Fortnightly, 26 December 2018

Fortnightly, 26 December 2018

December 26, 2018


26 December 2018
18 Tevet 5779
19 Rabi Al Akhar 1440




1.1  Israel Approves NIS 700 Million Grant for Intel
1.2  Israel to Fully Tax IPO or Exit-Dependent Employee Options (in Some Cases)
1.3  Prime Minister Netanyahu Hosts Cypriot, Greek Leaders for Annual Tripartite Summit
1.4  Israeli Government Adopts OECD Regulation Policy


2.1  Optibus Accelerates Growth of its AI-Based Mass Transportation Platform
2.2  Cannbit Signs Collaboration Agreement with Namaste
2.3  SafeRide and Ixia Deliver Advanced Testing for Next Generation Connected Vehicles
2.4  KPN Ventures Provides Growth Capital To Cloud & Edge Orchestration Company Cloudify
2.5  NoTraffic Accelerates Vision to Make All Roads Smart, Raising $3.2 Million in Seed Funding
2.6  Avanan Raises $25 Million to Revolutionize Secure SaaS Email and Collaboration
2.7  Singapore’s VisVires Backs Israeli Shrimp-Health Startup ViAqua
2.8  Temi Raises $21 Million
2.9  MinerEye Awarded $2.5 Million EU Grant for Its Data Classification and Security Solution
2.10  Israel Innovation Authority and PlanetM Collaborate for Autonomous Technologies Testing in Michigan
2.11  Ottopia Raises $3 Million to Develop Remote Assistance Platform for Autonomous Cars
2.12  Valerann Raises $5 Million to Upgrade Existing Road Information Technology for Present & Future Mobility Challenges
2.13  PepsiCo Completes Acquisition of SodaStream International


3.1  Lebanon’s First Content Curation Platform Kicks off From Beirut
3.2  Investment in MENA Fintech Startups on the Rise
3.3  ArabiaWeather and Raymetrics SA to Revolutionize Dust Forecasting in MENA
3.4  Abu Dhabi Agribusiness Seeks $10 Million for UAE and Saudi Expansion
3.5  Intel Funds NYU Abu Dhabi Cyber Security Research
3.6  Dubai’s dnata Buys New York-Based 121 Inflight Catering
3.7  BP & Mubadala Purchase 45% Stake in Eni’s Noor Concession
3.8  CIB Establishes CVentures, Egypt’s First Corporate VC Firm Focused Primarily on FinTech


4.1  Israel to End Use of Coal for Electricity Production by 2030
4.2  Morocco Improves in World Bank’s Sustainable Energy Indicators
4.3  Morocco Makes ‘Impressive Progress’ in Limiting Global Warming


5.1  Lebanon’s Fiscal Deficit Up to $4.50 Billion by Third Quarter
5.2  Total Number of New Lebanese Registered Cars Down by 9.74% in November 2018
5.3  Jordan & Iraq Review Economic Relations, Explore Further Cooperation
5.4  Jordan’s Public Debt Rises to JOD28.5 Billion, Some 94% of Estimated GDP

♦♦Arabian Gulf

5.5  The Size of the GCC Retail Market in 2023
5.6  Gulf Forecast to See 81% Rise in Chinese Tourists by 2022
5.7  Kuwait Pharmaceuticals Market Expected to Exceed Revenues of $1.5 Billion by 2022
5.8  What a Difference $10 Billion Aid Makes to Gulf’s Weakest Link
5.9  Ajman (UAE) Government Sets $1.13 Billion Budget for 2019 – 21
5.10  Dubai’s RTA Partners with Careem on E-hail Taxi JV
5.11  Saudi Arabia Projects $35 Billion Budget Shortfall in 2019
5.12  Saudi Arabia Sticking With Expat Fees for Now
5.13  Red Sea Project Set to Add $5.8 Billion to Saudi Arabia’s GDP
5.14  Pakistan Receives $1 Billion from Saudi Arabia to Ease Economic Crunch
5.15  UAE Rated Most Advanced MENA Country for Online Shopping
5.16  UAE Eyes More Workers from Nepal, Rwanda and Cambodia

♦♦North Africa

5.17  Egypt’s Trade Deficit Falls 10.1% in Annual Terms
5.18  CAPMAS Reports 16.8 % Increase in Value of Egypt’s Exports in 2017
5.19  Egypt’s Constitutional Committee Authorizes Egypt-Cyprus Pipeline Agreement
5.20  Morocco’s Trade Deficit Increased by 7.7% by November
5.21  Morocco’s FDI Reaches MAD 31.82 Billion
5.22  Morocco Attracted 200,000 Chinese Tourists in 2018


6.1  Retail Trade Volume in Turkey Shrunk in October
6.2  Cypriot Social Welfare Expenditure Fell to 19.1% of GDP in 2016
6.3  Value of Cypriot Construction Activity Spiked 22% in 2016 to €2.14 Billion
6.4  Greek Jobless Rate Drops to 18.3% in the Third Quarter



