Fortnightly, 21 March 2018

Fortnightly, 21 March 2018

March 21, 2018


21 March 2018
5 Nisan 5778
4 Rajab 1439




1.1  Knesset Passes Record High NIS 497 Billion State Budget
1.2  Bill To Legalize Cannabis Use Passes First Knesset Reading


2.1  Epsagon Raises $4.1 Million to Tackle Serverless Monitoring Challenge
2.2  Sichuan Airlines to Launch Tel Aviv – Chengdu Route
2.3  Canada’s Linamar Enters Strategic Partnership with Israel’s SoftWheel
2.4  Canadian VC Awz HLS Fund Invests US $3 million in Israel’s MinerEye
2.5  WhiteSource Recognized for Rapid Growth in 2017 – Top 30 SaaS Companies Worldwide
2.6  NSLComm Raises $6.25 Million
2.7  CyberArk Acquires Vaultive to Advance Privileged Account Security for the Cloud
2.8  Israel Stars at a National Security Conference in Mississippi
2.9  KLA-Tencor Announces Agreement to Acquire Orbotech


3.1  Wendy’s Looks to Expansion in the UAE & Kuwait
3.2  FAT Brands Continues Middle Eastern Push with Second Buffalo’s Cafe Opening in Qatar
3.3  DSW Designer Shoe Warehouse Continues International Expansion
3.4  iPic Entertainment Signs Deal to Enter Saudi Arabia
3.5  SDX Energy Makes Fifth Gas Discovery in Morocco


4.1  Knesset Committee Approves Green Tax to Boost Natural Gas Usage
4.2  Sheikh Mohammed Launches Phase 4 of Giant Dubai Solar Park


5.1  Lebanon’s Fiscal Deficit Narrowed to $2.5 Billion as of October 2017
5.2  Lebanon’s Cabinet Agrees to 2018 Budget with Lower Deficit
5.3  Number of Lebanese Registered Cars Fell by 4% in February 2018
5.4  Jordan’s Inflation Rate for February 2018 Rises by 3.6%
5.5  Iran Offers $3 Billion LoC for Iraq Reconstruction

♦♦Arabian Gulf

5.6  UAE Takes Steps to Protect Domestic Workers
5.7  VAT & Excise Tax Sees Abu Dhabi Inflation Rise to 4.7%
5.8  Abu Dhabi has Most Households in Region Annually Earning Over $250,000
5.9  Dubai Embarks on New US Mission to Attract Investment
5.10  Saudi Cabinet Approves National Atomic Policy
5.11  Saudi Non-Oil Growth Forecast to Speed Up in 2018

♦♦North Africa

5.12  Morocco’s Health Budget Will Help Boost Market Growth


6.1  Cyprus’ Economy Expands 3.9% in Fourth Quarter
6.2  Cypriot Unemployment Rate Drops to 10.1% in Fourth Quarter
6.3  Cyprus’ January Trade Deficit Narrows to €404 Million
6.4  New Data Puts Greek Annual Inflation Among Eurozone’s Lowest
6.5  Greek GDP Rises for Fourth Consecutive Quarter
6.6  Greece Posts Budget Surplus of Over €2.7 Billion



7.1  Israel Springs Forward on 23 March
7.2  Passover Will Be Celebrated Starting 30 March
7.3  Israel’s Fertility Rate Highest Among All OECD Countries
7.4  Israel Ranks 11th on UN World Happiness Report


7.5  Jordan to Switch to Summer Time on 29 March
7.6  Jordan’s Constitutional Court & Indiana University Sign MoU
7.7  Tunisian Women March for Equal Inheritance Rights
7.8  Turkey Approves Election Law Seen Boosting Erdogan


8.1  ReWalk Robotics Raises $20 Million from Hong Kong Fund
8.2  Hello Heart Raises $9 Million
8.3  Israeli Distillery Launches 2nd Edition Single Malt Whisky
8.4  Vectorious Raises $9.5 Million
8.5  Bar-Ilan: Researchers Invent Nano-Drops That Improve Nearsightedness & Farsightedness
8.6  Stanford & Rambam Hospital to Cooperate on Medical Innovation and AI Research
8.7  ContinUse Biometrics Raises $20 Million
8.8  Can-Fite BioPharma Announces $5 Million Registered Direct Offering
8.9  Nucleix Announces its Bladder EpiCheck Availability on the QIAGEN Rotor-Gene Q Platform
8.10  Kadimastem Commences Its Clinical Trial in ALS Patients
8.11  PixCell Medical Awarded €2.5 Million Grant by the European Commission
8.12  Lumenis New Clinical Breakthroughs Using its Patent-Protected MOSES Technology
8.13  CannRx Announces Commercial Model of Vapor Capture Technology (VCT)
8.14  Ministry of Health Approves Kanabo’s Medical Cannabis Vaporizer as a Medical Device


9.1  Altice Portugal Selects Gilat to Support Backhauling to Critical Communications
9.2  Insuranks Releases “AirBnB for Insurance” Digital Community Platform
9.3  Cellebrite’s Enhancements to Analytics Family Makes Digital Evidence More Actionable
9.4  Arbe Robotics Wins Berlin’s Automotive Tech.AD Award
9.5  Bringg Adds Auto-Dispatch to Its Delivery Logistics Platform
9.6  OTI Receives Purchase Order for 8,000 Advanced UNO 8 Readers for ‘Smart ATM’ Market
9.7  ECI Enables Double Metro Network Throughput Using Existing Infrastructure
9.8  Luminate Security Emerges from Stealth to Redefine Access to Corporate IT Data Centers
9.9  AudioCodes Selected by Fuze for Global UCaaS Voice Connectivity
9.10  AnyClip Ends Advertisers’ Brand Safety Crisis with First-Ever AI-Powered Platform
9.11  GuardiCore Upgrades Infection Monkey Open Source Cyber Security Testing Tool


10.1  Tel Aviv Surpasses Tokyo & New York as World’s 9th Most Expensive City
10.2  OECD Cites Israel’s Public Transport Deficit
10.3  Finance Ministry Releases Report on Public Sector Salaries in 2016


11.1  ISRAEL: Staff Concluding Statement of the 2018 IMF Article IV Mission
11.2  ISRAEL: The Gas Deal with Egypt – Israel Deepens its Anchor in the Eastern Mediterranean
11.3  JORDAN: Can Ambitious Adjustment Programs Turn Into Genuine Reforming Actions
11.4  JORDAN: The Jordan Exception in US Foreign Assistance
11.5  UAE: UAE and the Horn of Africa – A Tale of Two Ports
11.6  SAUDI ARABIA: Why Pakistan has troops in Saudi Arabia & What it means for the Middle East
11.7  YEMEN: No Light at End of Tunnel for Yemen’s Economy
11.8  EGYPT: A Deeper Look into Egypt’s Gas Market Liberalization
11.9  EGYPT: Egypt Seeks Scientific Innovation by Lowering Research Costs
11.10  ALGERIA: IMF Staff Completes 2018 Article IV Visit to Algeria
11.11  ALGERIA: Social Unrest in Algeria – Cranking Up the Pressure
11.12  TURKEY: Moody’s Downgrades Turkey’s Sovereign Ratings to Ba2 from Ba1


1.1  Knesset Passes Record High NIS 497 Billion State Budget

The Knesset on 14 March approved the 2019 state budget by a vote of 62-54.  At NIS 497.6 billion ($144.8 billion), it is the highest state budget on record.  After the vote, the Knesset prorogued for its spring recess and will reconvene in June.  Before the vote, the opposition filed some 3,000 objections to various articles in the budget bill.  However, after negotiations with the Knesset’s House Committee, it was agreed the plenum would debate only 350 of them.

The 2019 budget includes NIS 100 billion ($29 billion) in debt repayments, as well as a lateral cut in all the ministries’ budgets totaling NIS 5 billion ($1.45 billion).  The defense budget was set at NIS 55 billion ($16 billion).  Together with U.S. defense aid, arms sales revenues and the sale of ministry-owned real estate, the defense budget will ultimately amount to NIS 73 billion ($21 billion).  In addition, the budget for intelligence services was set at NIS 9.6 billion ($2.8 billion).

The Education Ministry’s budget was set at NIS 60 billion ($17.5 billion); the Health Ministry received NIS 40 billion ($11.6 billion); the Justice Ministry received NIS 3.8 billion ($1.1 billion) and the Labor and Social Services Ministry received NIS 3.56 billion ($1 billion).  The Culture and Sports Ministry and the Science and Technology Ministry each received a budget of NIS 2.23 billion ($650 million).  The Religious Services Ministry received a budget of NIS 736 million ($214 million).  In addition, the earlier government approved an additional NIS 50 million ($14.5 million) for religious seminaries and an increase of NIS 40 million ($11.6 million) in funding for ultra-Orthodox educational institutions.  The Ministry for the Development of the Negev and Galilee was allotted NIS 495 million ($144 million).

The Prime Minister’s Office’s budget was set at NIS 2.44 billion ($710 million), including NIS 115.7 million ($33.6 million) earmarked for the National Cyber Bureau.  The Knesset’s budget was set at NIS 795.3 million ($231.5 million).

The deficit goal for 2019 was set at 2.9% of GDP.  This is projected to drop to 2.5% in 2020.  Among the reforms in the 2019 budget are initiatives to ease the high cost of living, housing and banking reforms, a national nursing plan, an incentive plan to boost workforce participation, and a plan to reduce the number of government ministries.  (Various 15.03)

Back to Table of Contents

1.2  Bill to Legalize Cannabis Use Passes First Knesset Reading

The Israeli Knesset unanimously passed (38-0) a first reading of a bill to legalize the use of marijuana.  The bill, which focuses on enforcement, levying fines on those caught with marijuana, will go into effect in the next few months, according to Public Security Minister Gilad Erdan, who spearheaded the bill.  First offenders will have to pay a NIS 1000 fine ($288), NIS 2000 ($577) if caught a second time, rehab and license revocation if it’s the third time and by the fourth time, criminal proceedings.  Erdan was quoted by the Jerusalem Post as saying that the bill is meant to “reduce the harms of drug usage regularly but avoid as much as possible the criminal stigmatization of average citizens.”

MK Tamar Zandberg (Meretz), who chairs the Knesset Special Committee on Drug and Alcohol Abuse, said the bill was “far from perfect, but it is a foot in the door on the way to a policy of full legalization,” according to the Jerusalem Post.  Marijuana is still considered a controlled substance, but Israel has been a pioneer in medical cannabis, with plans to push through reforms that would allow for the exports of marijuana plants to the tune of an estimated $1 billion in annual revenue.  Last month, Prime Minister Benjamin Netanyahu decided to suspend the reforms amid opposition by the Public Security Ministry which said it is afraid of “spillover” into the recreational market and which is demanding more funds (as well as a reported conversation with US President Donald Trump, whose administration is taking a hardline against cannabis including its medical use.)  The Israeli Health Ministry and the National Economic Council are currently reviewing the proposed reforms.  (NoCamels 08.03)

Back to Table of Contents


2.1  Epsagon Raises $4.1 Million to Tackle Serverless Monitoring Challenge

Epsagon announced the completion of a $4.1 million seed round. Led by Lightspeed Venture Partners, StageOne Ventures and Ariel Maislos.  The capital will be used to expand R&D efforts as well as build out Epsagon’s marketing and sales units.  While serverless architecture eliminates the need to have access to the infrastructure, typical serverless architectures are highly distributed, event-driven and contain many managed elements, including databases, storage and third-party SaaS-based APIs.  This in effect takes control away from the DevOps and R&D teams, making it very difficult to properly monitor the system and understand where potential problems exist.

Epsagon’s AI technology can quickly understand where the trouble spots are located, providing customers with 100% visibility into their systems, enabling them to understand how different events are connected as well as the ability to quickly troubleshoot, and eliminate, issues.  As opposed to older APM providers that only offer support for monolithic applications, or newer startups that can’t provide a dedicated solution for serverless architecture, Epsagon focuses on delivering an automated end-to-end analysis for distributed applications, giving the company a unique opportunity to quickly capture significant market share.

Tel Aviv’s Epsagon, founded in 2017 by veterans of the Israel Defense Forces’ cyber intelligence unit, has built an AI-powered automated end-to-end performance monitoring platform for serverless architectures that can predict performance issues before they occur, allowing any company – from SMBs to large enterprises – to eliminate downtime by proactively identifying and flagging potential problems.  (Epsagon 08.03)

Back to Table of Contents

2.2  Sichuan Airlines to Launch Tel Aviv – Chengdu Route

Sichuan Airlines has filed a request with the Israel Airports Authority to operate two weekly flights from August on Tuesdays and Saturdays.  China’s Sichuan Airlines plans launching a new route between Tel Aviv and Chengdu, the country’s fifth largest city.  Until the past few years, El Al Israel Airlines was the only carrier to operate direct flights between Israel and China with flights to Beijing and Hong Kong.  In 2015, China’s Hainan Airlines launched Tel Aviv – Beijing flights. Last year Hainan added a Tel Aviv – Shanghai route and in August it will start flying between Tel Aviv and Guangzhou.  Last year, Cathay Pacific inaugurated direct flights between Tel Aviv and Hong Kong to compete with El Al.  (Globes 07.03)

Back to Table of Contents

2.3  Canada’s Linamar Enters Strategic Partnership with Israel’s SoftWheel

Guelph, Ontario’s Linamar, a diversified manufacturing company and the second largest Canadian manufacturer of auto parts valued at over $6 billion, signed a strategic cooperation agreement with SoftWheel to produce wheels for SoftWheel at one of its North American factories.  Softwheel has developed a unique suspension technology where the suspension is mounted within the wheel itself.  Their products are rapidly being adopted globally by a variety of sectors including wheelchairs and bicycles, notably for city bike programs growing quickly on a global basis.

Linamar has 59 factories and 6 product development centers operating in 15 countries around the world and manufactures parts for the global automotive industry and its major players, including Ford, Honda, Volkswagen, GM, ZF, and others.  The cooperation between the companies will focus on considerably growing the supply for SoftWheel products by opening an automotive-scale production line and by supporting the engineering of SoftWheel current and future products.  This capacity growth is derived from the growing demand for SoftWheel products worldwide.  The cooperation between the companies will enable SoftWheel to leverage Linamar’s global development and production capabilities to significantly increase its position in the global market.

Tel Aviv’s SoftWheel was founded in 2011 with the task of reinventing the wheel.  The company operates successfully throughout North America and Europe where it sells its products in the personal mobility sector.  The company is currently focused on personal mobility and vehicle sharing solution platforms which are the building blocks of future transportation.  Recently the company is engaging in transforming and utilizing its core technology for automotive applications.  The company’s core technology includes the company’s novel In-wheel Suspension system, which was invented to improve personal transportation and to increase energy efficiency.  The system absorbs shock only when it encounters obstacles such as potholes, stairs, or unpaved terrain.  The technology promises a comfortable, smooth, and user friendly experience in wheelchairs, bicycles, and cars.  (Linamar 07.03)

Back to Table of Contents

2.4  Canadian VC Awz HLS Fund Invests US $3 million in Israel’s MinerEye

Toronto’s Awz HLS Fund I, a pioneering Canadian venture capital fund, announced a US $3 million investment in MinerEye, an Israeli start-up company in the field of data privacy and protection.  MinerEye offers Artificial Intelligence (AI) powered information governance to automate the identification and tracking of non-compliant data in enterprise scale repositories and storage platforms.  This investment completes MinerEye’s first financing round at a total of US $3.6 million.

Ganei Am’s MinerEye‘s patent-pending technology fuses computer vision and machine learning to identify sensitive data patterns based on learning sets of exemplar files.  MinerEye’s Data Tracker product scans and clusters large on-premises data repositories as well as cloud repositories and then tracks the data’s behavior to alert and trigger policy enforcement tools and report on non-compliant data.  The product is commercially available having already been installed in several large financial institutions in the US and Europe.

This investment follows six other investments made by Awz HLS Fund I in Israeli hi-tech companies in the last 18 months.  Recently, Awz HLS Fund I announced a US $4.5 million investment in NanoLock Security, an Israeli company specializing in cyber-shielded technology components for the IoT market.  In 2017, AWZ HLS Fund I announced a US $3.5 million investment in SIGA Data Security, an Israeli company that develops cyber security technologies for critical control and operation systems in the operational technology (OT) space, as well as a US $5.25 million investment in Octopus Systems, an Israeli company that developed a cloud-based information platform that protects organizations from cyber and physical attacks.  (AWZ HLS Investment Fund 08.03)

Back to Table of Contents

2.5  WhiteSource Recognized for Rapid Growth in 2017 – Top 30 SaaS Companies Worldwide

WhiteSource, the leader in continuous open source security and license management, was named to the SaaS 1000 list of Top SaaS Companies.  The SaaS 1000 list tracks SaaS companies throughout the globe, following their employee headcount as a measure of growth and success.  Companies must have at least 40 employees in order to be in the running for the list.  WhiteSource joins the rankings along with other high ranked SaaS-based companies such as unicorn Slack, GitHub and MailChimp.  WhiteSource had previously held the 101st spot on the list and has shot up to 29th spot due to the near doubling of employees in 2017 that accompanied their massive growth in customer acquisition.

Moving forward in 2018, WhiteSource expects to see continued growth in its roster of customers as it breaks ground into new verticals, assessing that the market’s recognition of the need for Software Composition Analysis is increasing, especially in light of recent high profile data breaches like Equifax.

Bnei Brak’s WhiteSource is the leader in continuous open source security and license compliance management.  Its vision is to empower businesses to develop better software by harnessing the power of open source. Industry leaders like Microsoft, IBM, and hundreds more trust WhiteSource to secure and manage the open source components in their software.  The company has been recognized by Forrester as the best current offering in their Software Composition Analysis (SCA) Wave report in 2017.  (WhiteSource 08.03)

Back to Table of Contents

2.6  NSLComm Raises $6.25 Million

Airport City’s NSLComm develops satellite technology that enables high-speed data transfer for government, commercial and private applications.  The company is currently closing its series B funding round, reaching $6.25 million in total.  The round was led by strategic investors such as JVP, Liberty, OurCrowd, Hawk GF, and Cockpit Innovation of the El Al Group, which has recently announced their partnership with Boeing and Lufthansa to support startups and innovative technologies focusing on the aviation and aerospace verticals.  This is Cockpit’s first investment made within their new collaborative framework.  The funding round will enable NSLComm to develop and build two satellites for future launches, in addition to its first satellite launch scheduled for November 2018.  (NSLComm 09.03)

Back to Table of Contents

2.7  CyberArk Acquires Vaultive to Advance Privileged Account Security for the Cloud

CyberArk announced the acquisition of certain assets of privately-held Vaultive of Boston, a cloud security provider.  The CyberArk Privileged Account Security Solution is the industry’s most comprehensive solution for protecting against privileged account exploitation anywhere – on-premises, in hybrid cloud environments and across DevOps workflows.  Building upon the Vaultive technology, CyberArk will deliver greater visibility and control over privileged business users and Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) administrators.  By delivering a cloud-native and mobile experience, Vaultive will extend the CyberArk solution to these highly privileged users, which are frequent targets for cyber attacks.

This acquisition furthers CyberArk’s leadership in securing modern infrastructure and applications. Using CyberArk Conjur, organizations gain a comprehensive secrets management solution for DevOps toolchains and cloud-native applications. Additionally, CyberArk offers cloud platform support across AWS, Microsoft Azure and Google Cloud Platform (GCP) and has validated the ability to stand up a privileged account security solution in AWS in 15 minutes or less. With the acquisition of Vaultive, CyberArk extends its leadership to secure privileged access to SaaS, IaaS and PaaS applications by administrators and privileged business users.

Petah Tikva’s CyberArk is the global leader in privileged account security, a critical layer of IT security to protect data, infrastructure and assets across the enterprise, in the cloud and throughout the DevOps pipeline.  CyberArk delivers the industry’s most complete solution to reduce risk created by privileged credentials and secrets.  The company is trusted by the world’s leading organizations, including more than 50% of the Fortune 100, to protect against external attackers and malicious insiders.  (CyberArk 12.03)

Back to Table of Contents

2.8  Israel Stars at a National Security Conference in Mississippi

The International Homeland Defense and Security Summit, organized by the Mississippi state government, was held on 13 March in Biloxi.  Representatives of 16 Israeli companies attended, along with a delegation from its Defense Ministry and arms industry.  Mississippi Gov. Phil Bryant credited a national security conference he spoke at in Israel in 2016 as the inspiration for this one.  One of the first pictures he showed during his speech was of him grinning with Prime Minister Benjamin Netanyahu.

The Israeli delegation featured companies specializing in security technology.  They were there to expand into the U.S. market and introduce themselves to local officials and private companies.  One tool, Smart Shooter, promises to make guns more accurate.  Another, Magal Security Systems, is a border security sensor system that’s used on Israel’s northern and southern frontiers.  A third, Beeper, is a surveillance system — already deployed by the Israeli military and police departments in Baltimore and Houston — that can pinpoint where a gun is fired and instantly take video of who fired the weapon.

Governor Bryant said there is plenty of opportunity for Israelis to do business in the state.  Bryant pointed to the border tech they have developed, from sensors to surveillance, as a way to secure the coast without a physical barrier.  He has made supporting Israel a priority of his administration, visiting three times since he took office in 2012.  Atid EDI, as Mississippi’s consultant in Israel handled the arrangements for all three of those visits. (JTA 14.03)

Back to Table of Contents

2.9 KLA-Tencor Announces Agreement to Acquire Orbotech

KLA-Tencor Corporation announced they had entered into a definitive agreement to acquire Orbotech for $38.86 in cash and 0.25 of a share of KLA-Tencor common stock in exchange for each ordinary share of Orbotech, implying a total consideration of approximately $69.02 per share.  The transaction values Orbotech at an equity value of approximately $3.4 billion and an enterprise value of $3.2 billion.  In addition, KLA-Tencor announced a $2 billion share repurchase authorization.  The share repurchase program is targeted to be completed within 12 to 18 months following the close of this transaction.

With this acquisition, KLA-Tencor will significantly diversify its revenue base and add $2.5 billion of addressable market opportunity in the high-growth printed circuit board (PCB), flat panel display (FPD), packaging, and semiconductor manufacturing areas.  The broader portfolio of leading products, services, and solutions, as well as increased exposure to technology megatrends, will support KLA-Tencor’s long-term revenue and earnings growth targets.

