9.5  ECI Provides 400G Optical Backbone Demonstration for SC16 SCinet
9.6  BroadSoft Japan KK Deploys AudioCodes Business Connectivity Solution
9.7  Mellanox Announces 200Gb/s HDR InfiniBand Solutions Enabling Record Levels of Performance
9.8  Elbit Systems Reveals ReDrone – An Advanced Anti-Drone Protection & Neutralization System


10.1  Jerusalem Drops In Municipal Socio-Economic Ratings
10.2  New Car Deliveries in Israel Down in October


11.1  ISRAEL: Fitch Upgrades Israel to ‘A+’; Outlook Stable
11.2  ISRAEL: Private Equity Investment in Israel Jumps
11.3  LEBANON: Lebanon Ends Presidential Deadlock; Lasting Consensus Ke
11.4  LEBANON: Christian Consolidation and Lebanon’s Political Puzzle
11.5  LEBANON: How Aoun Rose From ’90s Renegade to Lebanon’s New President
11.6  JORDAN: How Jordan Survives: Part 1
11.7  OMAN: Sultanate of Oman Outlook Revised To Negative; Ratings Affirmed At ‘BBB-/A-3
11.8  SAUDI ARABIA: Saudi Economy Avoids Crisis But Outlook Murky For Deficit & Growth
11.9  EGYPT: IMF Executive Board Approves $12 billion Extended Arrangement for Egypt
11.10  EGYPT: If You’re Going Through Hell, Keep Going – A Guide to Egypt’s Free Float Pound
11.11  EGYPT: Egypt and Israel’s Growing Economic Cooperation
11.12  EGYPT: Fitch Says Egypt FX Move Positive; Policy Challenges Ahead
11.13  TUNISIA: IMF Publishes Fiscal Transparency Evaluation for Tunisia
11.14  TURKEY: Outlook Revised to Stable on Gradual Implementation of Economic Reforms
11.15  TURKEY: Concluding Statement of the IMF 2017 Article IV Mission
11.16  TURKEY: Could Megaprojects Spell Mega Trouble for Turkey’s Economy?
11.17  GREECE: The Charm Wears Off Tsipras – Caught Between EU and Voter Demands


1.1  Bill Limiting Access to Online Pornography Passes Preliminary Reading

The Knesset on 2 November approved by a 50-16 margin the first reading of the controversial “porn bill” that requires Israeli internet service providers to block access to pornographic websites.  The bill, sponsored by Habayit Hayehudi MK Shuli Mualem-Rafaeli, was approved by the Ministerial Committee for Legislation after undergoing changes to resolve issues of personal freedom and censorship.  According to the revised bill, internet service providers will be required to inform customers of the option to receive filtered content.  The original bill would have forced providers to block online pornography websites as a default setting that could only be removed if the customers made a specific request and proved they are over the age of 18.  Proponents of the bill said that 60% of children between the ages of 9 and 15 browse pornographic sites, exposing them to online sexual predators.  (IH 03.11)

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1.2  Haifa Plans for 55,000 More Residents By 2025

The Haifa District Planning and Building Committee has decided to approve a new outline plan for the city of Haifa.  The plan’s target for 2025 is 330,000 residents, 55,000 more than the city has at present.  Among other things, the plan includes a new main downtown business center, an employment center in Haifa Bay, building and renovation of public buildings, hubs of higher education, tourism, culture, commerce, leisure and homes, and also relates to the city’s seafront.  In terms of residential construction, several large plans are currently being promoted in Haifa.  Some of them are undergoing a statutory process, such as the plan for 4,500 homes in Haifa’s southern entrance, which will be discussed before being deposited for objections in November and Gurel Hill, a plan for 2,000 homes which has already been deposited and transferred to the handling of objections’ investigator.  There are also several plans being promoted in the Local Committee which connect Haifa’s southern entrance, on the plain, with the Gurel Hill, above it.

In terms of green areas, the plan validates the Lower Kishon Park, an area currently zoned for industry and leased to the Israel Ports Company.  In a deposited plan 586 dunams (about 145 acres) were designated for the park.  It is included in the outline plan following the decision of the Subcommittee on Principle Planning Matters, although a large area was taken out of the plan and will be handled in a National Outline Plan.  Maintaining the park area is vital, since the remaining area between Haifa and the Haifa Bay will be used for port needs in the future, following the development of Haifa Port.  (Globes 08.11)

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2.1  Mayors of Montréal & Toronto Joint Economic Mission to Israel

The Mayor of Montréal, Denis Coderre, and the Mayor of Toronto, John Tory, led a joint economic mission to Israel from 13 to 18 November.  This historic cooperation, which was organized jointly by the Ville de Montréal, the Chamber of Commerce of Metropolitan Montreal, Montréal International, the City of Toronto and the Toronto Region Board of Trade (BOT), is in keeping with the commitment of the mayors of the country’s two largest cities to join forces and become more competitive on the international scene.  The mayors, accompanied by 120 Montréal and Toronto entrepreneurs, business people and representatives of institutional and community organizations, visited Tel Aviv, Jerusalem and Beer Sheva, as well as Ramallah and Bethlehem.  This mission also took place as part of the 4th International HLS & Cyber 2016 Conference on physical and cyber security, and the 31st International Conference of Mayors, organized by the Israel Ministry of Foreign Affairs.  The mayors were accompanies by British Columbia Finance Minister Michael de Jong, who aimed to strengthen intergovernmental relationships, with a focus on the life sciences and cyber security sectors.

Since the Canada-Israel Free Trade Agreement came into force in 1997, the value of trade in goods between the two countries has tripled, reaching $1.5 billion in 2014.  In 2015, the leading merchandise exports from Canada to Israel were valued at $342 million.  (CNW Telbec 09.11)

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2.2  Daimler to Open R&D Center in Israel

On 7 November, German automotive corporation Daimler AG, Mercedes-Benz’s parent company, announced plans to set up a new research and development center in Israel.  The center, which will be built in Tel Aviv, joins the conglomerate’s R&D network, which includes sites in the U.S., Germany, India and China.  The Tel Aviv center will focus on car mobility and information services, in addition to the development and testing of various projects and user interfaces.  The new technology center in Tel Aviv seeks to boost the global R&D outline with the help of Israel.  The Israeli center will support the company’s digital ventures, as well as head the development of various interface testing, as the company seeks to foster strategic partnerships with publishers, universities and local technology companies.  (Various 09.11)

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2.3  IAI Signs a Strategic Cyber Deal in Asia Worth $15 Million

 Israel Aerospace Industries (IAI) signed a significant contract worth $15 million for a cyber-intelligence system with a customer in Asia.  The contract is for an advanced, national level, strategic cyber solution, which combines cellular systems and cyber and includes establishing an intelligence center and infrastructure and providing unique sensors.  The contract will be executed by one of ELTA/IAI’s cyber subsidiaries and development centers.

Cyber security is a strategic sector and core competency for IAI.  The company is developing unique cyber solutions for intelligence, protection, monitoring, identification and accessibility.  These advanced capabilities are possible due to the innovative technologies developed by IAI’s research, development and excellence centers, offering IAI’s customers a wide range of capabilities for dealing with evolving and ever growing cyber threats.  IAI leads the Israel Cyber Company Consortium (IC3), which offers end-to-end solutions for national cyber systems and is comprised of leading Israel cyber companies.

Israel Aerospace Industries (IAI) is a globally recognized leader in the development and production of systems for the defense and commercial markets.  IAI offers unique solutions for a broad spectrum of requirements in space, air, land, sea and cyber.  (IAI 02.11)

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2.4  Tailor Brands Raises $4 Million

Israeli machine learning branding startup Tailor Brands has closed a $4 million financing round led by Mangrove Capital Partners, together with Disruptive Technologies L.P who had led the company’s seed round.  Tailor Brands has raised $5.1 million to date including the latest funding.  Tailor Brands is the only fully automated branding agency working with over 500,000 businesses worldwide.  The company uses machine learning and pattern recognition to instantly design anything from logos to full ad set campaigns for affordable prices.

Tel Aviv’s Tailor Brands is putting an in-house designer in every business across the world.  Great designs help create great brands – and great brands help companies stand out from the clutter.  However, great designs are not just about creating a good logo, they are about creating the right logo – that is why they created Tailor Brands.  Tailor Brands is the next generation branding firm.  They work with small and local businesses to create complete brand identities and allows anyone to enjoy the privilege of a branding agency for a tenth of the market price and a process of just 20 minutes.  (Globes 07.11)

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2.5  Israeli Police Receive Advanced Helicopters

Six of the most advanced helicopters in the world will be joining the Israeli Police over the next few months.  The new helicopters were symbolically presented to Operations Division Commander Alon Levavi at a ceremony in Dallas, Texas on 3 November.  The transport of the helicopters to Israel will be carried out in phases over the coming months.  The new helicopters are meant to replace the Israel Police’s aging fleet of Bell 206 helicopters, a design which dates back to the 1960s.  The first four of the new helicopters Israel will receive will be of the single-engine H125 model.  According to Airbus Helicopters, the H125 “outclasses all other single-engine helicopters for performance, versatility, safety, low maintenance, and low acquisition costs, while excelling in high & hot and extreme environments.”  In mid-2017 Israel receive the final two helicopters, which will be twin engine models.  Israeli defense electronic company Elbit Systems (ESLT), backed the purchase of the helicopters for $115 million.  ESLT will also be tasked with maintaining and improving the helicopters as needed.  (Various 06.11)

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2.6  Social Network Wisdom Company Feelter Raises $4 Million

Israeli social network wisdom company Feelter has closed a $4 million financing round.  Feelter said that it is conducting several pilots and collaborations with leading companies such as El Al Israel Airlines, Cdiscount and Bookingisrael.  The company intends to use the funds raised to establish its US HQ and hire seven additional employees, four of them for the Tel Aviv-based development team.

Tel Aviv’s FEELTER is nothing short of an earthquake in the e-commerce market.  It is an engine bridging the worlds of social networking world e-commerce in an unprecedented manner.  Founded in 2014, the company has developed an algorithm capable of analyzing text from numerous online conversations in real time.  The analysis enables a filtering of information relevant to the content and to the question asked; for example: a businessman looking for a hotel will focus on different things than a family with children.  FEELTER then scans all texts, sorts threw and disposes spam, adware and other suspicious content, and analyzes the sentiment of every reference post and status on each network, blog, or forum – all of this with 87% accuracy.  This process – of locating, extracting, filtering, sorting and analyzing sentiments and testing the quality of results – is so revolutionary that the company has applied for a patent in the US.  (Globes 07.11)

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2.7  TripAdvisor Invests in Israeli Social Dining Company EatWith

EatWith has closed a new financing round led by TripAdvisor and with participation from Greylock Partners.  The amount of funding was not disclosed.  GreyLock Partners led EatWith’s previous financing round in which it raised $8 million in 2014.  EatWith will also team with TripAdvisor so that its pages will include the option of “dining with a local chef.”  The new social dining options on TripAdvisor will also feature candid traveler reviews and photos to help travelers shop for the right experience for their trip.  The EatWith integration will begin rolling out today on the TripAdvisor desktop site in all countries where TripAdvisor operates, and will support 10 cities at launch.  A rollout to TripAdvisor mobile and additional markets will follow.  This latest investment will support EatWith’s global growth and expansion as the company continues its mission of connecting people around the world through unique dining experiences.

Tel Aviv’s EatWith combines the social nature of eating out with the comfort of a home-cooked meal.  Founded in 2012, EatWith now has more than 500 hosts on the platform who have broken bread with tens of thousands of guests in more than 30 countries and 160 cities worldwide.  The company opened new headquarters in San Francisco and received $8 million in funding from Greylock Partners, Genesis Partners, and additional angel investors.  (Various 03.11)

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2.8  Cargo Trains Begin Operating on Jezreel Valley Line

Cargo trains have begun operating on Israel Railways’ new Jezreel Valley railway line between Haifa and Beit Shean.  A temporary cargo terminal at Beit Shean is being used, but in the future a larger terminal will be built at Kibbutz Sde Nachum.  From the terminal, cargo will be taken to the nearby Jordanian border.  The line improves the link between the Mediterranean and Jordan and from there to the Arabian Gulf and will complete a sea transport lane surrounding the Arab peninsula.  In its first three weeks of operation 100,000 passengers had already traveled on the five stations of the Jezreel Valley line – Haifa, Yokneam, Migdal Ha’Emek, Afula and Beit Shean.  Travel is free until the end of the year and fares will be half price for the two years after that.  The line cost NIS 4 billion to build and includes 26 bridges and three tunnels.  (Globes 08.11)

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2.9  Delek Wins Canadian Exploration License

Israeli energy company Delek Group has won a tender for an oil and gas exploration license off Canada’s eastern seaboard.  The bid was part of Delek’s strategy to geographically diversify its operations.  Delek will hold 70% of the license together with Navitas Petroleum, which will hold the remaining 30%.  The exploration rights are for Block 7, covering 2,000 square kilometers in water 1,400 meters deep.  The exploration target is estimated to be 4,500 meters beneath sea level and Delek and Navitas will invest $36 million in the endeavor.  The geological potential of the West Orphan basin in which Block 7 is located is estimated 25 billion barrels of oil and 20 trillion cubic feet of natural gas (for comparison Leviathan contains 21 trillion cubic feet of gas).  This is according to an estimate by the Newfoundland provincial government.  The license is valid for six years with an option to extend.  (Globes 10.11)

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2.10  TAU, Microsoft & GE Set Up $20 Million IoT Fund

International technology giants General Electric, Microsoft, Qualcomm, Tata and the Chinese company HNA EcoTech will collaborate with Tel Aviv University and Pitango Venture Capital to establish an investment vehicle for Israeli Internet of things (IoT) projects.  The new fund was unveiled at the IoT Summit 2016, which was held on Tel Aviv University campus on 15 November.  The Fund, called “Israel IoT Innovations – i3 Equity Partners” has been launched with an initial investment of $20 million.

The i3 funding will provide three to five high-potential seed and pre-seed startups annually with a financial investment of up to $1 million each.  Selected companies will also benefit from technology, tools, mentoring, business development and office space on the TAU campus, as well as from the support of the multinational corporations for technology validation, design, proof-of-concept, later-stage investments, and ultimately, the purchase of mature technologies and their distribution in high-potential markets including China and India.  (Globes 14.11)

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2.11  Intel Inaugurates New Israel Production Line

On 15 November, Prime Minister Netanyahu visited the Intel plant in Kiryat Gat to inaugurate its new production line, which employs new chip production technology.  The upgrade of machinery in this project had cost $6 billion, including a $300 million government grant.  PM Netanyahu met with company employees and managers and visited the clean room where chips are produced.  The prime minister also examined efforts to upgrade production lines at the plant, which will enable chip production using some of the world’s cutting edge technology.  Intel has invested over $17 billion in Israel and, over the next decade, is expected to purchase goods and services totaling NIS 18.7 billion in Israel.  (Globes 14.11)

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2.12  Inomize and Verisense to Merge

Inomize and Verisense announced that they are at the final stages of entering into a definitive equity merger agreement under which Inomize and Verisense, both Israeli-based ASIC Design Houses will create a leading worldwide company providing ASIC, FPGA, and system design services to a broad base of customers.  The merged company will be called Inomize, while keeping Verisense brand name as an independent business unit, and will continue to operate two design centers in Jerusalem and Netanya.

Netanya’s Inomize is a professional Research & Development firm specializing in the design and delivery of hardware solutions.  Inomize successfully delivers ambitious products and projects on time and on budget.  Inomize gets the maximum out of the available technology and, when necessary, push it to the limits using the latest advancements to meet customer’s needs.  Established in 2007, Inomize is a fast-growing company and includes among its customers large international corporations and startup companies from Israel, Europe and North America.

Jerusalem’s Verisense is an ASIC and FPGA design services company.  Verisense customers range from the largest ASIC vendors in the world, through many of the top aerospace companies, to early stage startups.  Verisense has been involved in developments in the fields of wireline and wireless communication, Telecommunications, cellular, CPUs, graphic engines, imaging, aeronautical, space, RF, analog and mixed signal.  Verisense also have unique expertise in Safety applications development for the Avionics industry (DO-254).  (Verisense 14.11)

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2.13  SeaLights Moves from Stealth to Beta Mode with $11 Million in Funding to Modernize Testing

SeaLights announced its launch out of stealth mode and into Beta along with $11 million in funding.  The round was led by TLV partners, with participation from serial investor Oren Zeev and previous investors including Blumberg Capital.  While continuous delivery is becoming standard practice, companies are in the dark in understanding their quality level in order to confidently release applications.  SeaLights was founded in September 2015 with the mission of solving this problem and creating new testing solutions and tools for QA managers, DevOps teams, and developers that not only maintain quality at high speeds, but increase it.  The SeaLights quality management platform enables quality analytics across all tools, environments and tests, including functional test code coverage.  This makes quality a quantifiable metric that drives releases instead of putting them at risk.

Kfar Saba’s SeaLights is the first cloud based continuous testing platform.  Helping companies increase their code quality while increasing release speed.  With the current round of funding SeaLights will be opening U.S. offices and expanding its R&D, customer success, sales and marketing teams both in the U.S. and in Israel.  (SeaLights 15.11)

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3.1  Soraa Modernizes Lighting at Iconic Nicolas Sursock Museum in Lebanon

Perfectly lighting a renowned modern and contemporary art museum, Soraa’s LED lamps now illuminate the Nicolas Sursock Museum in Beirut, Lebanon.  Built in 1912 by aristocrat Nicolas Ibrahim Sursock, the villa was given to the city of Beirut as an art museum upon his death.  The Sursock Museum first opened its doors to the public in 1961 with a mission to collect, preserve and exhibit local and international art.  When the project was originally specified in 2011, Aartill designers chose iGuzzini track-mounted fixtures but opted for halogen lamps, because LED luminaires available then were not acceptable in terms of reliability and light quality for the museum.  By replacing hundreds of halogen lamps with Soraa LED lamps, the museum reduced its energy costs and dramatically extended the lamp lifespan while maintaining tight beam control and outstanding color and whiteness rendering and consistency even when the lamps are dimmed.

Pioneering lamps using LEDs built from pure gallium nitride substrates (GaN on GaN), Fremont, California’s Soraa has made ordinary lighting extraordinarily brilliant and efficient.  Soraa’s full spectrum GaN on GaN LED lamps have superior color rendering and beam characteristics compared to lamps using LEDs created from non-native substrates.  (Soraa 09.11)

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3.2  Innovus Pharma Signs Exclusive Agreement with Elis Pharmaceuticals for Zestra in Lebanon

San Diego’s Innovus Pharmaceuticals entered into its second exclusive license and distribution agreement with Elis Pharmaceuticals.  Under the agreement, Innovus Pharma granted to Elis an exclusive license to market and sell Zestra for female arousal and desire in Lebanon.  Innovus Pharma is eligible to receive up to $2.25 million in sales milestone payments plus an agreed-upon transfer price.  Zestra has also received approval in India and the UAE.  Zestra is a patented blend of natural oils clinically proven in double-blind, placebo-controlled clinical trials in 276 women to increase in a statistically significant manner the arousal, desire and sexual satisfaction in FSI/AD women.  (Innovus Pharma 08.11)

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3.3  Driverless Cars’ Test Run Begins in Dubai’s Business Bay

The Roads and Transport Authority (RTA) and Dubai Properties have started the test run of driverless vehicles, each capable of carrying 10 persons, over a 650 meter long track in Business Bay.  The move follows the success of the first and second phases of the trial operation of smart vehicles in the Dubai World Trade Centre and the Mohammed bin Rashid Boulevard.

Satisfaction rating clocked 95% for autonomous vehicles tested at the Mohammed bin Rashid Boulevard from September 1 to October 5 this year, while the test run in Dubai World Trade Centre during Ramadan 2015 also had yielded satisfaction rating of 92%, RTA said.  Dubai Properties said it was keen on utilizing the advanced technologies and innovations under the smart mobility and autonomous vehicles initiative charted out by the government.  It is offering autonomous vehicle experience to visitors and residents of Bay Avenue as well.  (AB 13.11)

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3.4  Saudi Car Insurance Prices Said to Surge 400%

The cost of car insurance in Saudi Arabia has reportedly rocketed 400% as a result of an increase in traffic accidents.  Motorists have called on the authorities to intervene and bring down prices to affordable levels, while insurance providers say costs would rise further as reckless driving worsens in the kingdom.  Industry experts blamed concrete blocks along the roads for a reported 15% rise in accidents in recent months.  Persistent road works “have affected the smooth flow of traffic”, one expert was quoted as saying, while reckless driving is another significant factor.

The total number of road accidents in Saudi Arabia is expected to cross 1.1 million incidents by the end of the year.  Losses suffered by insurance companies as a result have reached 105%, including operational expenses.  Third party insurance premiums range between SR1,000 ($266) and SR2,000 ($533) per month.  (AB 06.11)

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4.1  BIRD Energy to invest $4 Million in Cooperative Israeli-U.S. Clean Energy Projects

The U.S. Department of Energy (DOE) and Israel’s Ministry of National Infrastructure, Energy and Water Resources (MIEW) along with the Israel Innovation Authority, announced $4 million for five newly selected clean energy projects as part of the Binational Industrial Research and Development (BIRD) Energy program.  BIRD Energy began in 2009 as a result of the Energy Independence and Security Act of 2007.  Since then, BIRD Energy has funded 32 projects, with a total investment of about $26 million, including these five selected projects, which will leverage cost-share for a total project value of $8.6 million.  The program encourages cooperation between Israeli and American companies through funding joint research and development in a range of clean energy subsectors including energy efficiency, biofuels and solar energy.