7.1  Israel Calls Early Elections on 9 April 2019‎


7.2  Jordan’s Gender Gap Widens to Rank Near Bottom of Index
7.3  GCC Student Numbers Forecast to Grow Despite Fee Concerns
7.4  Turkey Spent Over $48 Billion on Education in 2017


8.1  BrainsWay Selected by USA FDA Innovation Challenge to tackle Opioid Addiction
8.2  BiomX and J&J Innovation Collaborate for Microbiome-based Biomarkers for IBD
8.3  Check-Cap Receives FDA Conditional Approval of IDE Application to Initiate U.S. Pilot Study of C-Scan®
8.4  Aleph Farms Jump-starts First Cell-Grown Steak
8.5  Evogene & TMG Develop Nematode Resistant Soybean through Genome Editing
8.6  Biop Receives FDA Approval for its Medical Digital Colposcope
8.7  FDA Approves INSIGHTEC’s Exablate for Treatment of Parkinson’s Disease
8.8  OWC Reports Successful Cannabinoid-Enriched Sublingual Disintegrating Tablet
8.9  Kalytera Phase 2 Clinical Study Evaluating CBD in Prevention of Acute GVHD Reports Interim Data
8.10  CathWorks FFRangio System Receives US FDA Clearance


9.1  Habana Labs’ Goya AI Processor Receives PCI-SIG Certification
9.2  My Size’s Mobile Smart Tape Measure App Reaches One Million Downloads
9.3  Fieldbit Releases Next Generation of Augmented Reality for Technical Services
9.4  ECI Debuts 1.2T Dual Channel Blade for New Age of Adaptive Optical Networking
9.5  CyberInt Launches Managed Cloud Security Services
9.6  SafeDK Revealed Thousands of Malicious In-App Mobile Ads Auto-Redirecting Users to Porn Sites
9.7  Foresight and RH Electronics to Join Forces in a Strategic Alliance
9.8  Dish Mexico Selects Gilat & Hispasat for Delivery of Broadband Services to Mexico
9.9  Essence Group Paves the Way With State-of-the-Art Functionality for Monitored Security


10.1  Israel’s November CPI Falls by 0.3%
10.2  Israel Poverty Report Finds Less Poverty but More Poor People
10.3  Israel Ranks as World’s Third Most Educated Country


11.1  ISRAEL: IVC Finds Israeli Startup Closures Diminishing
11.2  ISRAEL: Analysis – Initiated Marketing of Consumer Credit
11.3  LEBANON: Moody’s Changes Outlook on Lebanon’s Rating to Negative, Affirms B3 Rating
11.4  BAHRAIN: Moody’s Changes Outlook on Bahrain’s Rating to Stable, Affirms B2 Rating
11.5  OMAN: Oman’s Economic Ambitions
11.6  EGYPT: How Russia Challenges the United States’ Investment in Egypt
11.7  LIBYA: After Palermo: Achievements and Future Challenges For Libya
11.8  TUNISIA: Fitch Affirms Tunisia at ‘B+’; Outlook Negative
11.9  MOROCCO: IMF Approves $2.97 Billion for Morocco Under their Precautionary & Liquidity Line
11.10  TURKEY: Fitch Affirms Turkey at ‘BB’; Outlook Negative
11.11  TURKEY: Turkey’s Recession Becomes Official
11.12  TURKEY: Turkey Economic Report – 2018


1.1  Israel Approves NIS 700 Million Grant for Intel

On 25 December, the Knesset Finance Committee approved a NIS 700 million grant for Intel Corp in return for a planned $5 billion expansion of its production operations at the Kiryat Gat fab.  Intel submitted its plans for the Kiryat Gat expansion in May.  Intel is Israel’s largest private employer and biggest exporter.  In 2017, Intel Israel exported $3.6 billion worth of goods, 8% of all Israel’s high-tech exports.  In exchange for the NIS 700 million grant, the Israeli government expects Intel to hire 250 new employees and make NIS 2.1 billion in Israeli procurement.  (Globes 25.12)

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1.2  Israel to Fully Tax IPO or Exit-Dependent Employee Options (in Some Cases)

A new memo published by the Israel Tax authority could see local employees pay as much as 50% tax on any option they exercise as a result of their company being sold or listed on an exchange.  Companies, especially in the tech sector, often grant their employees the right to buy a certain amount of company stock at a predetermined price, typically requiring them to wait a certain vesting period before the options can be exercised.  According to the new memo, if the options granted to employees are dependent on employee or company stock performance, and thus the employees are acting as shareholders who bear the risk of stock price fluctuations, the options will be taxed as capital gains, at a 25% rate.  If employees are granted options following an initial public offering but those options are locked for a period of two years or more, those options will also be taxed as capital gains when exercised.

If, however, employees can only exercise their options in the event of the company performing an IPO or being sold, and the monetary gain is immediate and predetermined – like any other bonus granted to employees – then the options will be taxed as income, which bears a tax rate of up to 50% in Israel.