Yavne’s Orbotech is a leading global supplier of yield-enhancing and process-enabling solutions for the manufacture of electronics products.  Orbotech provides cutting-edge solutions for use in the manufacture of printed circuit boards (PCBs), flat panel displays (FPDs), and semiconductor devices (SDs), designed to enable the production of innovative, next-generation electronic products and improve the cost effectiveness of existing and future electronics production processes.  (KLA-Tencor 19.03)

Back to Table of Contents


3.1  Wendy’s Looks to Expansion in the UAE & Kuwait

Wendy’s and Alghanim Industries has announced strategic plans for the US fast food chain’s growth in the Middle East and North Africa region.  Four new stores will be opening across the UAE, including The Dubai Mall, Jumeirah Beach Road, Nakheel Mall on the Palm Jumeirah and Al Wahda Mall in Abu Dhabi.  These four stores are strategically located in high foot traffic areas.

The Jumeirah Beach Road restaurant will be the largest opening in the UAE so far, with seating for 70 diners indoors and a further 16 on the balcony overlooking Jumeirah Beach Road.  Wendy’s Jumeirah will also be open 24 hours a day, with drive-thru and delivery options available.  The expansion plans will continue with the opening of three further restaurants within prominent malls in the UAE, the statement added.

In 2017, Alghanim Industries opened three locations in Kuwait in The Avenues, Fahaheel and Marina Mall, in addition to the flagship store it opened in 2016 in Salmiya.  The company will continue opening more stores this year, the first being in the new Kout Mall.  Alghanim Industries, based in Kuwait City, Kuwait, owns and operates more than 30 businesses in 40 countries across the MENA, Turkey, India and South East Asia. Its growing portfolio of 300 brands includes a number of US partners, including General Motors, Ford, Mars, Whirlpool, Wendy’s and American Express.  (AB 18.03)

Back to Table of Contents

3.2  FAT Brands Continues Middle Eastern Push with Second Buffalo’s Cafe Opening in Qatar

FAT (Fresh. Authentic. Tasty.) Brands, Inc., parent company of Buffalo’s Cafe, known for its American-inspired cuisine and family-friendly atmosphere, announced the opening of its second Doha, Qatar restaurant located inside The Curve Hotel near the renowned Doha shoreline.  As the latest effort in FAT Brands’ promise to expand into new and existing markets around the world, Buffalo’s Cafe in Doha continues the restaurant’s tradition of offering fresh, never frozen wings available in 18 homemade and signature sauces.  In addition, guests can choose from a variety of flavorful Southwestern-inspired entrees and appetizers such as the juicy Canyon Burger and the Garlic Parm Fries.  Buffalo’s Cafe wings are served in the traditional bone-in style as well as boneless, and each wing is coated with delectable, homemade sauces such as Asian Sesame, Honey Garlic, Death Valley and Carolina Fire BBQ.

FAT Brands (NASDAQ: FAT) is a leading global franchising company that strategically acquires, markets and develops fast casual and casual dining restaurant concepts around the world.  The Company currently owns five restaurant brands, Fatburger, Buffalo’s Cafe, Buffalo’s Express and Ponderosa and Bonanza Steakhouses, that have approximately 300 locations open and 300 under development in 32 countries.  Founded in 1985 in Roswell, Georgia, Buffalo’s Café family themed casual dining chain, known for its world famous chicken wings and 13 unique homemade wing sauces, burgers, wraps, steaks and salads has been serving fresh southwestern themed cuisine for over 32 years.  (FAT 13.03)

Back to Table of Contents

3.3  DSW Designer Shoe Warehouse Continues International Expansion

DSW, a leading branded footwear and accessories retailer, announced the opening of its newest international store, located at the Dalma Mall in Abu Dhabi, UAE.  The company opened locations elsewhere in the G.C.C. (Gulf Cooperation Council) at the Muscat Grand Mall in Oman and at the Mall of Dhahran in Saudi Arabia in 2017 with its regional franchise partner, Apparel Group.  DSW’s engaging retail experience and convenient, self-service environment gives customers access to thousands of choices that fuel countless possibilities for self-expression.  In 2017, DSW Inc. announced plans to build as many as 40 locations over five years in the region with Apparel Group.

Apparel Group is a global fashion and lifestyle retail conglomerate residing at the crossroads of the modern economy – Dubai, United Arab Emirates.  Today, Apparel Group caters to thousands of eager shoppers through 65 international brands that it represents, with 13,000 multi-cultural staff serving 1,300+ stores spread over four continents.  The Dubai-based multi-retail conglomerate that began with just one brand in 1999 and now operates 1,750 locations throughout the region.  (DSW 15.03)

Back to Table of Contents

3.4  iPic Entertainment Signs Deal to Enter Saudi Arabia

iPic Entertainment, the US-based luxury restaurant and theatre brand, has announced the signing of an agreement to develop cinemas in Saudi Arabia.  iPic said that it has formed a partnership with BAS Global Investments Company following Saudi Arabia’s decision to lift a decades-old ban on cinemas in the Gulf kingdom.  With roughly two-thirds of the local population under 30 years of age, iPic said it believes there are significant expansion opportunities in the country.  iPic combines casual restaurants and luxury theatre auditoriums with gourmet, in-theatre dining.  The company currently operates three restaurant concepts – The Tuck Room, Tanzy, and City Perch – with one planned to be included at each location in Saudi Arabia.  The locations will also feature iPic’s patent pending viewing Pods and Chaise Lounge seating, the statement added.  iPic auditoriums seat 50 to 90 people and will be equipped with 4K digital cinema technology.  The company did not say when it plans to open its first cinema or give more details about planned locations in the kingdom.  (AB 09.03)

Back to Table of Contents

3.5  SDX Energy Makes Fifth Gas Discovery in Morocco

The British gas company SDX Energy continues to outperform expectations.  The UK-based company announced on 9 March a new gas discovery at the SAH-2 well in Sebou only a few weeks after it made a new gas discovery in the Gharb basin.  The well, SAH-2, is the fifth discovered by the company and one of the seven wells drilled as part of its nine-well campaign in Morocco.  According to the company, the well will be tested before being connected to the existing infrastructure. An update on the results of the tests will be announced next April.  SDX was granted a four-month extension to 22 July 2018 at its Lalla Mimouna permit, allowing it sufficient time to evaluate the results of its exploration drilling campaign.  SDX is an international oil and gas exploration, production, and development company, headquartered in London with a principal focus on North Africa.

The exploration company entered the Moroccan market in January after acquiring Circle Oil’s shares in Morocco for $30 million.  The British company is now endowed with an eight-year permit to drill for gas in the Gharb basin.  In addition, the company successfully renewed their permits for the Gueddari Northwest, Gueddari South, Sidi Al Harati Southwest, and Ksiri Center sites.  These permits will expire in 2019, 2020, 2023, and 2023, respectively.  In total, SDX Energy obtained licenses for seven drilling sites from the National Office of Hydrocarbons and Mines, which holds 25% of working interests of SDX Energy’s activity in Morocco.  SDX’s portfolio also includes high impact exploration opportunities in Egypt. The group has a 50% working interest in two producing assets located onshore in the Eastern Desert, adjacent to the Gulf of Suez.  (SDX 10.03)

Back to Table of Contents


4.1  Knesset Committee Approves Green Tax to Boost Natural Gas Usage

On 15 March, the Knesset Finance Committee unanimously approved a reform advocated by the Ministry of Finance and the Ministry of National Infrastructure, Energy and Water Resources.  This reform is aimed at increasing the use of natural gas in public transportation, industry and electricity production, while reducing the use of diesel fuel and coal, which are regarded as important causes of environmental and air pollution.  The reform is designed to bolster Israel’s energy independence by reducing dependence on oil, while natural gas comes from local sources. It is also likely to encourage growth in investments in the transition to natural gas and development in the sector.  As part of the reform, reimbursement for the excise tax on diesel fuel, which enables various economic sectors, primarily transportation, to obtain tax refunds on the use of diesel, will be eliminated.  A schedule for increasing the excise tax on compressed natural gas will go into effect, and taxes on coal will be raised.

The excise tax on coal will be raised from NIS 46 to NIS 142 per ton.  The decision means that electricity rates will be raised by 2%, starting in 2019.  At the committee’s demand, the price of coal will be raised, starting in March 2019.  At the committee’s decision, the tax hike for natural gas, which will take effect gradually, starting in 2024, will apply if there are at least 25 filling stations supplying natural gas.

According to the plan, taxes on natural gas for transportation will amount to NIS 0.02 per kilogram in the initial years, and will begin rising gradually after six years, with excise tax reaching NIS 1.40 per kilogram in 2028.  At the same time, the excise tax refund for diesel fuel will be gradually eliminated, so that it will remain worthwhile for owners of heavy commercial vehicles to use natural gas.  It was also decided to allocate NIS 100 million to encouraging construction of natural gas filling stations.  The allocation will pay for the cost of building 25 planned filling stations.  The reform also includes tax incentives for upgrading the gas distribution network in Israel and NIS 150 million for promoting the entry of filling stations in 2019, as part of a NIS 500 million investment in a government plan to deploy distribution lines.  (Globes 15.03)

Back to Table of Contents

4.2  Sheikh Mohammed Launches Phase 4 of Giant Dubai Solar Park

Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai, broke ground on the 700 MW fourth phase of the Mohammed bin Rashid Al Maktoum Solar Park, the biggest concentrated solar power (CSP) project in the world.  He said that developing the UAE’s infrastructure is a top priority for the leadership and vital to raising the country’s global competitiveness, adding that the country is a pioneer in transforming its energy sector to one based on solar power and clean energy.  The project will generate 700MW of clean energy at a single site and features the world’s tallest solar tower measuring 260 meters and the world’s largest thermal energy storage capacity.  It will provide clean energy to over 270,000 residences in Dubai, reducing 1.4 million metric tons of carbon emissions a year.  The project, which features an investment of AED14.2 billion, has achieved the world’s lowest levelized cost of electricity (LCOE) of 7.3 US cents per kilowatt hour (kW/h).

The Dubai Clean Energy Strategy 2050 aims to provide 75% of Dubai’s total power output from clean sources by 2050.

It is the largest single-site solar park in the world and will generate 1,000MW by 2020 and 5,000MW by 2030.  The 13MW photovoltaic first phase became operational in 2013.  The 200MW photovoltaic second phase of the solar park was launched in March 2017.  The 800MW photovoltaic third phase will be operational by 2020, and the first stage of the 700MW CSP fourth phase will be commissioned in the fourth quarter of 2020.  (AB 19.03)

Back to Table of Contents


5.1  Lebanon’s Fiscal Deficit Narrowed to $2.5 Billion as of October 2017

Lebanon’s fiscal deficit narrowed by 25% year-on-year (y-o-y) to $2.50B by the October 2017.  This was attributed to the 12.86% yearly increase in fiscal revenues, to $9.62B, outpacing the 6.34% annual rise, to $12.12B, in government expenditures.  During the same period, the total primary balance displayed a surplus of $1.57B by the 2016 compared to a lower primary surplus of $570.91M by October 2016.

Total budget revenues stood at $8.95B by October 2017, compared to a lower level of $7.93B by October 2016.  Tax revenues, constituting the largest share of total public revenues, increased by a yearly 17.76% to $7.26B.  In details, miscellaneous tax revenues, constituting the lion’s shares of total tax receipts (55.19%) rose by a yearly 30.15% to $4.01B.  Moreover, VAT revenues (grasping a 28.36% share of tax receipts) rose by 7.35% y-o-y to $2.06B, and custom revenues (16.45% of tax receipts) added 2.19% to $1.19B, over the same period.  As for telecom revenues (7.97% of total government revenues), they witnessed a drop of 27.7% y-o-y to $713.84M, by October 2017.

As for expenditures, total budget expenditures rose by 6.34% to $11.04B by October 2017.  Regarding transfers to Electricite du Liban, they surged by 51.45% annually to $1.08B, mainly due to the continuous increase in oil prices.  Similarly, interest payments on government’s debt went up 4.71% to $3.93B, due to the 4.36% rise in interest payments on domestic debt to $2.64B, and the 5.32% rise in the interest payments on foreign debt to $1.29B.  (Blom 08.03)

Back to Table of Contents

5.2  Lebanon’s Cabinet Agrees to 2018 Budget with Lower Deficit

Lebanon’s government passed its 2018 budget to the parliament for approval after the Cabinet agreed to a draft that projects a fiscal deficit $145 million lower than in 2017.  Lebanon is under pressure to show it is willing to institute fiscal reforms before a series of international donor meetings this year.  The budgeted deficit for 2018 is 7.3 trillion Lebanese pounds ($4.8 billion), Finance Minister Ali Hassan Khalil said.  He said this was 220 billion pounds less than in 2017.  Last year, the government passed its first state budget since 2005, after years of wrangling between rival parties had all, but brought political activity to a halt.  The 2018 budget foresees 23.85 trillion pounds of spending and 18.69 trillion of revenues.  It includes no new taxes.

Lebanon has one of the world’s most indebted governments measured against the size of its economy.  Growth has been slowed by war in neighboring Syria as well as the years of political inertia.  The International Monetary Fund (IMF) said last month the trajectory of the public debt was unsustainable, and there was an urgent need to stabilize and then reduce it.  Lebanon is spending about 38% of its budget on debt servicing.  If the budget measures were followed, by the end of 2018 economic growth might exceed 2%.  The IMF in February predicted growth in 2017 and 2018 of around 1 to 1.5%.  (Various 14.03)

Back to Table of Contents

5.3  Number of Lebanese Registered Cars Fell by 4% in February 2018

According to the Association of Lebanese Car Importers (AIA), the number of newly registered commercial and passenger cars deteriorated during the first 2 months of 2018 by 4.05% year-on-year (y-o-y) to 5,078 cars.  This was triggered by the 4.78% yearly drop in the number of newly registered passenger cars to 4,744, which outpaced the 2.14% yearly rise in newly registered commercial vehicles to 334.  In terms of brands, Kia kept on holding the largest share of the total newly registered cars (16.92%), followed by a 13.27% stake for Toyota. Hyundai came next in the ranking, as it grasped 11.30% of newly registered cars and was followed by Nissan that took 10.08% of the total.  In terms of sales per importer, Natco acquired the biggest bulk with a 16.92% of the total, followed by BUMC (13.49%), Century Motors (11.30%).  (AIA 13.03)

Back to Table of Contents

5.4  Jordan’s Inflation Rate for February 2018 Rises by 3.6%

Jordan’s monthly report on inflation by the Department of Statistics indicates that the Consumer Price Average (Inflation) reached 123.5 in February 2018 against 119.1 during February 2017, an increase of 3.6%.  The main commodities groups, which contributed to this increase, were Transport 9.1%, Cereals and its Products 22.4%, Tobacco and cigarettes 14.6%, Rents 2.9% and fuel and lighting 5.9%.  Meanwhile, the main commodities groups which witnessed a decrease in their prices were Vegetables, Dried and Canned Legumes 19.8%, meat & poultry 0.03%, house utensils 0.2% and Yoghurt and its products and eggs 0.01%.

The Consumer Price Average for February 2018 has increased by 1.5% compared with the previous month (Jan) 2018.  The report also shows that the Consumer Price Average for the first two months of 2018 has increased by 3.3% compared with the same period of 2017.

As for the core inflation of the consumer Price index for February 2018 (which is calculated after excluding the most fluctuating commodities’ prices of food, fuel , lighting and transport group) it has reached 127.8 against 124.8 recording an increase of 2.4% as compared with the same month of 2017.  (DoS 18.03)

Back to Table of Contents

5.5  Iran Offers $3 Billion LoC for Iraq Reconstruction

Iran’s First Vice President Jahangiri said Iran is ready to provide Iraq with a line of credit (LOC) of “up to” three billion dollars to pave the way for the Iranian private sector’s active participation in the reconstruction of the country.  He made the statement at a meeting with Iraqi Prime Minister Haider al-Abadi in Baghdad, saying the two sides should work to remove the restrictions in bilateral banking relations, which he said is the main obstacle to closer trade ties between the two nations.  He also emphasized the need to connect Iran’s and Iraq’s railways, saying the route will enable Iraq to have access to the Central Asia and China and link Iran’s railway to the Mediterranean.  (PressTV 10.03)

Back to Table of Contents

►►Arabian Gulf

5.6  UAE Takes Steps to Protect Domestic Workers

The UAE has issued a resolution to establish a public prosecutor and judicial department to deal with crimes against domestic workers.  Sheikh Mansour bin Zayed Al Nahyan, deputy Prime Minister, Minister of Presidential Affairs and chairman of the Abu Dhabi Judicial Department issued the resolution.  Yousef Saeed Al Abri, acting Under-Secretary of Abu Dhabi Judicial Department, said that the UAE’s leadership is keen in adopting the principles of human rights within an integrated system at the social, educational and institutional levels, in addition to legislations and laws.  Al Abri said that the announcement of the resolution came in response to the requirements of implementing Article No. 03 of the Federal Law issued by President Sheikh Khalifa bin Zayed Al Nahyan, on domestic workers.

The Domestic Labor Law, which passed through the Federal National Council in June, ensures that for the first time, all workers in the UAE are covered by employment legislation, with responsibility for its implementation being overseen by the Ministry of Human Resources and Emiratization, the regulatory authority for the UAE’s labor market.  Domestic workers account for around 750,000 individuals in the UAE’s labor force, representing approximately 25% of expatriate workers.

The new law establishes the principle of informed consent, ensuring that workers are aware of their contract terms prior to departure from their home country.  This is in line with the UAE’s regulations regarding the standardization of contracts, to ensure that prospective workers are not enticed into a cycle of debt bondage through the promise of employment terms that subsequently prove, on arrival in the UAE, to be different from those offered.  Under the law, the rights and privileges afforded to domestic employees include minimum daily rest hours, paid annual leave, weekly rest days, and access to dispute resolution.  These are in line with minimums required under law for employees in other sectors of the UAE labor market.  (AB 07.03)

Back to Table of Contents

5.7  VAT & Excise Tax Sees Abu Dhabi Inflation Rise to 4.7%

Inflation in consumer prices in Abu Dhabi rose 4.7% in January compared to the same month in 2017, according to new statistics from the Statistics Center Abu Dhabi and the Department of Economic Development (DED).  In its analysis, DED credited the increase to a variety of factors in addition to the implementation of value-added tax (VAT), including the fact that the prices of tobacco and soft drinks increased 100.3% due to the implementation of excise (selective) tax in October 2017.  Additionally, the report found that the consumer prices index increased 3% in January 2018 compared to the same month in 2017.

The report includes the results of the calculation of the consumer prices index based on welfare level, family type, geographical area, and the contribution rate of the major groups to the prices annual change.  The consumer price index included 12 group, eight of which are subject to VAT, three that are not, and one group – residence, water, and fuel – that is partially subject to VAT through some of its components.  DED noted that the increase of consumer prices inflation in January “is completely reasonable” because of the implementation of VAT.  The report also noted that consumer prices for national families increased by 5% in January, while consumer prices for non-national families went up 4.4%.  (AB 07.03)

Back to Table of Contents

5.8  Abu Dhabi has Most Households in Region Annually Earning Over $250,000

Abu Dhabi boasts the highest number of households annually earning more than $250,000 in the region, according to a new “Wealth Report” from Knight Frank.  According to the report, Abu Dhabi has 270,686 households making more than a quarter million dollars, a number which is expected to grow seventh fastest globally to 426,890, overtaking London’s 382,807 by 2027.  In Dubai, 245,272 households were found to earn more than $250,000, which is expected to increase by 36,432 by 2027.  In Saudi Arabia, Riyadh and Jeddah account for 198,789 and 130,849 households making above $250,000, respectively.

Globally, over the course of the next five years the Indonesian capital of Jakarta is set to grow the most, with 223,447 households set to break the $250,000 threshold, followed by Cairo with 152,643.  New York topped the table in every ranking, with London in second place overall.  Of the top 20 cities, North American cities made up the top 10, with Asian cities – most notably Singapore – occupying five spots.  (AB 07.03)

Back to Table of Contents

5.9  Dubai Embarks on New US Mission to Attract Investment

Dubai Investment Development Agency (Dubai FDI), an agency of Dubai Economy, will lead a mission to Ohio, United States, as part of attracting further investment into key industries and business sectors in Dubai and the UAE.  Senior executives from Dubai Exports, the export promotion agency of Dubai Economy, as well as Dubai Multi Commodities Centre (DMCC), Dubai South, Emirates Airline, Emirates SkyCargo and Dubai Tourism will also be part of the mission.  The mission, supported by the Embassy of the UAE in Washington, UAE Consulate in Boston and the US-UAE Business Council, will tour the cities of Cincinnati and Columbus in Ohio from 26 – 30 March.  Columbus and Cincinnati join a growing list of US cities Dubai FDI has covered as part of its Global Mission Programme to establish partnerships with investors and enablers in the private sector and government.  (AB 18.03)

Back to Table of Contents

5.10  Saudi Cabinet Approves National Atomic Policy

Saudi Arabia’s cabinet on 13 March approved the national policy of its atomic energy program, as the kingdom prepares to award contracts for its first nuclear power plants.  The policy insists on limiting nuclear activities to peaceful purposes and calls for enhanced safety measures as well as the use of best practices for radioactive waste management.

Saudi Arabia, the world’s top oil exporter, is seeking nuclear power to diversify its energy supply mix in order to free up oil to boost exports.  The policy announcement came ahead of Crown Prince Mohammed bin Salman’s visit to the United States on 19 – 22 March, which saw efforts to reach a civilian nuclear cooperation accord with Washington.  The kingdom has accelerated plans to build 16 nuclear reactors over the next two decades, at a cost of some $80 billion.  Negotiations are underway with the United States for its agreement to export technology needed for their construction.

Besides the US company Westinghouse, Russian, French, Chinese and South Korean firms have all been seeking the Saudi contracts.  Some analysts have voiced concerns that Saudi Arabia seeks to use its atomic program as a hedge against its arch-rival Iran, which signed a deal with the United States in 2015 to curb its own nuclear program in exchange for sanctions relief.  Saudi Arabia has signed cooperation agreements with over a dozen countries in recent years to boost nuclear cooperation, including France, China and Russia.  (AB 14.03)

Back to Table of Contents

5.11  Saudi Non-Oil Growth Forecast to Speed Up in 2018

Saudi Arabia’s non-oil sector is expected to grow faster than last year as investments and increased government activity in the sector pick up the pace.  Bloomberg Economics’ monthly monitoring of Saudi GDP indicates that the country’s non-oil sector grew by 1% in January, slowing down from the estimated 2.6% registered at the end of last year.  The Bloomberg Monthly GDP for Saudi Arabia analyses a variety of oil and non-oil indicators, including monetary and financial variables such as real ATM cash withdrawals, money supply growth, points of sales transactions and bank clearings of checks.  Ratings agency Moody’s expects the Saudi economy to grow by 1.3% this year, after contracting by 0.7% in 2017.  Moody’s said OPEC’s agreement to freeze crude oil production at current levels until the end of 2018 remains a headwind for the country’s growth prospects, but growth will come from recovering oil prices, record budget expenditure and government efforts to protect households from the impact of economic reforms.  (AB 14.03)

Back to Table of Contents

►►North Africa

5.12  Morocco’s Health Budget Will Help Boost Market Growth

In its latest report, BMI Research asserted that Morocco’s health budget will be boosted in 2018.  This growth will also aid in expanding the medical device market.  The Moroccan government will reportedly continue to increase funding and investments in health infrastructure.  The aim is to be able to cover health insurance for 90% of the population by 2021.  According to the research firm, the budget dedicated to the Ministry of Health (which plateaued in 2017) will increase to MAD 14.8 billion  ($1.4 billion ).  This marks a 3.5% increase.  Capital investment is set to reach MAD 2.6 billion ($250 billion) – an increase of 6.3%, which will enable funding of ongoing healthcare infrastructure and high profile projects.  One of these projects includes the construction of the new University Hospital of Laayoune, located in the Laayoune-Sakia El Hamra region.  The 500-bed hospital, due to be completed by 2022, has a total budget of MAD 1 billion ($100 million) and includes a MAD 15 million ($1.5 million) contract with the engineering firm Novec for the design, monitoring, and control of the construction done by the Ministry of Equipment.