BIRD Energy projects addressenergy challenges and opportunities of interest to both countries while focusing on commercializing clean energy technologies that improve economic competitiveness, create jobs and support innovative companies.  The five approved projects are:

-BrightSource Industries (Jerusalem) and Dynamis Solutions (Las Vegas, Nevada), will develop an automated heliostat cleaning system for concentrated solar plants, increasing electricity production and reducing operating costs.

-CelDezyner (Rehovot) and POET Research (Sioux Falls, South Dakota), will develop an innovative process for lower cost production of ethanol from second generation, lignocellulosic feedstocks, which could provide further options to reduce oil dependence.

-Solview Systems (Ramat Gan) and Yarotek PR (Aventura, Florida), will develop rooftop solar analytics for the commercial and industrial markets to ease the adoption of solar energy.

-Technion IIT (Haifa) and Pajarito Powder (Albuquerque, New Mexico), will develop lower cost catalysts for energy storage and energy generation devices used to level intermittent renewable sources or for back-up applications.

-Waves Audio (Tel Aviv) and Virginia Polytechnic Institute and State University (Blacksburg, Virginia), will develop an innovative electrostatic speaker using a nanoscale active membrane based on graphene achieving significant energy savings.

Projects that qualify for BIRD Energy funding must include one U.S. and one Israeli company, or a company in one of the countries paired with a university or research institution in the other.  The companies must present a project that involves innovation in the area of energy efficiency or renewable energy and is of mutual interest to both countries.  BIRD Energy has a rigorous review process that selects the most technologically meritorious projects along with those that are likely to commercialize and have significant impact. Qualified projects must contribute at least 50% to project costs and commit to repay up to 150% of the grant if the project leads to commercial success.

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.  During its 39 years, the BIRD Foundation has invested in more than 900 projects, which have yielded direct and indirect revenues of about $10 billion.  (BIRD 13.11)

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4.2  Japanese Firm Seeks to Conquer Morocco’s Solar Energy Industry

Japan’s Sumitomo wants to transform Morocco into a “hub of production and export” of the new Concentration Photovoltaic technology.  On 10 November, following the opening of 8 vehicle-wiring factories in Tangier, Kenitra and Casablanca, Sumitomo, in collaboration with the Moroccan Agency for Sustainable Energy (MASEN), unveiled a new Concentration Photovoltaic (CPV) power station with 1MW capacity at Noor Power Station in Ouarzazate.  Data collected from the photovoltaic panels, installed by the firms in Casablanca and Ouarzazate between 2013 and 2015, reveal the performance quality to be “excellent.”  The Concentration Photovoltaic panels use a new technology that improves the efficiency of energy production and converts 30% of solar energy into electricity, compared with existing technology that converts only 10 to 15%.  This technology captures the solar radiation and concentrates it on a surface that is smaller than the one used in the normal system. This allows for maximum performance from small solar cells.

Based on the performance of this newly established power station, the two companies will establish a larger station with a capacity of 20MW and a base for manufacturing Moroccan-made Concentration Photovoltaic panels.  (MWN 14.11)

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4.3  Morocco Reveals the World’s First Electric Pickup Truck

National Transportation and Logistics Company (SNTL) in Morocco announced the world’s latest and newest innovation of the first electric pickup truck ever made.  The innovation, which is 100% electric, is also a 100% of Moroccan origin in terms of concept and assembly.  The truck, which took nine months to complete, was presented at SNTL’s center of technology and innovation “Tamayuz Supply Chain”, in Marrakesh.  The center chose and accompanied Engima, the Moroccan consulting firm specializing in automotive engineering, to work on the development and manufacturing of the electric pickup’s design.

The electric vehicle prototype, which was adapted to fit the Moroccan market, does not require the creation of electric stations for it to be recharged.  The pickup can be recharged in less than 7 hours in the comfort of one’s home using a 220V power outlet, or in a mere hour if a supercharger is used.

Most importantly, is that the users of the electric pickup truck can easily upgrade their vehicles without having to purchase a new one.  The modular design allows to integrate a new version of a component on an earlier version of the vehicle, without it hindering any of its normal functions.  As well, the electric pickup and its features, such as temperature control that could harm or spoil transported goods, can be remotely controlled by the driver using an all in one tablet.  Although designed, manufactured, and assembled in Morocco, the electric pickup innovation is intended to be primarily sold in the European market while Morocco, until it is fully ready, will only be acting in the carrier market.  (MWN 09.11)

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5.1  Moody’s & Fitch Expect Positive Prospects for Lebanon after Presidential Elections

According to both Moody’s and Fitch, the end of the presidential deadlock in Lebanon holds positive prospects for the country’s economy.  However, improvement would be gradual and the economy will remain constrained given the ongoing Syrian war and weak public finances.  The election of General Michel Aoun as a President will positively impact the consumer confidence, the investment environment and deposits’ growth.  According to Moody’s, political stability will limit the decelerating growth of deposit inflows, which settled at 3.8% by August 2016, compared to 5.1% in December 2015.  Moreover, this political shock has the potential to control further fiscal deficits that have averaged at 7.4% of GDP over the past 5 years.  Fitch believes that the war in Syria will most likely limit the economic benefits of such political change, as tourism, real estate, and construction, the main contributors to the real GDP, have significantly slowed down over the past 5 years.  (Various 09.11)

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5.2  Lebanon’s Trade Deficit Grows to $11.94 Billion by September 2016

According to the Lebanese Customs, Lebanon’s trade deficit broadened by 8.64 % to $11.94B by September 2016, as exports increased by a yearly 3.25% to $2.31B, while imports added 7.73% y-o-y to $14.24B.  On the imports’ side, as oil prices averaged lower in January – September 2016 ($38.38/barrel) compared to the same period in 2015 ($55.26/barrel), mineral products (21.70% of total import value) saw rising value and volume. In details, imports of mineral products increased 36.81% y-o-y, in terms of volume, to reach 7.14M tons by September 2016.  Accordingly, value of total imported mineral products increased 36.22% y-o-y to $3.09B.  Moreover, products of the chemical or allied industries, which grasped 10.75% of the total value of imported goods increased by a yearly 5.67% to $1.53B.  As for machinery and electrical instruments, they grasped a share of 9.80% of the total value and fell by 8.45% from 2015 to stand at $1.40B by September 2016.  The top countries Lebanon imported from during the first nine months of the year were China, Italy, USA, Germany and Greece with respective shares of 11.20%, 7.37%, 6.55%, 6.08% and 5.27% of the total value.

As for exports, given the strength of the Lebanese jewelry sector and the increasing gold prices this year, “pearls, precious stones and metals” products, grasping the largest share of exported goods (31.82%), almost doubled in value by September 2016 to reach $652.93M.  As for prepared foodstuffs, beverages and tobacco, they comprised 15.95% of exported goods’ value amounting to $327.36M by September 2016, compared to $362.81M by September 2015.  Moreover, exports of machinery and electrical instruments, that take up to 11.71% of the total exports, fell by 51.18% y-o-y to $312.46M by September 2016.  The top export destinations for the same period were South Africa, Saudi Arabia, United Arab Emirates, Syria and Iraq with respective shares of 22.23%, 9.27%, 8.15%, 5.73% and 5.61% of the total value.  (LC 07.11)

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5.3  Lebanon’s Tourist Arrivals Increase in September 2016

According to the Lebanese Ministry of Tourism, the number of tourist arrivals rose by a yearly 10.23% to 1.30M by September.  This rise was partly due to the occurrence of most of the religious holidays during the first 3 quarters of the year and the relatively stable security situation.  Specifically, European tourists, grasping a share of 33% in total, grew 10.33% y-o-y to 435,857 by September.  French tourists saw their number rise by an annual 6.44% to 112,682, and visitors from Germany and Sweden also rose in number by 15.69% and 16.31% to 69,275 and 28,126, respectively, by September 2016.  Moreover, the number of visitors from Arab countries, representing 30% of the total, increased by a yearly 6.92% to 385,637.

Mostly, arrivals from Arab countries with political instability seek Lebanon for employment or refuge and not tourism.  This has boosted the number of Iraqi visitors by an annual 25.87% to 181,729, and the number of Egyptians by an annual 10.41% to 63,633 by September 2016.  However, given the warnings of GCC governments about visiting Lebanon, the number of incomers from Saudi Arabia, Kuwait and the UAE registered annual drops of 27.65%, 29.5% and 74.24% to reach 27,840, 18,687, and 1,717, by September 2016, respectively.  American tourists, also increased by an annual 11.93% to 239,109 by September 2016.  This rise was mainly due to the growth in the number of visitors from the US and Canada which rose to 124,605 and 80,732 by September 2016, respectively.  As for the month of September alone, total number of tourist arrivals significantly increased by 20.99% y-o-y to stand at 164,605.  Specifically, the Eid el Adha holiday in September boosted the number of Arab tourists, which grew by 14.65% to reach 58,631.  The Iraqis comprised almost 50% of total Arab tourists, followed by the Egyptians, with 18%, and Jordanians with 16%.  (BLOM 07.11)

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5.4  October Sees Further Contraction of Lebanese Private Sector Economy

The private sector’s economic activity remained firmly in contraction area in October, as revealed by the Lebanon’s Purchasing Managers’ Index (PMI) released by BLOMINVEST Bank on 3 November.  BLOM PMI stood at 43.8 in October, well below the 50 point mark which separates economic growth from contraction.  The deterioration came following faster falls in companies’ new and export orders.

Commenting on the October 2016 PMI results, BLOMINVEST Bank said the PMI hits its lowest recorded reading since the beginning of the surveys in 2013, in the same month that brought the resolution of a two and a half year long presidential deadlock.  This is a very meaningful indication, warning that although the election will boost market sentiment, it is hardly enough to see the revival of the local economy.  Local demand on Lebanese products is depressed and has reached its bottom score in October; the output index was at a near-record low.  The next month’s political agenda is still loaded, but fast track formation of the government will to start working on real solutions to ease the private sector’s recessionary pressures.  (BLOM 03.11)

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5.5  Jordan Receives €160 Million German grant to Support Kingdom’s Water Sector

On 2 November, Germany announced a €160 million grant in additional support for Jordan’s water sector.  The grant will fund several of the Water Ministry’s planned projects to improve water and wastewater services in light of the mounting pressure on resources as the Kingdom hosts 1.4 million Syrians.  The grant was announced on the sidelines of the German-Jordanian Water Dialogue, which brought together water sector officials, local businesses, German business representatives and donor entities.  The one-day event aimed to increase the engagement of German private companies in Jordan’s water sector and address the Kingdom’s water challenges, according to organizers.  Jordanian Water Minister Hazem Nasser highlighted Jordan’s interest in attracting German private companies to transfer the know-how, technology and innovation to the local water sector.  Nasser outlined the sector’s challenges, noting that water shortage is exacerbated with the growing population, climate change and the world financial crisis.  The German Water Partnership is a joint initiative of the German private and public sectors, combining commercial enterprises, governmental and non-governmental organizations, scientific institutions and water-related associations.  (JT 02.11)

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5.6  Largest Number of Jordanians Ever Studying in US

The number of Jordanian students currently studying at institutions across the US reached a record high in 2016, according to an annual report released by the US State Department.  A US embassy statement, citing findings of the Open Doors report for 2016, said that there are currently some 2,330 Jordanian students in the US, the largest number recorded since the figures have been tracked.  This number, which does not include students with Jordanian/American dual citizenship, represents an increase of 5.2% from 2015.  The number includes 908 undergraduate students and 1,022 graduate students.  Jordan now ranks eighth in the Middle East and North Africa region for the number of students in the US.  There are also around 1,000 American students at institutions in Jordan this year.  (JT 15.11)

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►►Arabian Gulf

 5.7  Oman Government Budget Deficit Grows to $11.4 Billion

Oman’s government posted a budget deficit of OR4.32 billion ($11.4 billion) in the first eight months of 2016, according to latest official figures.  The January-August deficit compared to a deficit of OR2.6 billion, as low oil export prices slashed its revenues, according to provisional Finance Ministry data.  The government’s original 2016 budget plan envisaged state expenditure of OR11.9 billion and revenues at OR8.6 billion.  Officials said their 2016 economic plans assumed an average oil price of $45 a barrel.  Oman is imposing a series of austerity measures after it posted a budget deficit of about OR4.5 billion last year.  Gasoline and diesel price subsidies have been cut and similar cuts are planned for electricity and liquid petroleum gas.  In August, the World Bank said Oman’s subsidy bill is expected to fall by 64% this year as the government seeks to reform its finances amid lower oil prices.  (AB 04.11)

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5.8  Central Bank Says Saudi GDP to Grow by 1.8% this Year

Saudi Arabia’s central bank expects gross domestic product to grow 1.8% this year, faster than the 1.2% forecast by the International Monetary Fund, the bank said in its annual report.  The non-oil sector is expected to expand 2.5% and the oil sector, 1.2%.  Central bank governor Ahmed Al Kholifey said that the body hopes interbank money rates continue to fall.  He also said Riyadh was not worried about Saudi investments in the United States following the election of Donald Trump as president, and after September’s U.S. Congress vote to let relatives of victims of the 11 September terrorist attacks sue Saudi Arabia.  Saudi authorities have made no new decisions about the investments.  (Reuters 14.11)

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►►North Africa

5.9  Egypt’s Central Bank Floats Pound, Reports Historic Foreign Currency Auction

Egypt’s Central Bank floated the pound on 3 November, starting at a guidance price of 13 pounds to the US dollar, with media reports suggesting it would offer $4 billion in a historic foreign currency auction.  The country has struggled with a foreign exchange crisis since a 2011 uprising drove away tourists and foreign investors, the two main sources of hard currency.  Rumors of an expected floatation boosted the dollar rate on the black market, widening the gap between the official and unofficial exchange rates.  The IMF welcomed the move, stating that “a flexible exchange rate determined by market forces would improve Egypt’s external competitiveness, support exports and tourism and attract foreign investment.”

The pound was pegged to the US dollar at an exchange rate of 8.8 pounds to the dollar, less than half its value on the black market earlier this week, of 18 pounds to the dollar.  Egypt secured a $12 billion loan from the IMF, for which several economic reforms were a necessary condition.  Last month the IMF said Egypt would have to devalue the pound prior to the final approval of the loan.  The Central Bank had to secure $6 billion in bilateral financing prior to an IMF loan approval, of which the prime minister said 60% had been sourced, before a currency swap with China worth $2.7 billion.  The rise in reserves was seen by analysts as necessary measure to cushion the devaluation of the pound.  (Mada Masr 03.11)

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5.10  IMF Board Approves Egypt’s $12 Billion Loan Agreement

The International Monetary Fund’s executive board has approved a three-year, $12 billion loan to Egypt to support its economic reform program.  The IMF said its board’s approval allows for an disbursement of an initial tranche of $2.75 billion of the loan.  The remaining amount will be phased in over the duration of the program, subject to five reviews.  The Central Bank of Egypt received the $2.75 billion tranche, which increased the country’s foreign reserves to $23.3 billion, state television said.  The program will help Egypt restore macroeconomic stability and promote inclusive growth.

Import-dependent Egypt has struggled to attract dollars and revive its economy since tourists and investors fled after the 2011 uprising that ended Hosni Mubarak’s 30-year rule.  Facing a gaping budget deficit, plummeting foreign reserves and a burgeoning currency black market, it agreed the IMF loan in August but had to secure $5 billion to $6 billion in bilateral financing for the deal to be completed.  Egypt made the final push for the loan after the central bank abandoned its currency peg of 8.8 pounds to the U.S. dollar last week in a dramatic move welcomed by the Fund and World Bank.  (IMF 11.11)

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6.1  Turkey’s Annual Inflation Eases for Second Month in October

Turkey’s annual inflation rate fell in October, according to a report issued by the Turkish Statistical Institute (TUIK) on 3 November.  This is the second month in a row that the rate has gone down.  Yearly inflation was 7.16% in October compared to 7.28% last September and 7.58% in October 2015.  Monthly inflation was 1.44% in October over the previous month, easily beating forecasts of 1.62%.  The median estimate of the inflation expectation survey – prepared by Anadolu Agency’s Finance Desk – was 1.62% on a monthly basis and 7.35% on an annual basis.  The report showed the highest monthly increase was in clothing and footwear at 10.43%, while the top sub-indices of yearly consumer price inflation on an annual basis were alcoholic beverages and tobacco, which rose by 22.61%.  (TUIK 03.11)

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6.2  Turkish Trade Deficit Widens in October

Turkey’s foreign trade deficit rose sharply in October, according to an official preliminary data released on 2 November.  Last month, Turkey’s trade deficit increased by 13.8%, climbing to $4.15 billion from $3.6 billion, the same month last year, Turkey’s Trade Ministry said.  The report revealed that exports witnessed a 2.77% decline to $12.9 billion in the month, while imports slightly increased by 0.8% to $17 billion.  The foreign trade deficit in the first 10 months of 2016 stagnated by 12.6%, totaling $46.17 billion.  Exports in the same period were $117.2 billion with a 2.75% decline, while imports narrowed by 5.75% to $163.3 billion.  (AA 02.11)

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6.3  Turkey May Make Further Tax Cuts to Boost Flagging Growth

Turkey may make further temporary tax reductions to try to boost flagging growth after a disappointing third quarter, in addition to its efforts to expand credit and bolster domestic demand, Finance Minister Naci Agbal said.  Turkey’s economy has been hit by a failed military coup in July and uncertainty about the emergency rule imposed in its wake, which has made both investors and consumers cut back on spending.  Ankara’s deepening involvement in the conflicts in neighboring Syria and Iraq have added to the concerns.

Industrial production shrank 3.1% year-on-year in September, prompting economists to cut their growth forecasts and making the government’s target of 3.2% growth in 2016 look extremely difficult to achieve.  Prime Minister Binali Yildirim met the heads of Turkey’s biggest banks this month to urge them to lower their interest rates.  The central bank has meanwhile cut policy rates at seven of its last eight meetings despite weakness in the lira currency, which has hit a series of record lows in recent weeks.  The government is targeting growth of 4.4% next year, but that also looks optimistic, economists say, particularly if Turkey holds a referendum on changing the constitution to create a more powerful presidency in the spring, as expected.  (HDN 11.11)

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6.4  Unemployment in Turkey rises to 11.3% in August

Turkey’s unemployment rate rose to 11.3% in August year-on-year, an increase of 1.2%, the Turkish Statistical Institute (TUIK) announced on 15 November.  The number of unemployed people aged 15 and over rose to 3.49 million in August 2016, up by 435,000 from August 2015, pushing the unemployment rate to 11.3%.  Unemployment also saw a 0.6% jump from the previous month.  The report showed that unemployment rose for the fourth month in a row in August after falling to 9.3% in April.

July’s employment rate was 46.7%, down 0.1% from the same period last year, despite the Turkish economy adding 323,000 jobs – an indication that growth in the number of people seeking a job has outpaced job creation.  Turkey’s labor force participation rate rose by 0.5% in August year-on-year to 52.6%, with the number of people in the labor force totaling 30.96 million, a rise of 759,000 in 2016 compared with the same period the previous year.  (TUIK 15.11)

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6.5  Auto Sales in Turkey Rise Almost 30% in October

Sales of cars and light commercial vehicle in Turkey rose by 29.2% in October from last year, the Automotive Distributors’ Association stated on 2 November.  Last month, 83,000 passenger cars and light commercial vehicles were sold in Turkey.  The report showed that car sales went up by 32.9% to 63,746, while light commercial vehicle sales rose by 18.1% to 19,254, pushing combined sales to almost a third higher than last year.  The association forecasts the Turkish automotive market to increase to about 1,000,000 units by the end of 2016 and 2017, citing a probable rate hike from U.S. Federal Reserve, post-Brexit volatility in the EU and other countries, rebalancing in the Chinese economy, geopolitical challenges, and monetary policies of the Turkish Central Bank.  (Anadolu Agency 02.11)

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6.6  Cyprus’ Deflation Rate Accelerates to 1.2% in October

Cyprus’ consumer price index rose 1.2% in October, compared to the respective month of 2015, after falling 0.5% in September, mainly on cheaper airfares, vegetables, clothing, electricity, and fresh fruit.  Compared to September, consumer prices rose 0.1%, as more expensive clothing and footwear, fuel and other products and services, offset the impact from more affordable food and non-alcoholic beverages, mainly fruits and vegetables, Cystat said.  In January to October, Cyprus posted an annual deflation rate of 1.6%.  (Cystat 03.11)

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6.7  Cyprus’ Registered Unemployed Figure Drops to 33,706 in October

The number of registered unemployed fell 8.9% year-on-year in October, to 33,706, the lowest figure since January 2012, the Cypriot statistical service said.  On a monthly basis, the number of registered unemployed dropped by 301 in October compared to September.  The seasonally adjusted number of registered unemployed rose by 171 last month, to 37,475, which is the lowest for more than four years.  The seasonally adjusted jobless figure dropped 9.5% last month compared to October 2015.  The drop last month was mainly due to a decrease of jobless in the construction sector by 1,145, in manufacturing by 593, trade by 437, transportation by 429, accommodation by 279 and public administration by 266, Cystat said.  The number of newcomers fell by 230.  (Cystat 03.11)

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7.1  Mortality Rate for Premature Babies in Israel Drops by 7.6% Since 1995

The mortality rate for extremely low birth weight babies – defined as weighing less than 1 kilogram (2.2 pounds) – born in Israel has dropped from 25.6% in the years 1995 – 1999 to 18% in the years 2010 – 2014, statistics collected by the Health Ministry and the Gertner Institute for Epidemiology and Health Research revealed on 2 November.  In 2014, the mortality rate for babies of such low birth weights fell to 15%, with 85% eventually being able to leave hospital and go home with their parents.  Most very low birth weight babies were born prematurely, but some were born at term or even late.  According to the figures, about a third of the very low birth weight babies were born to parents who had undergone fertility treatments, and 40% were multiple births — twins or triplets.  In 2000, the Health Ministry changed its protocol to limit the number of embryos implanted in fertility treatments to two, causing the number of premature triplets to drop by 12% in 1995-1999 and by 5% in 2010-2014.  (MoH 02.11)

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7.2  Japan Awards Two Israelis “Order of the Rising Sun”

Among the 96 recipients of the prestigious Order of the Rising Sun for 2016, announced on 3 November by the Japanese government, are two Israelis: Professor Meron Medzini of the Hebrew University of Jerusalem and architect Arie Kutz from Tel Aviv University.  Kutz, 63, Friendship Society chairman at the Israel-Japan Chamber of Commerce, was granted the award for his work in advancing relations and mutual understanding between the two countries.  Kutz is also a lecturer of Japanese architectural history at Tel Aviv University’s East Asia Studies Department.  Medzini, 84, who teaches modern Japanese history in Asian Studies Department at the Hebrew University of Jerusalem, received the decoration for his contributions to advancing Japanese studies and fostering a deeper understanding of Japan in Israel.