The memo is not a change of existing policy but simply a clarification, which came about following a pre-ruling the authority made in response to a specific taxation inquiry earlier this year.  Perceived as a tax increase on the already high tax load on Israel’s highest paid industry, the memo evoked criticism from Israel’s tech sector.  The authority has allowed companies 180 days to change the terms of stock options already granted to employees.  (Various 18.12)

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1.3  Prime Minister Netanyahu Hosts Cypriot, Greek Leaders for Annual Tripartite Summit

The Cyprus issue, energy and regional developments are among the issues to be discussed during the Cyprus-Greece-Israel trilateral summit, held on 20 December in the Israeli city of Beer Sheva.  Cypriot President Nicos Anastasiades attended the Summit together with the Prime Minister of Israel Benjamin Netanyahu and Greek Premier Alexis Tsipras.  President Anastasiades was accompanied by Foreign Minister Nikos Christodoulides, Energy Minister Yiorgos Lakkotrypis, Transport Minister Vassiliki Anastasiadou, government spokesman Prodromos Prodromou and Undersecretary to the President Vasilis Palmas.

It is noted that issues discussed during the summit included, among others, the Cyprus issue, energy, regional developments, the Middle East peace process, research and innovation, education, tourism, communications, agriculture, cyber security.  A series of bilateral and trilateral Memoranda of Understanding were signed, followed by statements of the three leaders to the press.  PM Netanyahu also hosted a working lunch for the leaders and their delegations.  (CNA 19.12)

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1.4  Israeli Government Adopts OECD Regulation Policy

The Israeli government has approved the proposal of Prime Minister Benjamin Netanyahu to adopt and implement the OECD’s regulation policy.  This means that new orders and rules that government ministries seek to initiate will undergo broader examination and will be reviewed by the regulation department in the Prime Minister’s Office to ensure uniformity and efficiency of government regulations.

Under the prime minister’s proposal, before any regulatory change, government ministries will have to carry out an international comparison, a cost-benefit analysis, public consultation, and an assessment of the effectiveness of the proposed legislation.  The Prime Minister’s Office will review the work of the various ministries to ensure that comprehensive and thorough staff work is done before any new regulation is added.  (Globes 24.12)

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2.1  Optibus Accelerates Growth of its AI-Based Mass Transportation Platform

Optibus announced the closing of a $ 40 M Series B financing round, led by Insight Venture Partners with a strategic investment by Alibaba Group.  The Series B funding will drive future product innovation and support expansion into new and existing markets. Existing investors, including Verizon Ventures, Pitango Venture Capital, New Era Capital and Sir Ronald Cohen, also participated in the round.

The Optibus platform is an end-to-end, SaaS offering that powers mass transportation.  Optibus creates an operational plan and schedule that orchestrates the movements of every vehicle and driver in a city-wide transportation ecosystem, choosing the best options available to transit operators and agencies, and creating better service for passengers with lower operating costs.  Since its Series A funding round in 2017, Optibus has expanded its presence in North America and Europe. The company has also seen its sales grow by 400% and its product chosen for more than 300 cities worldwide.

Tel Aviv’s Optibus helps the world’s leading transportation providers better run mass transportation through advanced artificial intelligence and optimization algorithms.  Optibus provides a SaaS platform that plans and schedules the movements of every vehicle and driver in a transportation network, with detailed insight into how this affects operations, on-time performance and costs.  Optibus has been chosen for more than 300 cities and drives some of the most complex and large-scale transportation operations worldwide, helping improve quality of service and efficiency, reduce costs, streamline operations and reduce congestion and emissions. (Optibus 12.12)

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2.2  Cannbit Signs Collaboration Agreement with Namaste

Cannbit, which was merged into A.L. Capital Holdings, announced the signing of a memorandum of understanding (MOU) with Namaste Technologies of British Columbia.  The two companies have already cooperated in the past.

Namaste sells cannabis products and products related to cannabis consumption in Canada and 20 other countries.  Most of its sales are online.  Cannbit has licenses to grow cannabis in Israel and is in the process of organizing activity in this area.  The company estimates that it will begin producing cannabis in early 2019.

Under the MOU, Namaste will help Cannbit establish cannabis ventures outside Israel and in raising capital from private investors outside Israel and on foreign stock exchanges.  Cannbit will help Namaste consider the option of dual listing on the TASE.  Cannbit will introduce Namaste to Israeli cannabis research and development companies for investment purposes.  The parties also plan to found a chain of coffee, leisure and explanatory centers in Israel.  Patients with licenses for using medical cannabis will be able to obtain guidance and explanations at these centers about how to use medical cannabis in combination with proper nutrition, subject to the security and medical licenses necessary for activity of this type.