The 2018 budget will also fund ongoing construction and equipment for new university hospitals in Tangiers and Agadir.  The new Ibn Sina Hospital and Trauma Centre in Rabat, however, will both receive separate funding from the Gulf Cooperation Council (GCC).  In order to expand access to healthcare, the 2018 budget will likely include improvements in the supply of drugs and medical devices for healthcare services operating within the Ramed health insurance plan.  The plan funds treatment in public hospitals and health centers for low-income patients.  In order to address the chronic shortage of healthcare personnel (which has led to the closure of some primary care services and caused delays in opening new hospitals), the budget will reportedly hire an additional 4,000 staff members.

BMI Research maintains that the medical device market will grow by 7.9% (Compound Annual Growth Rate) during the 2017-2022 period.  This will bring the total value to MAD 4.5 billion ($433 million) by 2022.  With the implementation of the universal health insurance, more people will be eligible to receive treatment, and to benefit from health infrastructure development programs.  (MWN 15.03)

Back to Table of Contents


6.1  Cyprus’ Economy Expands 3.9% in Fourth Quarter

Cyprus’s economy expanded 3.9% in the fourth quarter of 2017, compared to the same period the previous year, and a seasonally adjusted 3.9%, Cystat said.  The economic output in October to December grew 1.2% compared to the third quarter of last year.  Output increased mainly in the hospitality industry, retail and wholesale trade, construction, and manufacturing.  The growth rate figure of the fourth quarter of 2017, is slightly below the 14 February flash estimate, which was 4%.  (Cystat 09.03)

Back to Table of Contents

6.2  Cypriot Unemployment Rate Drops to 10.1% in Fourth Quarter

Cyprus’ unemployment rate in the last three months of 2017 fell to 10.1%, from 12.8% in the fourth quarter of 2016, Cystat said citing its labor force survey.  The drop in the unemployment rate in the fourth quarter last year was on both a decrease in the number of jobless, to 43,113 from 54,303 in the respective three-month period of 2016, and an increase in the number of people in employment, to 384,141 from 368,694 respectively, Cystat said.  The labor force increased in the last quarter of 2017, to 427,264 from 422,997 a year before.  In the last quarter of last year, the youth unemployment rate was 22.9% compared to 29.8% in October to December 2016.  Among men, the jobless rate was 10.4% compared to 9.8% among women.  The unemployment rate in the third quarter of 2017 was 10.1%.  (Cystat 09.03)

Back to Table of Contents

6.3  Cyprus’ January Trade Deficit Narrows to €404 Million

Cyprus’ trade deficit narrowed in January by €44.5m to €403.7m or 11% compared to the respective month of 2017.  The narrower trade deficit in January was on an annual 3.7% drop in imports to €606.1m or by €22.7m and an 11% increase in exports to €202.4m or by €21.8m, Cystat said in a statement.  January’s reduction in imports was on a €76.1m drop to €23.9m in the value of goods imported from third countries compared to January 2017, which more than offset a €53.4m increase in that of those imported from other European Union members to €367.1m.  In the first month of the year, exports to EU members rose by €29.3m to €86.3m compared to a year before, while those to third countries fell by €7.4m to €116.1m, Cystat added.  (Cystat 12.03)

Back to Table of Contents

6.4  New Data Puts Greek Annual Inflation Among Eurozone’s Lowest

Greece’s annual inflation was 0.4% in February, Eurostat reported on 16 March, putting it among the lowest rates in the Eurozone and below the EU average of 1.3%.  The data placed Greece among Cyprus, Denmark and Italy as having the lowest inflation.  Although the figure is a 0.2% increase on January’s number, Greek inflation still remains below the European average.  Overall, annual inflation was down to 1.1% in the single-currency zone and 1.3% in the EU overall.

The rise of inflation in the middle of a recession has been a major issue for Greek households.  Consumers see prices go up, while their wages remain stagnant or dropping.  Greece’s consumer price inflation eased in December after accelerating in the previous month, figures from the Hellenic Statistical Authority.  Average consumer price inflation in the whole year 2017 was 1.1% compared with 2016.  (Eurostat 16.03)

Back to Table of Contents

6.5  Greek GDP Rises for Fourth Consecutive Quarter

New data has revealed that Greece’s economy grew again last October-December, a fourth consecutive period of quarter-on-quarter growth.  ELSTAT, Greece’s official statistics agency, said that GDP went up 0.1% in Q4/17, but the speed of growth was slower than in previous quarters.  Strengthened investment spending and the consistent growth is welcome news as the country prepares to exit its international bailout program in August, after years of austerity and painful reforms.  (ELSTAT 05.03)

Back to Table of Contents

6.6  Greece Posts Budget Surplus of Over €2.7 Billion

Greece’s state budget showed a primary surplus of over €2.7 billion ($3.4 billion) in the January-February period, the country’s finance ministry said on 14 March.  This is up from a budget target for a primary surplus of €1.3 billion and a primary surplus of €2.1 billion in the corresponding period last year.  The state budget showed a surplus of €1.5 billion in the first two months of the year, from a surplus of €434 million in the same period last year and a budget target for a surplus of €98 million.  Net revenue amounted to €8.9 billion in the two-month period, up 14.5% from targets, while regular budget net revenue totaled €8.307 billion, up 9.0% from targets.

Tax returns totaled €719 million, up €110 million from budget targets, while Public Investment Programme revenue amounted to €669 million, up €452 million from targets.  State budget spending amounted to €7.433 billion in the January-February period, down €310 million from targets.  Regular budget spending amounted to €7.246 billion, down €112 million from targets and down €476 million compared with the same period in 2017.  Public Investment Programme spending totaled €187 million in the two-month period, down €198 million from targets.

State budget spending was €4.257 billion in February, down €95 million from monthly targets, while regular budget spending was €4.154 billion, up €11 million from targets.  Public Investment Programme spending was €104 million, down €106 million from monthly targets.  (AMNA 14.03)

Back to Table of Contents



7.1  Israel Springs Forward on 23 March

Daylight saving time in Israel for 2018 will begin at 02:00 on Friday, 23 March.  At 02:00, Israeli clocks will be turned forward 1 hour to 03:00.  Sunrise and sunset will be about 1 hour later on 23 March 2018 than the day before.

Summer time for Israel ends at 02:00 on Sunday, 28 October 2018.  (Various 20.03)

Back to Table of Contents

7.2  Passover Will Be Celebrated Starting 30 March

On Friday night, 30 March, Israel and world Jewry will begin the week-long celebration of the Passover (Pesach) holiday.  Passover celebrates the liberation of the Jewish People from slavery in Egypt by the hand of God.  It is central to Jewish identity and Jewish practice, since the Exodus and life in the wilderness led to the true birth of the Jews as a distinct entity.  Jacob and Josef came to Egypt numbering 70 souls and Moses led 600,000 out after the defeat of Pharaoh.  Probably the most significant observance related to Pesach involves the removal of chametz (or leaven) from Jewish homes and businesses.  This commemorates the fact that the Jews leaving Egypt were in a hurry and did not have time to let their bread rise.  Even converts to Judaism relate to the Exodus as their own ancestors as having left Egypt.  It is also a symbolic way of removing the “puffiness” (arrogance, pride) from our souls.  Instead, special non-leavened bread called matzah is consumed, among a myriad of other special holiday dishes.

On the first night of Pesach (first two nights for Jews outside of Israel), there is a special family meal filled with ritual to remind Jews of the significance of the holiday.  This meal is called a seder, from a Hebrew root word meaning “order,” because there is a specific set of information that must be discussed in a specific order.  The seder is full of symbolism, all pointing to one salient point:  that Jews all remember that God took the Children of Israel out of slavery in Egypt to freedom to observe his Torah.  Pesach lasts for seven days (eight days outside of Israel).  The first and last days of the holiday (first two and last two outside of Israel) are days on which no work is permitted.  Work is permitted on the intermediate days.  These intermediate days on which work is permitted are referred to as Chol Ha-Mo’ed, as are the intermediate days of Sukkot (the fall harvest festival).  Though work is permitted, many take vacations and a full work environment returns only after the holiday.  Passover ends on 6 April in Israel, 7 April in the Diaspora.

Back to Table of Contents

7.3  Israel’s Fertility Rate Highest Among All OECD Countries

On 13 March the Central Bureau of Statistics released a report stating 181,405 babies were born in Israel state during 2016 – a 92% increase since 1980.  Of those 181,405 children born, 73.9% were born to Jewish women, compared to 23.2% born to Arab women.  The report also shows that Israel’s Total Fertility Rate (TFR) – the average number of children women in the country have total – continues to rise, and is now the highest among the Organization for Economic Co-operation and Development’s (OECD) 35 member states.  While the OECD average is just 1.70 children per woman – well below the minimum replacement rate – Israel’s rose to 3.11 from 3.10 in 2015.

Like most industrialized nations, Israel’s fertility rate declined significantly from the mid-20th century through the early 2000s, dropping from an average of 4.00 in 1970 to 2.80 in 2005.  Since 2006, however, Israel’s total fertility rate has been on the rise, and now tops Saudi Arabia, which previously held the top position, which averaged 7.30 children per woman as late as 1979, but has since fallen to 2.70.  The US, by comparison, averaged 1.80 in 2015 – slightly above the OECD average, but still below the replacement rate.  Israel’s fertility rate is now at its highest level since 1983, when it hit 3.20.

Among Israeli Jewish women, the TFR reached 3.16, surpassing for the first time in Israel’s history the Arab fertility rate, which fell to 3.11.  Broken down by religion, however, the Muslim TFR remains slightly higher than the Jewish fertility rate at 3.29 – but has declined significantly in recent years.  In 1980, the Muslim TFR in Israel was 6.00, but fell to just over 4 by 2005.  The biggest drop, however, has been among members of Israel’s Druze community, which had a TFR of 6.10 in 1980, compared to 2.15 in 2016.  With a total population of close to nine million today, including more than 6.5 million Jews, Israel’s population is expected to reach 20 million by 2065.  (CBS 13.03)

Back to Table of Contents

7.4  Israel Ranks 11th on UN World Happiness Report

Israel placed 11th in the latest world happiness index.  The World Happiness Report 2018, compiled by the United Nations Sustainable Development Solutions Network, ranked 156 nations based on factors including GDP, social support structures, healthy lifestyles, social freedom, generosity, and absence of corruption.  The data was based on Gallup World Polls from 2015 to 2017.

For the past two years, the same countries have dominated the top 10 spots on the happiness index. In the latest list, Finland took the No. 1 spot, followed by Norway, Denmark, Iceland, Switzerland, the Netherlands, Canada, New Zealand, Sweden and Australia.

The United States dropped four places in the latest index, falling to no. 18, just ahead of the United Kingdom (19).  Israel’s neighbors Lebanon and Jordan ranked 88th and 90th respectively.  Iran came in 106 and Egypt 122.  The least happy nation, according to the index, is Burundi.  (Various 15.03)

Back to Table of Contents


7.5  Jordan to Switch to Summer Time on 29 March

Jordan will switch to summertime (Daylight Saving Time) on Friday, 29 March.  Clocks will be set forward by 60 minutes as of the last Thursday midnight of March, making the Kingdom three hours ahead of the Greenwich Mean Time (GMT+3).  (Petra 18.03)

Back to Table of Contents

7.6  Jordan’s Constitutional Court & Indiana University Sign MoU

Jordan’s Constitutional Court and the Center for Constitutional Democracy (CCD) at the Maurer College of Law at Indiana University concluded a joint memorandum of understanding (MoU) to cooperate in several joint activities.  The memorandum, effective for five years, provides a set of proposed projects, including a visit by the members of the Jordanian Constitutional Court to the US and the Maurer College of Law to attend a global gathering and to meet the U.S Supreme Constitutional Court judges.  Under the terms of the MoU, the two sides will exert efforts to provide material support to joint programs, while the agreement sets guidelines for mutual cooperation.  (Petra 14.03)

Back to Table of Contents

7.7  Tunisian Women March for Equal Inheritance Rights

Hundreds of women took to the streets in the Tunisian capital on 10 March to demand equal inheritance rights as men, a subject often seen as taboo in the Arab world.  Tunisia grants women more rights than other countries in the region and since last year has allowed Muslim women to marry non-Muslim men.  But the protestors marching to the parliament building in Tunis said they wanted to be compared with European women and to be entitled to the same inheritance rights.  Joined by some men, they carried slogans such as “In a civil state I take exactly what you take”, demanding an end to inheritance laws based on Islamic law.  This usually grants men the double of what women get.

In August, President Beji Caid Essbsi, a secular politician, set up a committee to draft proposals to advance women’s rights.  Tunisia has been hailed as the only “Arab spring” success story following political freedoms introduced after the ousting of autocrat Zine El Abidine Ben Ali in 2011.  Economic growth has been disappointing, however, with high unemployment driving many young Tunisians who had joined the uprising, abroad.  (Reuters 10.03)

Back to Table of Contents

7.8  Turkey Approves Election Law Seen Boosting Erdogan

Turkey’s parliament voted to approve sweeping changes to electoral laws that could help President Erdogan cement his grip on power.  The voting came at the end of a stormy, 20 hour debate in the parliament in Ankara where opposition parties warned that changes would undermine the integrity of the electoral process and increase the risk of vote fraud.  The overhaul comes just over 18 months before the scheduled date for one of the most pivotal votes in modern Turkey.  When Turks go to the polls next November — or earlier if early elections are called — they’ll pick a new parliament and formally concentrate executive power in the office of the president.

The amendments allow parties to form alliances that would help them enter parliament, relaxing the current rule that requires each to secure 10% of the national vote.  The most likely beneficiary would be the nationalist MHP, which some analysts say has lost support since it started backing Erdogan’s ruling AKP after the failed coup attempt in 2016.  Under the amendments, authorities would also be able to appoint government officials to run ballot stations, relocate election stations on security grounds, let law-enforcement officials monitor voting and permit the counting of unstamped ballot papers – an issue that clouded the 2017 referendum on presidential rule.  The government said the changes are necessary to secure the vote in Turkey’s southeast from the influence of Kurdish separatists.

The changes ensure Erdogan stays at the pinnacle of power as Turkey begins a controversial transformation from decades of parliamentary democracy into an executive presidency.  Erdogan has cracked down on political opponents since the botched coup, and has risked ties with the U.S. and Europe by launching an offensive against Kurdish militants inside Syria.  (Bloomberg 13.03)

Back to Table of Contents


8.1  ReWalk Robotics Raises $20 Million from Hong Kong Fund

ReWalk Robotics signed a strategic investment agreement with Hong Kong based Timwell Corporation, whereby Timwell will invest $20 million in ReWalk, at $1.25 per share, a 13.6% premium on the market price.  The strategic agreement is to fund ReWalk’s overall development worldwide and to establish ReWalk’s presence in the Chinese market.

Under terms of the agreement, ReWalk and Timwell, through its affiliates and RealCan Ambrum Healthcare Industry Investment (Shenzhen) Partnership Enterprise (Limited Partnership), plan to form a joint venture in China to develop, manufacture and market ReWalk’s products in China, including Hong Kong and Macau. The joint venture will initially focus on development, production and marketing of ReWalk’s Restore soft-suit exoskeleton for stroke patients in rehabilitation, followed by commercialization of ReWalk’s spinal cord injury products for community and rehabilitation use. All capital funding for the joint venture will be provided by RealCan Ambrum with ReWalk contributing the technology.

Yokneam’s ReWalk Robotics is an innovative medical device company that is designing, developing and commercializing exoskeletons allowing wheelchair-bound individuals to stand and walk once again.  The wearable robotic exoskeleton that provides powered hip and knee motion to enable individuals with spinal cord injury (SCI) to stand upright, walk, turn and climb and descend stairs.  (Various 08.03)

Back to Table of Contents

8.2  Hello Heart Raises $9 Million

Hello Heart has raised $9 million in a financing round led by BlueRun Ventures and with the participation of Maven Ventures, Resolute ventures and WTI.  According to Crunchbase, the company has raised $12.7 million to date including the latest financing.  The company plans using the new funds to expand sales operations in the US while at the same time it is, “about to enter new verticals in the health app market such as diabetes and apply artificial intelligence technologies to improve clinical results.”

Hello Heart said that over 80,000 patients already use its platform and that it recently published research based on the findings of doctors from Harvard and UCLA.  The startup, which was founded in 2013, has developed a clinically based solution for preventing high blood pressure and reducing heart risk.  The app developed by the company presents users with insights and recommendations about their health and provides tips designed to help improve their situation in real-time.

Tel Aviv’s Hello Heart is a digital program that empowers people to understand and improve their heart health – the #1 cost factor for employers.  The program is clinically based and targets people with high blood pressure. Every participant receives a wireless blood pressure monitor and real-time personalized tips on their smartphone.  The solution is easy to use and helps participants improve their heart health in a fun and engaging way.  Hello Heart delivers real results – enrollment rates are 20-50% of targeted employees, and 50% of participants at risk reduce their blood pressure using Hello Heart.  (Hello Heart 08.03)

Back to Table of Contents

8.3  Israeli Distillery Launches 2nd Edition Single Malt Whisky

The Milk & Honey Distillery’s second edition whisky is the newest addition to their experimental series, that made history with Israel’s first ever single-malt whisky in June 2017.  This whisky was crafted from lightly peated malt, made in-house and matured for 32 months in new American oak barrel, before being transferred to an ex-bourbon barrel for additional 11 months, bottled at a perfect timing.  Distillation of the cask was carried out in a small pot still in a warehouse in the Sharon region.  This second edition of their experimental series is a balanced and complex whisky thanks to Israel’s hot climate conditions. Just 324 bottles were produced at 46% abv.

Tel Aviv’s Milk & Honey Distillery products, including the single malt, are distributed and marketed exclusively by Hacarem Spirits and sold at hundreds of points of sale across Israel.  The second edition of single malt whisky was tasted and purchased for the first time at the “Whisky Live 2018” event.  Afterwards the new single malt will be available at specialized stores around the country.  The second edition single malt whisky 500 ml bottle will cost NIS 449.  (Various 07.03)

Back to Table of Contents

8.4  Vectorious Raises $9.5 Million

Vectorious Medical Technologies has raised $9.5 million in a Series B financing round led by Boston-based Broadview Ventures and China’s GEOC and with the participation of Zohar Gillon, Yehuda Zisapel, Prof. Nava Zisapel, Zohar Zisapel, Ari Raved and others.  The financing round includes a $2.2 million grant from Horizon 2020, the flagship R&D program of the EU, and the Israel Innovation Authority (formerly the Office of the Chief Scientist).  Previous investors include Cleveland Clinic.  The company raised $5 million in its Series A financing round two years ago.  The new funds will allow the company to expand its work force and conduct clinical trials in order to receive marketing approval for Europe.

This additional financing round is a vote of confidence in Vectorious’s solution and has major significance when it comes from the world’s leading venture capital funds and medical centers and the EU.  Chronic lack of supply to the heart is one of the most common causes of death in the western world.  Some 1.2 million people are hospitalized each year in the US from deterioration of the disease at a cost of $32 billion to the US health system.  In addition, half of patients need to be re-hospitalized after six months because of defective diagnosis and treatment.  Vectorious’s product will prevent the disease from worsening, improve the quality of life of the patient and lengthen their lives.”

Tel Aviv’s Vectorious Medical Technologies has developed a novel approach to implantable long term hemodynamic monitoring that leverages state-of-the-art technologies in two areas: direct measurement of left atrial pressure and wireless communications.  The company was founded in 2011 at the RadBioMed incubator and has offices in Ramat Hahayal in Tel Aviv and at the Cleveland Clinic.  (Globes 07.03)

Back to Table of Contents

8.5  Bar-Ilan: Researchers Invent Nano-Drops That Improve Nearsightedness & Farsightedness

Nano-Drops, a revolutionary, cutting-edge technology, was developed by researchers at Bar-Ilan University’s Institute of Nanotechnology and Advanced Materials (BINA).  It has the potential to provide a new alternative to eyeglasses, contact lenses, and laser correction for refractive errors.  A related patent on this new invention was recently filed by Birad – Research & Development Company, the commercializing company of Bar-Ilan University.

Nano-Drops achieve their optical effect and correction by locally modifying the corneal refractive index.  The magnitude and nature of the optical correction is adjusted by an optical pattern that is stamped onto the superficial layer of the corneal epithelium with a laser source.  The shape of the optical pattern can be adjusted for correction of myopia (nearsightedness), hyperopia (farsightedness) or presbyopia (loss of accommodation ability).  The laser stamping onto the cornea takes a few milliseconds and enables the nanoparticles to enhance and ‘activate’ this optical pattern by locally changing the refractive index and ultimately modifying the trajectory of light passing through the cornea.

The laser stamping source does not relate to the commonly known ‘laser treatment for visual correction’ that ablates corneal tissue.  It is rather a small laser device that can connect to a smartphone and stamp the optical pattern onto the corneal epithelium by placing numerous adjacent pulses in a very speedy and painless fashion.  Tiny corneal spots created by the laser allow synthetic and biocompatible nanoparticles to enter and locally modify the optical power of the eye at the desired correction.