The Japanese government awards the decoration, which includes a medal and certificate of honor, every year to people who have contributed to Japan’s international relationships and promoted its culture globally.  The award ceremony will be held in the near future at the home of the Japanese ambassador in Israel.  (IH 03.11)

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7.3  Hariri Named Lebanese Prime Minister Despite Hezbollah’s Abstention

Future Movement leader and former Prime Minister MP Saad Hariri was chosen by President Michel Aoun to return to the premiership to head a new cabinet.  Following two days of consultations by President Aoun with various political blocs, Hariri secured the endorsement of 112 out of 126 MPs.  Notably, Hezbollah declined to grant their support, as did the Syrian Social Nationalist Party and the Baath Party.  Hezbollah leader Hassan Nasrallah had nonetheless indicated in recent speeches that his party would not object to Hariri’s premiership.  Hariri will now face the challenge of steering the contentious cabinet formation process, which some observers say could take months.  In a possible portent of just one of the battles this could entail, Lebanese Forces MP Antoine Zahra said his party would reject the inclusion of the so-called ‘People-Army-Resistance equation’ in the cabinet policy statement, referring to a phrase seen as legitimizing Hezbollah’s weapons on which the Party of God has previously insisted.  (Various 03.11)

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7.4  Prince Turki – Brother of Saudi’s King Salman – Passes Away

Prince Turki bin Abdulaziz Al Saud, a brother of Saudi Arabia’s King Salman, has passed away, the Royal Court announced.  Born in 1934, Prince Turki was a son of the kingdom’s founder King Abdul Aziz Bin Saud.  He served as Saudi Arabia’s deputy minister of defense from 1968 to 1978.  Prince Turki was buried on 12 November, following funeral prayers at Imam Turki bin Abdullah Mosque in Riyadh.  (Various 12.11)

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8.1  Amgen To Invest In Israel-Based eHealth Ventures

Switzerland’s Amgen (Europe), an affiliate of Amgen Inc., announced an investment in eHealth Ventures, an Israel-based digital health incubator.  The investment reflects Amgen’s commitment to serving patients by driving innovation and sustainable healthcare through technology discovery, and recognizes the importance of Israel as a source of innovation in eHealth and digital technologies.  Additional investors include Israeli HMO Maccabi Healthcare Services and Amgen’s Israeli distributor Medison Pharma.  Amgen will be the lead biopharmaceutical investor.

Tel Aviv’s eHealth Ventures, a consortium of world-class organizations and investors active in the field of digital health, was launched in March of 2016 with Israeli government backing.  The consortium, which comprises Cleveland Clinic, a leading US hospital, Maccabi Healthcare Services, Israel’s leading and most advanced health provider, and Medison Pharma, Israel’s largest independent specialty pharmaceutical company and Amgen’s distributor in Israel, aims to invest in 40 new companies over an eight year period.  (Amgen 25.10)

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8.2  NRGene & Kazusa DNA Institute Reveal Complex Genome of Strawberry Using Illumina Data

NRGene is the first ever to assemble the complex genome of a commercially grown strawberry.  Most plant, animal, and human genomes are diploid – containing two variants from each gene.  The strawberry genome contains eight nearly identical copies of each gene, making the accurate phasing of each something that has never been done before – until NRGene’s DeNovoMAGIC 3.0.  The octoploid, heterozygous strawberry genome was assembled using reads produced on Illumina sequencing technology and assembled by NRGene’s cloud-based DeNovoMAGIC 3.0 software package in only two weeks.

NRGene’s DeNovoMAGIC 3.0 delivers complete, highly accurate genome assemblies in the form of long, phased sequences using Illumina-based reads.  As more genomes are generated, NRGene’s PanMAGIC is used to compare the complete genome sequences of multiple individual samples to capture the broad genomic diversity, better pinpointing positive traits across all varieties.  NRGene has delivered the first bread wheat, Emmer wheat, and durum wheat genomes; dozens of new maize, soybean, cotton, and canola genomes; and is delivering more accurate versions of previously mapped genomes built on older, more inefficient technologies.  The project was done in cooperation with Japan’s Kazusa DNA Research Institute and supported in part by Japan’s Ministry of Agriculture, Forestry and Fisheries.

Ness Ziona’s NRGene is a genomic big data company developing cutting-edge software and algorithms to reveal the complexity and diversity of crop plants, animals, and aquatic organisms for supporting the most advanced and sophisticated breeding programs.  NRGene tools have already been employed by some of the leading seed companies worldwide as well as the most influential research teams in academia.  (NRGene 03.11)

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8.3  Nutrinia Announces First Patient Enrolled in Phase III Trial

Nutrinia announced the enrollment of the first patient in its FIT-04 study.  Nutrinia is developing NTRA-2112 as a treatment for preterm infants with intestinal malabsorption.  NTRA-2112 is a novel oral formulation of insulin that acts locally in the gastrointestinal tract to accelerate intestinal maturation.  Its unique formulation is suited for NICU use, as it can be stored at room temperature, is formulated for use with the equipment needed for enteral feeding, and can be easily administered with breast milk, formula or saline.

Ramat Gan’s Nutrinia is a clinical stage biotechnology company focused on developing proprietary oral formulations of insulin for gastrointestinal indications in infants.  Insulin has been shown to induce a receptor-mediated response leading to gut maturation and adaptation, important in preterm newborns with intestinal malabsorption and infants similarly affected by Short Bowel Syndrome.  There are no approved therapies for either of these orphan conditions.  Nutrinia’s unique, locally-acting oral formulation of insulin is stable at room temperature, rapidly dissolves in saline, formula or human milk, and is designed for both oral and tube feeding.  (Nutrinia 03.11)

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8.4  OWC Pharmaceutical Research Corp Signs Investment and JV with Michepro Holdings

OWC Pharmaceutical Research Corp., through its Israeli based fully owned subsidiary, announced an agreement for a combined JV & Private Placement of $300,000 with Cyprus’ Michepro Holding, a private family investment company.  In addition to the investment, the parties will establish a joint venture, 75% to OWCP and 25% to Michepro Holding, to promote, sell, market and distribute the Company’s potential products in Europe, initially with the psoriasis treatment, to be followed with company’s other therapies as they become available.”

OWC Pharmaceutical Research Corp., through its wholly-owned Petah Tikva’s subsidiary, One Word Cannabis, conducts medical research and clinical trials to develop cannabis-based pharmaceuticals and treatments for conditions including multiple myeloma, psoriasis, fibromyalgia, PTSD, and migraines.  OWC is also developing unique delivery systems for the effective delivery and dosage of medical cannabis.  All OWC research is conducted at leading Israeli hospitals and scientific institutions, and led by internationally renowned investigators.  The Company’s Research Division is focused on pursuing clinical trials evaluating the effectiveness of cannabinoids for the treatment of various medical conditions, while its Consulting Division is dedicated to helping governments and companies navigate complex international cannabis regulatory frameworks.  (OWC Pharmaceutical Research 03.11)

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8.5  Kedrion & Kamada Achieve FDA Acceptance of BLA for Human Rabies Immunoglobulin

Fort Lee, NJ’s Kedrion Biopharma and Kamada announced that the U.S. FDA has accepted for review a Biologics License Application (BLA) for a human anti-rabies immunoglobulin (IgG) therapy.  Rabies is a life-threatening condition that impacts approximately 40,000 people in the U.S. each year.  At present, U.S. healthcare professionals have only two rabies IgG therapy options from which to select in preventing the onset of rabies in someone who may have been exposed to the deadly virus.  The post-exposure prophylaxis treatment being developed by Kedrion Biopharma and Kamada is a human plasma-derived immunoglobulin (IgG) and has the potential to provide stability and secure availability in a market that has experienced inconsistent supply and supply shortages in recent years.  The FDA has assigned a Prescription Drug User Fee Act (PDUFA) goal date of August 29, 2017, for completion of the review of the BLA.  Kedrion Biopharma and Kamada intend to launch the product soon after a favorable decision is received.

Kamada has been selling the anti-rabies IgG product since 2003 in numerous territories outside of the U.S. under the brand name KamRAB.  Kamada has sold more than one million vials of the product to date, demonstrating significant clinical experience with the product.  The BLA currently under review by FDA is based on results announced in December 2015 from a prospective, randomized, double-blind, non-inferiority Phase 2/3 study of 118 healthy subjects.  Under the clinical development and marketing agreement between Kedrion Biopharma and Kamada, subject to the product receiving FDA marketing approval, Kamada will hold the license for it and Kedrion Biopharma will have exclusive rights to commercialize it in the U.S.

Ness Ziona’s Kamada is focused on plasma-derived protein therapeutics for orphan indications, and has a commercial product portfolio and a robust late-stage product pipeline.  The Company uses its proprietary platform technology and expertise for the extraction and purification of proteins from human plasma to produce Alpha-1 Antitrypsin (AAT) in a highly purified, liquid form, as well as other plasma-derived Immune globulins.  AAT is a protein derived from human plasma with known and newly discovered therapeutic roles given its immunomodulatory, anti-inflammatory, tissue-protective and antimicrobial properties.  (Kamada 07.11)

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8.6  Teva Announces Approval of Generic Tribenzor in the United States

Teva Pharmaceutical Industries announced approval of generic Tribenzor®1(olmesartan medoxomil, amlodipine and hydrochlorothiazide) tablets in the U.S. and is in the final stages of launch preparation.  Teva also recently received approval and launched generic Azor2 (amlodipine and olmesartan medoxomil) tablets in the U.S.  These products enhance Teva’s antihypertensive portfolio.  Olmesartan medoxomil, amlodipine and hydrochlorothiazide tablets are a combination of an angiotensin II receptor blocker, a dihydropyridine calcium channel blocker and a thiazide diuretic indicated for the treatment of hypertension, to lower blood pressure.

Teva is committed to strengthening its generics business through continued investment in complex, high-quality products.  With nearly 600 generic medicines available, Teva has the largest portfolio of FDA-approved generic products on the market.  These products enhance Teva’s already comprehensive product portfolio.  Teva has over 300 product registrations pending FDA approval and holds the leading position in first-to-file opportunities, with over 100 pending first-to-files in the U.S.

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions used by millions of patients every day.  Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,800 molecules to produce a wide range of generic products in nearly every therapeutic area.  (Teva 07.11)

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8.7  PolyPid Raises $5.3 Million

Tel Aviv based holding company Xenia Venture Capital announced that drug company PolyPid Optimized Therapeutics, in which it holds an 8.4% stake, had raised $5.3 million.  Xenia itself did not take part in the financing round.  The round reflected a $104 million value for PolyPid, giving Xenia’s holding a value of NIS 33 million following the round.  The company share price jumped 4.8% today on the news.

PolyPid planned an IPO in 2015, but abandoned the idea after failing to obtain the value it sought.  The company planned to raise $22 million at a company value of $100 million after money.  Other than Xenia, the other investors before the planned IPO were private investors.  Since calling off its IPO, the company has raised $22 million from Shavit Capital, Aurum Ventures, Yelin Lapidot Investment House and previous investors.

Petah Tikva’s PolyPid has developed technology that combines polymers and fatty acids (lipids) to create a system for delayed release of drugs.  Its leading product is a delayed release antibiotic for preventing bone infections.  The company has developed a product making it possible to administer an antibiotic locally in a controlled manner in open fractures for weeks, and even months, without additional surgery.  The product is about to enter a multi-center trial in the US. Another PolyPid product is designed for treatment of infections in open heart surgery, one of the biggest risks in this type of surgery.  (Globes 10.11)

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8.8  RHӦN-Innovations Makes an Investment in Inovytec

Bad Neustadt, Germany’s RHӦN-Innovations GmbH, a subsidiary of RHӦN-KLINIKUM AG, has made an investment in Inovytec with a single-figure million amount.  The Israeli company develops and manufactures products especially for out-of-hospital cardiologic emergencies and non-invasive assistance in the case of blockages in the respiratory system.  Inovytec products have been thoroughly tested in two RHӦN-KLINIKUM AG hospitals – the university hospital in Marburg and the hospital in Frankfurt/Oder – was well as in other medical facilities.

Hod HaSharon’s Inovytec Medical Solutions is a privately-held Israeli medical device company, ISO 13485 certified, founded in 2011.  Inovytec specializes in the development, production and marketing of novel non-invasive devices for out-of-hospital critical care, particularly for respiratory, cardiac, central nervous system and trauma medical emergencies.  Inovytec is led by a team of highly experienced executives and R&D engineers, supported by internationally recognized medical experts in emergency medicine, intensive care and cardiology.  (RHӦN-KLINIKUM 13.11)

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9.1  LightCyber Increases Precision of Behavioral Attack Detection with Added VPN Granularity

LightCyber announced the latest release of its Magna platform that increases the precision and speed of detecting an in-progress attack from a malicious insider or external targeted bad actor.  The Magna 3.5 release adds enhanced visibility of user credential use and more granular Virtual Private Network (VPN) intelligence so attackers can be detected even more efficiently and accurately.  While Magna has had VPN visibility, a new feature enables associating a specific user IP address with a remote access user connecting to the network through a VPN concentrator.  Through VPN logs, Magna will de-multiplex the observed network traffic into individual users.  Magna then profiles and monitors each remote user’s activity over time in the same way it analyzes any other machine and user behavior inside the network with all the richness of its Behavioral Attack Detection.  This approach is inherently more robust than just using information in the VPN logs themselves as implemented by some competitive UEBA solutions.  Not only can Magna identify anomalous VPN user activity, but it can also add much more robust behavioral attack detection analysis associated to the VPN user’s behavior in the enterprise network.

Ramat Gan’s LightCyber is a leading provider of Behavioral Attack Detection solutions that provide accurate and efficient security visibility into attacks that have slipped through the cracks of traditional security controls.  The LightCyber Magna platform is the first security product to integrate user, network and endpoint context to provide security visibility into a range of attack activity.  Founded in 2012 and led by world-class cyber security experts, the company’s products have been successfully deployed by top-tier customers around the world in industries including the financial, legal, telecom, government, media and technology sectors.  (LightCyber 02.11)

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9.2  BioCatch Launches Next-Generation Behavioral Biometrics Platform for Enterprises

BioCatch launched its next-generation platform to optimize the implementation and performance of behavioral biometrics online and on mobile at the enterprise level.  BioCatch currently protects more than 1 billion transactions per month, helping to significantly reduce fraud and identity theft.  The BioCatch 2.0 release supports extensive scalability requirements that enterprise customers demand, delivering rich data collection of behavioral parameters, and significantly broader identification of remote access Trojans, bots, aggregators, and malware.  The new release features fast processing of risk-score calculation, providing real-time behavioral insights, as well as a new graphical user interface for the “Analyst Station”, BioCatch’s flagship analytics tool, enabling fraud teams to further investigate and analyze fraud cases.

Tel Aviv’s BioCatch is a cybersecurity company that delivers behavioral biometric solutions, analyzing human-device interactions to protect users and data. Banks and other enterprises use BioCatch to significantly reduce online fraud and protect against a variety of cyber threats, without compromising the user experience. With an unparalleled patent portfolio and deployments at major banks around the world that cover tens of millions of users to date, BioCatch has established itself as the industry leader.  (BioCatch 03.11)

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9.3  OriginGPS’ New Analytic Sensor is a Game Changer for IoT Tracking Applications

OriginGPS launched its game-changing BalloonFish.  This highly adept analytic sensor for IoT tracking devices enables a host of new applications tucked strategically inside its 23×25 mm form-factor.  It combines penta-band GSM for global connectivity, stand-alone GNSS for accurate positioning and a customizable sensor interface.  Most impressively, BalloonFish’s cellular radio, GNSS receiver and sensor interface are all configured from the cloud, enabling product changes without alterations to embedded FW.  OEMs now have access to a customizable platform that reduces engineering design time and expedites production.  The first of its kind, the mini+mighty BalloonFish enables cellular-connected tracking devices to shrink down into form-factors not previously achieved by other solutions.  Hardware designers need only address power management, mechanical enclosure and sensor content.  The tiny module also includes a high-performance GNSS patch antenna and uSIM socket, additionally simplifying the design process.

Airport City’s OriginGPS is a world-leading designer, manufacturer and supplier of miniaturized GNSS modules (“Spider” family), antenna modules (“Hornet” family) and antenna solutions.  OriginGPS introduces unparalleled sensitivity and noise immunity by incorporating its proprietary Noise Free Zone technology for faster position fix and navigation stability even under challenging satellite signal conditions.  (OriginGPS 08.11)

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9.4  Connect One Introduces Pico WiReach IoT Wi-Fi Module

Connect One, the Device Networking Authority, is introducing the first Wi-Fi module in its next-generation family of 802.11b/g/n Wi-Fi modules for the Internet of Things (IoT) market.  Network and cloud connectivity is continuing to be a must-have ability for many applications such as medical, security, industrial control, smart grid, asset management, point of sale and the vast growing market of the Internet of Things.  Pico WiReach continues the wireless innovation tradition at Connect One that has brought the best value, easiest-to-integrate Wi-Fi modules to the market for over a decade.  Pico WiReach offers excellent system performance for IoT connectivity with Cypress BCM43362 Wi-Fi Transceiver SOC and its 802.11b/g/n MAC and baseband functionality.  Pico WiReach ships with built-in connectivity to Connect One’s iChipNet cloud. iChipNet cloud enables remote access to Pico WiReach modules for the purpose of maintenance and data collection.

Established in 1996, Kfar Saba’s Connect One is widely regarded as the device networking authority, with many innovative firsts to its credit. The company manufactures semiconductors, modules and device servers that facilitate secure, reliable, and robust Internet protocol-based communication for everyday devices.  (Connect One 08.11)

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9.5  ECI Provides 400G Optical Backbone Demonstration for SC16 SCinet

ECI announced that SCinet, the world’s largest and fastest high-performance network, will be using ECI’s Apollo optical solution fitted with a 400G flex-grid blade, at the SC16 conference in Salt Lake City, Utah.  SCinet is a diverse group comprised of innovators, research, government and higher education institutions, from all over the world, focusing on the common goal of global innovation.  As the epicenter for HPC (high performance computing), SC16 will host the creation of one of the world’s largest and fastest high performance networks, to which ECI will contribute a 400G solution.

ECI’s Apollo platform provides state-of-the-art, transparent and flexible DWDM (Dense Wavelength Division Multiplexing) transport with integrated packet services.  Apollo combines high performance, low latency, OTN (Optical Transport Network) transport and switching, with software configurable colorless, directionless and gridless optical routing, for maximum network flexibility and efficiency.  The 400G blade is designed to transport data with higher spectral efficiency and industry-leading port density, resulting in reduced rack space and less power consumption.  Moreover, the ability to configure a mix of rates on both client and line sides results in maximum efficiency, improved flexibility and reduced TCO (Total Cost of Ownership), particularly suited to the HPC community.

Petah Tikva’s ECI is a global provider of ELASTIC network solutions to CSPs, critical infrastructures 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 09.11)

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9.6  BroadSoft Japan KK Deploys AudioCodes Business Connectivity Solution

AudioCodes announced that BroadSoft Japan KK selected AudioCodes’ Business Connectivity Solution to enable on-premises connectivity for its software as a service BroadCloud call control platform and UC-One application offering in Japan.  Japan is an important market for both BroadSoft and AudioCodes, and the selection of the AudioCodes Business Connectivity solution in Japan demonstrates the strength of the AudioCodes and BroadSoft relationship.  The AudioCodes Business Connectivity solution includes the Mediant session border controller (SBC) platforms, the Mediant gateway platforms and Mediant multi-service business routers (MSBR), enabling connectivity to virtually any ISDN interface and interoperability with virtually any IP-PBX, enabling businesses to extend the life of existing equipment while moving to a fully functional cloud environment.  The Mediant platforms also support BroadSoft PacketSmart monitoring probe, enabling quality of service monitoring at the customer premises.

Lod’s AudioCodes designs, develops and sells advanced Voice-over-IP (VoIP) and converged VoIP and Data networking products and applications to Service Providers and Enterprises.  AudioCodes is a VoIP technology market leader, focused on converged VoIP and data communications, and its products are deployed globally in Broadband, Mobile, Enterprise networks and Cable.  (AudioCodes 09.11)

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9.7  Mellanox Announces 200Gb/s HDR InfiniBand Solutions Enabling Record Levels of Performance

Mellanox Technologies announced the world’s first 200Gb/s data center interconnect solutions.  Mellanox ConnectX-6 adapters, Quantum switches and LinkX cables and transceivers together provide a complete 200Gb/s HDR InfiniBand interconnect infrastructure for the next generation of high performance computing, machine learning, big data, cloud, web 2.0 and storage platforms.  These 200Gb/s HDR InfiniBand solutions maintain Mellanox’s generation-ahead leadership while enabling customers and users to leverage an open, standards-based technology that maximizes application performance and scalability while minimizing overall data center total cost of ownership.  Mellanox 200Gb/s HDR solutions will become generally available in 2017.