As part of Namaste and Cannbit’s previous cooperation, Namaste invested NIS 2.5 million in Cannbit for 4.4% of the latter’s shares.  The two companies signed an agreement whereby Namaste will buy cannabis from Cannbit for inclusion in its products, and for sale through its marketing channels.  (Globes 12.12)

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2.3  SafeRide and Ixia Deliver Advanced Testing for Next Generation Connected Vehicles

SafeRide Technologies has collaborated with Ixia, a Keysight Business, to test SafeRide’s vSentry™ vehicle cybersecurity solution using the BreakingPoint applications and network security test platform.  The BreakingPoint test platform simulates unauthorized data activity within the vehicle, while SafeRide’s technology detects these attempts, contains the activity, and prevents any interference or data loss.

SafeRide’s vSentry™ multilayer cybersecurity solution monitors all external communication to the vehicle, in-vehicle network traffic, and ECU software in real-time, and provides a zero false-positive firewall, Intrusion Detection and Prevention System (IDPS), and access control to all ECU resources.  SafeRide’s vXRay™ advanced AI Machine Learning and Deep Learning technology uncovers zero-day vulnerabilities and allows for remediation by updating real-time access control policies over-the-air.

It can be challenging to test the level of efficiency and operation of leading cybersecurity solutions, such as SafeRide’s vSentry.  To address this challenge, the BreakingPoint test solution simulates real-world traffic, distributed denial of service (DDoS), exploits, malware and fuzzing attacks.  BreakingPoint simulates both good and bad traffic to validate and optimize the network under the most realistic conditions.  BreakingPoint is used to trigger unauthorized data exfiltration activity, while SafeRide’s vSentry solution detects the exfiltration attempt with vehicle profiling and anomaly detection algorithms, and applies automatic bandwidth control policies to contain the incident and prevent interference and data loss.

Tel Aviv’s SafeRide Technologies is the provider of vSentry, the industry-leading multi-layer cybersecurity solution for connected and autonomous vehicles that combines state-of-the-art deterministic security solution with a groundbreaking AI profiling and anomaly detection technology to provide future-proof security.  SafeRide provides OEMs, fleet operators and automotive suppliers early detection and prevention of cyberattacks, and helps to avoid financial damage, prevent reputation loss, and save lives.  (SafeRide 12.12)

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2.4  KPN Ventures Provides Growth Capital To Cloud & Edge Orchestration Company Cloudify

Rotterdam’s KPN Ventures, the venture capital investment arm of KPN, has participated in the $7M financing round of Cloudify.  Cloudify enables service providers and enterprises to automate, manage and virtually transform their network and application services from their core location to branches and multi-access edge devices.  In addition to KPN Ventures, CreditEase Israel Innovation Fund and existing investors including Claridge Israel, BRM Group and VMware participated in the $7 million financing round.  The growth capital will be used to further accelerate the international expansion and to build the partner ecosystem in order to support customer success.

The company assists many large organizations in their digital transformation by offering a solution that enables them to be flexible and to have a multi-cloud environment combined with faster adoption of new technologies.  For KPN, Cloudify offers an open source solution to manage the complexity of network virtualization.  The Cloudify orchestration solution is vendor agnostic and flexible to adapt to interfaces in networks and IT landscapes, and enables infrastructure management and any virtual network functions.

Herzliya’s Cloudify was established in 2014 by its parent company, GigaSpaces Technologies.  In July 2017, Cloudify became independent in order to focus on the fast-growing market for management and orchestration of cloud applications, network functions virtualization (NFV) and edge devices.  (Cloudify 13.12)

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2.5  NoTraffic Accelerates Vision to Make All Roads Smart, Raising $3.2 Million in Seed Funding

Founded in 2017, Tel Aviv’s NoTraffic has developed a management platform that offers cities a ground-breaking solution to reduce traffic congestion and improve road safety in real time.  The company announced the completion of a $3.2M seed funding round, led by lool ventures with participation from Next Gear Ventures, North First Ventures and private investors Tal Recanati and Uri Rubin.  The funds will be used to further invest in R&D, accelerate the company’s commercial roll out in the US, as well as to recruit additional employees both in Israel and the US.

NoTraffic is the most cost effective and seamless way for cities to optimize traffic flow in real time today whilst simultaneously upgrading and preparing road infrastructure for tomorrow’s world of connected and autonomous vehicles.  The company has developed an advanced IoT platform for traffic management in urban environments, based on the integration of information collected through communication between vehicles and infrastructure (V2I) and information from smart sensors (using computer vision) deployed at traffic light-controlled intersections and conflict points on the road.  The system is based on advanced artificial intelligence (AI) algorithms that identify, categorize and track all road users, from cars, buses, cyclists, electric scooters and pedestrians, accurately predicting their time of arrival at an intersection.