In the future this technology may enable patients to have their vision corrected in the comfort of their own home.  To accomplish this, they would open an application on their smartphone to measure their vision, connect the laser source device for stamping the optical pattern at the desired correction, and then apply the Nano-Drops to activate the pattern and provide the desired correction.  Upcoming in-vivo experiments in rabbits will allow the researchers to determine how long the effect of the Nano-Drops will last after the initial application.  Meanwhile, this promising technology has been shown, through ex-vivo experiments, to efficiently correct nearly 3 diopters of both myopia and presbyopia in pig eyes.  (Bar-Ilan University 08.03)

Back to Table of Contents

8.6  Stanford & Rambam Hospital to Cooperate on Medical Innovation and AI Research

Stanford Medicine and Rambam Health Care Campus announced that they are establishing a cooperation agreement to work together on the future of medicine.  They announced four areas of cooperation including medical innovation, research in collaboration with Big Data and Machine Learning, cutting-edge drug development and trauma and emergency preparedness.  The agreement was reached following a recent Stanford Medicine-Rambam Symposium on Planning for the Next Generation.  The two institutions discussed opportunities for partnerships during the two-day event.  The institutions noted the budget gap – Rambam, a hospital with 1,000 beds and 130,000 visits to the emergency room annually with a budget of $400 million versus Stanford, a 600-bed hospital with 60,000 visits to its emergency room annually and a budget of $7 billion a year.  Despite the enormous gap, Israel ranks much higher than the US in the quality of medicine.  Speakers from both institutions discussed the difficult challenges of their respective health systems in maintaining equitable health care, closing gaps, coping with the challenges of tomorrow’s health needs, as well as the heavy burdens on health care systems.  (NoCamels 11.03)

Back to Table of Contents

8.7  ContinUse Biometrics Raises $20 Million

ContinUse Biometrics has raised $20 million in a Series B financing round led by the Chartered Group. The company has raised $27 million to date.  ContinUse Biometrics is partnering with leaders in healthcare, automotive and data analytics to bring to the market an innovative care solution that enables users to detect deterioration in their medical conditions early on and take immediate action.  ContinUse can remotely monitor 20+ biomedical parameters simultaneously including vital signs (as well as blood pressure, and cardiographs), auscultation of heart and lung sounds, muscle activity and biochemical screens.  The company applies advanced AI techniques to analyze the collected data in its health cloud, providing unique and actionable insights for its users, whether patients or physicians, in such areas as cardiac, vascular, neurology, pulmonary diseases and diabetes.  Tel Aviv’s ContinUse Biometrics product can also be used to enhance road safety by monitoring the alertness and competence of drivers.  (ContinUse 08.03)

Back to Table of Contents

8.8  Can-Fite BioPharma Announces $5 Million Registered Direct Offering

Can-Fite BioPharma has entered into definitive agreements with institutional investors to receive gross proceeds of approximately $5 million.  H.C. Wainwright & Co. is acting as the exclusive placement agent in connection with this offering.

Petah Tikva’s Can-Fite BioPharma is an advanced clinical stage drug development Company with a platform technology that is designed to address multibillion-dollar markets in the treatment of cancer, inflammatory disease and sexual dysfunction.  The Company’s lead drug candidate, Piclidenoson, is currently in a Phase III trial for rheumatoid arthritis and is expected to enter a Phase III trial for psoriasis during 2018.  Can-Fite’s liver cancer drug, Namodenoson, is in Phase II trials for hepatocellular carcinoma (HCC), the most common form of liver cancer, and for the treatment of non-alcoholic steatohepatitis (NASH).  Namodenoson has been granted Orphan Drug Designation in the U.S. and Europe and Fast Track Designation as a second line treatment for HCC by the U.S. FDA.  Namodenoson has also shown proof of concept to potentially treat other cancers including colon, prostate, and melanoma. CF602, the Company’s third drug candidate, has shown efficacy in the treatment of erectile dysfunction in preclinical studies and the Company is investigating additional compounds, targeting A3AR, for the treatment of sexual dysfunction.  These drugs have an excellent safety profile with experience in over 1,000 patients in clinical studies to date.  (Can-Fite 09.03)

Back to Table of Contents

8.9  Nucleix Announces its Bladder EpiCheck Availability on the QIAGEN Rotor-Gene Q Platform

Nucleix announced the compatibility of its Bladder EpiCheck with the Rotor-Gene Q real-time PCR platform commercialized by QIAGEN N.V.  Rotor-Gene Q is widely available in markets around the world, in particular in Europe, and it is one of the most widely placed PCR instruments in the target customer segments of pathology and molecular diagnostics.  The addition of the Rotor-Gene Q platform widens the available market for Bladder EpiCheck.

Rehovot’s Nucleix develops, manufactures and markets innovative non-invasive molecular cancer diagnostic tests.  Its highly sensitive and specific tests are based on identification of subtle changes in methylation patterns.  Nucleix technology is based on a combination of a new biochemical assay in conjunction with sophisticated algorithms.  The first Nucleix product, Bladder EpiCheck, is a urine test for monitoring of patients for the recurrence of bladder cancer, and includes a panel of 15 proprietary biomarkers that are multiplexed in a real-time PCR analysis.  Bladder EpiCheck was evaluated by Europe’s leading urology centers, with superior results.  (Nucleix 14.03)

Back to Table of Contents

8.10  Kadimastem Commences Its Clinical Trial in ALS Patients

Kadimastem announced that it has received the approval of the Israeli Ministry of Health’s Supreme Committee, for conducting its phase I/IIa clinical trial in ALS patients using the unique cell therapy developed by the company.  With this approval, Kadimastem has obtained all the approvals required for its clinical trial, which will commence right away.  The clinical trial will be conducted by the Department of Neurology of the Hadassah Ein Kerem Medical Center, a world-leading center in the field of ALS, and is expected to include 21 patients. Hadassah Medical Center is beginning to recruit the patients for the trial.  The trial will be performed within a framework of the outline coordinated with the FDA.

The treatment developed by the company, AstroRx, is a groundbreaking cell-based treatment for ALS, the result of unique research of the company over many years.  Kadimastem developed a unique technological platform for the repair and replacement of tissue and organs, using functioning cells differentiated from pluripotent stem cells.  Kadimastem’s innovative approach is based on research showing that in ALS patients, brain-supporting cells (astrocytes) are malfunctioning and fail to properly support motor neurons.  The company’s technology enables the production of healthy supporting cells and their injection into the patient’s spinal fluid (using a standard procedure) with the goal of supporting the malfunctioning cells in the brain, slowing the progression of the disease and improving the patient’s life quality and expectancy.

Ness Ziona’s Kadimastem is a biotechnology company that develops industrial regenerative medicine therapies based on differentiated cells derived from Human Embryonic Stem Cells (hESCs) to treat neuro-degenerative diseases such as ALS, as well as diabetes.  Kadimastem was founded based on patent protected technology that was developed at the Weizmann Institute of Science.  Based on the company’s unique platform, Kadimastem is developing two types of medical applications: A. Regenerative medicine, which repairs and replaces organs and tissue by using functioning cells differentiated from stem cells. The company focuses on transplanting healthy brain cells to support the survivability of nerve cells as cell therapy for ALS, and transplanting insulin-secreting pancreatic cells for the treatment of insulin-dependent diabetes; B. Drug screening platforms, which use functional human cells and tissues to discover new medicinal drugs.  The company has two collaboration agreements with leading global pharmaceutical companies.  (Kadimastem 13.03)

Back to Table of Contents

8.11  PixCell Medical Awarded €2.5 Million Grant by the European Commission

Yokneam’s PixCell had been awarded a €2.5 million grant by the European Commission to accelerate commercialization of its product, the HemoScreen.  The two-year award was granted through Horizon 2020’s SME instrument, which targets high potential SMEs with groundbreaking products that have the potential to profoundly impact the EU economy and global healthcare.  This funding will serve to further test its product in different clinical settings and demonstrate its clinical and economic benefits as well as support the scaling up of its production.

The HemoScreen is a portable easy-to-use blood analyzer which can be operated by anyone.  It performs the most common blood test: Complete Blood Count within 5 minutes enabling physicians to diagnose and treat their patients during a single visit.  The HemoScreen is supposed to significantly enhance workflow efficiency in settings such as ER, Oncology and pediatric departments as well as improve patient compliance and satisfaction.  The technology is based on an innovative Lab-On-a-Cartridge concept which executes a complex lab procedure on a simple disposable without user intervention.  A new physical phenomenon called Viscoelastic Focusing, machine vision and AI harnessed together yield lab-accurate results in a miniature apparatus.

The HemoScreen performance has been comprehensively validated in 3 clinical studies in the US in which operators without any training have tested thousands of blood samples covering a variety of blood disorders showing excellent correlation to high-end lab analyzers.  The product is CE marked and expected to be FDA cleared during 2018.  PixCell is developing additional assays based on the same technology which will be performed on the same analyzer using different cartridges.  These assays will enable physicians to make more substantiated decisions such as prescribing antibiotics and referral to the ER at the point of care.  (PixCell 14.03)

Back to Table of Contents

8.12  Lumenis New Clinical Breakthroughs Using its Patent-Protected MOSES Technology

Lumenis released significant new clinical evidence in lithotripsy as well as initial clinical benefits in benign prostatic hyperplasia (BPH) treatments using the MOSES Technology.  MOSES is a revolutionary, patent-protected technology for holmium laser treatments in both urinary stones and BPH.  The technology utilizes a proprietary combination of holmium lasers and fibers that optimize holmium energy transmission using a unique pulse modulation.  Significant clinical evidence highlighting the benefits of MOSES in lithotripsy has already been released in several abstracts and peer-reviewed papers, namely MOSES’ reduced retropulsion and improved fragmentation rate.

Yokneam’s Lumenis is the world’s largest energy-based medical device company for surgical, aesthetic and ophthalmic applications in the area of minimally invasive clinical solutions.  Regarded as a world-renowned expert in developing and commercializing innovative energy-based technologies, including Laser, Intense Pulsed Light (IPL) and Radio-Frequency (RF).  (Lumenis 16.03)

Back to Table of Contents

8.13  CannRx Announces Commercial Model of Vapor Capture Technology (VCT)

CannRx Technology announced that its Vapor Capture Technology (VCT) is now commercial.  The CannRx revolutionary extraction technology is designed specifically to make readily available the potential of the cannabis plant and get the maximum benefits in the cleanest, healthiest, and most efficient way.  VCT is the only extraction system designed specifically for the cannabis plant.  It provides a pre-activated, highly bio-available cannabis extract with a unique cannabinoid/terpene profile that cannot be replicated using any other extraction technology.

VCT extracts the bioactive agents in the cannabis by generating a vapor or smoke cloud plume from the whole cannabis plant.  The “cloud” is processed through a unique stepwise re-solubilization process that recaptures the activated full cannabis spectrum of bioactive molecules.  The extract can be formulated for inhalation (aerosol or intranasal), edibles, dermal and sublingual delivery.  The resultant material can be processed into a fully water-soluble powder or liquid or into an oil.  In vivo testing of the VCT technology demonstrates rapid onset with prolonged therapeutic benefit over other extraction technologies in disease models.

Jerusalem’s CannRx Technology., the company that has designed and manufactures the patent-pending VCT reactor is also developing unique scientifically based and clinically tested products for the cannabis industry.  All products will be highly differentiated and efficacious designed to address serious medical conditions treatable with cannabis.  The initial product scheduled for release in 2018 are is targeting sleep disorders.  (CannRx 15.03)

Back to Table of Contents

8.14  Ministry of Health Approves Kanabo’s Medical Cannabis Vaporizer as a Medical Device

Kanabo Research, a Ness Ziona based medical cannabis R&D company, announced that the Israeli Ministry of Health has granted initial approval as a medical device to its VapePod vaporizer product.  This action makes Israel the first county in the world to grant medical device approval to a vaporizer for the use of medical cannabis extracts and formulations.  In addition, Kanabo has initiated initial pre-clinical trials of the company’s targeted formulations for sleep disorders, designed for use with the approved VapePod medical cannabis vaporizer, and is achieving impressive results in early findings.

The combination of the approved vaporizer and the targeted formulations will enable medical cannabis patients to receive more effective, consistent, and accurate dosing and delivery methods than currently accepted medical cannabis treatment methods.  Kanabo has two patents in the process of registration regarding the targeted formulations of medical cannabis extracts for sleep disorders, as well as the initial approval of the VapePod vaporizer by the Medical Cannabis Unit of the Israeli Ministry of Health.

Most medical cannabis patients today consume their cannabis by smoking – despite all of the known risks.  The VapePod medical vaporizer enables patients to inhale their medical cannabis without the risks of smoking.  Studies have shown that inhaling cannabis is significantly more effective than other delivery methods and the VapePod vaporizer allows patients to still utilize the benefits of inhalation.  The next version of the device – VapePod MD – will also monitor patient usage and gather usage data for caregivers, doctors, and research applications.  (Kanabo Research 14.03)

Back to Table of Contents


9.1  Altice Portugal Selects Gilat to Support Backhauling to Critical Communications

Gilat Satellite Networks announced that Altice Portugal selected Gilat’s multi-application SkyEdge II-c platform to provide satellite backhauling for critical communications.  Gilat’s VSATs will be deployed to back up Altice Portugal critical communications infrastructure covering most of the country.

Altice is a convergent global leader in telecom, content, media, entertainment and advertising.  Altice delivers innovative, customer-centric products and solutions that connect and unlock the limitless potential of its over 50 million customers over fiber networks and mobile broadband.  The company enables millions of people to live out their passions by providing original content, highly-quality and compelling TV shows, and international, national and local news channels.

Petah Tikva’s Gilat Satellite Networks is a leading global provider of satellite-based broadband communications.  With 30 years of experience, we design and manufacture cutting-edge ground segment equipment, and provide comprehensive solutions and end-to-end services, powered by our innovative technology.  Delivering high value competitive solutions, our portfolio comprises of a cloud based VSAT network platform, high-speed modems, high performance on-the-move antennas and high efficiency, high power Solid State Amplifiers (SSPA) and Block Upconverters (BUC).  (Gilat 08.03)

Back to Table of Contents

9.2  Insuranks Releases “AirBnB for Insurance” Digital Community Platform

Rehovot’s Insuranks has announced the official release of their insurance marketplace community platform beta version.  The platform has been built especially for millennials and allows users to take their insurance to a cloud-marketplace, create quote requests for any insurance type, invite top agents to bid on their business, purchase policies and manage their insurance online – on the cloud and from the comfort of their mobile phones and tablets!  The platform is free for “insurankers” (which is how insurance customers are designated in the community) and allows them to rank and submit feedback on the experience they had with agents and carriers and by that spread the love, empower the community and create a better world insurance-wise!  The exclusive community includes over 90,000 American agents and 15 leading carriers and while it is invite-based only, we do encourage new agents and carriers that would like to be invited to get in touch with us today and give us three great reasons to register them too!  (Insuranks 07.03)

Back to Table of Contents

9.3  Cellebrite’s Enhancements to Analytics Family Makes Digital Evidence More Actionable

Cellebrite announced key usability enhancements designed to help investigators and prosecutors solve crimes faster.  With key interface upgrades, investigative teams can capture, organize and produce case reports in an easily understandable format that can be shared with peers or effectively presented in court.  An advanced catalog of data and powerful analytics capabilities help investigative teams of all sizes rapidly discover digital evidence in cases.   Cellebrite Analytics allows investigators and prosecutors with all levels of technical skill to quickly surface more insights from text and media artifacts.

Making data accessible, collaborative and actionable is what Petah Tikva’s Cellebrite does best.  As the global leader in digital intelligence with more than 60,000 licenses deployed in 150 countries, they provide law enforcement, military, intelligence, and enterprise customers with the most complete, industry-proven range of solutions for digital forensics, triage and analytics.  By enabling access, sharing and analysis of digital data from mobile devices, social media, cloud, computer, cellular operators and other sources, Cellebrite products, solutions, services and training help customers build the strongest cases quickly, even in the most complex situations.  As a result, Cellebrite is the preferred one-stop shop for digital intelligence solutions that make a safer world more possible every day.  (Cellebrite 07.03)

Back to Table of Contents

9.4  Arbe Robotics Wins Berlin’s Automotive Tech.AD Award

Arbe Robotics has been announced the winner of Berlin’s Automotive Tech.AD Award for its outstanding achievements in the Autonomous Driving industry.  The prestigious award, presented by we.CONECT, exclusively recognizes and honors exceptional projects, thus solidifying Arbe Robotics’ standing as one of the leading companies in the Autonomous Driving industry.  Arbe’s proprietary full stack 4D imaging technology provides a cost effective, long range, high-resolution radar. The comprehensive solution for autonomous cars implements two advanced technologies:

-Ultra High Resolution Radar: Arbe has developed ultra high-resolution radar, which is the most important parameter for autonomous drive since it allows the radar to identify pedestrians and obstacles in any weather and lighting conditions.

-Patented Post Processing: creates a full 3D shape of the objects and their velocity, tracks them, localizes the car, and classifies targets using their radar signature. Filtering false targets.

At the end of 2017, Arbe Robotics announced that it had raised an additional $9 million, in a round led by O.G. Tech Ventures and OurCrowd.  The funding was used to invest in the full production of a high-resolution radar and open the company’s first customer support center in Silicon Valley.

Tel Aviv’s Arbe Robotics, founded in 2015, has the vision to make autonomous driving safe, affordable and available – today.  The company’s 4D Imaging Radar is the first to provide ADAS, level 4 and 5 fully autonomous cars with high-resolution imaging radar that enables them to “see” the environment in any weather and lighting condition; from long, mid and short ranges in wide azimuth, elevation, range, and Doppler.  The company has received funding from Maniv Mobility, Canaan Partners Israel, iAngels, Taya, O.G. Tech Ventures and OurCrowd.  (Arbe Robotics 09.03)

Back to Table of Contents

9.5  Bringg Adds Auto-Dispatch to Its Delivery Logistics Platform

Bringg announced the launch of a new platform module which allows businesses, such as branches of large restaurant and retail chains, to automatically distribute orders to their drivers in real-time.  Auto-Dispatch helps optimize the efficiency of their delivery processes and reduce the operational costs involved in dispatching, while perfecting the customer experience through highly improved on-time delivery rates.  These goals are achieved by automatically providing each driver with as many orders as possible for a certain area, while making sure that all orders leave the location early enough to ensure that they reach the customer on time.

In initial deployments, Auto-Dispatch improved on-time delivery rates by 58%.  It also decreased dispatcher workloads by up to 70% under normal load so that they became available to handle other on-site tasks.  These results translate directly to significant improvements in both customer satisfaction, staff capacity and the bottom line.

Tel Aviv’s Bringg is the leading delivery logistics solution, providing enterprises with the most efficient way to manage their complex delivery operations.  Some of the world’s best-known brands in more than 50 countries are already gaining clear strategic value from our powerful SaaS platform which offers the real-time capabilities they need in order to achieve logistical excellence across their delivery ecosystem.  Companies from the retail, grocery, restaurant, consumer goods, logistics, healthcare and services industries trust Bringg’s technology platform to help them establish successful cost-effective operations, streamline their logistical operations for peak efficiency, and create perfect delivery experiences for their customers.  (Bringg 10.03)

Back to Table of Contents

9.6  OTI Receives Purchase Order for 8,000 Advanced UNO 8 Readers for ‘Smart ATM’ Market

On Track Innovations has received new purchase order to deliver 8,000 of OTI’s Uno-8 advanced secure contactless NFC readers to the Smart ATM market.  Smart ATMs provide secure, fast, simple and convenient banking, 24 hours a day. Adding an OTI EMV certified contactless reader provides an ATM with the ability to identify the account owner and communicate with their smartphone.  The company expects the purchase order to be delivered in both the second and third quarter of 2018, for which OTI will recognize a one-time sale.  Due to confidentiality, the terms of the contract cannot be disclosed.

Rosh Pinna’s On Track Innovations (OTI) is a global leader in the design, manufacture and sale of secure cashless payment solutions using contactless NFC technology with a patent and IP portfolio.  OTI’s field-proven innovations have been deployed around the world to address cashless payment and management requirements for the Internet of Payment Things (IoPT), wearables, automated retail and petroleum markets.  OTI distributes and supports its solutions through a global network of regional offices and alliances. OTI is the proud recipient of the 2017 AI Award for Best Cashless Payment Solutions Provider – Israel.  (OTI 14.03)

Back to Table of Contents

9.7  ECI Enables Double Metro Network Throughput Using Existing Infrastructure

ECI announced the availability of two new network interface upgrades for their existing product lines. These upgrades provide a perfect solution for service providers who want to grow their current capabilities either due to network capacity challenges or in preparation for the rollout of 5G.  They require minimal investment and are designed to enable customers to easily upgrade their metro networks, while avoiding disruption or having to rip and replace their current solutions.

To prepare for this growth, metro networks need to be transformed today without waiting for the next wave of investments.  ECI’s solutions have traditionally been developed to be flexible, scalable and to allow a pay as you grow model.  The introduction of new high capacity cards aligns with this strategy and help reduce operational complexities now and in the future.  Moreover, these cards enable customers to get more out of their systems without the rip and replace that other solutions require.

ECI’s Neptune (NPT) packet-optical product line offers a powerful, flexible and efficient, end-to-end metro solution for high performance Layer 1 to Layer 3 services through the convergence of IP, Elastic MPLS (IP, TP and Segment Routing), Ethernet (MEF CE 2.0 certified) and other services.  To support the growth in metro capacity, ECI has decided to bring 100GE interfaces to its entire packet portfolio, which started with the high capacity NPT1800 aggregation platform and has now been expanded to the Neptune (NPT) 1200.  This enables customers with ECI’s best-selling Neptune system to simply and easily upgrade their networks to provide a 100GE solution with a maximum capacity of 560G (versus the previous 320G).  ECI will then roll out this 100GE capability to the smaller Neptune access systems in the next release later this year.

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 cybersecurity solution, and a range of professional services. ECI’s elastic solutions ensure open, future-proof, and secure communications. With ECI, customers have the luxury of choosing a network that can be tailor-made to their needs today while being flexible enough to evolve with the changing needs of tomorrow.  (ECI 14.03)

Back to Table of Contents

9.8  Luminate Security Emerges from Stealth to Redefine Access to Corporate IT Data Centers

Luminate Security emerged from stealth and announced a total of $14 million in combined round A and seed funding.  Luminate is backed by U.S. Venture Partners and Aleph Venture Capital along with the ScaleUp program of Microsoft for startups.  Unlike traditional security solutions, Luminate enables IT operations to move at the speed of digital business requirements, integrating seamlessly with their existing IT tools. Employees can safely access any corporate resources from any device while IT and security teams gain a comprehensive security governance framework, effectively eliminating risks of attacks on their resources.

Luminate seamlessly integrates with all cloud Infrastructure-as-a-Service and on-premises data center technologies.  The user experiences the freedom to access any application, wherever it is hosted, from whatever device or location worldwide, through a consistent, cloud-native user experience.