The ConnectX-6 adapters include single/dual-port 200Gb/s Virtual Protocol Interconnect ports options, which double the data speed when compared to the previous generation.  It also supports both the InfiniBand and the Ethernet standard protocols and provides flexibility to connect with any CPU architecture – x86, GPU, POWER, ARM, FPGA and more.  With unprecedented world-class performance at 200 million messages per second, ultra-low latency of 0.6usec, and in-network computing engines such as MPI-Direct, RDMA, GPU-Direct, SR-IOV, data encryption as well as the innovative Mellanox Multi-Host® technology, ConnectX-6 will enable the most efficient compute and storage platforms in the industry.

Yokneam’s Mellanox 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 10.11)

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9.8  Elbit Systems Reveals ReDrone – An Advanced Anti-Drone Protection & Neutralization System

Elbit Systems revealed Elbit Systems EW and SIGINT Elisra’s ReDrone system, a unique solution for protection of closed air spaces, national infrastructures and other critical areas against hostile drones penetrating the protected perimeter.  ReDrone is designed to detect, identify, track and neutralize different types of drones that are flown within a range of radio frequency communication protocols.  The system was presented with Elbit Systems’ SupervisIR, a revolutionary infra-red wide-area persistent ISTAR (information, surveillance, target acquisition and reconnaissance) system.  SupervisIR can be integrated and operated within the ReDrone system thus enabling full-scale Signal Intelligence (SIGINT) and thermal imaging detection capabilities of hostile drones.

The ReDrone’s open system architecture allows multiple hardware configurations, including an array of controllers and sensors for target detection, tracking and engagement.  The system is also capable of separating a drone’s signals from its operator’s remote control signals, as well as pinpointing both the drone and the operator’s directions.  The advanced detection system provides 360-degree perimeter protection and complete, up-to-the-minute situational awareness.  It can also deal with a number of different drones simultaneously.  Due to its advanced passive detection features, ReDrone also enhances environmental protection and supports the safety of civilians and air platforms inside the secured airspace.

Haifa’s Elbit Systems is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world.  The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance (C4ISR), unmanned aircraft systems, advanced electro-optics, electro-optic space systems, EW suites, signal intelligence systems, data links and communications systems, radios and cyber-based systems.  (Elbit 15.11)

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10.1  Jerusalem Drops In Municipal Socio-Economic Ratings

The Central Bureau of Statistics socio-economic ratings of Israel’s cities, based on 2013 data, found that Jerusalem was poorer in 2013 than it was five years previously.  In 2008, it was rated at 4 out of 10, but for 2013, it fell to 3.  Jerusalem was the only one of Israel’s six largest cities that fell in the ratings.  Haifa and Tel Aviv were rated at levels 7 and 8, respectively.  The cities with the highest socio-economic ratings were all small, suburban communities.  The lowest-ranked cities included several with mainly Arab or ultra-Orthodox Jewish populations, groups that have a disproportionately high rate of poverty.  (CBS 02.11)

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10.2  New Car Deliveries in Israel Down in October

Car deliveries in Israel declined in October because of the Jewish holiday season but overall are up 15.5% so far annually compared with 2015.  A reported 13,612 cars were delivered in October, some 33%, less than in October 2015.  The decline is attributable to the fact that all the holidays fell in October this year, which reduced the number of working days in the month.  Auto deliveries for January-October 2016 totaled 258,743, up 15.5%, compared with the corresponding period last year.  The leader in vehicle deliveries in January-October was Hyundai with 36,532 cars, a 33% rise over the corresponding period in 2015, following by Kia with 34,401 deliveries, up 17%.  Toyota was third with 26,968 deliveries, 4.5% more than the corresponding period last year, followed by Skoda in fourth place with 18,230 auto deliveries (a 29% increase) and Mitsubishi in fifth place with 15,817 (9.2%).  (Globes 03.11)

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11.1  ISRAEL:  Fitch Upgrades Israel to ‘A+’; Outlook Stable

On 11 November 2016, Fitch Ratings upgraded Israel’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to ‘A+’ from ‘A’.  The Outlooks on the long-term IDRs are Stable.  The issue ratings on Israel’s senior unsecured Foreign- and Local-Currency bonds are upgraded to ‘A+’ from ‘A’.  Fitch has also upgraded the Short-Term Foreign- and Local-Currency IDRs to ‘F1+’ from ‘F1’ and the Country Ceiling to ‘AA’ from ‘AA-‘.

Key Rating Drivers

The upgrade of Israel’s IDRs reflects the following key rating drivers:

Israel’s external balance sheet has continued to strengthen.  The country has returned annual current account surpluses each year since 2003, and in 2015 posted a record surplus of 4.6% of GDP.  The current account surplus narrowed by around 20% yoy in H1/16, to $6.3b, because of a worsening trade balance.  Nevertheless, there has been further accumulation of foreign-exchange reserves, which had reached $98b by end-October 2016 (almost 12 months of current external payments), from $90.6b at end-2015.  Fitch expects current account surpluses to persist in 2017 and 2018.

Fitch expects Israel’s net external creditor position to be 43% of GDP in 2016, an improvement from 35.1% in 2014 and 23% in 2008 when we last upgraded Israel’s IDRs.  This is four times the ‘A’ median, and in line with the ‘AA’ median.  Fitch’s international liquidity ratio for Israel has also continued to improve strongly.

Further gas sector development will lend additional support to the external balance sheet.  Production at the Tamar gas field off the coast of Israel, which commenced in 2013, has reduced the need for gas imports.  The government approved an amended natural gas framework in July 2016, thus providing the regulatory green light for the development of the larger near-by Leviathan gas field.  The final investment decision has not yet been made, although a number of supply contracts have been agreed.  The controlling consortium is aiming for production to start in 2020.

There has been a sustained reduction in Israel’s government debt/GDP ratio to 63.9% at end-2015 (end-2007: 74.6%, end-2003: 95.2%).  The debt structure is also favorable; for example, foreign-currency debt fell to 8.7% of GDP in 2015, from 14% in 2008.

Israel benefits from high financing flexibility.  It has deep and liquid local markets, good access to international capital markets, an active diaspora bond program, and US government guarantees in the event of market disruption.

Israel’s IDRs also reflect the following key rating drivers:

Despite the fall in its public debt/GDP ratio, Israel’s public finances remain a weakness relative to ‘A’ category sovereigns.  The 2017-2018 two-year budget is expansionary and we expect government debt/GDP to remain fairly level in 2016-2018 rather than continuing a downward path.

Israel’s ratings will continue to be constrained by political and security risks, but its credit profile has shown resilience to periodic conflict and political shocks over an extended timeframe.  Frequent yet uncoordinated attacks by young Palestinians and Arab Israelis have continued with varying intensity since September 2015.  These incidents reflect the lack of progress towards peace between Israel and the Palestinians.  Fitch believes prospects for a realistic peace process remain bleak.

Although Israel’s borders are currently relatively quiet, conflicts with military groups in surrounding countries and territories flare up intermittently and can be damaging to economic activity.  The ongoing war in Syria poses risks to Israel and neighboring countries, which could have an impact on Israel, although direct spillover has so far been negligible.  Relations with some countries in the region can be tense.

Domestic politics can be turbulent, with coalition governments often not lasting their full term.  The current coalition was expanded in May to a five-seat from a one-seat majority and the government agreed on a two-year budget for 2017-2018.  Nevertheless, the majority is still narrow, and domestic political relations can be fractious and prompt a sudden election.

GDP growth is on a par with peers, but has slowed in recent years.  Annual growth averaged 3.1% in 2012-2015, compared with 4.5% in 2004-2011, due in part to slower working-age population growth, less productive additions to the labor force, sluggish world-trade and competitiveness challenges.  In response, the government is seeking to enact structural reforms to improve efficiencies in some markets and the business environment overall, as well as boosting labor market participation.

Inflation was negative in 2015 and has remained negative in 2016 due to lower commodity prices, currency strength (especially against the euro), administrative price reductions and measures to stimulate competition.  Fitch expects robust domestic demand and elimination of one-off factors to push inflation into the lower-end of the Bank of Israel’s 1% – 3% target range in 2017.

Israel’s well-developed institutions and education system have led to a diverse and advanced economy.  Human development and GDP per capita are above the peer medians, and the business environment promotes innovation, particularly among the high-tech sector.  However, Doing Business indicators, as measured by the World Bank, have slipped below peers.  The government also faces socio-economic challenges in terms of income inequality and social integration.

Rating Sensitivities

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

-Significant further progress in reducing the government debt/GDP ratio.

-Sustained easing in political and security risks.

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

-Sustained deterioration of the government debt/GDP ratio.

-Serious worsening of political and security risks.

-Worsening of Israel’s external finances, for example, due to a loss of export competitiveness.

Key Assumptions

Fitch assumes regional conflicts and tensions will continue, but their impact on Israel will not worsen significantly.  Renewed conflict with Hamas in Gaza is possible, despite a serious degradation of Hamas’s military capacity.  The tolerance of the rating depends on the economic and fiscal implications of any conflict.  Fitch does not assume any breakthrough in the peace process with the Palestinians or a prolonged serious deterioration in domestic security conditions.  (Fitch 11.11)

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11.2  ISRAEL:  Private Equity Investment in Israel Jumps

The latest IVC-Shibolet survey for Q3/16 found that Israeli private equity deal-making jumped to $1.7 billion in 18 deals, the highest quarterly amount in the past two years.  The amount was 32% above the $1.3 billion reached in the previous quarter and over four times the $358 million achieved in the third quarter of 2015.  The number of deals was the same as in the last quarter, but slightly down from the 22 deals quarterly average of the past 5 years.

While the first to third quarters of 2016 in Israeli private equity had the best performance in five past years – with nearly $3.26 billion invested and exceeding the entire 2015’s $3.22 billion – it was mostly due to the largest buyout of Keter Plastic by BC Partners for $1.4 billion.  This single deal accounted for 43% of the entire period’s capital proceeds.  Actually, the number of deals dropped to 53 transactions in the first three quarters of 2016, compared with 77 deals in the first nine months of 2015, when the total reached $2.44 billion.

Israeli private equity funds kept a low profile in the first nine months of 2016: they participated in less deals than in 2015 – 26 transactions in the first three quarters of 2-16 compared with 47 deals in the corresponding period of 2015, and invested $484 million, or 15% of capital proceeds – a 29% year-on-year fall from $685 million (28%).

The two largest deals, above $50 million each, involving Israeli private equity funds over this period, were buyout transactions, which accounted for 29% of Israeli private equity fund investments.  The largest deal was the $90 million buyout of Arena Mall by Reality fund in the second quarter of 2016.

Foreign private equity funds led Israeli private equity deal making both in the third quarter and in the first three quarters of 2016, with $2.8 billion invested in 27 transactions.  The three top buyouts captured 75%of the total capital volume, while the exceptional Keter Plastic deal was the most prominent in five years.

Shibolet & Co. partner Omer Ben-Zvi said, “We are experiencing an annual volume increase even before year-end.  This figure is highly influenced by single oversized deals, like the Keter buyout, but this is always the case in private equity markets there are always few very large deals alongside much smaller ones.  Rather than a one-off deal, we regard the Keter transaction as a credibility reaffirmation of the local market by the international PE industry.  We also saw a quarterly decrease in PE Tech activity, but looking at the recent late-stage VC fund raising expansion in this sector, we do not think the last quarter is indicative of a slowdown trend.  Despite the instability in world economy and concerns for a potential slowdown, we believe that the local PE market is healthy and still benefits from a growth potential.”

Technology transactions kept their pace in the first three quarters of 2016, with 38 deals totaling $1.5 billion or 47% of total capital volume, down from $1.8 billion (76%) invested in 40 transactions in the same period in 2015.

Traditional industries deal making fell in the first nine months of 2016, with $1.7 billion invested in 15 deals.  While the amount reflected the largest, $1.4 billion Keter Plastic deal, the number showed an actual drop from 37 deals performed a year earlier, when traditional industries transactions totaled $597 million.

The IVC-Online Database maintains data on 37 active Israeli private equity management companies with a total of $11.3 billion under management. In the first nine months of 2016, five Israeli private equity funds raised $1.72 billion, and three additional funds are currently in process of capital raising.  IVC research manager Marianna Shapira said, “As the IVC-Shibolet Survey revealed, there were two major reasons for the drop in PE deal-making in the Israeli market: a decrease in Israeli PE funds’ investments and the drop in traditional industry deal making.  However, since the funds seem to have sufficient capital, and are likely to raise additional funding, possibly over half a billion dollars more, by the end of the year, we believe this is a temporary decrease, characteristic of the low-volume of business activity over the third quarter, and expect to see an increase over the few next quarters.”  (IVC-Shibolet 09.11)

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11.3  LEBANON:  Lebanon Ends Presidential Deadlock; Lasting Consensus Key

On 2 November, Fitch Ratings commented that the election of Michel Aoun as president of Lebanon after a two-year vacancy of the post is an important step towards improving political effectiveness.  If it heralds greater political consensus and the formation of a functioning unity government, this would improve the prospects for policymaking and could provide some uplift to the struggling economy.

However, risks remain to cementing a more effective political environment and the Lebanese economy will remain constrained by the war in neighboring Syria and very weak public finances.

Lebanon’s political factions take differing positions on the Syrian war and had been unable to choose a president since May 2014, during which time the government and parliament have been largely paralyzed.  The deadlock was broken when Saad Hariri, prime minister in 2009-11 and the leader of the Sunni Future Movement party, lent his support to Mr. Aoun after alternative proposals failed.  Mr. Aoun is allied with the Shia group Hezbollah, which is linked to Iran and supports the regime of Bashar al-Assad in Syria.  It is expected that Mr. Hariri, who has close ties to Saudi Arabia, will become prime minister again.

While the election of a president is an important piece in the political puzzle, Lebanon’s various political factions now need to distribute ministerial portfolios and form a functioning government.  Agreement on whether to use the existing electoral law or legislate a new electoral law – often a divisive issue in Lebanon – is needed ahead of long-delayed parliamentary elections now due in June 2017.

Some of these steps may already have been decided before Hariri backed Aoun, but the process could still prove challenging given domestic divisions and regional tensions, including between Iran and Saudi Arabia.  Aoun’s election by 83 out of 127 MPs may also lead to shifts in domestic alliances ahead of the next parliamentary election, after which another new government will have to be formed.  Therefore, a sustainable return to a more effective policy-making process cannot yet be relied upon.

Further signs of greater political consensus would be positive for consumer confidence and investment and deposit growth.  Growth in deposits (a large part of which stems from the diaspora), which are largely channeled into government financing by domestic banks, is the cornerstone of Lebanon’s public debt sustainability.  Deposit growth has proven resilient to political risk, but it has been slowing in recent years to around 5% from double digits.  Slower deposit growth and the heavy absorption of liquidity by the government is also constraining credit growth to the private sector.

The very weak state of the public finances, with public debt/GDP at 140%, and the war in Syria will likely limit the economic benefits of positive political developments.  Tourism, real estate and construction were traditionally the main contributors to rapid real GDP growth of 8%-10% in 2007-10.  Since the outbreak of the war in Syria in 2011, growth has averaged around 2%, with these sectors all facing difficulties.  FDI inflows have dropped to 6% of GDP in 2011-15 from an average of 12% of GDP in 2004-10.

We downgraded Lebanon’s sovereign rating in July to ‘B-‘/Stable from ‘B’/Negative.  (Fitch 02.11)

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11.4  LEBANON:  Christian Consolidation and Lebanon’s Political Puzzle

Anthony Elghossain wrote in Sada on 2 November that in their emerging entente, Geagea and Aoun may restore their political relevance and catalyze Christian consolidation.

On 31 October, Lebanese legislators elected a president.  The election and the emerging entente that made it possible are part of an ongoing realignment in Lebanese politics – particularly within the Lebanese Christian community.

In January 2016, when Lebanese Forces leader Samir Geagea first endorsed his longtime rival, former Free Patriotic Movement leader and Lebanese Armed Forces commander Michel Aoun, the two men were seemingly making moves to allow the election of a president after two years of vacuum.  However, Geagea and Aoun have come together for reasons that transcend the constitutional crisis that they have just helped end.  When they closed ranks back in January, they were seeking to prevent MP Sleiman Frangieh from becoming president.  Nevertheless, in a broader sense, the two leaders entered into an entente to signal to other Lebanese leaders and regional powers that Christian communal cover for Sunni or Shia political priorities will no longer come cheap, restore their relevance in the communal order, and rejuvenate Christian political participation.

After the Cedar Revolution of 2005, Aoun and Geagea returned (from Syrian-orchestrated exile and imprisonment, respectively) to Lebanon’s political stage.  They resumed their rivalry, which began in the late 1980s, by joining coalitions that have shaped Beirut’s politics for more than a decade.  But these coalitions have collapsed over the past three years.  Geagea and Aoun entered into an entente in that context, and they did so for reasons that will endure after this election.

In late 2015, Future Movement leader Saad Hariri and Hezbollah seemed poised to elevate Frangieh.  In so doing, however, they alienated Aoun and Geagea and threatened their core interests.  Geagea lost face and felt betrayed when Hariri engaged Frangieh, with whom he has had a problematic relationship colored by bad blood, regional rivalries and political differences.  Moreover, Geagea understood that he would have had trouble navigating a political landscape with Frangieh as president.  Aoun also felt betrayed and embarrassed.  In trying to secure Hariri’s support, Frangieh broke private and public promises that he would not seek the presidency while Aoun was in the running and undermined Aoun’s own efforts to win Sunni support.  By securing Hezbollah’s quiet consent, Frangieh exposed its support for the old general as essentially empty and Aoun’s decade-long deal with the devil as fruitless.

Aoun and Geagea managed to block Frangieh immediately.  Neither Hezbollah nor Hariri could afford, and still cannot afford, to alienate the two leaders.  From there, although Geagea and Aoun lacked the parliamentary power to choose a president directly, they prevented others from emerging as viable alternatives.  Hariri endorsed Aoun for president so he could secure the premiership, which he needs to maintain his position while he rebuilds his relationship with the Saudis, tries to reshape Lebanon’s political order in his favor and waits for events in Syria unfold.  (Hariri has struggled politically and financially as his relationship with Riyadh has waned and the Saudis downgraded Lebanon as a policy priority.)

Meanwhile, as Aoun’s erstwhile enemies endorsed him, Hezbollah found it difficult to abandon Aoun without shattering the illusion that has helped keep half of Lebanon’s Christians on its side for years.  While it would have preferred a controlled vacuum or a weaker president, Hezbollah can live with a President Aoun in the Lebanon of 2016.  Over the past decade, Aoun has aged and lost support, potential partners like Hariri and Druze leader Walid Jumblatt have waned or drifted to a “centrist” position, and Hezbollah itself has come to exert more direct influence over state institutions than it did before 2005.

Additionally, Geagea and Aoun are trying to increase their own rewards by signaling to other Lebanese leaders that Christian communal cover for Sunni and Shia political priorities will not come cheap.  Before entering into their entente, Geagea and Aoun had trapped themselves in their coalitions.  Because their respective allies understood that neither Geagea nor Aoun would break ranks, the two Christian leaders had little leverage and even less influence before these coalitions began to collapse.  Therefore, Geagea and Aoun had tried to reap other rewards – parity with their political partners, support for legislative agendas, leverage in Lebanese state institutions, control over certain appointments, larger shares in parliament – to solidify their support among Lebanese Christians.  Meanwhile, Hariri and Hezbollah have tried to appease Lebanese Christians without empowering their two main leaders more than necessary.  When Hariri and Hezbollah tried to arrange a Frangieh presidency, they led Geagea and Aoun to understand that moments of marginalization were and are symptoms of a deeper decline.

Furthermore, these leaders are trying to increase their influence, Aoun as king, Geagea as kingmaker, within the Lebanese Christian community and Lebanon itself.  Aoun may believe that his position as president, especially when coupled with his influence in the military, the parliament, and the cabinet, will shape the Lebanese state and the political process.  Geagea will gain from this gambit, too.  Having compelled Hezbollah and coaxed Hariri into matching his move in support of Aoun, he can cultivate the Lebanese Forces as a stronger political party well positioned to inherit some of Aoun’s supporters as Christian consolidation continues.  Together, Geagea and Aoun will try to limit the influence of other Lebanese Christian parties so they will no longer have to share support from student bodies, professional syndicates, municipal councils, parliamentary seats, and cabinet posts.  Even so, Hariri, Hezbollah, and Jumblatt can counter Geagea and Aoun by elevating other Christian parties or politicians in districts they control politically.

In the broadest sense, the two leaders may be trying to rejuvenate Lebanese Christians as political participants in the Levant.  In the past decade alone, two sustained presidential vacuums passed with little effect on state affairs.  Lebanese Christians have seen their presence in and influence over state wane, while their leaders watched as other Lebanese actors sought to overlook them as they shaped political dynamics.  Perhaps reluctantly, Geagea and Aoun have come to understand that they must adopt a different approach to cope with demographic and political changes (regional and international) beyond their control.  Having been unwilling or unable to either coalesce within a Christian community or manipulate divisions within and between other communities – the two strategies available to Lebanese leaders within the communal framework – Aoun and Geagea have at least positioned themselves to consider either or both.