In June 2018, the company successfully completed a ground-breaking experiment, in cooperation with Foresight Autonomous Holdings Ltd.  The experiment successfully demonstrated accident prevention through real- time communication between vehicles and road infrastructures, inter alia in order to prevent accidents similar to the accidents involving Google and Uber autonomous vehicles in the US.  Specifically, the trial demonstrated the benefits of vehicle to infrastructure communications, whereby vehicles were able to access data on both vehicles and pedestrians outside of the vehicle’s own line of sight, preventing collisions with both vehicles and pedestrians.  (NoTraffic 14.12)

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2.6  Avanan Raises $25 Million to Revolutionize Secure SaaS Email and Collaboration

Avanan has raised $25 million in Series B funding from existing investors StageOne Ventures, Magma Venture Partners and Greenfield Partners (a TPG Growth investment platform).  Avanan’s customer base has increased 10-fold in the last 12 months, protecting over 1M end-user accounts in organizations across all industries, from startups to Fortune 100.  Avanan plans to use the new funding to further accelerate its growth.

Avanan helps companies secure the full Office 365 suite, G Suite, Box, ShareFile, Slack and other collaboration SaaS applications from phishing attacks, malicious content, data leakage, account takeover and more.  What sets Avanan apart is its multi-vendor platform, which allows customers to pick and choose security technologies from the leading vendors in the industry.  Each of these vendor’s security technologies is preconfigured and activated from inside the Avanan platform with one click.  Within the Avanan platform, customers can purchase predefined bundles containing security technologies from Avanan and Avanan’s partners, or a-la-carte, selecting the exact technologies and vendors they want to use in each category.  Avanan sells its solution under the Avanan label as well as through several white-label OEMs with some of the leading IT security vendors.

Tel Aviv’s Avanan is the premier security solution for cloud-based email, messaging, and collaboration.  Deploying in minutes, Avanan’s unique, multi-vendor security solution leverages the industry’s best technologies to protect organizations from advanced threats such as phishing, malware, data leakage, account takeover and shadow IT.  (Avanan 14.12)

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2.7  Singapore’s VisVires Backs Israeli Shrimp-Health Startup ViAqua

Singapore-based VisVires New Protein Master Fund (VVNP), the food and feed investments division of VisVires Capital Asia, has invested in Israel-based medical aquafarming startup ViAqua Therapeutics.  The financial terms of the investment were not disclosed.

Founded in 2014, Misgav’s ViAqua develops a particle-based method for orally administering antiviral medication to shrimp.  ViAqua’s first product, expected to go on the market in the next few months, prevents and treats several ailments including white spot syndrome virus, a highly contagious and deadly virus.  Previous investors in ViAqua include Dutch animal feed company Nutreco NV, Trendlines Group and the Technion Israel Institute of Technology.  (NoCamels 18.12)

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2.8  Temi Raises $21 Million

Temi Global announced the closing of a $21 million investment round led by former Alibaba CTO John Wu, an existing investor.  Other investors in this financing round include Generali Investments S.p.A of Italy and Hong Kong- based IoT company Ogawa. Temi has raised $82 million to date, including this latest round.  The company says it will use the investment for marketing and sales initiatives of ‘Temi,’ which it calls the world’s first truly intelligent, mobile, personal robot.  On top of this investment round, Ogawa and Temi have established a strategic partnership for Temi’s marketing and distribution at 180,000 points of sale worldwide.  Temi is currently sold at 15 locations throughout the US as well as online. In January, the company will officially launch sales at CES.

Tel Aviv’s temi is the world’s first, truly intelligent, mobile, personal robot for your home, which places you at the center of your technology, including smart home devices, online content and video communications – harnessed by the power of your voice.  Featuring state of the art AI, and a system of sensors and cameras, temi will seamlessly enter your life, perfectly navigating the most dynamic environment you can imagine.  temi offers you an effortless way to connect with online content and friends.  This is the personal robot experience we have always imagined, and using it is as easy as turning on a light.  (temi 19.12)

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2.9  MinerEye Awarded $2.5 Million EU Grant for Its Data Classification and Security Solution

MinerEye, an innovator in AI-powered data governance, has been awarded a highly competitive SME Instrument Grant from the European Commission worth €2.2 million ($2.5 million).  The Grant organization selected MinerEye’s Data Tracker™ to provide EU companies with innovative and effective solutions to ensure secure and compliant cloud adoption which is currently lacking in the market today.  SME Instrument is part Horizon 2020, the EU Research and Innovation arm that identifies, rigorously evaluates and selects solutions that foster innovation and economic growth in the EU.  Only 6.8% of companies that apply have received the Grant since its inception.

MinerEye has developed a proprietary technology based on computer vision and machine learning that automatically categorizes, classifies and tracks very large amounts of data in an extremely fast and precise fashion. Working at the byte level, MinerEye’s DataTracker can identify and tag all types of enterprise data, from PII to contracts, patents, designs photos and video.