Tel Aviv’s Luminate is a software-as-a-service security platform that allows CISOs, CIOs and CTOs to securely manage access to all their corporate resources from any device anywhere in the world.  Based on Software Defined Perimeter principles, Luminate gives users one-time access to the requested application while all other corporate resources are cloaked without granting access to the entire network.  This prevents any lateral movements to other network resources and eliminates the risk of network-based attacks.  (Luminate 14.03)

Back to Table of Contents

9.9  AudioCodes Selected by Fuze for Global UCaaS Voice Connectivity

AudioCodes announced that Fuze, the leading cloud-based communications platform provider, has selected AudioCodes products and solutions for deployment at its customers’ locations.  AudioCodes Mediant hybrid session border controllers (SBCs) and MediaPack analog gateways provide essential voice connectivity with the PSTN and legacy voice equipment which has enabled Fuze to expand its offering to markets with unique connectivity requirements for customers with large geographic footprints.

Lod’s AudioCodes is a leading vendor of advanced voice networking and media processing solutions for the digital workplace.  AudioCodes enables enterprises and service providers to build and operate all-IP voice networks for unified communications, contact centers, and hosted business services.  AudioCodes offers a broad range of innovative products, solutions and services that are used by large multi-national enterprises and leading tier-1 operators around the world.  (AudioCodes 13.03)

Back to Table of Contents

9.10  AnyClip Ends Advertisers’ Brand Safety Crisis with First-Ever AI-Powered Platform

AnyClip announced the launch of AnyClip’s Content Platform, an unequalled premium video content and Brand Safety solution for advertisers and publishers.  The Platform provides advertisers the unprecedented ability to gain real-time insights into content, ensure Brand Safety, and contextually target ultra-premium content, while allowing publishers to enrich their sites with perfectly matched premium content – increasing revenue and improving user engagement and experience.

AnyClip’s Content Platform utilizes an enormous, premium, and up-to-date library of content from leading sports, news, and entertainment content producers.  The Platform is powered by Luminous, the first AI charged real-time video analysis engine to truly understand video content and context by identifying and tagging video content.  In addition to ensuring Brand Safety by flagging and filtering out inappropriate content such as nudity, violence, profanity, alcohol, guns, tobacco, etc., Luminous offers unmatched celebrity and brand identification and can thoroughly identify and analyze video according to sentiments and Interactive Advertising Bureau (IAB) categories, such as food and beverage, travel, fashion, etc.

Headquartered in Tel Aviv, AnyClip is the video content data and monetization pioneer.  By leveraging the most advanced Artificial Intelligence (AI) technology to analyze and understand video content and context in real-time, AnyClip maximizes video assets for content owners and their buyers.  (AnyClip 13.03)

Back to Table of Contents

9.11  GuardiCore Upgrades Infection Monkey Open Source Cyber Security Testing Tool

GuardiCore announced a new version of its Infection Monkey open source attack simulation tool with several significant enhancements.  Designed to test the resiliency of modern data centers and clouds against cyber-attacks, the Infection Monkey is an open source tool developed by GuardiCore Labs, originally introduced in 2016.  An autonomous, self-service tool, the Infection Monkey gives security professionals an additional testing tier that augments the in-depth value of current pen testing tools and services with the ability to conduct security assessments more frequently.  It enhances compliance and flags areas of weakness in data centers and cloud environments.

The Infection Monkey provides detailed information about the specific vulnerability exploited and the effect vulnerable segments can have on the entire network, giving security teams the insights they need to make informed decisions and enforce tighter security policies.  It is designed to be 100% safe, with no reconnaissance or propagation features that can impact server or network stability.

Tel Aviv’s GuardiCore is an innovator in data center and cloud security focused on delivering accurate and effective ways to stop advanced threats through real-time breach detection and response. Developed by cyber security experts in their field, GuardiCore is changing the way organizations are fighting cyber-attacks.  (GuardiCore 13.03)

Back to Table of Contents


10.1  Tel Aviv Surpasses Tokyo & New York as World’s 9th Most Expensive City

The city of Tel Aviv was found to be the 9th most expensive city in the world, surpassing Tokyo and New York, according to a list published by the Economist on 15 March.  Meanwhile, the MoveHub website has found Israel to be the 10th most expensive country in the world.  The MoveHub study looked at items such as basic and retail consumer goods, housing, transportation, power and water prices, as well as taxes and leisure costs.  Bermuda was named the world’s most expensive country, followed by Switzerland and Iceland.

The Economist’s annual ranking, meanwhile, compared the prices of over 150 items in 133 cities worldwide.  It found that, for example, transportation costs in Tel Aviv were 79% higher than in New York.  Singapore was named the world’s most expensive city, followed by Paris, which climbed five spots from last year, Zurich (+1), Hong Kong (-2), Oslo (+6), Geneva (+1), Seoul, Copenhagen (+1), Tel Aviv (+2) and Sydney, which moved up four spots from last year and rounded up the top 10 list.  (IH 16.03)

Back to Table of Contents

10.2  OECD Cites Israel’s Public Transport Deficit

The OECD’s Economic Survey of Israel is critical of public transport and housing but commends macroeconomic performance.  Israel suffers from a severe public transport infrastructure deficit, according to the OECD’s biennial Economic Survey of Israel published on 11 March.  The OECD says that this public transport deficit causes congestion, air pollution, poor access to place of employment, especially for disadvantaged groups living in peripheral regions.  The OECD report calls on the Israeli government to increase its investment in infrastructures and education in the Arab and Ultra-Orthodox Jewish sectors and bring about vital structural changes in those two areas.

The report also calls on the Israeli government to exempt fresh fruit and vegetables and other items from VAT.  It also suggests that the government put higher taxation on cars and make wider use of tolls and charges in order to encourage people to use public transport.  The report also proposes more competition in the aviation sector by breaking the monopoly of the Israel Airports Authority.  The OECD report is also critical of the government’s housing policy and says that the number of new homes being built is not sufficient to meet demand and bring down prices and that municipal taxes for homes are too low to finance the required development.

These problems aside, the report says that Israel’s economy continues to register remarkable macroeconomic and fiscal performance and that, “Israelis remain on average more satisfied with their lives than residents of most other OECD countries.”  (Globes 11.03)

Back to Table of Contents

10.3  Finance Ministry Releases Report on Public Sector Salaries in 2016

The director of wages and labor agreements at the Finance Ministry presented the Knesset with a broad overview of the state of public sector payrolls.  The review was published as part of the salary expenditure reports of the civil service and the public bodies for 2016, which also include the data of manpower agency employees.

The highest salary in the public sector went to a specialist from the Hadassah Medical Organization, who earns NIS 229,815 ($66,349.89) a month.  The second on the list is another specialist from Hadassah who earns NIS 208,312 ($60,141.76) a month.

They are followed by a senior manager of the Bank of Israel who earns NIS 118,922 ($34,333.97) a month; a router at the port of Ashdod who earns NIS 98,254 ($28,366.91) a month, while his counterpart from the port of Haifa earns NIS 85,500 ($24,684.71) a month, Electric Company CEO Bloch earns NIS 90,781 ($26,209.38) a month, while another vice president of the company, Rafael Blof, earns NIS 89,957 ($25,971.49) a month.  Uzi Dayan, the chairman of the Israel Lotto – earns NIS 63,214 ($18,250.51) a month.  At the bottom of the list are teachers and educators, who earn an average of NIS 10,018 ($2,892.30) a month.

According to the data, the average wage per employee in public service is NIS 15,796 ($4,560.46), and the salary for civil service employees is higher than the average wage per worker in the Israeli economy.  It also shows that 50% of the state budget is affected by wage expenditure, including direct salary expenses and pensions, indirect wages and components linked to and affected by wages, such as the health basket and participation in the collection of social security.

According to the report, 60% of people employed in public service in 2016 were women.  In government ministries and security bodies, the proportion of females in that year was 63.2%.  In all groups of public bodies examined, the average wage for women was lower than that of men. This year’s reports were expanded and explained more than in past years.  (Arutz Sheva 07.03)

Back to Table of Contents


11.1  ISRAEL: Staff Concluding Statement of the 2018 Article IV Mission

On 14 March a Concluding Statement was issued by the International Monetary Fund (IMF) following an Article IV Mission to Israel.

Israel’s economy is thriving, enjoying solid growth and unemployment declining to historic lows.  Near-term prospects are for further robust growth in the next few years and inflation is expected to rise although the pace of that increase is uncertain.  But relative poverty is the highest among OECD countries, partly owing to wide gaps between the employment and productivity of the Arab Israelis and Haredi subgroups relative to non-Haredi Jews.  Unless these gaps are narrowed, the substantial shifts in population composition that will unfold in coming decades could undermine growth and stability.

Israel should seize this opportunity to implement further reforms, especially in education and training, product markets, and the business environment, to sustain strong and inclusive growth.  The effectiveness of such reforms in raising productivity, narrowing gaps, and reducing living costs, would be bolstered by addressing Israel’s infrastructure needs in parallel.  Demand management is the immediate priority but a rise in high quality public investment would pay dividends in time.  Proposed increases in the earned income tax credit will aid low income working families while protecting labor participation, and further redistributive steps that support labor participation and productivity should be considered.

Macroeconomic and financial policies should maintain stability, which will also help realize the full benefits of reforms and public investment.  Monetary policy must stay accommodative for now to support the return of inflation to the target band, while being ready to tighten if needed.  The fiscal deficit should be reduced moderately in coming years to keep debt on a declining trend in normal times.  A stronger framework for managing public investment is needed to ensure that new infrastructure investment is high quality and timely, while adequate fiscal buffers must be preserved.  Welcome measures to strengthen financial sector competition also heighten the potential for new risks to emerge, making it urgent to approve the Financial Stability Committee.

Economic Developments & Outlook

Israel’s macroeconomic performance is strong yet inflation remains low.  The economy grew 3.4% in 2017 on the back of robust domestic demand and higher global growth, despite some drag from an unwinding of one-off factors that boosted GDP in 2016.  Unemployment has declined steadily in recent years, falling below 4% in early 2018, supporting broad-based wage growth averaging 3.3% in 2017.  Core CPI inflation remains below the 1–3% target range of the Bank of Israel (BoI), at 0.5% in January, reflecting the combined effects of the appreciation of the shekel, low inflation in key import sources, increased competition, and government measures to reduce the cost of living.

The economic outlook is favorable in the near term but challenges will increase over time.  Growth is expected to remain strong at about 3.5% in the next few years benefitting from the completion of major projects.  With trend productivity gains relatively modest at ¾% annually, growth is projected to average about 3% in subsequent years.  But Israel faces two major challenges to sustaining solid growth in the longer run. Subgroups with lower average labor market skills and labor force participation, especially Haredim and to a lesser extent Arab Israelis, will rise as a share of the working age population from one quarter in 2015, to one third by 2025, and two fifths by 2045.  Moreover, Israel faces sizable infrastructure needs, most evident in traffic congestion already the worst in the OECD, which will increasingly drag on productivity as the population and per capita incomes rise.

Monetary Policy

Domestic and international conditions are supportive of an increase in inflation, yet significant uncertainty remains around the timing of such an increase.  A continuation of solid nominal wage growth together with some firming of international inflation rates will likely translate into higher CPI inflation over time.  Yet, prolonged low inflation in recent years cautions that significant uncertainty remains around the timing of an eventual inflation increase.  For example, competitive pressures could lower inflation for some time as Israel’s price levels remain relatively high by international standards.

Monetary policy should remain accommodative pending a durable rise in inflation and inflation expectations.  The BoI maintained an appropriately accommodative stance in 2017 given low inflation and the spillovers from easy monetary policies in major advanced economies.  The BoI’s guidance that policy will remain accommodative as long as necessary to entrench the inflation environment within the target range has also helped anchor long term inflation expectations.  Yet, with expectations for the next few years below or close to the lower target bound, tightening should wait until inflation is clearly heading back to target, with the pace of eventual rate hikes being data driven.  Given comfortable foreign reserve levels and the economy at full employment, exchange rate flexibility should continue to be the first line of defense in the event of external shocks, with foreign exchange intervention limited to addressing disorderly market conditions, which may arise from significant exchange rate deviations from fundamentals.

Financial Sector & Housing Policies

Reinforcing the financial stability framework is critical to complement the progress being made on enhancing competition. Israel’s banking system is healthy yet highly concentrated.  Measures being implemented by the authorities are expected to strengthen competitive pressures, including “one click” bank account mobility, facilitating price comparisons for financial services, establishing a credit register, lowering minimum capital requirements for insurance companies, divesting two credit card companies, and reducing bank entry costs through access to IT services.  Already, the sources of credit are shifting, making it urgent to approve legislation to establish the Financial Stability Committee to avoid gaps in financial system oversight.  Entry by new banks would be welcome with appropriate deposit insurance and resolution arrangements to contain fiscal costs from potential failure.  The Banking Supervision Department should continue to operationalize a risk-focused supervisory approach to lower compliance costs while maintaining high standards.  The adoption of Solvency II by the Capital Markets, Insurance and Savings Authority is welcome.  It is essential for financial regulators to harmonize regulations in areas of overlapping activity to avert regulatory arbitrage.  Regulators are also taking welcome steps to enable innovation while enhancing technological risk management, where close coordination may facilitate Fintech development and utilization.  Safeguarding the operational independence of financial regulators remains critical to their effectiveness.

Slowing housing construction despite still high housing prices calls for continued reforms to make supply more responsive to needs and to improve housing affordability.  Housing price increases have slowed to just 2% y/y alongside a decline in turnover that may reflect proposed tax measures on investors and the market digesting the impact of the Buyer’s Price program.  But dwelling investment declined during 2017 and falling housing starts indicate a further decline in 2018, raising concerns that the recent stability may not last.  Continued reform efforts are therefore needed, including:

-Land supply, competition and regulation. Increased auctions of land are important to avoid land availability constraints and to help make housing supply more responsive to variations in demand.  Construction costs and time to build should be reduced by streamlining building regulations and expanding foreign construction company access.

-Municipal incentives. To encourage timely municipal approval of residential development, residential property taxes should be raised coupled with predictable central government support for the up-front costs of additional infrastructure and public services.

-Expand commutable areas and increase urban density. A well-developed public transportation system can expand commutable areas and relieve demand in major centers, hence plans to establish metropolitan authorities are welcome.  Urban renewal should be increased as urban density in Tel Aviv is relatively low, making the proposed fast-track approvals for mixed use developments especially useful.

Fiscal Policy & Infrastructure

Israel’s underlying fiscal deficit widened in 2017, with one-off revenues helping keep debt on a declining path.  Revenues were boosted by taxes on the sale of major Israeli companies and by a temporary cut in dividend tax rates in 2017, at the cost of lower dividend tax revenues in coming years.  These one-off revenues limited the central government deficit to 2% of GDP, helping general government debt decline to 61% of GDP.  However, the underlying deficit was 2.9% of GDP, and, although this matches the 2017 budget target, the structural fiscal deficit increased modestly despite strong growth.

The budgets for 2018-19 include valuable measures but leave the deficit too high.  The deficit target for 2018 remains at 2.9% of GDP, with fiscal reserves allocated to expanding disability benefits and subsidies for after-school childcare.  But a reform of eligibility requirements and testing for new entrants to disability benefits is urgently needed to protect labor participation and contain fiscal costs.  The proposed 2019 budget also includes support for technical training in schools together with an expansion of the EITC that assists low income families with two working parents.  However, the deficit target is raised to 2.9% of GDP.  Adhering to the former target of 2.5% would entail little drag on growth at a time of full employment, and would reduce the general government deficit to around 3% of GDP, sufficient to gradually reduce debt in normal times.  Ensuring the Buyer’s Price program is temporary would also support Israel’s fiscal health as the subsidies given through heavily discounted land sales are reducing receipts from the Land Authority.

It is welcome that the government is assessing how to best address Israel’s infrastructure needs.  Cross-country benchmarks suggest an infrastructure gap on the order of 20% of GDP, with traffic congestion the most prominent issue.  A government committee is developing an integrated long-term national infrastructure strategy until 2030, while also preparing a list of additional projects for implementation in the next five years.

An immediate priority is to ensure that the existing infrastructure is efficiently utilized through demand management tools.  Given the lengthy processes to complete new infrastructure such as mass transit, there is a need for frontloaded action to manage demand.  Some demand-side tools (e.g., ride sharing, carpooling, high occupancy vehicle lanes), could have near-term benefits at low cost.  The “Going Green” initiative is a welcome pilot that should be ramped up.  Charging for road use at peak hours is an approach used successfully in cities around the world, although it would need to be coupled with flexible working arrangements to be most effective in practice.  If bottlenecks remain after these steps, the areas that should be the focus of additional public investment are more clearly identified.

The framework for managing infrastructure investment needs to be strengthened to ensure investments are high-quality and timely, including by:

-Establishing a body with clear accountability and sufficient powers for upgrading Israel’s infrastructure, supported by staff with the necessary technical expertise.

-Making project evaluation and selection more rigorous and transparent, including by ensuring consistency with the long-term infrastructure strategy.

-Streamlining the zoning and permitting processes and addressing other bureaucratic impediments to timely project implementation.

-Improving coordination between ministries and between the central and local governments. Broadening the coverage of the medium term fiscal framework to the general government could contribute to improved coordination and planning as local governments implement around three-quarters of public investment.

-Phasing any scaling up of public investment judiciously to avoid waste.

-Using public-private partnerships (PPP) only where private sector know-how improves efficiency, and designing and monitoring PPPs carefully to protect the public interest.

-Maintaining a high level of transparency around the level and composition of investment, including to help protect public investment against short-sighted cuts.

If public investment is increased, there is a need to preserve adequate fiscal buffers.  As infrastructure enhances growth and revenue over a long horizon, there is a case for financing a portion with debt or PPPs.  But any increase in the public debt ratio should be modest and temporary, as Israel needs strong fiscal buffers to cope with potential shocks, and liabilities from PPPs should be managed carefully and reported in line with international best practices.  The low level of Israel’s civilian spending, together with reform needs (see below) in education, training and active labor market policies, indicate that revenues should be the main source of non-debt financing.  Within revenues, the focus should be on sources with the least drag on potential growth, especially reducing tax benefits, which total 5% of GDP.

Structural Reforms

Israel can sustain strong growth by narrowing gaps in skills and participation across population subgroups and genders.  Compared with the hourly wages of non-Haredi Jewish men, those for non-Haredi Jewish women are about one-fifth lower, Haredi about one-third lower and Arab Israelis about half.  Employment rates of Haredi men and Arab women have risen but remain very low, at 47 and 35% respectively.  It is notable that Haredi male participation has been flat in recent years, indicating a need to avoid measures that defer entry to the labor market or undermine incentives to work.  To illustrate the scale of potential gains, narrowing the gaps in employment and hourly wages by half – leaving the proportion of part-time workers unchanged – could raise output by almost 14%.

Reforms of education and vocational training are central to enhancing skills, which boost employability as well as productivity and wages. Israelis spend substantial time and resources on education, yet the average skill level of workers is low by OECD standards.  The quality of education and training needs improvement:

Education: Education spending has been raised in recent years, primarily by increasing teacher’s salaries. The effectiveness of schools should also be increased, such as through higher standards for teachers, covering core subjects at all grades in Haredi schools, improving Hebrew teaching in Arab schools, and extending the short school day.  School reforms are the first best option, but more innovative solutions, such as subsidizing voluntary participation in after school educational programs, should be considered where progress is not feasible.

Vocational Training: It is welcome that vocational training reforms are being developed.  These reforms should ensure that the courses offered meet business needs and the quality of courses should be evaluated.  The modalities for delivering training should facilitate participation by Haredi and Israeli-Arabs.  Career centers should guide the unemployed to suitable training where appropriate, which may include business-oriented Hebrew.  Low wage workers should also receive support for training related costs to upgrade their skills.

Raising the employment rates of key population subgroups will require tailored measures.  The authorities are updating targets for the employment rates of key subgroups through 2030, and are developing policies to help reach those targets.  To raise labor participation and work hours of women, childcare support needs to be further expanded, especially for younger children.  Moreover, increases in the retirement age for women should continue without introducing new incentives for early retirement.  Career centers in 46 communities are achieving significant employment gains through low cost programs such as “Employment Circles” and resources for active labor market program should be expanded from only 0.2% of GDP. Enhancing public transportation such as bus services is important to ease access to workplaces.  But, in some cases, e.g. Arab women, enabling workplaces to locate near communities may also support greater participation.

Fundamental upgrades of the business environment are critical, especially reducing bureaucracy.  The government has undertaken key product market reforms such as personal imports and the long-delayed electricity sector reforms. Implementation of the product market reform agenda should continue, including replacing trade barriers on agricultural products with targeted subsidies.  However, numerous regulations and their high compliance costs remain major impediments to competition and investment.  The proposed reforms of fire safety regulation and business licensing are important steps forward.  But there is a need for broader progress to achieve simple and timely administration of regulations, such as a “one-stop shop” that would assess all regulatory requirements within a reasonable period.  All proposals for new regulations should be subject to robust regulatory impact assessments.  The lengthy process of contract enforcement indicates a need to make court procedures more efficient, and the establishment of a specialized court for complex antitrust cases would support competitive markets.

Measures to contain poverty can also support participation and productivity if carefully designed.  Priorities are threefold:

-Further expand the amount and coverage of the Earned Income Tax Credit (EITC). Even after planned increases, Israel’s EITC remains small with a fiscal cost of 0.16% of GDP annually, compared with 0.4–0.5% in the U.S. or the U.K. As wages are the main source of income for 60% of population below the poverty line, expanding the EITC can effectively reduce poverty.  Experience in other countries indicates that expanding the EITC will increase take-up by the eligible population, adding to the impact on poverty, which would be even larger if labor participation also rises.

-Implement the EITC more effectively. At present, the EITC can be claimed only at the end of each year, and it is received with a delay.  More frequent and timely payments would better incentivize work and streamlined administration could improve take-up.

-Make transfers more targeted to support EITC expansion. Israel’s current transfer system is not progressive, providing a similar shekel amount to all households, even those in the top income decile.  Modifying the transfer system to make it better targeted to low income households can reduce poverty at less fiscal cost. Using the resources released to expand the EITC, as well as for transfers that are conditional on additional education and training, would ensure they reinforce incentives to work and upgrade skills.  For those unable to work, the modest levels of welfare support should also be reviewed.  (IMF 14.03)

Back to Table of Contents

11.2  ISRAEL:  The Gas Deal with Egypt – Israel Deepens its Anchor in the Eastern Mediterranean

Oded Eran, Elai Rettig, Ofir Winter posted on INSS Insight No. 1033 on 12 March that presumably the government of Israel played an important role in securing the $15 billion natural gas deal signed recently between the owners of Israel’s Tamar and Leviathan fields and the Egyptian Dolphinus Holding.  For his part, Egypt’s President el-Sisi stated that with this deal Egypt has gained a foothold in the Eastern Mediterranean, positioned itself as a regional energy center, and “scored a big goal.”  The deal, along with the construction of a natural gas pipeline to Jordan, has great strategic value for Israel and the region.  These deals might possibly be joined by a future deal with the PA, enabling the supply of gas and perhaps also the production of gas off the coast of Gaza.  These agreements stabilize Israel’s relations with its neighbors by creating a web of mutual interests and opening up the possibility of regional cooperation beyond the subject of natural gas, such as the export and import of electricity and desalinated water.