With an eye on their legacies, the future of their political parties, and the fate of their community, these two Lebanese Christian leaders are trying to rejuvenate their roles.  They have already succeeded, to an extent.  Aoun is now president. Geagea is kingmaker on good terms with Lebanon’s new president and future prime minister.  By compelling others to consider whether and how to embrace, counter, circumvent, or end their entente, Geagea and Aoun have restored their relevance – for now.

Anthony Elghossain is counsel to the Cyrus R. Vance Center for International Justice.  He also writes about the states and societies of the Middle East.  (Sada 02.11)

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11.5  LEBANON:  How Aoun Rose From ’90s Renegade to Lebanon’s New President

Ali Hashem commented in Al-Monitor on 1 November that the election of Gen. Michel Aoun as Lebanon’s president ends a 2½-year void in the office but also divides the Lebanese public, with some considering him the candidate of Hezbollah.

Michel Aoun will never forget two Octobers in his life: one that saw him ousted, humiliated and sent into exile on 13 October 1990, and one that came 26 years later when he was elected on 31 October 2016, as Lebanon’s 13th president.  The 81-year-old former military chief of staff sat inside the parliament’s main chamber while his fellow members of parliament voted for him.

Watching from the 1934 building’s mezzanine was Aoun’s family, including his daughters, sons-in-law and grandchildren.  Beside them sat famous Lebanese singer Julia Boutros, whose husband is Education Minister Elias Bou Saab, one of Aoun’s Cabinet members.  At the same level sat former Lebanese presidents Michel Suleiman and Amin Gemayel, along with commanders of the army, internal security and general security officials and journalists.

In the first round, Aoun received 84 votes out of 127, not enough to secure a win.  He might have received more, as there were at least two write-in votes apparently cast in jest or protest against Aoun: one for the fictional novel and film character “Zorba the Greek,” and another for risqué Lebanese model Myriam Klink, who later retweeted a photo that had been altered to show her sitting in the presidential palace.

Klink’s nomination drew amusement and consternation on Twitter: “Myriam Klink?  Seriously?  And we still think there’s hope for this desperate country?” one tweet read.  Another said, “The presidential voting is much more entertaining than Miss Lebanon elections!”  Ahmed Al Omran, a Saudi correspondent for The Wall Street Journal, noted the vote for Klink on his Twitter page.  One reader responded, “So? [Donald] Trump has a real shot at the US presidency.”

Back in parliament, more votes failed to produce a winner, including two attempts in which the number of votes cast didn’t match the number of parliamentarians.  Aoun finally was elected, filling a 2½ year vacancy that had persisted through failed election attempts in 45 previous sessions of parliament.

As the session was wrapping up, former Lebanese Culture Minister Gaby Layoun told Al-Monitor, “I am speechless.  Aoun is a man of passion.  He loves people; he wants to help make this country great.”  Layoun believes Aoun is not looking for power.  “At his age he can live a better life … but he has a commitment to serve this nation, and hopefully he is going to do so regardless of anything.  Gen. Aoun is not someone who could be pressured, whatever the circumstances are.”

In the main chamber, parliament Speaker Nabih Berri — who staunchly refused to vote for Aoun — gave a speech at the end of the session and then called the newly elected president to take the oath.  For the first time in years, Aoun seemed cautious while reading his speech.  It seemed clear that Aoun the president is not the same as Aoun the party leader, as he was keen to reassure different political factions and address their concerns.  While he stressed the importance of political stability, Aoun said his country is currently sitting amid landmines and surrounded by the fires raging in the region.  He said his priority is to prevent any sparks from those fires from spreading to Lebanon.

Lebanon, he insisted, must stay out of regional conflicts and follow an independent foreign policy in accordance with its interests.  Yet in the same speech, Aoun confirmed that Lebanon “will not spare any kind of resistance in the struggle with Israel to liberate occupied Lebanese territories” and “will resort to pre-emptive deterrence in dealing with terrorist threats.”

Lebanese Forces Party leader Samir Geagea, a long-time rival of Aoun who recently became an ally, saw the speech as “promising.”  He added, “The most important part was that [Aoun] stressed building the state, the army and the economy, along with Lebanon’s commitment to the Arab League.”

Outside parliament, Suleiman Franjieh, once Aoun’s ally and today a rival, told Al-Monitor and other media outlets that he will be part of the opposition.  However, he said he regards Aoun’s election as a victory for the political alliance that brings them together.  Franjieh, a former chief of numerous government ministries and current member of parliament, added, “We will go to the consultations, and then we will decide whether to take part in the [new] government or not.”

The threat of terrorism and concerns about Lebanese security were main priorities as Aoun was transported from parliament to the presidential palace.  Helicopters covered the skies, streets were closed around the parliament and checkpoints could be seen in several areas.  The trip from parliament to the presidential palace was literally a new president on the road to assume his power.  But to Aoun, this was more.

This same presidential palace in Baabda was the venue of his 1990 defeat by the Syrian army, which was in control of Lebanon at that time.  But on this day, he walked the red carpet while reviewing the presidential guards.  “It is a rare moment in the history of Lebanon and the Middle East,” George Eid, an Aoun supporter, told Al-Monitor.  “It is not easy to make such a comeback unless you are Michel Aoun.”

While Aoun’s supporters see this as the Christian candidate’s heroic return, there are those who voiced serious opposition to his election.  Sami Gemayel, head of the Kataeb (Phalange) Party, and his parliamentary bloc all voted against the new president.  Gemayel believes Aoun is Hezbollah’s candidate, and Aoun did receive Hezbollah backing.

Gemayel’s point is grounded in popular bases opposing Aoun’s presidency.  These groups are concerned about possible growth in the influence of the Hezbollah political party and its Shiite Islamist militant group.  Such concerns might have even intensified after they learned that the first calls Aoun received after arriving at the presidential palace were from Hezbollah Secretary-General Hassan Nasrallah, Iranian President Hassan Rouhani and Syrian President Bashar al-Assad.

As formalities were taking place in the presidential palace, the streets of the Christian neighborhood of Achrafieh were getting crowded.  Aoun supporters were celebrating their leader’s victory.  Dozens of them sat in front of a huge screen watching, moment by moment, as the events took place on “Big Monday,” as it was called here in Beirut.  They were, for the first time, having a full-fledged celebration.  “He is the father of all Lebanese,” an Aoun supporter who only gave his name as Salam told Al-Monitor.

“A few years ago, it was a crime to say you supported Michel Aoun.  We were beaten in the streets, jailed and humiliated, but today we are forgiving everyone, and we will remember our martyrs who fell on the path to freedom.  But yes, it is time that they acknowledge we were right,” Salam said.  (Al-Monitor 01.11)

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11.6  JORDAN:  How Jordan Survives: Part 1

In this edition of Iqtisadi, Paul Rivlin examines the demographic, labor market, and budgetary problems that Jordan has faced in recent years.

Jordan’s survival as a unified state under a Hashemite monarch has been one of the most remarkable phenomena in the Middle East.  In many ways, Jordan has had everything going against it.  It is one of the driest countries in the world and has no significant energy resources.  It has one port and a very short coastline and is surrounded by countries that have often been hostile or have suffered from conflict.  In recent years it has experienced a massive inflow of refugees from Syria, the threat from the Islamic State, as well as internal problems such as rapid demographic growth resulting in shortages of fuel and water, as well as a precarious economy that relies on its relations with Arab states in the Gulf.  The kingdom is therefore exposed to numerous political and economic pressures in a very unstable region.  For many years there was a concern that the division of the population between East Bankers and Palestinians could cause internal conflict, but that fear has been replaced by other anxieties.  This edition of Iqtisadi examines the demographic, labor market, and budgetary problems that Jordan has faced.

The population of Jordan has grown rapidly from 5.3 million in 2005 to 7.6 million in 2015.  The demographic growth rate decelerated from just over 4% in 2005-2010 to 3.06% in 2010-2015.  Even this lower rate is one of the fastest in the world and presents major challenges.  These demographics mean that the economy needs to grow rapidly to prevent incomes from falling and to increase allocations for education, health, and other basic services.  Furthermore, these figures exclude the huge number of refugees that have fled to Jordan from Syria since 2011.

As in other parts of the Middle East, Jordan has experienced demographic transition, which means that its population is very young.  In 2015, almost 63% of the population was less than 30 years old.  This has had major consequences for unemployment: the economy has not produced enough jobs to keep up with the growth of the labor force and unemployment, especially among the young.

The labor force, which includes those at work and the unemployed, is now growing at about 4% a year, slightly less than it did between 2006 and 2011, but twice the rate of growth between 2000 and 2005.  The unemployment rate declined from 2000-2005, when it averaged 14.7% a year, to 13% in 2006-2011, and 12% in 2012-2014, but has increased since then.

The Jordanian labor market has many peculiarities.  About 10% of the population works in the Arabian Gulf states while the economy is heavily dependent on foreign labor, despite high and persistent unemployment among Jordanians.

There is considerable uncertainty about the number of foreign workers in Jordan.  At the end of 2012, the Ministry of Labor stated that there were 235,000 registered migrant workers, two thirds of whom were Egyptians, while the total number of migrant workers, including those unregistered, was estimated at 400,000.  In November 2013, a figure of about 1.5 million foreign workers was published in the Jordanian press, most of whom were Egyptians and Syrians.  Of these, 500,000 were unregistered.  There were also tens of thousands of workers from South and East Asia, primarily employed in agriculture, construction, garment, tourism, and domestic work.  It was estimated that there were almost 40,000 registered domestic workers in Jordan from the Philippines, Sri Lanka, Bangladesh and Indonesia, and almost the same number unregistered.  In addition there were almost 33,000 migrants working in thirteen Qualified Industrial Zones, producing goods that enter the U.S. without import duties, under the Jordan-U.S. free trade agreement.

Job creation in Jordan has been mainly low-status, low-skill, and badly paid.  High value-added jobs that paid adequate wages, and met the expectations of Jordanian youth, were available abroad rather than at home in the requisite volume.  As a result, over 600,000 Jordanians, equal to half of the Jordanian labor force at home, worked abroad.  Many of the jobs created in the economy have gone to expatriate workers: between 2005 and 2009, migrant workers occupied up to 63% of jobs created, while over 180,000 Jordanians were unemployed.  This trend has continued since then and as a result, foreign workers constitute almost half of private sector employment, compared with 20% 10 years ago.  The share of non-Jordanians in total employment increased from 23% in 2006 to an estimated 27% in 2011.

The majority of foreign workers in Jordan are low-skilled, with statistics from 2009 confirming that almost 90% of registered foreign workers were illiterate.  Under 1% of foreign workers held an undergraduate degree or above.  The majority were in the production, agriculture, and services sectors.

As a result of slow economic growth, unemployment has worsened reaching its highest level since 2007.  Unemployment in Jordan is heavily concentrated among young people: those aged 15 to 24 years account for about 50% of the unemployed, and at 28%, the youth unemployment rate is among the highest in the world.  Like other Arab countries, unemployment in Jordan tends to be highest among the educated.  In the second quarter of 2016, the overall unemployment rate was 14.7%.  Unemployment among 15-19 year-olds was 40.2% and among 20-24 year olds it was 33.3%.  Among those with an undergraduate degree, the male rate of unemployment was 21.4% and the female rate was 70.7%.

High unemployment, together with a low labor force participation rate, has resulted in a very low ratio of employment to working-age population.  At about 40%, the labor force participation rate in Jordan is low when compared to elsewhere.  With about 35% of working-age people employed, this rate is also among the lowest worldwide.  The overall employment rate has fallen sharply since 2009 to only 31.9% in mid-2015.

The labor market trends over the last eight years are summarized in Figure 1.  This shows the sharp rise in unemployment during the last two years and the falling employment and labor force participation rates over the longer period.

Figure 1: The Labor Market, 2008-2016


Source: The World Bank

For many years finance and insurance have been the largest sectors in the Jordanian economy, followed by government services, transport, and telecommunications and manufacturing.  The joint share of trade, restaurants, and hotels declined from 17% of GDP between 1980 and 1989 to less than 10% between 2000 and 2010.  The manufacturing sector doubled in size between 1980 and 2010, largely as a result of the development of exports of garments and other items sold to the U.S. under the free trade agreement from so-called Qualified Industrial Zones that employed large numbers of low-skilled foreign workers.

Economic growth has slowed down.  Real growth of GDP averaged 2.8% a year in 2011–2015, compared with 6.5% in 2002–2010.  This was closely connected to regional problems that led to a decline in exports, tourism revenues, foreign investment and the remittances of Jordanian workers in the Gulf.  As a result, the investment rate declined as did consumption.  The government did not compensate for weaknesses of the private sector because it was trying to contain the fiscal deficit, and the net effect of weak demand in the private and public sectors was slower growth.  As a result, the rate of economic growth was too slow to generate enough employment to absorb the numbers coming onto the labor market and so unemployment rose.

Table 1 shows the development of the government budget in the period 2005 to 2015. The first point to note is the low level of government revenues from internal sources. Not only is the share low but it has fallen over the last decade. The volume of grants received from abroad fluctuated from year to year and as a result total revenues fell. Expenditures also declined, including the share allocated to investment. As a result the deficit, after allowing for foreign grants, was reduced from an average annual of 5.8% of GDP from 2005 to 2012 to an average of 3.7% from 2013 to 2015.

Table 1: Jordan: Fiscal Developments, 2005-2015 (percent of GDP)


Source: Jordan, Ministry of Finance

These figures do not, however, tell the whole story of Jordan’s fiscal plight and this can be seen by looking at the 2016 budget.  The 2016 central government budget included total expenses of 8.5 billion dinars ($12 billion), total revenues of 7.6 billion dinars ($10.7 billion), and a deficit of 907 million dinars ($1.3 billion, equal to about 3% of GDP).  Revenues consisted of almost $9.6 billion from internal sources, and foreign aid totaling $1.2 billion.  This was not the whole public sector budget; the National Electric Power Company (including water) accounted for the budget of several government functions, with expenses of about $2.7 billion and revenues of $2.2 billion (including $88 million in foreign aid), leaving a deficit of $530 million (or $618 million excluding aid).  The combined public sector budget included spending of $14.7 billion, about 79% was covered by revenues ($11.6 billion), 9% by aid ($1.3 billion), and 12% was a deficit funded by the issue of new debt.  As a result of the rise in internal debt, interest payments rose from 7% of total government spending in 2010 to 11.8% in 2015.

The impact of tight budgetary policy against the background of natural population growth and the influx of refugees has been dramatic at the local government level. Municipalities have suffered rising debt, a crippling salary burden, an uncertain revenue base both from local taxes and central government transfers.  According to a World Bank study released in November 2013, municipalities had experienced on average a 29% fall in per capita expenditure (presumably over the previous year).  In Al Mafraq, the governorate that borders Syria, the reduction was 55.5%.

These figures are an indication of the problems that the government faces. It lacks the revenues to tackle the shortage of infrastructure for a rapidly increasing population.  Recent economic developments including the slowdown of economic growth and the limited volume of foreign grants mean that the fiscal problem has become even more severe.

The November edition of Iqtisadi will look at Jordan’s balance of payments, foreign debt, energy, and water problems. It will then examine the politics of survival in a hostile environment.  (Dayan Center October 2016)

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11.7  OMAN:  Sultanate of Oman Outlook Revised To Negative; Ratings Affirmed At ‘BBB-/A-3’

On 11 November, S&P Global Ratings revised its outlook on the Sultanate of Oman to negative from stable.  At the same time, we affirmed the ‘BBB-/A-3’ long- and short-term foreign and local currency sovereign credit ratings on the sovereign.


The outlook revision reflects that Oman’s fiscal consolidation could take longer than we expect.  We meanwhile assume that government financing needs will largely be funded externally due to the sultanate’s narrow domestic capital markets. As a result, the economy’s external debt could exceed its liquid external assets by more than we anticipate, thereby limiting buffers to offset external pressures.

The widening of Oman’s current account deficit and deterioration in its external position has moved in tandem with the worsening of the government’s fiscal position.  With government spending remaining relatively high in the context of the sharp decline in government oil revenues, import levels remain broadly supported at levels prior to the sharp decline in oil prices in mid-2014.  However, oil export revenues have also declined sharply and we expect the current account deficit to reach double-digit levels as a percentage of GDP for most of the period to 2019.  We expect these current account deficits to be largely financed by a sharp increase in government external debt.  Should larger fiscal deficits and related wider current account deficits result in external debt exceeding liquid external assets to a greater extent than we expect, we could lower the ratings.  In our view, this would suggest a material weakening of Oman’s external buffers available to offset external pressures.  We also note the related deterioration in the Omani government’s net asset position over the period, but expect the sovereign to remain in a small net asset position by 2019.

Large external financing needs close to 120% of current account receipts and usable reserves, coupled with an expected modest decline in foreign currency reserves, is putting pressure on Oman’s narrow net external creditor position (external debt minus liquid external assets.  We expect this to decline from a strong 50% of current account receipts (CARs) in 2015 to a debtor position of 26% in 2019.

We note that Central Bank of Oman (CBO) reserve assets have increased sharply by close to $4 billion from around $17 billion at the end of 2015 to $21 billion as of August 2016.  Most of this reserve accumulation relates to non-resident deposits previously placed in the Omani banking system in 2015, which have since been removed as a liability for the banking system and transferred to the CBO as both a liability and an asset.  Given the direct foreign claim on these assets, we have removed them from our estimate of the CBO’s usable reserves.

Oil production increased to a record high of 358 million barrels of oil in 2015, a 4% increase on the previous year, with exports rising by 5.5% to 308 million barrels in 2015.  Production has been maintained at these levels in 2016.  However, this increase failed to effectively mitigate the negative effect of lower oil prices, with the government’s oil revenues falling by about 34% in 2015 and 12% in 2016.

Our forecast of the general government balance includes an estimate of the government’s investment returns. Oman’s fiscal flows remain weak after posting 16% of GDP deficit in 2015.  Due to weaknesses in average oil prices in the first half of 2016, Oman experienced a larger revenue gap than previously expected.  We now expect that Oman’s fiscal deficit in 2016 will reach 19% of GDP before gradually declining to close to 10% by 2019.  Some of the fiscal consolidation measures on revenue include raising corporate taxes, increasing fees for government services and introducing a value-added tax in 2018 with other Gulf Cooperation Council (GCC) countries.  The expenditure adjustments have included eliminating fuel subsidies; increasing gas prices; and freezing wage increases while reducing various benefits and bonuses for senior civil servants.

We marginally increased our 2016 current Brent oil price assumptions from $40 per barrel (/bbl) to $42.50/bbl, while keeping our 2017, 2018, and 2019 oil price assumptions unchanged at $45/bbl, $50/bbl, and $55/bbl, respectively.

Our forecasts for the annual average increase in general government debt (which is our preferred fiscal metric because in most cases it is more comprehensive than the reported headline deficit) have increased to about 9% of GDP over 2016-2019.  We understand that the government will finance its deficits largely via the issuance of foreign currency debt.  We now estimate that the government’s net asset position will average about 20% of GDP in 2016-2019, much reduced from 53% of GDP in 2015, and falling to about 1% by 2019.  We forecast general government liquid assets at about 50% of GDP in 2016, including government deposits at the central and commercial banks, alongside the government’s investment funds, the largest component of which is the externally invested State General Reserve Fund.  We consider that the government could draw on these assets were it to face temporary external pressures.  In 2016, the government drew down Omani rial (OMR) 1.5 billion from the State General Reserve Fund as part of deficit financing.

We assess the Omani government’s contingent liabilities as limited, including those related to the banking system.  We classify Oman’s banking sector in Group ‘5’ under our Banking Industry Country Risk Assessment methodology, with group ‘1’ indicating the lowest risk and ’10’ the highest.  We assess the Omani banking system as having relatively limited reliance on external funding, as banks are largely funded by domestic customer deposits.  We see moderately high vulnerability to the substantial change in the competitive environment triggered by the low oil prices.  On the one hand, due to the decline in government revenues and the significance of public sector deposits in the total bank deposit base (about 36% of total deposits as of August 2016), we expect banks’ cost of funds to prove sensitive to tightening liquidity in the system.  On the other hand, the corporate segment remains narrow and lending to small and midsize enterprises is low.  As a result, we expect competition among banks in the retail segment will remain intense, which could create new pressure on asset quality.  The still immature domestic debt capital market remains a negative aspect of our assessment of bank funding options.

In 2015, the economy posted very high growth close to 6% real GDP growth, supported by increased investment in the oil sector with new technologies that helped increase oil production to reach 1 million barrels per day.  However, continued decline in oil prices through the second half of 2015 and the first half of 2016 has resulted in lower export and fiscal receipts.  Oman’s economic performance remains vulnerable to energy prices while the volume of oil production is likely to stagnate at around current levels.  In Oman, the hydrocarbon sector’s contribution to the economy fell to close to 35% of nominal GDP in 2015 following the pronounced decline in oil prices, compared with just under 50% of GDP in 2014.  Hydrocarbons accounted for at least 50% of goods exports and just over 80% of government revenues in 2015.

Going ahead, we estimate trend growth in real GDP per capita (which we proxy by using 10-year weighted-average growth) averaging close to negative 2% over 2016-2019, which is well below that in most economies at similar levels of development.  Our GDP per capita estimate for 2016 is $15,300, which we expect will recover only slowly to about $17,000 in 2019, compared with $20,600 on average in 2011-2014, largely due to weak real and GDP deflator growth over that period.