Powered by Interpretive AI, Hod HaSharon’s MinerEye technology sees and continually tracks data by its essence, regardless of its form and information content type, wherever it resides.  With MinerEye’s unique approach, companies can now discover, organize and track vast information assets by scanning enterprise data repositories at the byte and pixel level.  Sensitive data is mapped, tagged and secured according to data protection and compliance regulations including GDPR, HIPPA, PCI-DSS, SOC2, and EU-U.S. Privacy Shield.  Employing machine learning and computer vision, MinerEye’s flagship product DataTracker is helping companies significantly reduce data storage, monitor and fast-track cloud migration activities, protect previously undetected, unclassified and undermanaged data against security breaches, and continuously audit their information to maintain regulatory compliance.  (MinerEye 19.12)

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2.10  IIA and PlanetM Collaborate for Autonomous Technologies Testing in Michigan

An agreement was announced between The Israel Innovation Authority and PlanetM to co-finance testing and piloting of future autonomous technologies in Michigan.  The Michigan Israel Business Accelerator (MIBA) was instrumental in initiating and crafting the agreement that was announced on 16 December.  The goal of the program is to expand the cooperation between the ecosystem in Michigan, which enables manufacturing and testing in the field, and innovative Israeli companies in a variety of industries and in the smart transportation sector in particular.

As part of the program, Israeli companies will receive support for conducting field tests and piloting of the technologies developed by pilot sites in Michigan, such as the American Center for Mobility (ACM), MCity and/or the Michigan Highways, as well as access to the best technological incubators, Israeli companies will also have the opportunity to test their technologies in the snowy conditions of Michigan.  Selected candidates will be able to receive up to 50% of the approved funding budget by PlanetM, in addition to a grant of up to 50% of the remaining funding budget to be approved by the Innovation Authority.  (MIBA 23.12)

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2.11  Ottopia Raises $3 Million to Develop Remote Assistance Platform for Autonomous Cars

Tel Aviv’s Ottopia announced the closing of a $3 million seed funding round led by MizMaa Ventures with participation from Glory Ventures, Plug and Play, and NextGear.  The startup, founded earlier this year, emerged from stealth mode to make the announcement.

Ottopia developed an advanced teleoperation platform for autonomous vehicles, which allows the human operator and the car’s artificial intelligence to work together during a remote intervention, through a combination of both human and artificial intelligence.  The human assists the Autonomous Vehicle (AV) with decision-making in a complex scenario; the AV then executes that decision and navigates with a full suite of sensors and safety measures engaged.  The funds will be used to expand the company’s R&D team and collaborate with autonomous vehicles companies to prove the versatility and enhanced safety of the platform.  (Ottopia 21.12)

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2.12  Valerann Raises $5 Million to Upgrade Existing Road Information Technology for Present & Future Mobility Challenges

Valerann has raised $5 million in seed funding in a round led by Rio Ventures Holdings and 2B Angels, in addition to Spain’s Telefonica and unnamed angel investors.  The company, which will make its official debut at CES next month, is also announcing a partnership with both Bosch and Jaguar Land Rover to create a “holistic data marketplace” to support connected and self-driving vehicles.

Valerann essentially provides a wireless, sensory, IoT system that spits out information about everything that takes place on the road in real-time.  This data can then be used to detect risks, prevent accidents, optimize intersections, automate traffic control centers, and support connected and autonomous vehicles. The interesting thing is that it can theoretically be used for any road today.

Founded in 2016, Tel Aviv’s Valerann has created the Smart Road Solution.  It has already deployed its solution with some of the largest private and public highway operators in the UK, the US and Israel and is expected to integrate its system with two additional private toll road operators in Europe in the next year.  (Valerann 21.12)

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3.1  Lebanon’s First Content Curation Platform Kicks off From Beirut

Limelines, Lebanon’s first content curation platform, was officially launched to the public on 27 November 27, 2018.  The Beirut-based digital startup is fully developed by local talents, and caters to every reader, writer, and publisher in the region.  The high-tech platform exposes the MENA region’s publishers and content creators all in one place.

Limelines allows readers to customize the content they would like to read about and pick the topics that interests them to benefit from an elevated and enhanced reading journey.  With its integrated advanced machine learning, it spares the reader the time and effort of skimming through stories they less relate to: Limelines curates and offers its readers topic-driven stories.  This enables them to move to a new era of news consumption that satisfies their information needs.  Limelines also allows its users to collect and share the stories they read with their community.  This AI-driven content channel is not only expected to disrupt online reading but will also introduce ‘social’ interactivity to the classic news reading behavior.

Limelines research revealed that in addition to news, sports, business, economy, culture, finance, entertainment, as well as tech, art, and health, represent the MENA region’s top interests.  Thus, the platform strives to highlight these topics among over 40 additional ones and present them in a new mold through its partnership with publishers.  The digital platform has kicked off in English first and is expected to release Arabic and French versions in early 2019.  These two releases will constitute major milestones the startup aspires to achieve, to service the growing online audience.

Readers can simply log in to or the app on iOS or Android, create a customized profile and kick-off their new reading journey.  Publishers and writers who would like to start submitting their content, can create their personalized profile page through Limelines’ web edition.  Brands seeking to know more about potential business opportunities can visit our brands page.  (Limelines 16.12)

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3.2  Investment in MENA Fintech Startups is the Rise

With the increasing number of Fintech startups being set up in the MENA region to solve the existent financial problems, the sector has been witnessing considerable investments raised by the startups to support them in expanding.  For example, Bahrain’s Paytabs, a payment gateway provider, raised a total of $20M in investment – the highest amount of investment raised by Fintech startups in the region.