On 19 February 2018, the gas partnerships in Israel announced a $15 billion contract to export 64 billion cubic meters of natural gas to Egypt over ten years.  The contract, between the owners of the Tamar and Leviathan fields and the Egyptian Dolphinus Holding, is based on a memorandum of understanding from October 2014.  Presumably the government of Israel played an important role in securing this deal, by promoting it with the Egyptian government and possibly also by covering the guarantees required from Dolphinus for its approval.

The green light in Cairo for signing the deal after long Egyptian delays reflects several considerations.  First, Egypt seeks to settle the $1.76 billion in compensation that the Egyptian gas companies were required to pay the Israel Electric Corporation (IEC) as part of an international arbitration verdict in 2015.  Second, the decision to allocate most of the gas in the Zohr field to Egyptian domestic consumption paves the way for the flow of gas from Israel, Cyprus and other countries to the liquefaction facilities in Damietta and Idku for the purpose of export to Europe, a step that maximizes the economic and political value of the fact that Egypt is the only country in the region with the infrastructures for gas liquefaction.  The third consideration is the promise of estimated revenues of some $22 billion over ten years, and strengthened economic ties between Egypt and Europe.

In spite of the benefits, the gas deal with Israel aroused public debate in Egypt.  Islamist elements, primarily Egyptian exiles, criticized “the import of Arab-Islamic gas stolen from occupied countries and infusion of billions in the Zionist coffers.”  Opposition elements within Egypt indicated their concern over creating Egyptian dependency on Israel, but their criticisms focused on questions as to the economic benefit of the transaction for the Egyptian public and on the lack of transparency.

In response, government spokesmen pointed to the Turkish-Qatari considerations behind some of the criticisms.  They minimized the role of the Egyptian government as broker of the deal, played down its political significance, and stressed its economic benefits.  President el-Sisi, who is currently campaigning for a second term, expressed satisfaction that the region’s gas will be exported via Egypt and not via other countries, hinting at Turkey.  He stated that with this deal Egypt has gained a foothold in the Eastern Mediterranean, positioned itself as a regional energy center, and in his words, “scored a big goal.”

The “goal” celebrated by el-Sisi appears to have positioned Israel and Egypt as players on the same “team” working to promote shared objectives.  Articles in the Egyptian establishment press stressed the gains to both countries from the deal, and some pointed to the link between security coordination in Sinai and broader cooperation in energy.  This Egyptian view gives additional depth to the peace relations, and highlights the mutual long term interest in fostering them.  The gas deal also creates a platform for other bilateral and multilateral cooperation in the region that includes Egypt and Israel.  However, it is still too early to call the deal a breakthrough in the normalization of relations.  As there have been energy deals between Israel and Egypt since the 1980s, the current transaction does not set a precedent.  Moreover, at this stage it is hard to assess to what degree the fruits of the deal will trickle down to the Egyptian public and reinforce their enthusiasm for peace.

A central Issue that was not addressed in the agreement is how to transport the gas from Israel to Egypt.  In a subsequent announcement from the gas companies to the Tel Aviv Stock Exchange, they stated that negotiations are currently underway with EMG to reroute the original pipeline, which stopped activity in 2011.  This is a very cheap and fast option albeit replete with considerable security challenges, since it is exposed to sabotage in the Sinai Peninsula – be it for ideological reasons or extortion by local tribes.  If this option is not implemented, another cheap option would be to build 100 km. of overland pipeline from the southern Gaza Strip, to connect the gas pipeline in southern Israel with the Egyptian pipeline in Sinai through the Kerem Shalom or the Nitzana crossing.  This option would give Israel access to the Arab gas pipeline to Jordan (which continues to Lebanon and Syria) but would also be exposed to security threats.  The safest but far more expensive option involves laying 300 km. of undersea pipeline directly from the Tamar field to Egypt.  The fact that the agreement was signed without clarifying the subject of transportation, an issue with important consequences for the deal’s profitability and the gas prices, raises the possibility that other political and economic considerations played a part in the success of the deal or its timing.  Apart from the transportation problem, failure to resolve the debt to the IEC could hamper implementation of the agreement.

The “Egyptian” option of transporting the gas from Israel, and in the future from Cyprus and perhaps from Lebanon, appears more realistic than laying a pipeline to Turkey, in view of the increasing radicalization of Turkey’s regional policy, its worsening relations with Europe, and the possible strengthening of Hezbollah after the forthcoming elections in Lebanon, particularly as the pipeline would run through Lebanon’s economic waters.  In addition, the new energy policy launched by Turkey last year is intended primarily to slow down the rise in local consumption of natural gas in favor of coal and renewable energy sources (and at a later stage, nuclear energy).  On the other hand, Egypt offers Israel a growing local market and the possibility of using its liquefaction facilities to transport gas to Europe.  Considering the strong competition expected in the European market for liquefied gas over the coming years, the use of existing facilities is the only realistic option facing Israel’s gas partnerships if they want to offer competitive pricing.

Apart from the pipeline to Egypt, a pipeline to Jordan is under construction, as part of an agreement signed in 2016 to supply 45 billion cubic meters of gas over 15 years.  The pipeline will run from north of Beit Shean and inter alia transport gas to the Palestinian Authority, permitting the volume of gas to be three times more than required for the Jordanian deal and opening the possibility of a “northern connection” with the Arab gas pipeline passing through Jordan.

The deals with Jordan and Egypt have great strategic value for Israel and the region.  They might possibly be joined by a future deal with the PA, enabling the supply of gas and perhaps also the production of gas off the coast of Gaza.  These agreements stabilize Israel’s relations with its neighbors by creating a web of mutual interests and opening up the possibility of regional cooperation beyond the subject of natural gas, such as the export and import of electricity and desalinated water.

In security terms, the flow of gas from Israel to Egypt, Jordan and the Palestinian Authority makes this a regional and not just Israeli interest.  In the new reality created, any damage by Hezbollah or Hamas to Israel’s ability to produce gas will also affect the supply of electricity to Jordan, Egypt and the PA.  The threat will become an important component in the intelligence and security cooperation with neighboring countries in identifying and preventing sabotage, and a catalyst for them to seek calm if fighting breaks out with one of these organizations.  In economic terms, presenting a partnership between Israel and its neighbors dealing with energy resources will encourage the entry of new investors into the Eastern Mediterranean and show them that it is possible to implement large scale production and export projects requiring regional cooperation.

The deal could also have implications regarding the Lebanese issue.  The unresolved dispute with Lebanon over maritime borders is a political and security nuisance for Israel.  On the other hand, it has not prevented either Egypt or Jordan from entering into long term engagements with Israel in the field of energy.  Clearly, hostilities between Israel and Lebanon would have destructive consequences, particularly for Lebanon, inter alia by reducing its ability to use the oil and gas in its waters, but they would also damage Israeli interests regarding the development of gas reservoirs close to the border.  It seems likely that the bellicose rhetoric currently coming from Lebanon and the repeated rejection of United States compromise proposals are primarily background noise to the approaching elections.  However, it would be best for countries that maintain a political dialogue with Lebanon, particularly those whose energy companies are involved in gas development, to work toward reducing the Lebanese bluster.  (INSS 12/03)

Back to Table of Contents

11.3  JORDAN:  Can Ambitious Adjustment Programs Turn Into Genuine Reforming Actions

On 14 March, the Group Research Department at Bank Audi released its latest Jordan Economic Report.

Real economy in a low growth mode:  The Kingdom’s macroeconomic performance remains sluggish on the overall.  Real GDP is expected to be around 2.3% in 2017, against 2.0% in 2016, while remaining far below the economy’s potential growth rate, which is estimated at 6%.  Trade and tourism continue to perform poorly, government spending remains pressured and the continued increase in fees and taxes, along with the increasing unemployment weigh significantly on domestic consumption.  In parallel, unemployment has relatively increased to reach around 18.5% in the fourth quarter of 2017, while poverty and declining living standards have become widespread.

Widening current account deficit with persisting weak public finances:  Jordan’s external position witnessed a net deterioration in 2017 as exports remained subdued largely due to a relative disruption of trade routes to neighboring Iraq and Syria on the one hand, and to the appreciation of the real effective exchange rate by nearly 30% since 2011, eroding its competitiveness and worsening its trade imbalance on the other hand, while imports increased on the back of higher global commodity prices.  As such, recent balance of payments figures for the first nine months of 2017 suggest a net deterioration in the current account deficit which widened by 23% year-on-year despite a relative improvement in travel receipts.  At the fiscal level, public finances remain the key challenge, owing to the heavy debt burden and high financing requirements, with government deficit standing at 3% of GDP and gross public debt remaining high at 95% of GDP at end-2017.

Tight monetary policy in light of US Fed rate hikes and some inflationary pressures:  The year 2017 was marked in Jordan by a sustained comfortable level of foreign exchange reserves along with some inflationary pressures that came within the context of an oil price recovery.  The Central Bank of Jordan adopted a steeper rate hiking path than the US Federal Reserve to preserve the attractiveness of Jordanian dinar assets and maintain monetary stability, while remaining committed to the fixed exchange rate regime.  In details, consumer prices rose by 3.3% on average in 2017 following two consecutive years of deflationary pressures.  Despite an environment of contractionary monetary policy, gross official reserves declined by 3.7% over the year 2017 or the equivalent of US$ 516 million to reach US$ 13.5 billion at end-December.

Pick-up in domestic lending activity in a financially sound banking sector:  Jordan’s banking sector witnessed rather difficult operating conditions throughout 2017 amid mild domestic economic growth momentum and a difficult regional environment with the war/tensions in neighboring Syria/Iraq and fiscal consolidation in neighboring GCC markets.  Nonetheless, prudent management and conservative regulatory practices allowed the banking sector to withstand headwinds.  Total assets of banks operating in the Kingdom pulled out a 1.5% increase in 2017 to reach $69.2 billion at end-December due to a surge in domestic lending to the economy offsetting a decline in credit to the central government.

Equity market skewed to the downside, price gains on bond market:  Jordan’s equity market continued to operate on a negative territory in 2017 amid relatively unattractive market pricing ratios and lingering geopolitical concerns.  The general weighted price index posted declines for the tenth consecutive year, moving down by 1.5% in 2017.  On the other hand, the fixed income market witnessed healthy price gains over the year along with new bond sales.  Sovereigns maturing in 2026 and 2027 posted price gains of 2.39 points and 5.01 points respectively in 2017.

Both opportunities and challenges looking ahead:  A constrained fiscal position and continued regional instability will slow the pace of recovery looking ahead, despite the fact that the relatively improved security conditions in two neighboring markets will offer trade and investment opportunities for Jordan.  Although high unemployment will limit private consumption growth, large infrastructure and tourism projects should increase employment, assuming private sector participation and multilateral agency support are forthcoming.  While challenges and risks are real, we believe opportunities outpace threats at the horizon.  Still, it is important for Jordan to well secure its targeted reform process and turn it into genuine actions and measures.  (BA 14.03)

Back to Table of Contents

11.4  JORDAN:  The Jordan Exception in US Foreign Assistance

Ben Fishman and Ghaith al-Omari wrote in TWI‘s PolicyWatch 2939 on 7 March that by increasing Amman’s funding amid austerity measures elsewhere, Washington has reaffirmed the kingdom’s strategic importance, but close engagement is needed to make sure the money is well spent.

During a 14 February meeting in Amman, then-Secretary of State Rex Tillerson signed a foreign assistance memorandum of understanding with his Jordanian counterpart Ayman Safadi.  Tillerson described the MOU as “a signal to the rest of the world that the U.S.-Jordan partnership has never been stronger.”  At least in dollar terms, his assessment is accurate.

The MOU outlines a new five-year, $6.375 billion commitment ($1.275 billion per year) beginning in fiscal year 2018 and ending in FY 2022 – a $275 million annual increase over the previous three-year agreement.  At a time when the Trump administration is cutting foreign assistance, Jordan remains among the top five recipients, along with Iraq, Afghanistan, Israel, and Egypt.  The MOU pushes Jordan past Egypt’s total aid for the first time, showing just how high Washington prioritizes the kingdom’s continued stability.

At the same time, Jordan’s budget remains in perennial debt, the population is changing with the continued refugee influx, and pressures at home and abroad pose an ongoing threat.  The MOU therefore remains only one piece of the comprehensive policy required to support one of Washington’s most stalwart allies in the Middle East.

History of the MOU

The latest MOU follows two others that covered FY 2009-2014 and FY 2015-2017.  These are not legally binding documents, but they hold considerable symbolic value by emphasizing the enduring nature of U.S. strategic commitment to Jordan.  They also help Amman plan for a minimum amount of assistance from the United States – an annual tally that has increased with each MOU, from $660 million to $1 billion and now $1.275 billion.

In addition to the baseline level of assistance laid out by the MOUs, Washington has provided supplemental funds for specific projects beyond the original allotment.  For example, since 2013, the Defense Department has allocated an additional $100 million from its Cooperative Threat Reduction account to help install security barriers and detection equipment along Jordan’s borders with Syria and Iraq, in part to watch for weapons of mass destruction.  Similarly, the U.S. government has given several hundred million dollars since 2011 to help Jordan with its massive Syrian refugee population, funding projects implemented primarily by UN agencies and international NGOs.  Washington also guaranteed $3.75 billion in loans in 2013-2015 (at a cost of $413 million to the United States), for which Jordan would not otherwise have qualified given its poor credit status.  In other words, although the previous MOU specified $1 billion in annual assistance, the United States has actually provided closer to $1.5 billion in each of the past few years.

Where the Money Goes

In general, U.S. foreign assistance is divided between Economic Support Funds (ESF) and Foreign Military Financing (FMF).  Whereas assistance to some of Jordan’s neighbors countries consists mainly of FMF (e.g., 100% in Israel’s case and 85% in Egypt since military aid was restored after the 2013 coup), Amman’s aid package has evolved over the past decade from a near-even ESF/FMF split to a strong emphasis on economic assistance.

In that vein, the new MOU sets minimum annual ESF to Jordan at $750 million and FMF at $350 million, leaving a cushion of $175 million to be allocated where needed.  This change signals the administration’s assessment that existing support for the Jordan Armed Forces is adequate and that the real threat to regional stability is economic volatility and pressure from the surge of Syrian refugees.

The largest ESF component is earmarked for direct budgetary support to the Jordanian government, which totaled over $230 million in FY 2016. Jordan funds approximately 12% of its budget through direct grants, and the United States is routinely the leading provider of such support behind Saudi Arabia, whose assistance fluctuates. (Although other Gulf Cooperation Council states have provided budgetary support in the past, they currently focus on funding capital investments to support specific development projects in Jordan.)  Washington’s remaining ESF is split between projects focusing on education, job growth, environmental issues, water, and energy, as well as civil society and governance support.

Even with this generous assistance, however, Jordan remains heavily dependent on foreign aid and burdened by major debt.  In 2017, its debt-to-GDP ratio reached 94% – an extremely high proportion given Jordan’s low growth rate.  Worse, the annual cost of servicing this debt is nearly $1.3 billion, or about 11% of current spending.

As then-Secretary Tillerson explained, the MOU is intended “to support His Majesty King Abdullah’s political and – importantly – his economic reform agenda, and move Jordan closer to achieving the self-reliance that it seeks.”  Indeed, U.S. assistance helps mitigate domestic pressures resulting from the economic and fiscal reforms that Jordan has implemented in line with its IMF program.  To reduce its debt, Amman has made controversial decisions such as eliminating bread subsidies (which the IMF did not recommend), increasing electricity prices, and raising sales taxes to between 10-16% on a broad range of commodities.

Jordanian Reactions

Although Amman initially hoped that Washington would increase its assistance baseline to $2 billion, Jordanian official reaction to the new MOU was nevertheless glowing.  In his joint press conference with Tillerson, Safadi repeatedly emphasized the “fraternal” nature of bilateral relations and sought to downplay or compartmentalize any disagreements, particularly regarding President Trump’s Jerusalem embassy decision.

Tillerson’s visit received positive coverage in the Jordanian media as well, though it had to compete with a slew of domestic developments.  Subsidy reductions dominated the news given the small but persistent protests against them, including occasional flare-ups in traditionally pro-government portions of central and southern Jordan.  The kingdom was also gearing up for a parliamentary no-confidence vote scheduled a few days after the MOU signing.  Prime Minister Hani al-Mulki’s government survived the vote, but he felt compelled to reshuffle his cabinet for the sixth time since May 2016.  He also introduced the position of deputy prime minister for economic affairs; the new post was filled by Jafar Hassan, who previously served as head of the king’s private office.

None of these developments is dramatic enough to threaten the stability of a kingdom accustomed to crises.  Collectively, however, they highlight the incessant economic and political challenges under which U.S. assistance to Jordan takes place, and the necessity of maintaining close engagement.

Maximizing the MOU’s Impact

The effectiveness of Washington’s increased assistance to Jordan will depend on regular dialogue between key officials at the departmental/ministerial level.  To make sure that new funds are well spent, the United States needs an effective interagency team as well as a fully staffed and active U.S. mission in Amman to work with Jordan’s new deputy prime minister for economic affairs and his team.  That will enable the administration to regularly evaluate how well the assistance programs are addressing critical needs such as creating jobs, encouraging Jordan to reduce government inefficiencies, and mediating potential disputes with the IMF on the timing and substance of recommended fiscal reforms.

As for the MOU’s extra $175 million in unspecified assistance, U.S. officials should designate it for a multiyear project aimed at ameliorating Jordan’s high unemployment.  The practice of granting microfinance loans to support the emergence of small businesses has not been particularly successful in creating significant jobs, so other options should be explored, including Overseas Private Investment Corporation loans to American companies as a way of encouraging them to invest and open branches in Jordan.

In exchange, Jordan needs to take several regulatory measures and expand access to financing in order to spur job creation.  In the World Bank’s annual “Doing Business” report, the kingdom ranks 110th globally in “ease of doing business” (10th in the Middle East and North Africa), and 159th in access to credit (well behind the regional average, trailing Egypt and Lebanon).  Any additional U.S.-funded projects should aim to improve access to credit and facilitate foreign direct investment.

Ben Fishman, an associate fellow with The Washington Institute, served as director for North Africa and Jordan at the National Security Council from 2012 to 2013. Ghaith al-Omari is a senior fellow at the Institute.  (TWI 07.03)

Back to Table of Contents

11.5  UAE:  UAE and the Horn of Africa – A Tale of Two Ports

Taimur Khan posted on 8 March in the Arab Gulf States Institute in Washington that on 22 February, Djibouti seized control of the Doraleh Container Terminal from its joint owner and operator, the Dubai-based DP World.  The seizure was not wholly unexpected and was the culmination of Djibouti’s deteriorating bilateral ties with the United Arab Emirates and a lost legal battle with DP World to renegotiate the terms of the port concession that gave it a 33% equity stake in 2006.

The London Court of International Arbitration Tribunal ruled against Djibouti’s claims, lodged in 2014, that DP World paid bribes in order to secure the 30 year concession.  The Dubai government said it has initiated proceedings at the tribunal over the seizure.  A statement by the Djiboutian government claims it seized the port over poor performance – although its volume has grown to around 1 million Twenty Foot Equivalent Units, a measurement of a ship’s carrying capacity, annually – and additional terms added by DP World that amounted to a violation of its sovereignty.

Doraleh opened in 2009 and is the only container terminal in the Horn of Africa able to handle 15,000 ton container ships.  It quickly became the most important entrepȏt for the region’s largest country and economy, Ethiopia, which was rendered landlocked by Eritrea’s independence in 1993.  Ethiopia receives around 97% of its imports through Doraleh – around 70% of the port’s activity – in what has become an unacceptable strategic reliance on a neighbor in a region whose history has been defined by shifting alliances, constant internal meddling, and a balance of power in which no party has been able to gain the upper hand.

A second, related development has also unfolded in recent days.  A year after DP World finalized an agreement with the semiautonomous region of Somaliland to develop a $442 million commercial port in Berbera, Ethiopia inked a deal with the port operator and Somaliland’s government to acquire a 19% stake in the port.  There are reportedly plans for DP World to upgrade the connectivity infrastructure linking Berbera to the Ethiopian border that would allow Addis Ababa and potentially greater East Africa to reduce their sole dependence on Djibouti, which would have significant strategic implications for regional geopolitics.  Many analysts speculate that this agreement to build up a direct competitor to Doraleh is what may have been the proximate cause of Djibouti’s seizure of the terminal from DP World.

Horn of Africa

Djibouti: Doraleh Container Terminal (formerly run by DP World); Doraleh Multipurpose Port (China); U.S., French, Japanese, Chinese, Saudi military and naval bases

Assab, Eritrea: UAE military and naval bases

Berbera, Somaliland: DP World port project; UAE naval base under construction

Puntland, Somalia: P&O Ports, a Dubai-owned port operator, has secured the rights to develop the port of Bosaso; UAE trained and equipped Puntland Maritime Police Force

Mogadishu, Somalia: Turkish military base; UAE-funded special forces training center; Port of Mogadishu operated by Turkish company Albayrak

Barawe, Somalia: DP World in talks with regional government over developing the Barawe seaport

Suakin, Sudan: Turkey will construct a naval dock to maintain civilian and military vessels

The tale of these two ports reveals the increasingly complex dynamics animating the geopolitics and the more localized politics, being shaped by the competition among aspiring regional powers of the Middle East – particularly Gulf Arab states and Turkey – and China for influence in the Horn of Africa.  Some analysts and senior U.S. military officials speculate that Djibouti may try to turn the Doraleh Container Terminal over to Chinese investors.  A new $600 million project, Doraleh Multipurpose Port, was built by China Merchants Port Holdings, which in 2013 bought a 23.5% stake in Doraleh Container Terminal’s majority owner, Port de Djibouti.  The Export-Import Bank of China also helped finance the over 470-mile, $4 billion railway linking Doraleh to Addis Ababa.

The intra-Gulf Cooperation Council crisis has added another destabilizing variable, as countries, parties, and elites in East Africa have been forced to choose sides.  In Somalia, this has exacerbated tensions within political factions in Mogadishu, as well as between the federal government and breakaway and semiautonomous regions of the country.  These dynamics have combined with more direct fallout from the crisis, such as the Emirati and Saudi move to freeze budgetary support to the federal government that helped pay security forces’ salaries, to create a divided and distracted political and security environment that al-Shabab has sought to exploit with an increase in attacks.