We expect slow progress on the government’s Omanization program – a training program for Omani citizens aimed at lowering dependence on foreign labor – due to a skills mismatch between many Omani workers in the private sector and the more attractive pay and conditions of Omanis working in the public sector.  However, the government’s recent policy measures in reducing recurrent expenditure – a hiring freeze and suspension of bonuses and promotions – could provide incentives for unemployed Omanis to join the private sector.

In our view, monetary policy flexibility is limited because the Omani rial is pegged to the U.S. dollar.  That said, the peg has provided a stable nominal anchor for the economy, particularly because contracts for oil, the main export, are typically priced in dollars.  Reflecting the strength of the U.S. dollar versus other key currencies, since April 2014, Oman’s real effective exchange rate has appreciated by about 11%.  In our view, this represents a deterioration in international competitiveness of the country’s modest tradables sector, which is likely to dampen non-oil GDP growth, absent any offsetting factors such as improved efficiency or technological capacity.  The transmission of monetary policy is constrained by Oman’s underdeveloped capital market, although we expect to see some growth in local debt and sukuk issuance over the next four years.  Nevertheless, we expect the peg to be maintained over the medium term.  We estimate reserve coverage (including government external liquid assets) at six months of current account payments over 2016-2019.  Rules of thumb for the adequacy of reserve coverage in relation to these measures are 20% and three months, respectively.  We also consider the more qualitative aspects of the GCC currency arrangements.  At a time of already significant change and regional geopolitical instability, politically conservative regimes such as the GCC are unlikely to decide to increase uncertainty about their economic stability by amending this fundamental macroeconomic policy.  We expect these concerns will outweigh the potential economic benefits of removing the currency peg.

Under the rule of Sultan Qaboos bin Said Al Said, the country has undergone steady improvement in human development.  Oman now ranks in the 70th percentile of countries in the United Nations Development Program’s Human Development Index.  Although this advancement stems largely from high hydrocarbon revenues during the sultan’s reign, we think it also results from effective policymaking, with institutions such as the Consultative Assembly (Majlis Al Shura) and The Council of State (Majlis Al Dawla) involved in the decision making process.  However, the sultan exercises absolute power.  While the Consultative Assembly representatives are democratically elected, all members of the Council of State are appointed directly by the Sultan, which can pose risks to the effectiveness and predictability of policymaking, in our view.

We understand that the sultan remains popular, but the eventual process of succession remains untested because the country lacks recent experience in smooth transitions of power.  Although we expect that succession will be smooth, without any radical policy shifts, we cannot rule out the possibility that Oman could experience a disruptive period of uncertainty if the royal family does not quickly agree on a successor.  We do not anticipate that the conflict in neighboring Yemen will affect Oman’s creditworthiness, because it appears unlikely to spill over into Oman, which has remained neutral in the conflict.

Our ratings on Oman are supported by our assumption that it could receive additional support from other GCC neighbors (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates), in the event of further significant deterioration in its fiscal or external position.


The negative outlook reflects that Oman’s fiscal consolidation might take longer than we expect.  We meanwhile assume that government financing needs will largely be funded externally due to its narrow domestic capital markets.  As a result, the economy’s external debt could exceed its liquid external assets by more than we anticipate, thereby limiting buffers to offset external pressures.

We could consider lowering the ratings if Oman’s net external position deteriorated more quickly than we currently forecast, perhaps through wider fiscal deficits than we expect.  We could also lower the ratings if Oman’s debt-financing risks rose significantly through a combination of substantially higher interest costs as a proportion of revenues and a sharp increase in the share of foreign currency and nonresident holdings of total government debt.

We could also lower the ratings if we saw increasing signs of succession risks that were likely to disrupt governance standards or the functioning of institutions.

We could consider revising the outlook to stable if the foundations of economic growth in Oman strengthened – raising per capita income levels – or if our forecasts for Oman’s fiscal and external positions improved substantially compared with our current projections.  (S&P 11.11)

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11.8  SAUDI ARABIA:  Saudi Economy Avoids Crisis But Outlook Murky For Deficit & Growth

Saudi Arabia has avoided an economic crisis due to low oil prices this year but the outlook for state finances and growth will remain murky for many months to come, businessmen and analysts in the kingdom say.

Six months after the government launched its most radical economic reforms in decades, it has scored several victories.  Drastic spending cuts seem to be reducing its budget deficit, which totaled a record 367 billion riyals ($98 billion) last year, by much more than originally planned.  A $17.5 billion sovereign bond issue last month opened an overseas borrowing channel, which Riyadh can use to slow the drawdown of its foreign reserves, buying more time to adjust its economy to an era of cheap oil, and for the foreseeable future almost eliminating the risk of a currency devaluation.

The government has accomplished this without any significant political backlash.  While ordinary Saudis grumble at the austerity on social media, many say they understand the need for it and businessmen praise the authorities’ decisiveness.

However, big questions remain.  It is not clear whether the government can continue cutting its deficit rapidly without pushing the country into recession, and many corporate executives think the worst of the economic slump is yet to come.  “Next year there will be high uncertainty, though we do not expect a huge decline,” said Mazen al-Sudairi, head of research at local firm Al-Istithmar Capital.  “The private sector is facing a lot of challenges.”

A foreign banker in Riyadh, who like many executives declined to speak publicly for fear of irritating Saudi officials, agreed the economy had escaped a fiscal and currency crisis that loomed at the start of 2016. Central bank data shows no sign of rising capital flight from the country, he noted.  “But this does not mean the basic problems are solved,” he said.  “Next year will be a very tough year.”

Bankers in contact with Saudi economic officials expect the 2016 budget deficit, which will be revealed when the government announces its 2017 budget plan in late December, to come in well below Riyadh’s original projection of 326 billion riyals.  Sudairi predicted a deficit of 190 billion riyals; Jadwa Investment, a leading investment bank, forecasts 265 billion riyals.  Such a figure would allow Riyadh to claim major progress in its effort to eliminate the deficit by 2020.

Some of the progress, though, is due not to sustainable spending cuts but to unpaid bills.  The government has reduced or suspended payments that it owes to construction firms, medical establishments and even some of the foreign consultants who helped to design the economic reforms.  Sudairi estimated unpaid dues for construction firms alone totaled 80 billion riyals.

This reduces Riyadh’s outgoings for now but stores up obligations in the future.  It also worsens the impact on the economy of state spending cuts and has contributed to severe financial problems at some large construction firms.  Outgoing finance minister Ibrahim Alassaf said in mid-October that payments to construction firms would now rise – apparently a recognition of the damage that the payment delays were doing to the economy. He did not elaborate.

Signs of the economic slump can be seen in Riyadh and other major cities, where discounts of 50% or more are offered by stores selling clothes and consumer electronics.  There is also a surge in people offering second-hand cars for sale. There used to be long waiting lists for compounds housing well-off expatriates; the lists have shrunk or disappeared, and more villas in the compounds are vacant.

The non-oil sector of the economy has shrunk from a year earlier in two of the three quarters through June, while earnings of listed Saudi companies shrank 2% in the third quarter of 2016, NCB Capital calculated.

There may be worse to come.  In September, the government cut allowances paid to employees the public sector, where two-thirds of Saudis work; some analysts estimated this might reduce those people’s disposable incomes by 20%.  The central bank has spread some of that pain to the banking sector by telling banks to reschedule public employees’ consumer and property loans.  “The public sector pay cuts were a shock.  The effect will spread through the economy in the next few months,” said a senior fund manager in Riyadh.  “For the corporate sector, the first quarter of next year will be the worst.”  The economy is expected to start recovering in the second half of 2017, he said.  However, several factors suggest the recovery may be slow and uncertain.

Between 1 million and 2 million of Saudi Arabia’s 10 million foreign workers may leave over the next couple of years as the economic slowdown causes lay-offs and the government seeks to steer Saudi citizens into jobs previously held by foreigners, said a top executive at a big Saudi company.  That would reduce outward remittances of money, helping Saudi Arabia’s balance of payments further, but it would drag on economic growth.  The official unemployment rate among Saudis is likely to rise to 13% next year from 11.6%, a local economist said.  The planned introduction of a 5% value-added tax in 2018, an important step to strengthen state finances, will also hit consumption.

The biggest uncertainty may be how authorities can push through a key part of their reform drive – fostering a vibrant private sector that does not depend on oil revenues – in the face of austerity policies that are suppressing private demand.  For example, the government is trying to stimulate the housing industry.  Jamil Ghaznawi, local director of real estate services firm JLL, said smaller developers – who provided 85% of the stock in the market – had actually slowed their activity in the past 18 months as austerity reduced home buyers’ incomes and weakened construction firms’ finances.  (Reuters 04.11)

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11.9  EGYPT:  IMF Executive Board Approves $12 billion Extended Arrangement for Egypt

On 11 November 2016, the Executive Board of the International Monetary Fund (IMF) approved a three-year extended arrangement under the Extended Fund Facility (EFF) for the Arab Republic of Egypt for an amount equivalent to SDR 8.597 billion (about $12 billion, or 422% of quota) to support the authorities’ economic reform program.

The EFF-supported program will help Egypt restore macroeconomic stability and promote inclusive growth.  Policies supported by the program aim to correct external imbalances and restore competitiveness, place the budget deficit and public debt on a declining path, boost growth and create jobs while protecting vulnerable groups.

The Executive Board’s approval allows for an immediate purchase of SDR 1.970 billion (or about $2.75 billion).  The remaining amount will be phased over the duration of the program, subject to five reviews.

Following the Executive Board discussion, Ms. Christine Lagarde, Managing Director and Chair, said:

  1. “The Egyptian authorities have developed a homegrown economic program, which will be supported under the IMF’s Extended Fund Facility, to address longstanding challenges in the Egyptian economy. These include: a balance of payments problem manifested in an overvalued exchange rate, and foreign exchange shortages; large budget deficits that led to rising public debt and low growth with high unemployment.  The authorities recognize that resolute implementation of the policy package under the economic program is essential to restore investor confidence, reduce inflation to single digits, rebuild international reserves, strengthen public finances and encourage private sector-led growth.
  1. “The liberalization of the exchange rate regime and the devaluation of the Egyptian pound were critical steps toward restoring confidence in the economy and eliminating foreign exchange shortages. The new exchange rate regime will be supported by prudently tight monetary policy to anchor inflation expectations, contain domestic and external demand pressures and allow accumulation of foreign exchange reserves.
  1. “Reducing fiscal deficits considerably and thereby placing public debt on a clearly declining path is an important objective of the authorities’ program. To this end, the key policy measures are the introduction of a VAT, a reduction of energy subsidies and the optimization of the public sector wage bill.  To mitigate the impact of the reforms on the poor, the authorities intend to use part of the fiscal savings to strengthen the social safety nets.  The planned fiscal consolidation is projected to reduce public debt by almost 10% of GDP by the end of the program.
  1. “Structural reforms are critical for the success of the program. The aim is to address deep-seated structural impediments to growth and job creation, and create an enabling environment for private sector development.  The main areas of reforms include business licensing and insolvency frameworks; public financial management, including state-owned enterprises; energy sector and subsidy reforms; and labor market reform to create jobs and increase labor market participation, especially among women and young people.
  1. “Risks to program implementation are significant, but are mitigated by the strength of the policy package, frontloading of major measures implemented as prior actions, and broad political support for the objectives of the program and ambitious policy efforts.”


ANNEX – Recent Developments

Since 2011, political and regional developments have taken a significant toll on the Egyptian economy.  Underlying structural challenges and the prolonged political transition led to the build-up of macroeconomic imbalances.  A significantly overvalued exchange rate undermined competitiveness and depleted reserves.  Weak revenue combined with poorly targeted subsidies and a growing public sector wage bill resulted in large deficits and high level of public debt.

The authorities initiated policy adjustment measures in 2014/15.  The Central Bank of Egypt (CBE) devalued the Egyptian pound by 5% and increased interest rates to contain inflationary pressures.  Fuel and electricity prices were raised and a plan for gradual phasing out of these subsidies was developed.  As a result, the subsidy bill fell by nearly 3% of GDP in fiscal year (FY) 2014/15.  In addition, a new Civil Service law was drafted and a decision was taken to replace the General Sales Tax with VAT.  In 2015/16, however, the momentum of reform slowed.  Planned fuel price increases were deferred, income taxes were cut, the capital gains tax was postponed and parliamentary consideration of VAT was delayed to 2016/17.

Growth slowed in 2015/16, while inflation increased and external vulnerabilities became more acute.  The economy is estimated to have grown by 3.8% in 2015/16.  Foreign exchange shortages and the overvalued currency hampered the manufacturing sector, while tourism was hard hit by security concerns.  Inflationary pressures intensified in the second half of the year.  The current account deficit widened further, and in June 2016 reserves stood at about 3 months of prospective imports.  The devaluation of the official exchange rate by 13% in March 2016 did not restore market equilibrium, and strong pressures on the exchange rate and reserves remained.  By the end of September, the parallel market premium widened to more than 30%, and the official exchange rate was estimated to be overvalued by about 25% in real effective terms.

Program Summary

The authorities’ home-grown program, supported by the EFF arrangement, will address macroeconomic vulnerabilities and promote inclusive growth and job creation.

The program focuses on four key pillars:

1) a significant policy adjustment including (1) liberalization of the foreign exchange system to eliminate forex exchange shortages and encourage investment and exports; (2) monetary policy aimed at containing inflation; (3) strong fiscal consolidation to ensure public debt sustainability;

2) strengthening social safety nets by increasing spending on food subsidies and cash transfers;

3) far-reaching structural reforms to promote higher and inclusive growth, increasing employment opportunities for youth and women;

4) Fresh external financing to close the financing gaps.

The main elements of the program are as follows:

Exchange rate, monetary and financial sector policies:  On 3 November the CBE liberalized the foreign exchange system and adopted a flexible exchange rate regime.  Maintaining the flexible exchange rate regime, where the exchange rate is determined by market forces, will improve Egypt’s external competitiveness, support exports and tourism and attract foreign investment.  This will also allow the CBE to rebuild its international reserves.  Monetary policy will focus on containing inflation and bringing it down to mid-single digits over the medium term.  This will be achieved by controlling credit to government and banks as well as by strengthening the CBE’s capacity to forecast and manage liquidity, improving transparency and communication.  To further enhance banking sector soundness and promote competition, the CBE will review its supervisory model in line with international best practice, including Basel III principles.

Fiscal policy, social protection and public financial management:

-Fiscal policy will be anchored to setting public debt on a clearly declining path and restoring debt sustainability. Tax revenues are projected to increase by 2.5% of GDP over the program, in large part due to the implementation of the value added tax (VAT) approved by parliament in August.  At the same time, primary expenditures will be reduced by 3.5% owing to reduction of subsidies and containing the wage bill.  The fuel price increase announced on November 3 were an important step in that direction.

-Social protection programs will be strengthened to ease the adjustment process. About 1% of GDP out of the achieved fiscal savings will be directed to additional food subsidies, cash transfers to the elderly and low-income families, and other targeted social programs, including more free school meals.  The aim is to replace poorly targeted energy subsidies with programs that directly support poor households.

-The program also emphasizes strengthening public financial management (PFM) and fiscal transparency. Planned reforms in this area include regularly reviewing the operational performance of the economic authorities; improving oversight of state issued guarantees through the preparation of reports; developing a road map for pension reforms; and preparing a budget statement on economic and public finance developments will be presented to the parliament with every budget.

-Structural reforms and inclusive growth. The program will help address the long-standing challenges of low growth and high unemployment.  Measures will include streamlined industrial licensing for all businesses, greater access to finance to SMEs, and new insolvency and bankruptcy procedures.  Job intermediation schemes and specialized training programs for youth will be encouraged.  To support women’s labor force participation, availability of public nurseries will be increased and safety of public transportation improved.  (IMF 11.11)

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11.10  EGYPT:  If You’re Going Through Hell, Keep Going – A Guide to Egypt’s Free Float Pound

Mohamed El Dahshan and Allison McManus wrote on 4 November in the Tahrir Institute for Middle East Policy (TIMEP) that the wait is over.

After months of hints, predictions, and speculation, Egypt’s pound was floated on the market on 3 November.  Trading that morning at around 8.88 Egyptian pounds (LE) to the dollar, Egypt’s Commercial International Bank (CIB) closed the day at 16.  Upon announcing the float, the Egyptian Central Bank set a target price ranging around LE 13 to the dollar, plus or minus 10, and though the rates at banks closed well outside this range, the pound will continue to fluctuate as speculation lingers approaching the disbursal of the $12 billion loan from the International Monetary Fund.

The float follows a turbulent week for the pound; reports described trades anywhere from over 18 to as low as 11.5 pounds per dollar.  This panic marked the pinnacle of months of uncertainty about the fate of the Egyptian pound.  In July, Central Bank governor Tarek Amer declared that the defense of the pound on the market was a mistake that had led Egypt to a critical reduction of its foreign reserves and corollary economic woes; his comments suggested to many that at least a significant devaluation would be imminent.  That it took another four months to pull the trigger on the inevitable devaluation only further exacerbated the detriment of the already unsound policy.

Amer’s ill-timed comments underscore the Egyptian government’s (and particularly the Central Bank’s) tendency to poorly articulate and execute sensible economic policies.  Years of mismanagement, particularly since 2014, have brought Egypt’s economy to its knees.  Depleted reserves, insufficient GDP growth, high and climbing inflation, and a ballooning national debt have made brutal reforms effectively the only solution: if you’re going through hell, keep going.  Devaluation is a bold first step on this path, but the temperature will inevitably rise as the next step brings a slashing of fuel subsidies that will only increase inflation.  The government announced a severe 40% increase in fuel prices to mirror the pound’s devaluation, taking effect at midnight on 3 November, with more price hikes projected for the future as the government attempts to curtail its bloated subsidy budget by 14%.  In a panic anticipating the overnight price hikes, Egyptians rushed to the gas pumps to squeeze out a last few drops of less expensive fuel.

Also, somewhat puzzlingly, currency controls remain in place.  The CBE has promised it will remove limits on foreign currency transfers for individuals and importers of essential goods (though is leaving a review of strict credit card restrictions to individual banks), but caps on deposits and withdrawals will remain for some importers.  If the extreme overvaluation of the pound is a primary constraint on investment, these controls are a close second, and counterproductive to the objective of a float.  As an investor specialized in the fragile economies explained, “One of my main red flags is when the government begins to tell me what I can and cannot do with my money.”

Meanwhile, some contradictions in messaging persist.  The government’s declarations, notably those sent by its embassies to international interlocutors, were inexplicably upbeat, touting that the reform’s purpose was to “improve our competitive position.”  In a press briefing with Bloomberg, Amer reportedly thanked Egyptians for persevering through the difficult times that passed. Earlier, a Central Bank communiqué was more somber and realistic, a tone welcomed by observers and investors.

What Now?

While fluctuations will continue until the demand for dollars is met (and this is largely contingent on the disbursal of the IMF loan), the government’s target of LE13 to the dollar is likely to be near the stable medium-term price.  However, this target may not be reached immediately.  Even with the promise of a loan disbursement, past experience has displayed overshooting and the panic engendered by reports of a price of LE18 per dollar will not soon be erased from memory.  Thus, it is likely that the currency will continue an overall depreciation before stabilizing, and it remains to be seen whether the government will be forced to intervene, despite the commitment to a “free” float, in order to cool the market.  Already upon this announcement, the central bank increased the interest rate by 3% to absorb the excess pound liquidity.

The government is also expected to begin relaxing currency controls and allowing relatively freer transfers.  When it does, it will have to signal its commitment to this policy, and not revert to currency controls if the demand on the dollar exceeds its expectations.  As inconsistent measures and conflicting messaging have had negative repercussions for confidence in Egypt’s financial institutions, hedging bets on capital controls would be highly damaging, signaling that a lack of faith in the government’s own target price.

Without a doubt, inflation remains the most concerning repercussion of the floating pound, and Egyptians will increasingly feel its pinch.  In the absence of any kind of consumer protection recourse in the country, vendors and traders will be hiking the prices of just about everything; Egyptians are already prepared for their objections on increased prices to be met with a shrug and offhand “It’s because of the dollar.”  Though many goods have been imported at the parallel market price for the past few months (and at times even higher, as many vendors built in price increases given their uncertainty about dollar availability and exchange rates), key government-supplied goods have not.

Egypt is the world’s largest wheat importer and a net importer of petroleum products.  Just last month, Saudi Arabia halted its monthly shipment of 500 million tons of petroleum products.  The Egyptian government has scrambled to fill the gap, including an import deal with Azerbaijan’s State Oil Company (SOCAR) and a memorandum of understanding signed earlier this month to begin importing oil from Iraq.  However, the bill is getting heavier.  Though depreciation will lead to a contraction of imports and an increase in exports, Egypt’s main sources of foreign currency – tourism and Suez Canal proceeds – depend primarily on extrinsic factors: security, international reputation, and global trends in trade and oil prices.

Exacerbating inflation, the removal of fuel subsidies is the last reform ostensibly remaining to secure the IMF loan that has been pending since early August.  In the words of one expert speaking on the sidelines of the IMF’s annual meetings in Washington, “Egypt cannot afford to stop and halt reforms.  The Egyptians are fully aware of the difficulty of the situation, and their [foreign currency] reserves are too low.”  As Egypt continues the painful slashing of subsidies, the price of goods will increase almost across the board.  The IMF advised against lifting food subsidies to weather the effect of fuel subsidy reduction (at least in the short term), and the Egyptian army has already begun to distribute food throughout the country.