Today, the sector is estimated at $2B and is expected to witness an annual growth of $125M until 2022, according to MENA Research Partners (MRP).  Investments in Fintech startups in the region have amounted to over $200M (over the period covered by our in-depth research from 2001 till 2017) to date considering the high increase in the number of startups founded each year.  These investments provide startups with the necessary funding to develop and grow their startups leading to the development of the whole industry as well.

Not only is the UAE home to the highest number of Fintech startups in the region, but it is also home to the highest total amount of investment received by Fintech startups with $80M raised for 34 startups contributing to 40% of the total investment amount.  With half the total amount raised by UAE startups, the market with the second highest total amount of investment is Jordan with around $39M raised for 9 startups, contributing to 19.5% of the total amount.  The remaining countries contribute to 59.5% of the total amount of investment received by Fintech startups.  (ArabNet 05.12)

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3.3  ArabiaWeather and Raymetrics SA to Revolutionize Dust Forecasting in MENA

Amman, Jordan’s ArabiaWeather – the largest private weather company in the Arab World and a pioneer in weather technology – has signed a Memorandum of Understanding (MoU) with Raymetrics SA, a global leader and manufacturer of atmospheric Light Detection and Ranging (LIDAR) systems.  Anchored in Athens and boasting global reach and ambition, Raymetrics SA – founded by scientists and engineers – has developed innovative remote sensing techniques for atmospheric monitoring. Inked in October 2018, the MoU aims at revolutionizing dust forecasting in the Middle East and North Africa (MENA) region, thus enhancing the quality and accuracy of ArabiaWeather forecasts.

By virtue of the partnership, Raymetrics SA will complement ArabiaWeather’s decision support solutions and weather forecasts with advanced hardware – including a state-of-the-art regional LIDAR network – consequently elevating the latter’s personalized, relevant and precise weather coverage, in turn, benefitting ArabiaWeather’s end-users including consumers, enterprises and governments.  As a company operating in a geography where sand and dust storms are frequent, ArabiaWeather will further bolster its specialized dust forecasting capabilities, hence improving readiness and emergency response.

The MoU will also enable ArabiaWeather and Raymetrics SA to promote collaborative projects that leverage each company’s unique strengths, resources and cutting-edge technologies in order to deliver timely, accurate and localized weather information and services to private and public sector entities across the MENA.  Furthermore, the partnership will allow Raymetrics SA to benefit from ArabiaWeather’s regional experience and standing in order to expand its reach within the MENA.  (ArabiaWeather 16.12)

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3.4  Abu Dhabi Agribusiness Seeks $10 Million for UAE and Saudi Expansion

Abu Dhabi-based Pure Harvest Smart Farms is planning to expand in the UAE and into Saudi Arabia after announcing the successful first harvest of products grown in its inaugural high-tech greenhouse.  The company, a technology-enabled arid climate agribusiness, said it plans to raise funds of at least $10 million for the expansion after showcasing its first premium quality tomatoes from the greenhouse in Nahel.  Pure Harvest said the product launch was part of its aim to be part of the solution to the region’s growing food security, water conservation, and sustainability challenges.

The greenhouse was developed in partnership with Certhon Greenhouse Solutions, a Dutch designer and builder of modern greenhouses.   Indoor temperature, humidity, and carbon dioxide levels are carefully balanced and automated using a climate management computer system developed by Priva, a leader in horticulture and building automation.  The company achieved first harvest of its initial products including candy tomatoes, tomatoes-on-the-vine, and cherry tomatoes – approximately two months after commissioning the facility in early August.  It said early results have been “overwhelmingly positive”, with the greenhouse beating targeted yields by 20% for its first season.

The performance of the greenhouse climate control system has enabled Pure Harvest to be the first agribusiness company in the UAE to produce commercial quantities of fresh tomatoes during extreme summer climate conditions.  Pure Harvest is currently selling its products to major retail customers across the UAE including Spinney’s, Carrefour, Waitrose, Zoom, and Choithram’s as well as selected hotels and restaurants, including the Four Seasons.  (AB 14.12)

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3.5  Intel Funds NYU Abu Dhabi Cyber Security Research

Intel has awarded NYU Abu Dhabi a three-year, $300,000 grant to help with research into new ways of securely testing and configuring computer chips by third-party companies.  The research, being conducted by NYU Abu Dhabi Associate Dean of Engineering Ozgur Sinanoglu, allows tech companies to obfuscate security critical data – such as the chips serial ID – by using a secret key pre-loaded onto the chip.  Once hidden, a third-party company can test and configure each chip before being sold, but without access to the chip’s security critical data.