In Somalia’s 2017 presidential election, the candidate allegedly backed by the UAE lost to his rival, Mohamed Abdullahi Mohamed, known as Farmajo, allegedly supported by Qatar and Turkey.  The federal government has not taken sides in the GCC dispute, though Farmajo and Cabinet ministers have traveled frequently to Saudi Arabia and the UAE.  While Farmajo has sought a role for the federal government in the port and military base deals, so far those demands have not been met and the direct engagement of breakaway regional governments has added a centrifugal dynamic to already fragile relations between Mogadishu and semiautonomous state governments.

Recent developments show the bid for influence is indeed a two-way street.  Along with the competition by outside players has come greater leverage for Horn of Africa countries, whose elites have long been adept at playing external patrons off one another.  Ethiopia has to some degree succeeded in diluting Abu Dhabi’s reliance on its enemy, Eritrea, by supporting its plans for the Berbera port.  In 2015, after losing access to Djibouti for military operations, the UAE constructed a base in the coastal Eritrean city of Assab, which has been vital to its operations in southern Yemen.  By supporting the UAE’s military and commercial infrastructure plans in Somaliland, Ethiopia – the Horn of Africa’s largest and most powerful country – also contributed to the fracturing of Somalia by encouraging the de facto consolidation of Somaliland’s independence.  A weakened Somalia unable to challenge Ethiopia’s dominance by supporting ethnic Somali insurgents is a pillar of Addis Ababa’s regional policy.

Somaliland agreed to lease to the UAE the old Soviet military base in Berbera near the DP World project, which Abu Dhabi plans to expand, in exchange for a reported $1 billion investment in infrastructure, training and job creation in the breakaway Somali region.  But this plan has, at least temporarily, been complicated by local political dynamics.  Somaliland has reportedly halted the construction of the base over competing claims by local clans over compensation for the land being developed.  In Sudan, the UAE and Saudi Arabia have led efforts to rehabilitate President Omar Bashir in the international community by lobbying for U.S. sanctions on Sudan to be lifted.  Bashir agreed to cut ties with Iran and send troops to fight for the Saudi-led coalition in Yemen.  In December 2017, however, Bashir also agreed to lease Turkey the Red Sea island of Suakin for development.  Though Turkey has denied it, concerns quickly arose that Ankara planned to build a new military base on the island, which would be its second in the Horn of Africa with the first in the Somali capital of Mogadishu.  The agreement came as Ankara’s ties with Riyadh and Abu Dhabi were at their nadir.  Turkey’s soft power and popularity in Mogadishu and other parts of Somalia is formidable and was built on its early economic, diplomatic, infrastructure development, aid and education involvement with the country.  As the temperature of its rivalry with Riyadh and Abu Dhabi increases, Ankara is leveraging this advantage.

The confidence with which Horn of Africa elites are pursuing their own interests at the risk of angering new patrons underscores the high stakes for the participants in this so-called “new scramble for Africa,” and also their long-term intent.  Djibouti in particular emerged over the past decade as a strategic focal point next to the Bab el-Mandeb shipping lane, existential for the flow of Gulf energy to Europe and goods between Asia and Europe.  It has leveraged its location for lucrative basing deals for current and emerging world powers alike. The United States, China, Japan, Saudi Arabia and former colonial ruler France all have bases in Djibouti.

But for the UAE, which was forced to look elsewhere after dramatically falling out with Djibouti, building military bases along the littoral on both sides of the Red Sea is key to first ensuring security interests such as its operations in Yemen, counterterrorism and antipiracy operations, and strategic depth vis a vis Iran.  However, the UAE’s longer-term interests – as well as those of its competitors – are economic and strategic.  The country is working to make itself an essential component of China’s Belt and Road Initiative and secure Dubai’s Jebel Ali as the key logistics and trade hub linking Asia to Africa via DP World infrastructure, in the face of competition by a glut of new ports built by rivals with similar ambitions in Iran, Pakistan, Oman and elsewhere along the Horn of Africa.  DP World is involved in two other port projects in breakaway Somali states, as well as logistics infrastructure and ports projects in Rwanda, Mozambique, Algeria and Mali.

The Horn of Africa and the broader East Africa region have some of the fastest growing economies on the continent, with emerging middle classes, but the relatively untapped markets are in dire need of investments in infrastructure and a range of sectors to cater to these new consumers.  State-backed and private investors from the UAE have invested in a wide range of non-energy sectors, from finance and banking to construction, tourism, food, entertainment and agri-business.

The UAE is also trying to make the nature of its engagement more attractive for African governments and private sector partners:  Rather than following the path of China, which has been perceived negatively as following a pseudo-colonial model in Africa, it is looking more toward the Turkish model. Investments such as DP World’s in Somalia or military bases come with packages of infrastructure investment, training and education for workers and security forces, as well as inducements such as greater numbers of visas to the UAE.  Food and water security continues to be an important interest for the UAE and other Gulf countries in East Africa.  Emirati companies are seeking to avoid the political pitfalls that have caused past investments in land for food production to fail.  Privately owned Al Dahra Holding, which owns farmland in Africa, claims to use a 50-50 sharing formula for produce with local companies and hires local workers.

The competing interests of the new foreign entrants into the Horn of Africa’s political economy may lead to better terms and more equitable deals for governments and burgeoning economies hungry for investment.  But the sudden abrogation of DP World’s Doraleh concession also lays bare the growing risks for the aspiring regional powers.  The deepening fissures of Somali politics, in no small measure due to Middle East powers’ attempts at influence, also illustrate the risks for Horn of Africa societies, whose strategic location and economic potential paradoxically may lead them on a more complex – and possibly treacherous – path.

Taimur Khan is a non-resident fellow at the Arab Gulf States Institute in Washington and an independent journalist.  (AGSIW 08.03)

Back to Table of Contents

11.6  SAUDI ARABIA:  Why Pakistan has troops in Saudi Arabia & What it means for the Middle East

On 6 March, Umer Karim posted in The Conversation that Pakistan recently announced that it will send military personnel to Saudi Arabia.  The details of the deployment remain elusive, but a composite brigade of the Pakistani military will reportedly fulfil advisory and training roles.  It seems Islamabad and Riyadh’s longstanding relationship is getting stronger – so what are the implications?

First of all, Pakistani troops have been deployed in the Saudi kingdom before.  Pakistani military engagement started when its special services participated in the operation to eliminate fundamentalist elements that seized the Grand Mosque in Makkah in 1979.  Afterwards, tens of thousands of Pakistani troops remained in Saudi Arabia during the Iran-Iraq war.  Most were recalled after the war ended in 1988 – but a smaller contingent stayed on.

The two countries’ close ties were tested in 2015 when the Pakistani parliament unanimously rejected a Saudi request for Pakistani troops to support its Yemen campaign, but the relationship never quite broke down.  Despite the parliamentary rejection, Pakistan still provided some naval assistance early in Saudi’s Yemen operations and since then, the two militaries have conducted joint exercises.

Former Pakistani Army Chief General Raheel Sharif was made the head of the Saudi-led Islamic Military Alliance to Fight Terrorism and Saudi troops participated in the 2017 Pakistan Day Parade.

Reports broke in early 2017 of Pakistan sending a brigade of its troops to Saudi Arabia, but there was never a confirmation from Islamabad.  The decision to send troops was finally made in February 2018 and announced in a surprise press release from a Pakistan military spokesperson on 15 February 2018.  The military was clearly the decisive authority here, as parliament was apparently not consulted on the deployment.  The timing of the announcement also spoke volumes about Pakistan’s current worries.

At around the same time, Indian Prime Minister Narendra Modi completed a successful trip to the Middle East.  He received a warm welcome in the UAE and the prospect of a closer partnership between the two states clearly left Pakistan rattled.  Equally, Pakistan has deep reservations about Indian activities on Iranian soil.  During Iranian president Hassan Rouhani’s recent trip to India, a deal was struck that grants New Delhi operational control of the Chahbahar port in southern Iran.  The Indian-Iranian connection has caused problems before: two years ago, Kulbhushan Yadav, an alleged operative of the Indian intelligence agency’s Research and Analysis Wing who ran his operations from Chahbahar, was arrested as he entered Pakistan from Iran.

So Pakistan’s military has been prompted to counterbalance Indian influence in a more vigorous manner, safeguarding its strategic interests.  The Pakistan military’s footprint within the Saudi kingdom is growing in proportion to its sense of security in the Middle East writ large – and that’s especially apparent in its ever more vocal support of Riyadh’s war in Yemen.

Sense of Insecurity

Pakistan is also worried about its own deteriorating relationship with the US.  Washington has not only withheld hundreds of millions of dollars in security aid to Islamabad, but is taking further punitive actions to press Pakistan to do more over alleged Taliban sanctuaries.

At the intergovernmental Financial Action Task Force meeting in February 2018, the US, the UK and France jointly moved a resolution that sought to place Pakistan on an international terror-financing watch list.  The move met resistance from Turkey, China and Saudi Arabia – and while US pressure finally prevailed in putting Pakistan’s name on the list from June 2018 onwards, the episode showed that an array of states are emerging as Pakistan’s new supporters at international forums.

According to the Pakistani defense minister, the latest troops sent to Saudi Arabia have embarked on a training and advice mission and will not be dispatched onward to Yemen.  The Pakistani army has apparently developed significant expertise in mountain warfare and counter-insurgency during recent military operations in Pakistani tribal areas and the Swat Valley, and will be transferring these skills to Saudi forces.  The only mountainous region within the kingdom that’s currently a conflict zone is on the Yemeni border.

But whatever specific role this deployment plays in Saudi Arabia’s Yemen campaign, it is part of something bigger.  This new chapter in the Pakistani-Saudi relationship is part of a story unfolding across the Middle East, where political, economic and security partnerships are being realigned and tested.  The region’s balance of power will soon look very different indeed.  (The Conversation 06.03)

Back to Table of Contents

11.7  YEMEN:  No Light at End of Tunnel for Yemen’s Economy

Mohammed Yahya Gahlan posted in Al-Monitor of 8 March that the Yemeni government and central bank are unable to solve the unpaid salaries crisis of government employees amid an economic crisis that has left devastating humanitarian conditions in the war-torn country.

More than 1.2 million Yemeni government employees have found themselves in a similar situation since their salaries were suspended 14 months ago.

The financial impact varies per person due to the economic conflict between the internationally recognized government in Aden and the Houthi government in Sanaa.  The Central Bank of Yemen was moved to Aden on 18 September 2016 and the government there stopped paying the salaries of employees in Houthi-controlled areas.  The government wants the revenues of state institutions in those areas — such as customs taxes and the revenues of al-Hodeidah port under the Houthi control — to be transferred to the central bank.  But the Houthis are still refusing this demand.

Meanwhile, the economy in Yemen continues to go downhill.  The Yemeni riyal is collapsing against the dollar and has reached its lowest level, recording 475 Yemeni riyals against the US dollar compared with 215 Yemeni riyals before the war broke out in March 2015.

According to a report by the Ministry of Planning and International Cooperation, gross domestic product dropped by 41.8% since the beginning of the conflict.

Mustafa Nasser, the head of the Economic Media Center, an independent center specialized in economic studies and set up jointly with the World Bank and international organizations, told Al-Monitor, “The unpaid salaries are a key reason behind the economic collapse in Yemen.  If the crisis continues, millions of people will starve and economic activity will be paralyzed.  Employees are the main economic and financial element in Yemen.”

The United Nations has repeatedly said that the salary halt exacerbated the economic crisis and eradicated food security, but no breakthrough has been recorded to solve the problem.  In January, UN Undersecretary for Humanitarian Affairs and Emergency Relief Mark Lowcock expressed in a press statement deep concern about the deteriorating humanitarian and economic situations in Yemen.  Lowcock said that 22.2 million people need humanitarian relief in Yemen, and that this figure is unprecedented and has jumped by 3.4 million since 2017.  The UN estimates the civilian death toll at more than 5,200 since the start of the war in March 2015.

On 18 October, UNICEF Regional Director for the Middle East and North Africa Khairat Kabalari said in a statement that after 2½ years of conflict the education of 4.5 million Yemeni children is on the line.  Three-quarters of teachers have not been paid since October 2016.  Ahmad Shamakh, an economic expert at the Yemeni Shura Council, told Al-Monitor, “The crisis of suspended salaries has worsened the economic situation and the central bank is obviously slackening in its work.  If it weren’t for the transfers by the Yemeni diaspora to the country, the dollar rate would have exceeded 750 Yemeni riyals.”

The UN International Fund for Agricultural Development issued a report 26 February indicating that money transfers in Yemen reached $3.4 billion in 2016, a slight increase from $3.35 billion in 2015, continuing a trend of increased transfers amid the war.

Sociologist at the Ministry of Higher Education and Scientific Research Khaled Qassem said that the salary suspension has worsened poverty and has deprived millions of children of education and social security.  He told Al-Monitor, “The repercussions are multiplying. The situation is not only affecting the nuclear family but also the extended one.  The disputing parties are taking advantage of people’s financial needs to recruit militants, especially children.”

Nasser said that solving the issue of salaries is linked to a political solution.  He noted, “Pressing solutions might be adopted through an initiative led by the Central Bank of Yemen, in cooperation with the UN and all concerned Yemeni parties to ensure paying the salaries of all employees.”

He added, “All amounts collected by the Houthis — including customs and taxes — must be handed over to the central bank branches in all Yemeni areas, and a settlement between the Houthis and the internationally recognized government must be reached in case of shortage.”

Shamakh said, “Urgent economic decisions should be taken to solve the imbalance, improve the state’s financial resources, increase production in promising sectors, activate the role of the central bank and its tools, control the black market and shut down the black markets in Houthi areas.  This would improve the state’s financial resources and bridge the gap between income and expenditure and lead to paying salaries.”

Facing such tough humanitarian conditions and war repercussions, the disputing parties keep blaming each other and voicing conflicting stances.  Meanwhile, UN institutions continue to send out warnings and international stances without taking actual action to put an end to this humanitarian catastrophe weighing down millions of helpless Yemeni citizens.

Mohammed Yahya Gahlan is an independent investigative journalist based in Sanaa, Yemen.  He has published many investigative reports and has written for a number of media outlets over the past 12 years covering political, economic and social issues.  (Al-Monitor 08.03)

Back to Table of Contents

11.8  EGYPT:  A Deeper Look into Egypt’s Gas Market Liberalization

On 4 March, Omnia Farrag posted on Egypt Oil-Gas that though the Egyptian government has embarked on a policy of market liberalization in all sectors since the 1970s, it was not until recently, however, that the idea of liberalizing the energy market was placed on the table.  In 2015, natural gas decreasing production and growing demand forced the former natural gas exporting state to start importing natural gas.  As Egypt received its first imported cargoes in May 2015, the Egyptian Natural Gas Holding Company (EGAS) and the Egyptian General Petroleum Corporation (EGPC) announced the Gas Market Law, a piece of legislation aiming to liberalize the gas sector in Egypt, which was in July 2017 as law 196 for 2017.

As per official announcements, the government aims to ease the burden of supplying natural gas from its shoulders.  In this line, the new law enables private sector companies to ship, transport, store, market, and trade natural gas using the national grid.  At the same time, EGAS would continue to act as one of the gas providers alongside the private sector under the regulation of an independent authority.

So far, TAQA Arabia, Fleet Energy and BB Energy received initial permissions to distribute natural gas in the local market and four other countries are in the process of getting permission, including Toyota, based a statement from Vice Chairwoman for the Gas Regulatory Affairs, Amira El Mazni, to Egypt Oil & Gas in October 2017.

Main Features of Gas Market Law

The law recently issued 35 article law consists of four sections.  The first section is a glossary of the terminologies mentioned in the law.  The second section is concerned with the establishment of the Gas Market Regulating Authority (GMRA) as an organization entitled to supervise all activities related to the natural gas market, and protect the market from monopoly to ensure a healthy competitive environment.

The entity is responsible for ensuring the availability of gas and the efficiency of the national grid and other crucial infrastructure.  In addition, it will be solely responsible for regulating and planning the market activities of the companies, such as issuing and renewing licenses, establishing the regulations of using natural grids, facilitating the transportation process of natural gas, and establishing mechanisms for the calculation of tariffs.

The following section of the law outlines the rights and obligations of different parties in the natural gas market alongside providing a breakdown of different operational stages and possible parties.  The fourth section sets out the penalties in case of violations.  It gives the GMRA employees with judicial control officer status.

Liberalizing the Sector

Opening the market for competition should be implemented in all levels starting from the upstream exploration, transmission to downstream production, Shell wrote in a report.  First, the government should open exploration to private countries, a move recently taken by the Egyptian government.

There were 13 new natural gas explorations by both state-run and private companies in the 2016/17 fiscal year (FY), according to Egyptian General Petroleum Corporation (EGPC) CEO Abed Ezz El Regal’s statement in September 2017.  The past five years witnessed the signature of many gas exploration agreements between the Egyptian government and international companies.  There were 83 agreements with private companies for oil and gas exploration and production between June 2013 and September 2017, El Molla told Egypt Today.

The Shell report noted that opening the market for this number of companies should be watched and regulated carefully by the government, since these companies would have a significant effect on the country’s government.  It is worth noting that most of the Middle Eastern countries do not pay enough attention to this, Shell wrote.

Because of the nature of the gas industry, it is hard for monopolies to occur in upstream and downstream sectors; however, monopoly is common in the midstream sector.  Shell noted in their report that midstream sector monopolies hinder the efficiency of upstream and downstream sectors, since companies face difficulty transmitting and storing their products.

The operation of pipelines requires high fixed-cost investment and relatively low operational and management charges. This exhibits the characteristics of natural monopoly.  That is why the Shell report recommends that midstream operations should not be subject to market pressure.  In this line, describing pipelines as dominating the market, the report further recommends that regulations should prevent companies from monopolizing them. If monopolized, regulations should prohibit companies from abusing this power by ensuring third party access (TPA) to the pipelines.  Finally, the government should investigate the actual operational costs of pipelines and similar infrastructure, which would allow them to set fee standards and gauge reasonable profit levels for the operators.

According to chapter 2 of the law, the midstream sector in Egypt is divided into various facilities.  First, the gas transmission system is defined as the national network of high-pressure pipelines, including compressor stations, equipment, measuring devices, purification, and other facilities, through which natural gas is transported within the country.

Second, the gas distribution system is described as a low or medium pressure pipeline network, in addition to all related pressure reduction stations, equipment, measuring devices, purification and other facilities.

Third, regasification facilities are defined as facilities used for liquefying, exporting, unloading or re-diversifying gas, including auxiliary services and temporary storage required for the process of reallocation and the subsequent delivery to the transmission network.

Fourth, storage facilities are described as underground or aboveground storage containers or depots that are used to store gas whether it is liquefied or compressed.  The law differentiated between storage facilities and storage depots associated with the production processes or used by gas transportation operators to perform their duties.

In Egypt, these four types of infrastructure are monopolized by the government.  However, the previously mentioned chapter allows one legal entity or more to operate any of them under the condition of not blocking other market players from accessing the infrastructures.

Separation of Activities: Unbundling

The law’s chapter three is about the separation of activities.  These rules prevent organizations operating facilities or networks from personally benefiting from them.  Under this chapter, article 44 introduces the idea of unbundling, which refers to the separation between energy supply and generation on one hand and the transmission network on the other.  Unbundling is a fundamental concept for the market to act freely without the control of any of its players or without denying any of them the right to access infrastructure.

“If any legal entity licensed to engage in a gas market activity wishes to engage in another additional activity, it shall comply with [three conditions],” article 44 of the law states.  First, in case the entity is licensed to do a service activity and it wants to perform a beneficiary activity, the entity should do that through an independent legal entity with a separate organizational structure.  This condition is applicable if the gas used in the beneficiary activity is owned by the entity.  Second, the two activities it performs should be service activities.  Third, none of the activities it performs should be subject to the Gas Market Law.

The concept of unbundling is currently inapplicable in Egypt, since the government owns all the facilities and networks; however, as previously mentioned, chapter 2 of the law allows private operators to operate these infrastructures.  Accordingly, unbundling should be considered carefully through this process in order to avoid ending up with monopoly control over infrastructure like in the cases of Japan, South Korea and China.

Clash of Interest

Article 45 prevents clashes of interest between market personnel. It prohibits persons responsible for the management or operation of any service activities from participating directly or indirectly in the beneficiary activities.  On the occasion that an operator is part of a multi-activity entity the shareholders or owners may approve the annual plan of the operator and set limits on its debts; however, they would not have the right to instruct the operator regarding the day-to-day operation.

Pricing Reforms

Pricing reforms are another important requirement for a liberal market.  The law differentiates between two types of customers: qualified and unqualified.  Qualified customers are eligible to choose their gas suppliers and can negotiate the price with them, while unqualified customers get gas supplies according to regulations and prices approved by the Council of Ministers.

While the law does not elaborate more on how the prices would be freed, examining how price reforms have been conducted internationally may serve as a benchmark for how the process will work in Egypt.

There are three types of pricing mechanisms found in the main global importers of natural gas, according to the Shell report.  The first type depends completely on market-driven prices, such as the type encountered in the US and the UK.  These two cases are a perfect example of the mature and unregulated market.  The second type relies on the market value of alternative energy sources after deduction of transport, storage, distribution and similar costs to determine an upstream price.  The third approach, which is used by Japan and South Korea, sees prices pegged against the price of imported oil.

The process of liberalizing the natural gas market is a long and complicated journey.  If not applied properly, the process may lead to the creation of a market monopoly in the midstream sector, which would threaten to reduce its efficiency.  This liberalization process has taken decades for some countries, and in some cases the governments have not managed to completely liberalize the market even after years of regulations and deregulations.  It took the US, for instance, 20 years to reach an optimal situation of gas pipeline liberalization. F or some European countries, it took around 10 years.  In countries such as China, Japan and South Korea the market is still monopolized by oligarchies after years of market liberalization, which is why the executive regulations of the Gas Market Law should include detailed regulation of how to achieve each of the previously mentioned goals.  (EOG 04.03)

Back to Table of Contents

11.9  EGYPT:  Egypt Seeks Scientific Innovation by Lowering Research Costs

Menna A. Farouk reported on 12 March in Al-Monitor that Egypt’s parliament is pushing through a law to exempt higher education and scientific research bodies from taxes and customs fees in a bid to incentivize research and promote innovation.

The Egyptian parliament has approved a draft law to reduce the costs of research and promote innovation.  The bill, passed on 5 March, exempts higher education and scientific research bodies from taxes and customs fees, including the 14% value-added tax, on imported equipment and tools.