Many Egyptians will suffer from this inflation, particularly those that are already the most vulnerable.  Egypt has faced increasing rates of poverty (which has been consistently high over the past decades, even during moments of accelerated GDP growth)—currently over 27% of Egypt’s population, or more than 22 million people, survive on less than LE500 per month.  The government’s social safety programs, Takaful and Karama, aimed at the poorest and most vulnerable, target 1.5 million families.  Even these programs are not fully effective given the difficulty of social targeting in a country where many have no national ID and where petty corruption and favoritism are rampant.  Thus, the country’s most vulnerable will be left in the metaphorical and literal cold, as they are largely alone to face the rising costs of food and fuel, already a greater burden on meager incomes.  Beyond these most precarious, many families will find it even more difficult to make ends meet, as we could expect inflation to reach up to 30% by the beginning of next year.

For its part the government will soldier on, with few tools left in its economic policy bag.  The challenge now is twofold: marching steadily on the path through hell and mitigating the negative effects on the population.  The government must follow through on the expensive game it has begun, as not only is the health of its economy at stake but, equally important, a bruised reputation vis-à-vis its private and public economic partners.  It must also manage inflation and effectively communicate policies and implications to mitigate discontent.  Given brewing noises of protest and frustration, this may indeed prove more challenging than anyone has foreseen.

Mohamed El Dahshan is a development economist and a Nonresident Fellow with the Tahrir Institute for Middle East Policy (TIMEP).  He previously held the position of Senior Research Fellow at the Harvard University Center for International Development.  

 Allison L. McManus is the Research Director at TIMEP.  Prior to joining TIMEP, Ms. McManus worked as an independent researcher and writer in both the United States and Morocco, credited for her work on topics of globalization, labor rights and political expression.  (TIMEP 04.11)

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11.11  EGYPT:  Egypt and Israel’s Growing Economic Cooperation

Haisam Hassanein wrote in The Washington Institute‘s PolicyWatch 2721 on 2 November 2016 that although security cooperation tends to get the headlines, the two countries have been quietly pursuing other initiatives that could provide a desperately needed boost to Egypt’s trade, tourism, and energy sectors.

On 18 October, Ynet news reported that Egypt and Israel were planning to pursue joint economic projects after years of cold relations on that front.  Although officials are still ironing out the details, the announcement reflects the next stage in an economic relationship that has fluctuated considerably since the 1979 peace treaty. It also highlights how bilateral cooperation has expanded well beyond improvements in the security realm.


Formal economic relations between the two countries began in 1980.  Once the peace treaty was signed, the Egyptian parliament approved the first trade agreement with Israel on 8 May 1980.  Yet, while joint committees were established to enhance engagement in various sectors, actual cooperation was kept to a bare minimum during the long rule of President Hosni Mubarak.

The turmoil that followed Mubarak’s 2011 ouster further precluded the development of stable relations.  However, economic ties have begun to deepen under President Abdul Fattah al-Sisi, whose government faces worsening fiscal challenges and reportedly plans to move forward with initiatives on three fronts: the free-trade areas known as Qualifying Industrial Zones (QIZs), the tourism sector, and the energy sector.

Broadening the QIZs

This April, for the first time in ten years, an Israeli delegation traveled to Egypt to discuss ways of enhancing economic cooperation.  Cairo was keen on increasing QIZ exports to U.S. markets and therefore welcomed Israel’s help.  The country’s various QIZs – located in the Greater Cairo area, Alexandria, the Suez Canal area, the Central Delta region and Upper Egypt – are home to more than 700 companies and employ around 280,000 workers.  Currently, they account for 45% of national exports to the United States.

The protocol establishing the zones was signed in December 2004 as an extension of the U.S.-Israel Free Trade Agreement.  At the time, the zones were critical to the survival of Egypt’s textile industry; the agreement came into force just as the World Trade Organization was removing relevant quota restrictions and signing preferential agreements with other nations.

Since then, however, Egypt has sought to reduce the Israeli input in the QIZs (i.e., the percentage of a given export product that must be manufactured by Israeli firms, based on a formula in the original agreement).  Two rounds of talks have taken place toward that end. In 2008, Israel agreed to reduce its input from 11.7 to 10.5%.  During the second round, which took place two weeks before the Muslim Brotherhood-led government assumed power in 2012, Israel verbally agreed to further lower its input but did not actually do so in practice.  The issue was not picked up again until December 2015, when Israel officially handed Egypt another 2% of its QIZ share.


Following the 2011 uprising, Israeli tourism to Egypt witnessed a massive decrease, dropping from 226,456 visitors in 2010 to 133,620 in 2012.  The numbers slowly began to recover thereafter, increasing to 140,425 in 2014 and 148,336 in 2015.  Although the 2016 tally is of course not yet final, an estimated 15,000 Israeli tourists entered the country between January and March, a comparatively small number that reflected the severe reduction in overall foreign tourism to Egypt after a Russian passenger jet was bombed the previous October.  These numbers rose throughout the summer, however.  Statistics from the Taba border crossing indicate that 14,270 Israelis crossed in June, then 29,000 in July and 45,000 in August, comparable to figures from last summer (around 90,000 Israelis traveled from Eilat to the Taba crossing between July and September 2015).

Indeed, thousands of tourists have continued to flock to Sinai beaches despite constant security warnings from Israeli authorities and frequent clashes between terrorist groups and the Egyptian military.  In an 25 October report by Israel’s Channel 2, for example, one tourist declared, “Being in Jerusalem is more dangerous than being in Sinai.”

The one-sided nature of Israeli-Egyptian tourism remains a problem, though things are changing in this regard.  In May, a delegation from the Egyptian tourism industry met with Israelis in Jerusalem and agreed to increase the number of Coptic Christians allowed to visit holy sites in Israel.  For their part, the Israelis promised to increase the tourist flow to Egypt.

Natural Gas

In recent years, Egypt has moved from being a significant gas exporter to a net importer.  This trend will likely continue even after the new supergiant Zohr field off Egypt’s coast starts up next year.

Meanwhile, Israel has made its own large gas discoveries and is now a potential supplier to Cairo after years of importing Egyptian gas.  These imports were once transported via a pipeline running across northern Sinai and along the seabed from al-Arish to Ashkelon, but various diplomatic, security, and economic factors brought the flow to a halt by 2012.  Industry players have since proposed to reverse the pipeline, but efforts along those lines became embroiled in a $1.8 billion legal mess after the Israel Electric Corporation took Egypt to international arbitration for the 2012 cutoff.

The logical approach would be to convert supplies from Israel’s offshore Tamar and Leviathan fields into liquefied natural gas at Egypt’s Edku and Damietta plants on the Nile Delta and then export it by ship.  Another possibility is to give some of the gas to Egyptian industries, since the government often diverts their supplies to fuel domestic power plants.

Buying Israeli gas would likely be just as politically contentious for Cairo as selling gas to Israel was in the past; the Egyptian media and intelligentsia remain hostile to the idea.  But there are signs that authorities are preparing the ground for such deals.  On 27 October, an Egyptian appeals court acquitted Mubarak-era oil minister Sameh Fahmy of selling underpriced crude to Israel.  In 2012, he had been sentenced to fifteen years in prison.

Policy Implications

Since the 2011 uprising, Egypt has been running out of options to save its economy, as evidenced by its struggle to fix growing budget deficits, increasing unemployment, lagging tourism, and dwindling foreign direct investments.  Even remittances by Egyptian expatriates, the majority of whom live in Gulf Cooperation Council countries and whose money transfers are a major economic asset, have decreased since the sharp fall in world oil prices.  If these problems continue, the country will find itself on an increasingly dangerous trajectory, which is not at all in America’s interest.

Even amid these negative trends, however, a positive bilateral dynamic has been developing.  Three decades ago, Washington felt compelled to keep itself directly involved in managing the Egypt-Israel relationship.  Nowadays, changing regional dynamics have allowed the two countries to move closer without a U.S. catalyst.

Given their deep security cooperation and Egypt’s ongoing economic meltdown, the two neighbors might be on the verge of a new era of cooperation, but only if they are willing to provide sufficient incentives to each other.  Such a shift would fit well with Washington’s broader interests in regional peace and stabilization.  Accordingly, U.S. officials should encourage the latest Egyptian-Israeli initiatives and explore ways to further widen and deepen their economic cooperation.

Haisam Hassanein is a Glazer Fellow at The Washington Institute.  (TWI 02.11)

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11.12  EGYPT:  Fitch Says Egypt FX Move Positive; Policy Challenges Ahead

Fitch Ratings announced on 9 November that the devaluation of the Egyptian pound and the central bank’s stated intention to allow the currency to float are major steps in Egypt’s external, monetary and fiscal adjustment and are positive for the sovereign’s credit profile.  But such a large currency adjustment puts the spotlight on social and political risks in an already challenging policy environment.

The Central Bank of Egypt (CBE) recently devalued the pound and said the currency would float freely.  It also raised its policy rate by 300bp to tighten monetary conditions.  The currency has since dropped further, to USD/EGP17.5 on 9 November.  The CBE had previously devalued by 13% in March, to USD/EGP8.8.

The key near-term impact of the shift in the exchange rate regime is to open the door to IMF board approval of the $12b Extended Fund Facility announced in August.  The Egyptian government followed the exchange rate move by reducing fuel subsidies, a fiscal reform wanted by the IMF.  We expected the IMF board to approve the deal on 11 November and release the first tranche of funding.

IMF funding will support the CBE’s stock of foreign reserves ($19b at end-October) and boost confidence among economic agents and investors. It may also pave the way for international bond issuance.

Over the medium term, the exchange rate shift should also support external rebalancing, raise portfolio inflows, and ease FX shortages, which have weighed on economic activity, including domestic manufacturing.  The currency crisis has resulted from worsening trends in the balance of payments since 2011 and especially in 2015-2016: declining tourism, fairly flat Suez Canal revenues, the emergence of a net energy export position and a widening trade deficit.  Some of these factors will remain, but the exchange rate shift should gradually allow Egypt’s external position to adjust.

Further exchange-rate adjustment had become inevitable since the March devaluation in the face of persistent pressures on the currency.  These have stemmed from worsening trends in the current account, low reserves, and entrenched expectations of additional devaluation (the Egyptian pound hit a record low in the parallel market last month).  Therefore, the weaker rate was partly incorporated into forecasts, but was larger than anticipated.

Such a major FX “regime change” does present risks, especially when compounded with other reforms to control spending.  It will push up inflation, which was already high at 14.1% yoy in September, beyond our forecasts (we had projected inflation to average 12.9% this year and 13% in 2017).  This will be unpopular, and could precipitate some social unrest.  If such unrest were to mount this would in turn raise the risk to further implementation of fiscal consolidation.

The fiscal impact of devaluation is mixed.  Public sector external debt is low as a percentage of total public debt, but the weaker currency will increase the size of the debt, and the interest rate rise will push up the interest payment bill yet further.  The weaker currency will also put pressure on the government’s import costs.  But the increase in fuel prices and the approval of the IMF program will help control spending (although the IMF loans themselves will also add to debt).  We rate the Egyptian sovereign ‘B’/Stable.  (Fitch 09.11)

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11.13  TUNISIA:  IMF Publishes Fiscal Transparency Evaluation for Tunisia

On 08 November, The IMF published a Fiscal Transparency Evaluation (FTE) report for Tunisia, which was carried out at the request of the Government of Tunisia by a joint team from the IMF’s Fiscal Affairs and Statistics Departments that visited Tunis in November-December 2016.  This report assesses Tunisia’s fiscal transparency practices based on the IMF’s Fiscal Transparency Code.

Tunisia has witnessed a profound transformation of its political institutions in the wake of the 2011 revolution, including a new Constitution that came into force on 27 January 2014.  In this context, the authorities have launched several reforms with a view to modernizing public financial management and enhance the transparency of public finances.  The establishment of a newly elected government in early 2015 also presents an opportunity to boost the reform agenda in this area.

The FTE—carried out by the IMF team, in close collaboration with key counterparts in the Ministry of Finance and other relevant government agencies—found that while Tunisia performs well against the Fiscal Transparency Code in some areas, improvements are needed in several other areas to bring country practices in line with international standards.  Many indicators can be improved in the short term by consolidating and publishing information that are available but fragmented and also by publishing existing analyses that are prepared for internal management purposes.

The report recognizes several key strengths of fiscal transparency practices in Tunisia such as the centralized preparation of fiscal statistics in accordance with the Special Data Dissemination Standard; timely publication of monthly fiscal reports, with comparison between budget forecast and outturn, since 2014; annual reconciliation of budget outturn data with fiscal statistics and final accounts; a clear legal framework defining the time table for adoption of the budget and its key contents; and the use of a supplementary budget to authorize any material changes to the approved budget.

The evaluation also highlights the need to strengthen the government’s ongoing reform process including:

-Expanding the coverage of fiscal reports to include the wider public sector and balance sheet information, with an initial emphasis on financial assets and liabilities;

-Extending the horizon of fiscal and budgetary forecasts and explicitly stating and reporting on measurable medium-term fiscal policy objectives;

-Disclosing financial forecasts of the social security funds in the budget documentation, including all direct and indirect support provided by the State;

-Conducting an analysis of the sustainability of public finances in the longer term; and

-Commencing the preparation of a fiscal risks statement that provides a consolidated view of all major risks to the public finances and associated mitigation measures.

The Tunisian authorities have welcomed the FTE report.  The implementation of the reforms already planned by the authorities and recommended in this report, including publishing existing analyses that are prepared for internal management purposes, will result in a considerable improvement in fiscal transparency in Tunisia in the coming years.  (IMF 08.11)

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11.14  TURKEY:  Outlook Revised to Stable on Gradual Implementation of Economic Reforms

On 4 November, S&P Global Ratings revised its outlook on the Republic of Turkey to stable from negative.  At the same time, we affirmed our unsolicited ‘BB/B’ foreign currency long- and short-term sovereign credit ratings and ‘BB+/B’ local currency long- and short-term sovereign credit ratings on Turkey.

We also affirmed our unsolicited ‘trAA+/trA-1’ long- and short-term Turkey national scale ratings.


The outlook revision reflects our view that policymakers will continue to move toward the implementation of key economic reforms, as originally communicated more than two years ago in Turkey’s Tenth Development Plan 2014-2018, and that these efforts, although subject to risks, will help underpin economic stability, despite remaining domestic and external risks.  At present, with high net external financing requirements and a large open foreign currency position in the corporate sector, Turkey continues to face large external vulnerabilities, especially if the Turkish lira depreciates sharply.  At the same time, we recognize that the government has lowered the sensitivity of public debt levels to foreign exchange volatility by raising nearly all new financing in local currency.  According to our estimates, just under two-thirds of Turkish central government debt is denominated in local currency, though nearly one-fifth is held by non-residents.  Since 2009, the weighted average maturity of Turkish government domestic borrowing has more than doubled to about six years.

We note that the state of emergency following the coup attempt in July 2016 is likely to remain in place until at least January 2017.  However, we factor our expectation of ongoing domestic political volatility – related to the constitutional reform process, the ending of the Kurdish peace process in mid-2015, and heightened instability along Turkey’s southeastern border with Syria – into our ratings at the current level.  In our view, domestic tensions also remain following the detention, suspension, or dismissal of more than 100,000 individuals, largely in the judiciary, military, academic institutions, and the media, on suspicion of being involved in or supporting the attempted coup.  To the extent that domestic tensions also raise questions about property rights, foreign direct investment’s role in financing Turkey’s large current account deficit is likely to remain well below the highs (3.6% of GDP in 2006) it reached during the ruling AKP party’s first term in office.

Since we last reviewed our rating on Turkey on July 20, 2016, we have lowered our economic growth projections by a marginal 0.2% in 2016 and 2017, largely in relation to the decline in economic activity following the attempted coup.  Recent events have likely exacerbated the sharp drop in tourism in 2016, with foreign arrivals falling by 32% in January-September 2016 on an annual basis.  The drop in tourist numbers follows concerns with regard to domestic political volatility, past terrorist attacks and Russia’s ban on the sale of package holidays to Turkey (lifted in July 2016).  Public and private consumption have been the major driver of GDP growth so far in 2016.  Private investment, meanwhile, has been moribund, raising questions about Turkey’s path back to real GDP growth rates closer to 4-5%, which we believe could be attainable in light of the country’s level of development and favorable demographics.

Notwithstanding the political turmoil, we note that Turkey’s government has enacted a reform intended to wean the economy away from its dependence on foreign financing.  In August 2016, parliament passed a draft law bringing about mandatory enrollment of employees aged under 45 in the Private Pension System (PPS) starting from January 2017.  The government projects the regulation will create 6.7 million contributors to the PPS and Turkish lira (TRY) 90 billion (4% of 2016 GDP; about €26 billion) of savings in 10 years.  As a result, we do not expect this to bring about a significant structural improvement but it nevertheless indicates positive intent.  Other government plans to reduce Turkey’s dependence on net debt financing from abroad and therefore to a large extent on monetary policy settings of major central banks, include the aim to fund the severance pay system, and to cut the bill for imported energy (an important contributor to the current account deficit).  In the absence of such reforms, though, we believe Turkey’s external position will remain a weakness for the ratings.  The government’s reform agenda also targets improving educational standards, increasing labor market flexibility and female participation in the workforce, and reducing the size of Turkey’s sizable informal economy (estimated at about 20% of GDP), among other things.

However, the implementation of this ambitious program of reforms competes to some extent, in our view, with the president’s intention to bring about constitutional change with the end goal of achieving an executive presidency.  This is likely to limit parliamentary and, potentially also judicial, oversight of government decisions.  We understand that the AKP plans to submit draft constitutional changes to the parliament in the coming months.  If the draft passes the parliament, it could be taken to a referendum.

The AKP (317 seats of the 550 seats available) would require 330 members of parliament to support a referendum proposal in order for the constitutional changes to be taken to the country.  Alternatively, the government could call early elections but would need to win a two-thirds majority (376 members of parliament) to successfully pass a constitutional change through parliament.  The next parliamentary elections are due by October 2019, while the next presidential election is scheduled in August 2019.

We have widened our current account deficit forecast over 2016-2019 by 0.3% of GDP as we now expect oil prices will gradually rise to $55 per barrel by 2019.

In 2015, we observed a significant portfolio outflow compensated for by a sharp increase in net errors and omissions and a drawdown of central bank reserve assets.  Financing of the large current account deficit broadly improved over the first eight months of 2016, alongside a reduction in still-sizable net errors and omissions and an increase in central bank reserves.  We saw net inflows (meaning an increase in net liabilities) of portfolio investment in both July and August, following the attempted coup, although in July the net inflows largely reflected a repatriation of foreign assets.  Regarding the other investment line of the financial account of the balance of payments, we note that there was a net outflow in July but a net inflow in August, as domestic banks reduced their holdings of currencies and deposits with foreign banks.  Net errors and omissions are positive, which could indicate an under-recording of credits or the overstating of debits in the balance of payments.

Turkey’s external position remains a weakness for the ratings.  However, we have lowered our estimate of Turkey’s gross external financing requirement for 2016-2019 to close to 170% of current account receipts (CARs) plus usable reserves, from close to 185%, largely due to the lengthening average maturity of Turkish external debt.  An increase in reserve requirements for short-term borrowing has resulted in a sharp fall in banks’ reported short-term debt.  Banks have shifted from short- to long-term borrowing across all external borrowing types.  However, we note that matured syndication loans with maturities of one year have been mostly renewed by maturities of 367 days, indicating only a marginal lengthening of maturities for this portion of external borrowing.

We view Turkey’s banking system as generally well capitalized and supervised.  We note the size of state-owned banks is relatively large, representing about one-third of total banking system assets.  Furthermore, although the banking sector is fully hedged, its foreign currency funding has risen in tandem with declining profitability.  This could represent a risk for banks if their hedges do not hold, due to counterparty risk, or because of the second-round effects of the large open foreign exchange position in the corporate sector (at about 25% of GDP) on banks’ asset quality.

Under our fiscal assumptions, we incorporate our view that the contingent liabilities of the Turkish general government are limited.  Specifically, we consider that Turkey’s domestic banks – the largest intermediators of the country’s external deficit – will remain well regulated and amply capitalized.  Still, we expect banks’ asset quality will gradually deteriorate.  Their stock of outstanding nonperforming loans (NPLs) is at about 3.3%.  We expect the sharp decline in tourism receipts in 2016 will result in higher, but manageable, NPLs for the banks.  We understand that system wide NPLs could be about 2% higher, when including large Turkish banks’ sales of NPLs and large restructurings that are classified under Group II (defined as closely monitored credits that are not included in NPLs).

Turkey’s net foreign exchange reserves – at an estimated $41 billion in 2017 – provide coverage for only about two months of current account payments, suggesting limited buffers to offset external pressures.  We expect the country’s external debt will exceed liquid external assets held by the public and banking sectors by about 130% of CARs, on average over 2016-2019.  We estimate the country must roll over nearly 41% of its total external debt in 2017, amounting to more than $170 billion (4x usable reserves; 23% of estimated 2017 GDP).

The uncertain global economic environment, particularly a possible reversal in historically low U.S. interest rates could, in our opinion, raise real interest rates in Turkey.  This could exacerbate any slowdown and, in turn, reduce the risk appetite of nonresident investors in Turkey’s government debt and equity markets, which have been important destinations for external financing inflows over the past several years.  In addition, further increases in the prices of oil and other energy products could accentuate any slowdown, given Turkey’s large net energy import bill.

Weaker economic growth has also led us to increase our general government deficit estimate for 2016 by 0.5% of GDP to 2.2% of GDP.  We forecast the annual average increase in general government debt (which is our preferred fiscal metric because in most cases it is more comprehensive than the reported headline deficit) at 2.5% of GDP over 2016-2019, in the absence of external shocks that could weigh further on growth prospects, the exchange rate, and budgetary performance.  The government’s draft 2017 budget plan targets a central government budget deficit of 1.9% of GDP, revised up from 1%.  Official data indicates broadly balanced local government and social security system budgets.  Therefore, the central government deficit is the main component of the general government balance.  The upward revision to the government’s 2017 central government deficit largely reflects a marked increase in budget allocation for investment spending (transport and investments under the development program for eastern and southeastern cities) and increased government subsidies to the real sector.  We now expect that the central and government deficits will represent about 2.5% of GDP in 2017, due to our weaker economic growth forecasts.

We foresee the general government’s interest burden at about 5% of revenues and net general government debt at approximately 27% of GDP over 2016-2019.

Turkey’s low domestic savings rate results in low investment and high interest rates to attract capital flows to Turkey, some potentially flighty.  This is also partly due to a lack of confidence in the Turkish lira.  A more credible monetary policy could reduce inflation expectations and result in a higher savings.  We think that curbs to the operational independence of Turkey’s central bank make it more challenging for the monetary authority to credibly fulfill its price stability mandate and to dampen the impact of exchange rate volatility on the economy’s growth prospects.  Although we consider that Turkey’s relatively deep capital markets benefit its monetary flexibility, we view the complex monetary framework, with multiple interest rates, as relatively ineffective, given the high pass-through of exchange rate depreciation into headline inflation.  We note the central bank’s recent efforts to simplify the monetary policy framework.  However, the cuts to the upper range of the interest rate corridor loosen monetary policy settings at a time when core inflation remains above 8% relative to an inflation target of 5%.  Inflation expectations at around 7.5% in one year’s time and 7.0% in two years’ time, are seemingly anchored to the central bank’s inflation forecasts, rather than to its stated target.


The stable outlook reflects the balance between the resilience of the Turkish economy against lingering regional and domestic risks, which, if realized, could increase balance-of-payments pressures and widen currently moderate fiscal deficits.

We could lower our ratings if Turkey’s fiscal performance and debt metrics deteriorated beyond our current expectations.  We could also lower our ratings if political uncertainty contributed to further weakening in the investment environment or tightening global policy rates intensified balance-of-payment pressures.

We could raise our ratings on Turkey if sustained rebalancing of the source of economic growth led to much lower external borrowing needs.  (S&P 04.11)

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11.15  TURKEY: Concluding Statement of the IMF 2017 Article IV Mission

On 4 November, the IMF issued a concluding statement following its review of Turkey and it IMF 2017 Article IV performance.

 The Turkish economy has withstood several shocks.  However, increased political uncertainty, a sharp fall in tourism revenues and a high level of corporate debt are all taking a toll.  The current monetary stance balances the need to contain inflation, which is still above target, against the backdrop of a slowing economy.  Favorable external conditions have helped so far, but external financing needs remain large and limit fiscal space.  Nevertheless, some fiscal loosening is appropriate to support the economy. Macroprudential measures should be strengthened to lower foreign exchange risk.

  1. Following a strong performance last year, the economy slowed in 2016. Output growth is projected to decline to 2.9% in 2016, due to weak business confidence and negative domestic and external shocks. The unemployment rate is high and rising.  Credit growth has slowed significantly. Uncertainty has increased due to geopolitical tensions, as well as the July 15 failed coup attempt and its aftermath.


  1. Inflation has declined somewhat but is expected to remain well above the authorities’ 5% target. The 30% minimum wage increase and sticky expectations are likely to keep inflation at about 8% in 2016 and 2017.


  1. The current account deficit remains sizable. The effect of lower energy prices has been broadly offset by the weak tourism season and the current account deficit is projected at 4½% of GDP in 2016. The economy’s external position remains weaker than the level consistent with medium-term fundamentals.  The current account deficit is expected to widen in 2017, due to higher projected oil prices and a wider fiscal deficit.


  1. Significant external financing needs have been comfortably met due to ample global liquidity. Despite some increase in average maturity of external debt, annual rollover needs remain close to a quarter of GDP. The recent rating downgrades contributed to an increase in the cost of foreign funding.


The Policy Agenda

The main challenge is to avoid an excessive slowdown, which could trigger a deleveraging cycle. Favorable external financing conditions should be used to rebuild buffers, reduce inflation and address external imbalances.

Fiscal policy

  1. A moderate fiscal loosening is appropriate, but should be accompanied by a credible medium-term consolidation plan. For 2017, a discretionary expansion of about ½% of GDP would support domestic demand without contributing significantly to external imbalances. The authorities could consider an extension of the minimum wage subsidy at a reduced level to support employment.  The increase in public investment is welcome, but should be directed towards high return projects.  The newly introduced project-based incentives may not meet the authorities’ expectations, given the uncertainty and elevated private debt burden.  The envisioned fiscal consolidation in the Medium-Term Plan should be backed by credible measures.


  1. Enhanced management of fiscal risks is warranted. With continued expansion of the PPP portfolio and related guarantees, contingent liabilities are increasing. Stronger central oversight, approval, and disclosure are needed.  This should cover guarantees issued by entities other than the Treasury. Passage of a comprehensive PPP framework law would help in this regard.  The mission recommends that the governance of the sovereign wealth fund be aligned with international best practices.


Monetary Policy

  1. The current monetary stance balances the need to contain inflation against the backdrop of a slowing economy and should be maintained without further easing.


  1. The simplification of the monetary framework is welcome. A framework in which all liquidity is provided at the policy rate would improve the transmission of monetary policy. The enhanced provision of Lira liquidity after the failed coup attempt was appropriate, but should be gradually withdrawn.


  1. Reserves should be increased further. Although the economy has buffers to sustain short-lived moderate capital outflows, Lira depreciation puts pressure on the balance sheets of nonfinancial corporate sector. The economy remains heavily dependent on external financing. The CBRT’s focus on boosting net reserves should be maintained.  The suspension of regular foreign exchange auctions is welcome.


Financial Sector Policy

  1. Bank capital levels remain high although some buffers are decreasing. Indicators of asset quality have deteriorated, especially in the household and SME sectors. Regulatory changes enable banks to restructure loans in the tourism and energy sectors, as well as consumer loans and credit cards.  Building on the enhanced legal framework for financial regulation, supervisory processes and governance standards in banks should be further strengthened.


  1. Macroprudential measures should be strengthened to lower foreign exchange risk in the economy. The economic slowdown is increasing these risks. Moreover, macroprudential measures should not be relaxed for demand management purposes.


Structural Policy

  1. Rebuilding business confidence and ensuring public institutional capacity are key priorities. In addition, improvements to the investment climate should continue to focus on simplifying the procedures for starting a business, as well as on enhancing the efficiency of the legal system.


  1. The new pension auto-enrollment law is a welcome step in the right direction. However, its impact on aggregate savings is likely to be small and the reform has a few design shortcomings which could impede its effectiveness.


  1. Labor market reforms should aim at boosting productivity and participation. Efforts to ease labor market rigidities – such as the recent amendments to the labor law on flexible employment – could help reduce informality and encourage higher labor force participation. The reform of the severance pay system should also be accelerated.  Future minimum wage increases should be in line with expected inflation and productivity gains.  The cost of labor should be appropriately differentiated according to regional economic developments.


  1. Better integration of refugees would provide stronger economic benefits. Turkey is hosting a large number of refugees, who are entitled to public services. Although the legislative changes made in January 2016 allow Syrian refugees to apply for work permits, the uptake has been low – in part due to skill mismatches.  A simplified application process together with an effective communication strategy could also improve integration of refugees into formal employment.  Mobilizing international assistance would improve access to education, health care, and public utilities.  (IMF 04.11)

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11.16  TURKEY:  Could Megaprojects Spell Mega Trouble for Turkey’s Economy?

Mustafa Sonmez posted on 2 November in Al-Monitor that giant infrastructure projects launched by the Turkish government have raised the specter of potentially unpredictable burdens on public finances amid little transparency on loan and demand guarantees provided to private contractors.

A key element in the image of success the Turkish government is trying to project is the large number of grand construction projects in the country combined with the narrative that Turkey faces challenges by adversaries who are “jealous” of its progress and resurging power.  For instance, President Erdogan told a crowd of supporters in May, “Why is the West jealous of us?  It’s because of the dams. … It’s because of the Yavuz Sultan Selim Bridge [over the Bosporus]. … It’s because of the Marmaray Tunnel and subway running under the Bosporus.”

The largest “megaprojects” — as Ankara calls them — include a giant third airport in Istanbul; the Eurasia Tunnel, an undersea motorway between the European and Asian shores of the Bosporus; and a highway complete with a suspension bridge from the industrial hub of Gebze outside Istanbul to Turkey’s third-largest city, Izmir.  Yet the projects have never been free of controversy, criticism and protests over various legal, environmental and financial aspects. Many people worry that the construction drive is creating a “black hole” in public finances.

The megaprojects are being built on the public-private partnership (PPP) model and, as such, are ultimately viewed as a sort of privatization.  Though the state remains the owner of public property such as land, shores, waterways and mines, the transfer of operation and usage rights to private companies is, in a broad sense, a sequel of privatization.

The PPP model, including methods such as build-operate-transfer or the transfer of operational rights, is an investment model that the World Bank has promoted and backed, especially for emerging economies.  According to World Bank figures, Turkey is third among 10 emerging countries in terms of the total contract value of PPP project stocks.  Brazil tops the list with $510 billion, followed by India with $341 billion and Turkey with $161 billion.  The fourth-largest project stock, worth $155 billion, belongs to Russia, followed by Mexico with $141 billion and China, which surprisingly lags behind in this field with $139 billion.

Four of the 34 PPP projects that are under construction in Turkey account for two-thirds of the total investment volume.  The largest of the four, the $14 billion third airport for Istanbul, accounts for 38% on its own.  Three of the four largest projects are located in Istanbul, Turkey’s most populous city and industrial hub.  The third airport, the Eurasia Tunnel and the Yavuz Sultan Selim Bridge — the already operational third suspension bridge over the Bosporus — are part of an interconnected scheme, along with Canal Istanbul, a man-made waterway that is still in the planning stage.

The government has cast the PPP projects as the driving force of economic growth, boasting that local and foreign investors are being encouraged to invest in Turkey without spending “a single penny” of public money.

Many Turks, however, refuse to buy this success story.  A wide range of critics — opposition parties, professional chambers and civil society groups — counter that the projects are not profitable, feasible or sustainable.  The critics say the projects rest on flawed growth, transport and energy policies and have become a tool to advance crony capitalism and nepotism.  Major sources of criticism include the lack of concern shown for the environment and historical and cultural heritage as well as a lack of transparency and public scrutiny.

The Court of Accounts, which audits public agencies on behalf of parliament, for instance, has highlighted serious transparency issues at the Directorate-General of Highways (KGM), an affiliate of the Transport and Maritime Affairs Ministry, which leads many of the PPP projects.  “The KGM has two projects carried out under the public-private partnership model.  No record exists about the demand guarantees given [to private companies] as part of those projects, meaning that the worth of demand guarantees have not been reflected in financial accounts,” the Court of Accounts said in its 2015 report.  The auditors stressed that the risks the government undertook under PPP contracts must be shown in the bookkeeping system to allow for a thorough financial analysis, including the strain that projects involving demand guarantees had put on public finances, the government’s capacity to meet such obligations and future financing needs.

Such problems of transparency and auditing have fueled concern that some unpleasant surprises could be in store for the Treasury. All PPP projects involve guarantees, meaning a guaranteed minimum profit for the contractors, both local and foreign, no matter how the projects perform once they become operational.  The Gebze-Izmir Motorway project, for instance, involves a demand guarantee of TL 40 billion (some $13 billion) for the contractors, who will hold the operational rights for 15 years.  In the North Marmara Motorway project, which includes the third Bosporus bridge, the demand guarantee is nearly $6 billion for an operation period of about eight years.  In the project for Istanbul’s third airport, the passenger guarantees for international flights and transits alone amount to €6.3 billion ($6.94 billion) for the first 12 years, while the guarantees for the Eurasia Tunnel cover 70,000 vehicle crossings per day.  In the health sector, meanwhile, public hospitals will pay $27 billion in rent for buildings in large health campuses, which contractors will build and operate for 25 years, according to Development Ministry figures.

The guarantees were based on a projection of economic growth of at least 4% to 5% per year, which dates back to 2013 and 2014, when the projects were tendered.  Since then, however, the growth rate has slowed down to an average of 2.5% to 3%.  The government’s 5% growth target for the coming years seems unrealistic, given the slowdown in the inflow of foreign capital.  So if the projects fail to generate the expected income when they become operational, the Treasury will have to pay the guaranteed sums to the companies, opening black holes in the budget.

The Treasury, along with the banking system, is exposed to another risk from the megaprojects.  The Treasury has backed the financing of the projects as a guarantor.  Amid growing volatility, external financing had become difficult, and public banks were, in a sense, forced to finance the projects at government behest.  This, in turn, upset their asset structures, leading top credit rating agencies to downgrade their ratings.

The credit rating agencies seem to have factored in particularly the Treasury’s debt guarantees for the third Bosporus bridge, the Eurasia Tunnel and the Gebze-Izmir Motorway.  The Treasury, which puts the total investment volume of the three projects at $11 billion and the loans they have used at $8.7 billion, has guaranteed that it will assume all financial obligations, including external financing burdens, if the projects are canceled or related government agencies take over the infrastructure in question before contracts expire.  In sum, the credit rating agencies believe that those loan risks contribute to economic volatility, along with other risks in public finances.

Fresh financial woes are likely to follow the existing problems once the PPP projects become operational. How those problems will be overcome remains unclear.  Yet more ambitious projects such as Canal Istanbul, the Dardanelles Bridge and a three-deck undersea tunnel in the Bosporus are up for auction in the coming days.  (Al-Monitor 03.11)

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11.17  GREECE:  The Charm Wears Off Tsipras – Caught Between EU and Voter Demands

Giorgos Christides and Katrin Kuntz wrote in Der Spiegel on 1 November that when he was elected nearly two years ago, Greek Prime Minister Alexis Tsipras promised to stand up to the EU’s austerity demands and restore his country’s dignity. His failure to deliver risks plunging the country into a new political crisis.

The neighborhood around Villa Maximos could be out of a fairy tale: There’s an avenue lined with bitter orange trees in front of Alexis Tsipras’ official residence and the National Garden, with benches for couples, is located just next door.  It has been reported that the Greek prime minister and his cabinet used to take calm strolls here.  After his victory in early 2015, Tsipras had ordered that security barriers in front of parliament be torn down.  “We don’t need a police state,” he announced.  In other words: the 11 million Greeks who love us will take care of our security.

Today, 21 months later, the neighborhood has changed.  Two riot police buses now seal the avenue leading to Villa Maximos.  Officers stand watch in front of it around the clock.

The people’s love of Tsipras has turned into anger.  Because of their diminishing salaries, air-traffic controllers, doctors and teachers are standing up to the government.  About four weeks ago, retirees tried to topple the police buses, their faces full of anger and disappointment.  When police officers drove the seniors back with tear gas, an outcry swept across the country: Hadn’t Tsipras promised that things like this would never happen again, they asked?

Alexis Tsipras, the rebel, and his left-wing Syriza Party took power in January 2015 with the purpose of ending the austerity program and giving the Greeks their dignity back.  He wanted to negotiate a reduction in Greece’s debts and he called for an end to austerity policies.  After his election, people danced in the streets.

In the time that has lapsed since, however, Tsipras has broken most of his promises.  In August 2015, he accepted a third relief program from the creditors and received billions in exchange for Greek spending cuts.  Now he’s raising taxes, cutting pensions, selling airports and ports.  The Greek economy is still in dire straits, the unemployment rate is at 24% and further savings measures are still to come.

At the last EU summit in late October, Tsipras sought to obtain debt-relief measures, though he didn’t succeed.  But on the domestic front, he desperately needs a success.  According to a poll that, of all places, appeared in Avgi, the Syriza party’s own newspaper, 90% of Greeks are unhappy with the government’s work.  Even leading Syriza politicians are already predicting the next political crisis.

So where has Tsipras led his country?  Is he a traitor or a tragic hero trapped in government policies dictated by the creditors?

Many Sides to Please

Answers were supposed to come at a party conference recently in southern Athens.  About 3,000 Syriza delegates assembled in the hall, hoping to experience the new Tsipras.  The prime minister went on stage at 8:25 p.m.  Tsipras didn’t seem tired, his tone was calm, his posture straight.  He addressed his audience as “comrades” and then he tried to portray his defeats as victories.

He claimed that this past summer it had been a “difficult but necessary decision” to continue cooperating with Brussels and sign the third aid package.  A withdrawal from the Eurozone, he said, would have been the worse alternative.  “Grexit was and is not a progressive plan,” he said.  As a result, despite all of his pledges, he had been unable to end austerity policies in the country, he said.

Tsipras had in fact fought hard.  His battle with the creditors briefly brought Greece to the edge of the abyss: At times, Greeks could only withdraw €60 per day from their bank accounts, and stun grenades flew in the country.  During the referendum that followed, the Greeks clearly voted against further austerity measures – but Tsipras put himself above the vote and accepted the aid program: €86 billion if Athens adhered to all the conditions. In order to allow a debate of his plan, Tsipras announced new elections in September 2015 – and won again.

The generously inclined would argue that even for a politician, the kind of mutability shown by Tsipras would be unconventional.  To satisfy disappointed voters, he is fighting to persuade creditors – Germany in particular – to ease Greece’s debts.  By the end of the year, he would like to see a decision in his favor.

Greece currently has debts totaling over €320 billion, which represents 183% of gross domestic product.  It’s unimaginable that the country will ever be able to pay back its debts.  In order to improve conditions, creditors could, among other things, extend the periods of the loans.  That’s what Alexis Tsipras believes, and that might even be enough to calm voters.

But German Finance Minister Wolfgang Schauble in particular has so far refused.  He doesn’t want to talk about debt relief before 2020, and definitely not before Germany’s federal elections, which will likely take place in the fall of 2017.  Every discussion weakens Athens’ willingness to carry out reforms, he argues.  The International Monetary Fund (IMF), which is despised in Athens because of its calls for tough reforms, is Tsipras’ ally because officials there believe it is unrealistic that Greece will simply “grow out of its debts.”  Now the hope is that American President Barack Obama will step in to help when he visits Athens and Berlin in mid-November.

‘Nothing Changes in this Country’

“After seven years of crisis, it’s time that the people finally feel some relief,” says Dimitris Papadimoulis.  Few Syriza members are as familiar with the debt negotiations as the politician.  Papadimoulis is a founding member of the party and one of the vice presidents of the EU Parliament.  Anyone who wants to talk to him needs to walk through massive doors in one of the EU’s offices in Athens – it’s like entering into a high-security wing.

The current aid program is scheduled to end in 2018.  “By then Greece is supposed to be back on its feet again,” says Papadimoulis.  Given the current mountain of debt, however, few believe that will be possible.  When asked what will happen if lenders refuse to negotiate, Papadimoulis responds, “Mr. Schauble absolutely wants the IMF to be involved in the aid program.  This means he will have to accept a compromise in terms of debt relief.”

Still, debt relief alone will not suffice to lift Greece out of the crisis.  What the country needs is investment.  When Tsipras took over the government, he wanted to stop all privatization projects – but he has since shifted positions and is now searching for investors, even though a number of his ministers are continuing to fight against privatizations.

Hellinikon, a former airport located in southern Athens, will soon be the site of casinos, restaurants, malls and hotels.  The privatization is part of the aid program, and it is hoped that the around €8 billion in planned investments there will also create as many as 10,000 jobs.  The airport is seen as a litmus test for whether Syriza is making foreign investment possible.

Odisseas Athanasiou, the clean-shaven head of Lamda, a Greek business whose parent company belongs to a Greek-Chinese-Arab consortium, welcomes guests in front of a model of his megaproject.  Does he understand the critics who complain that Greece is simply selling off state property – and that the meager revenues generated through these privatizations are simply flowing into the endless pit of debt?  Of course, he explains, the site hadn’t been expensive at €915 million, but “Greece should instead ask itself why we were the only bidder.”

In the context of the sale, many Greeks see Tsipras throwing the country’s treasures to foreign investors as the people continue to suffer.  Maria Nikolaidou, a 41-year-old engineer and mother, hoped he would provide real change: “Next time I won’t go vote, nothing changes in this country,” she says.

Friends Turn Enemies

Nikolaidou and her husband, likewise an engineer, are unable to go on vacation with their children and they are no longer saving for their retirement.  There simply is not enough money.  Tsipras had a “clear mandate,” Nikolaidou says, “to end austerity and the national degradation.”  She adds, “It broke my heart that he was just as weak against the creditors as his predecessor.”

Alexis Tsipras cannot seem to please anybody.  At home, people complain about tough reforms, while outside the country, people deride Greece for not undertaking them quickly enough.  Panagiotis Lafazanis is one of the those who watched, firsthand, as Tsipras grew up politically – and who no longer speaks with him.  He sits in a meeting room near Omonia Square, in the offices of a new party he heads called Popular Unity.  Lafazanis served as a minister under Tsipras until July 2015.  A month later, he and 24 other lawmakers left the party in protest over Tsipras’ decision to accept the third aid package.

“Tsipras made a mockery of our radical positions,” says Lafazanis.  “He betrayed the left-wing idea, and turned against everything he used to stand for.”  When Tsipras took power, Lafazanis says, he was still calling for a debt haircut. He argues that the debt relief Tsipras is currently seeking won’t go far enough and that he is likely to meet a brick wall when it comes to creditors.  “The government is in a state of freefall,” says Lafazanis, who believes snap elections will be called in the coming year.  If, in the meantime, he should happen to run into Tsipras on the street, he says he will switch to the other sidewalk. “There’s nothing left to say, from a political and from a human perspective.”  (Der Spiegel 01.11)

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