The law aims to encourage young researchers and university students to innovate and conduct research that can contribute to Egypt’s development, Gamal Shehata, the head of the parliament’s Education Committee, said in a statement.  He added that the new law will revolutionize scientific research and mark a renaissance for universities and research centers.  He called it a great leap forward for the national economy.  “The parliament’s decision comes at a perfect time,” said Kamal Mogheith, a researcher at the National Center for Educational Research and Development.  He added that Egypt’s drive to achieve development and economic progress can never be realized without promoting scientific research.

Current research projects with great potential for Egypt include a mobile desalination plant powered by solar energy, increasing rice productivity with new hybrids and a new treatment for cancer using nanotechnology.  “Scientific research has always been the main driving force behind any development in any country,” Mogheith told Al-Monitor. He added that Egypt is pushing ahead with economic reforms as well as major developmental projects that need to be supported by out-of-the-box ideas and creative research.

Egypt embarked on an ambitious economic reform program in 2016 after the International Monetary Fund approved a $12 billion loan for the country to stimulate economic growth, cut unemployment rates, reduce the budget deficit, slash subsidies and move ahead with development projects.  According to Article 9 of the law on incentives to science, technology and innovation, foreign funds granted to researchers to conduct their projects shall also be tax exempt.

Mogheith said that financing is one of the biggest challenges facing researchers in Egypt, and exempting scientific institutions from taxes and customs fees will encourage many young researchers.  He added, however, that there is a lot more to be done to enhance scientific research in Egypt, saying, “Many researchers in Egypt are disappointed when their research projects are not used to help carry out large developmental projects and are always being put aside.”  The government, he said, must make use of the new tools and resources that are created. “It is more about the implementation of the law than about its issuance,” Mogheith added.

Under Article 5, higher education and research authorities are to use scientific research to enhance societal development.  Tarek Nour el-Deen, a former assistant to the education minister, said that the parliament’s decision to exempt scientific institutions from taxes and customs fees is excellent but overdue.  “The government should have made such a decision years ago,” Nour el-Deen told Al-Monitor, adding that the government must also improve academic freedom for researchers.  “Some researchers face restrictions when they conduct research on sensitive topics,” he said.

Research on the tax system in Egypt, for example, faces hurdles such as permits that can take months to obtain.  Even when permits are granted, some sources in the government decline to disclose statistics or other information.  Egypt allocates 4% of its gross domestic product to pre-university education, 2% on university education and 1% on scientific research.  The majority of these allocations go to salaries.

Ahmed Youssef, a young researcher and assistant professor in physics, said that he has always faced serious funding challenges, adding that the parliament’s decision is lifesaving.  “It has cost me a lot of money to get imported equipment and tools.  Sometimes it took up all of my salary to purchase a certain tool or equipment. Now I think things will get better.”

In August 2017, the Egyptian Ministry of Higher Education and Scientific Research, the National Bank of Egypt and Banque Misr signed an agreement worth EGP 600 million ($34 million) to support researchers and scientists and grant them scientific and training scholarships abroad.  In December 2017, the government established the Egyptian Space Agency.

This month, Egypt also celebrated its fifth annual Science Week, during which more than 300 events took place.  According to Mahmoud Sakr, the head of the Scientific Research Academy, Egyptian Science Week aims to bolster societal participation in the field of science and technology and spread the culture of innovation.  The activities started on 2 March and concluded on 11 March.

The General Federation of Egyptian Expatriates compiled a report from UN statistics and research centers in Europe and the United States as well as science organizations and Muslim communities abroad.  According to the data, there are 1,883 Egyptian scientists working in nuclear specializations.  There are 42 Egyptian scientists abroad who have served as university presidents, such as Mamdouh Shoukri, who was president of Canada’s York University.  The report put the number of Egyptian scientists abroad at 86,000 and found that Egypt boasts the highest number of scientists working all over the world.

Menna A. Farouk is an Egyptian journalist who has been writing about social, political and cultural issues in Egypt since 2013.  She is an editor at The Egyptian Gazette newspaper. Farouk has covered stories about the unrest that followed the January 2011 revolution, press freedom, immigration and religious reforms.  (Al-Monitor 12.03)

Back to Table of Contents

11.10  ALGERIA:  IMF Staff Completes 2018 Article IV Visit to Algeria

An International Monetary Fund (IMF) staff team visited Algiers from 27 February to 12 March to hold discussions for the 2018 Article IV consultation.  Discussions focused on the mix of policies and reforms to restore macroeconomic balances and foster sustainable and inclusive growth.  At the end of the visit, Mr. Dauphin made the following statement:

“Algeria continues to face important challenges posed by the fall in oil prices four years ago.  Despite a sizeable fiscal consolidation in 2017, the fiscal and current account deficits remain large.  Reserves, while still ample, fell by $17 billion to $96 billion (excluding SDRs).  Overall economic activity slowed, although growth in the nonhydrocarbon sector was stable. Inflation decreased from 6.4% in 2016 to 5.6% in 2017.

“In response to the oil price shock, the authorities implemented fiscal consolidation in 2016-17.  They have been working on a long-term strategy to reshape the country’s growth model, and took a number of measures to improve the business climate, start reforming energy subsidies, modernize their monetary policy framework, and allow for the emergence of a forward forex market.

“Since the end of 2017, the authorities have changed their short-term macroeconomic strategy.  To boost growth and job creation, they have adopted an expansionary 2018 budget, the deficit of which will be mainly financed by the central bank, and hardened import barriers.  They intend to resume fiscal consolidation from 2019 onward, to restore the fiscal balance in 2022.

“The team shares the authorities’ dual objectives of macroeconomic stabilization and promotion of more sustainable and inclusive growth, but it considers that the new short-term policy mix is risky and may hinder reaching those objectives.  The new policies risk to exacerbate imbalances, increase inflation and accelerate the loss of international reserves.  As a result, the economic environment may not become conducive to reforms and private sector development.

“In the team’s view, Algeria still has a window to balance economic adjustment and growth.  Relatively low public debt and little external debt provide space for a gradual strengthening of public finances.  Fiscal consolidation is needed to adjust the level of spending to the lower level of revenue, but it can be done at a smooth pace without recourse to central bank monetary financing.  This would require tapping a broad range of financing options, including domestic debt issuance at market rates, public-private partnerships, sale of assets and, ideally, external borrowing to finance well-chosen investment projects.  The consolidation should be conducted through a broad-based approach including: raising more nonhydrocarbon revenues by widening the tax base (reducing exemptions and strengthening tax collection), gradually reducing current expenditure as a share of GDP, and reducing investment while increasing its efficiency.  A gradual exchange rate depreciation combined with efforts to eliminate the parallel foreign exchange market would also support the adjustment.  The central bank should stand ready to tighten monetary policy if inflationary pressures do not abate.  If the choice is to continue monetizing the deficit, robust safeguards should be in place.  Such safeguards should include strict quantitative and time limits to monetary financing, and the pricing of such financing at market rate.

“Irrespective of the policy mix pursued by the authorities, a critical mass of structural reforms is needed to promote the emergence of a private-sector led, diversified economy and reduce the dependence on oil and gas.  This requires timely action on several fronts to reduce red tape, improve access to finance, strengthen governance, transparency and competition, further open the economy to foreign investment, improve the functioning of the labor markets and job-skills matches, and foster greater female labor force participation.  To increase the effectiveness of economic policies, Algeria also needs to strengthen its economic policy framework.  This includes continuing to strengthen public financial management, improve the efficiency of public spending, and strengthen the prudential and crisis preparedness framework.  Trade policies should be centered on encouraging exports rather than imposing distorting nontariff import barriers.

“The IMF team met with Prime Minister Mr. Ouyahia, Finance Minister, Mr. Raouia; Training and Vocational Education Minister, Mr. Mebarki; Industry and Mines Minister, Mr. Yousfi; Trade Minister, Mr. Benmeradi; Public Works and Transports Minister, Mr. Zalane; Labor, Employment, and Social Security Minister, Mr. Zemali; and the Governor of the Bank of Algeria, Mr. Loukal.  The team also held discussions with other senior government and central bank officials as well as with representatives of the economic and financial sectors and trade union.  (IMF 12.03)

Back to Table of Contents

11.11  ALGERIA:  Social Unrest in Algeria – Cranking Up the Pressure

Sofian Philip Naceur posted in Qantara on 28 February that for months now, Algeria’s education and health system has been crippled by a wave of strikes.  But despite vehement protests against the government’s labor and social policies, it is categorically refusing to make any concessions to the strikers.

The days when the Algerian government could buy a fragile social peace using billion-dollar revenues from oil and gas exports are over for the moment.  This is because in view of the global market slump in crude oil and natural gas prices, Algeria’s national budget and currency reserves have almost halved since 2014.

High unemployment, rising inflation, the devaluation of the Algerian dinar, not to mention bottlenecks in the supply of imported basic foodstuffs are now presenting large sections of the population with serious problems.  After all, the state no longer has the means to offset the structural faults of the Algerian economy through investments and other transfer payments.

While Ahmed Ouyahia, Prime Minister and leader of the governing party “Rassemblement National Democratique” (RND), refers to the strained national budget in a bid to allay fears, resorting to cheap populist propaganda against African immigrants to draw attention away from his own transgressions, working people in Algeria are running out of patience.  For two years now, independent trade unions have been mobilizing against the government’s labor and social policies, although limiting themselves initially to cautious protests and warning strikes.  But since November 2017, innumerable independent professional associations in public service are on an increasingly confrontational course with the government.

In addition to the public airline Air Algerie, local transport operators and the postal service, state-owned electricity and gas companies have also recently been affected by warning strikes and protests.  Even retired army veterans took to the streets in January to underline their demand for an inflation-adjusted pension.

An Outcry of Indignation

But at the heart of the sustained wave of strikes is the health and education system.  Back in November, the independent workers’ association “Collectif Autonome Medecins Residents Algeriens” (CAMRA) initiated weekly sit-ins at several hospitals across the country and even declared an open-ended strike in early January.

This was CAMRA’s response to the violent dispersal by the police of a demonstration involving hundreds of doctors, pharmacists and medical students outside the Mostapha-Basha University Clinic on 3 January.  After the incident, images and videos of blood-soaked demonstrators rapidly spread through social networks and local media, resulting in an outcry of indignation.

Other independent trade unions, but also human rights organizations such as the Algerian branch of Amnesty International, which sharply denounced the police brutality and drew attention to the constitutional right to demonstrate, expressed their solidarity with the health workers, thereby further fueling their rebellion.

On Course for Confrontation

Although a court in Algiers declared the January strike illegal, CAMRA is doggedly opposing the judgement.  While the health ministry continues to categorically reject the health workers’ demands and says it will only return to the negotiating table once the strike has been brought to an end, the protests are continuing to escalate.

Despite a general ban on demonstrations in Algiers in force since 2001, hundreds of health service staff gathered on 12 February in front of the Grande Poste in the heart of the capital.  Just one week later, several thousand people followed CAMRA’s calls to demonstrate and joined strident marches through Blida, Setif and Oran. Rallies were also once again held in Constantine in late February.

Against Low Pay and Poor Facilities

Whereas strikers in other sectors are mostly demanding higher wages and are thereby responding to the massive inflation-adjusted loss in purchasing power for large sections of the population, the medical professionals are first and foremost protesting against poor working conditions, inadequate and often defective facilities in public hospitals as well as the abolition of the civil service, a compulsory one-to-five-year service for graduates in remote regions of the country.

Although this is a measure aimed at addressing the lack of doctors in rural areas, the medics’ demands for its abolition highlight fundamental problems in the public health system.  After all, they are not only complaining about the inadequate accommodation and transport infrastructure for those absolving this civil service, but also about defective equipment in medical establishments.  CAMRA is now flanking its protests with a publicity campaign releasing photos and videos from public hospitals as a way of documenting the miserable conditions in many facilities and thereby cranking up the pressure on the government.

While this government maintains its unyielding stance, the protests continue – in the education sector too: since last November, the independent workers’ association “Conseil National Autonome du Personnel Enseignant du Secteur Ternaire de l’Education” (Cnapeste) has been mobilizing within Algeria’s schools and demanding higher wages and a reform of pension rules, including those related to the process granting teachers official civil servant status.

Government Refusal to Compromise

Cnapeste began an open-ended strike in late January, which was also declared unlawful by the judiciary.  Education Minister Nouria Benghabrit says that in Blida, 581 striking teachers have already been suspended. Further disciplinary measures are currently in preparation says the minister, whose department is openly threatening the sacking of up to 19,000 teaching staff, according to the Algerian daily El Watan.

While parent representatives have regularly protested against the strike since December and are calling on the union to stop waging their labor battle at the expense of their children, another five independent trade unions from the education sector declared they would also be continuing their strike following a fruitless meeting with Benghabrit.

Meanwhile, shortly after the general public sector strike on 14 February, Prime Minister Ouyahia declared he would no longer tolerate the “continuation of this anarchy” in the education and health systems and would put an end to the protests.  The parliamentary party groups of the four governing parties, among them the RND, had previously urged the government to remain firm and take a tough stance against the strikes.

While the government continues to adopt an unrelenting approach in its dealings with the independent trade unions, at least Prime Minister Ouyahia’s privatization plans are off the table for now.  As late as December, the PM had reached agreement with the state-controlled trade union association “Union Generale des Travailleurs Algeriens” (UGTA) and the employers’ association over an opening up of public companies for private capital, but President Abdelaziz Bouteflika intervened, flatly rejected Ouyahia’s privatization plans and publicly rebuked the head of his government.

Meanwhile, there are no indications that the independent trades unions are about to end their protests.  It remains to be seen if the government can bring itself to adopt a more conciliatory approach with the doggedly autonomous workers’ associations, or whether it will again resort to increased repression as it did in the 1990s.  (Qantara 28.02)

Back to Table of Contents

11.12  TURKEY:  Moody’s Downgrades Turkey’s Sovereign Ratings to Ba2 from Ba1

On 7 March, Moody’s Investors Service (MIS) downgraded the Government of Turkey’s long-term issuer and senior unsecured debt ratings to Ba2 from Ba1 and its senior unsecured shelf rating to (P)Ba2 from (P)Ba1.  The rating outlook has been changed to stable from negative.  Moody’s also downgraded the long-term senior unsecured debt rating of Hazine Mustesarligi Varlik Kiralama A.S. to Ba2 from Ba1, a special purpose vehicle wholly owned by the Republic of Turkey from which the Treasury issues sukuk lease certificates and changed its rating outlook to stable from negative.

Ratings Rationale

The downgrade of Turkey’s government rating to Ba2 from Ba1 is driven by two key developments that Moody’s identified as triggers for a downgrade when it assigned a negative outlook on the rating last year:

1) The continued loss of institutional strength, as evidenced by further erosion in the effectiveness of monetary policy and further delays in implementing core structural economic reforms.

2) The increased risk of an external shock crystallizing given the country’s wide current account deficits, higher external debt and associated large rollover requirements in the context of heightened political risks and rising global interest rates.

The rationale for assigning a stable outlook to the rating is that a Ba2 rating appropriately captures the further erosion of Turkey’s institutional strength and its increased susceptibility to event risks, balanced against the country’s economic and fiscal strengths, mainly its large and dynamic economy and favorable government debt metrics.

In a related decision, Moody’s lowered Turkey’s long-term country ceilings: the foreign currency bond ceiling to Baa3 from Baa2; its foreign currency bank deposit ceiling to Ba3 from Ba2 and its local currency country ceilings for bonds and bank deposits to Baa2 from Baa1.  The short-term country ceilings remain unchanged at Prime-3 (P-3) for foreign currency bonds and Not Prime (NP) for foreign currency bank deposits.

FIRST DRIVER: Continuing Erosion of Institutional Strength

The ongoing weakening of Turkey’s credit profile continues to be primarily driven, as it has over the past four years, by the deterioration in the country’s institutional strength.  The government appears still to be focused on short-term measures, to the detriment of effective monetary policy and of fundamental economic reform.

Faltering institutional strength is reflected in a broad range of adverse outcomes on the economic, financial and political front despite strong near-term growth rates and healthy public finances.  Inflation has stayed stubbornly in the double digits — the highest inflation rates seen in nine years.  It is unlikely to fall to single digits on a sustained basis until 2020 at the earliest.  Both the 2018-20 Medium Term Program as well as the 11th 5-year National Development Plan, which will start next year, assume average inflation consistently above the central bank’s medium-term inflation target of 5%.  The explicit tolerance of high inflation in these plans demonstrates the priority accorded to short-term growth regardless, it appears, of the medium-term consequences.

The erosion of Turkey’s executive institutions has continued with the government’s ongoing activities to remove suspected sympathizers with the Gulen movement blamed for 2016’s coup attempt and the ongoing state of emergency.  The undermining of the authority of the judiciary is illustrated by the government’s refusal to honor a Constitutional Court ruling to release certain political prisoners, and a lower court later sentenced the prisoners to life terms in prison.  Deep divisions in Turkish society were evident in the campaign before the referendum on the constitutional amendments last April and the vote itself.  Those amendments – which will eliminate the office of the prime minister and very significantly expand the authority of the president when they become effective next year, with limited checks and balances – are likely to undermine the predictability and therefore the effectiveness of policymaking.

Moreover, while the authorities have registered some successes on the structural reform front, such as auto-enrollment in company-run pension plans, legislation to restrict foreign currency lending to companies and the recent submission of a draft value-added tax reform to parliament, progress has been slow to date.  Government officials continue to postpone the implementation of more comprehensive structural reforms, such as to address rigidities in the labor market, in advance of the 2019 elections.  As a consequence, while growth has exceeded expectations in recent months, medium-term growth expectations remain below historical experience and imbalances are growing, as evidenced by the large current account deficit and double-digit inflation.  While the fiscal deficit and the government’s debt burden remain contained in the near-term, the willingness to support short-term growth through fiscal stimulus rather than through more sustainable economic reform signals future fiscal challenges.  Although the unemployment rate has dropped since 2016, it remains high at about 10%, with the jobless rate among youth twice as high.

SECOND DRIVER: Increased Risk of External Shock Due to High External Debt and Political Risks

Set against the negative institutional backdrop, Turkey’s external position, debt and rollover needs have continued to worsen.  Although the government’s own external borrowing needs are relatively low, the country as a whole has very large external financing needs given sizeable current account deficits, maturing long-term debt and high levels of short-term debt.  This external exposure has continued to grow over the past year and is expected to continue to do so.  The country’s foreign exchange buffers are very low compared to these needs; the country’s External Vulnerability Indicator is expected to rise to well over 200%, which is extremely high in comparison to Turkey’s rating peers, and signals an ever-rising exposure to changes in international investor sentiment.

The potential triggers of a re-evaluation of Turkish country risk by foreign investors continue to multiply with the continuing deterioration of Turkey’s geopolitical situation, its already strained domestic politics and the prospects of monetary policy tightening in the more developed economies.  Amplifying its vulnerability to external shock are Turkey’s political risks, with the convergence of risks from the geopolitical arena and domestic politics.  On the domestic front, as described above, the government’s legal crackdown since the failed coup in July 2016 has taken a negative toll on the investment climate and relations between Turkey and the US and EU.

In Moody’s view, the geopolitical risk arising from Turkey’s recent engagement in Syria becomes more marked the longer and deeper the engagement goes on.  Turkey’s involvement in the Syrian conflict and battle against the IS spilled over into heightened domestic terrorism in recent years, which has been damaging to tourism and hence economic stability (tourism being an important source of export revenues) and confidence.  While tourism is now reviving strongly, the full normalization of the sector remains vulnerable to political and security risks.

This overall picture suggests that the possibility of a sudden, disruptive reversal in foreign capital inflows, a more rapid fall in already inadequate FX reserves and, in a worst-case scenario, a balance of payments crisis, while still quite low, has increased beyond Moody’s expectations a year ago.  The larger the external indebtedness becomes, the less comfort can be taken from the country’s historical ability to attract large amounts of foreign capital, and the greater the exposure to shifts in investor sentiment due to political risks or global monetary tightening.  Such shifts could also worsen the quality and shorten the maturity of such capital inflows, a trend already witnessed in 2017.

Rationale for the Stable Outlook

The rationale for assigning a stable outlook to the rating is that the Ba2 rating appropriately balances the further erosion of Turkey’s institutional strength and its increased susceptibility to event risks discussed above, against the country’s economic and fiscal strengths stemming from its large and robust economy and favorable government debt metrics.  Turkey’s economy is highly dynamic, although last year’s growth was well above the pace expected in 2018-19.  Moody’s now believes that Turkey’s potential growth rate is around 3.5% – 4%, although this is below the government’s estimate of 5% or more.

Fiscal strength, as illustrated by the debt and debt affordability metrics, remains favorable relative to many peers, with a general government gross debt to GDP ratio estimated at about 28% at end-2017 compared to the median of about 46% for Ba-rated peers.  Although central government spending increased rapidly last year thanks to the fiscal stimulus, revenue also increased in line with the fast growth in nominal GDP, so the deficit came in below the government’s forecasts both nominally and as a share of GDP.  Moody’s anticipates a somewhat bigger deficit this year and next but given the expected increase in nominal GDP, the debt to GDP ratio is not expected to deteriorate.

The growth of contingent liabilities outside of the budget, such as the Public-Private Partnerships (PPPs) or the Credit Guarantee Fund, is a reversal of reforms that were undertaken in the 2000s after the 2001 financial crisis. Moody’s considers that Turkey’s exposure to PPPs, its costs of military campaigns and its plans for borrowing against the collateral of the Turkish Sovereign Wealth Fund lack full transparency, but also that the related contingent liabilities plus Treasury’s explicit debt guarantees are relatively small and manageable for now.

What Could Change the Rating Up/Down

Potential upward movement in Turkey’s issuer rating is constrained by its high external vulnerability. Upward rating pressure could materialize in the event of structural reductions in these vulnerabilities, i.e. a significant and sustained narrowing of the current account deficit or an elongation of the banking and corporate sector’s external debt structure.  Also important would be material improvements in Turkey’s institutional environment or productivity.  Reductions in political risk emanating either from the geopolitical or domestic political environment, while credit positive, would not necessarily result in upward rating actions in the absence of sustainable improvements in external vulnerability.

Turkey’s sovereign rating would likely be downgraded if there is a material increase in the probability and proximity of a balance of payments crisis relative to what is implied by the current Ba2 rating.  Such an event would likely be precipitated by a reduction in foreign exchange reserves or prolonged capital outflows.  Sustained lower growth and a related worsening in the government’s fiscal strength could also precipitate downward rating pressure, as could a further erosion of institutional strength and policy predictability.  (Moody’s 07.03)

Back to Table of Contents


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

EDI’s other services include customized business delegations, partner searches, business development, market feasibility studies and tailored research reports, as well as identification of potential joint ventures for commercial clients.  For more information on how we may better assist you, please visit our Web site at:  http://