With the results of this research, hardware designers will be able to ensure that chips they produce cannot be reverse-engineered by attackers.  The research will also demonstrate the commercial viability of process by assessing low-cost obfuscation techniques and their integration across the electronic chip supply chain.  (AB 23.12)

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3.6  Dubai’s dnata Buys New York-Based 121 Inflight Catering

dnata, the Dubai-based air services provider, has announced that it has completed the acquisition of New York headquartered inflight and VIP caterer, 121 Inflight Catering.  The company said the acquisition allows it to significantly expand its operations in the United States, further strengthening its global network of catering businesses.  Founded in 2007, 121 Inflight Catering offers premium catering services to commercial airlines and private jets from its facilities at New York JFK and Nashville International Airport.  It employs more than 350 culinary professionals and serves 21 international airlines and hundreds of private aviation customers.

Over the past year dnata has invested significantly in growing its global catering network.  The company’s most recent milestones include the opening of a new catering facility in Dublin, Ireland, and the acquisition of Qantas Airways’ catering division in Australia.  dnata is also in the final stages of completing its new Vancouver facility – its first catering facility in Canada – which will formally open in 2019.

Besides the flight catering facilities at New York-JFK and Nashville International Airport, the acquisition also includes two separate restaurants.  121’s flight catering operations will be rebranded to dnata and continue to operate under the guidance of the existing 121 management team.  (AB 11.12)

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3.7  BP & Mubadala Purchase 45% Stake in Eni’s Noor Concession

Egypt has approved the sale of a 25% stake in Eni’s offshore exploratory Noor concession to BP.  The agreement, signed by Minister of Petroleum Tarek El Molla, also approved the entry of Emirati investment company Mubadala to the concession, which reached an agreement with Eni in November to purchase a 20% stake.  The sale leaves Eni holding a 40% stake in the concession, while its Egyptian partner company Tharwa Petroleum holds the remaining 15%.  Eni and Tharwa have invested $105 million to drill two exploratory wells.  The first well is currently being drilled 50-km away from the shore at a depth ranging between 50 and 400 meters, and covers a total 735 km2 area.  El Molla said following the signing that the strong interest shown by international oil companies demonstrates a strong investment climate in Egypt’s oil and gas industry.  (EOG 10.12)

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3.8  CIB Establishes CVentures, Egypt’s First Corporate VC Firm Focused Primarily on FinTech

Commercial International Bank (CIB), Egypt’s leading financial institution, announced the establishment of CVentures, the first Corporate Venture Capital firm in Egypt primarily focused on investing in transformational FinTech startup companies, and next generation financial services platform’s.  CVentures establishment reflects CIB’s deep and continued commitment towards Egypt’s largely untapped financial services industry, and the importance of FinTech as one of the key drivers of Financial Inclusion, and the country’s future economic growth prospects, at large.

CVentures will pre-dominantly participate in Series A and Series B investment rounds in Egypt, the Middle East, Africa and other highly regarded cross-border market economies, in addition to considering Seed investment rounds across similar markets.  To achieve this, CVentures will combine the speed and agility of an independent investor with the breadth of CIB’s businesses, whilst continuously developing meaningful relationships with dynamic and insightful stakeholders involved in high-growth, disruptive technologies and differentiated business models that compliment and intersect with CIB’s core businesses.

Established in 1975, today Commercial International Bank (CIB) is Egypt’s leading private-sector bank.  With its well-established network of over 190 branches, CIB provides its customers with exceptional service, whether they are individuals, households, high-net-worth individuals, large corporations, or small businesses.  For several years, CIB has also enjoyed the titles of most profitable bank operating in Egypt and the bank of choice for over 500 of Egypt’s largest corporations.  CIB was also named the World’s Best Bank in the Emerging Markets at the Global Finance 2018 special awards ceremony, one year after it was awarded same title from Euromoney.  (CIB 18.12)

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4.1  Israel to End Use of Coal for Electricity Production by 2030

Israel said on 17 December that it would stop the use of coal by 2030, joining a host of other countries in an alliance that aims to transition to cleaner sources of energy.  The Powering Past Coal Alliance, launched by Canada and Britain, seeks to gradually reduce the production of electricity from coal and to support clean energy in government and corporate policies.  It supports phasing out the use of coal in OECD countries by 2030 and in the world by 2050.  Twenty-eight countries have already joined the alliance.

Energy Minister Steinitz said his ministry was working to accelerate the entry of clean and renewable energies into Israel and would continue to act to reduce air pollution.  Israel has been reducing coal use and shifting to natural gas.  The energy and environment ministries issued a joint statement saying that steps in recent years have led to a 25% drop in electricity production from coal since 2015, while the emission of pollutants has fallen significantly.  (IH 18.12)

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4.2  Morocco Improves in World Bank’s Sustainable Energy Indicators

The World Bank has published its report of the 2018 Regulatory Indicators for Sustainable Energy (RISE) that listed 133 countries’ renewable energies improvements, giving Morocco a score of 74.  RISE informs investors of the sustainable energy policies and regulations of a given country.  The World Bank surveyed 133 countries based on data provided by governments from 2010 to 2017.

Alongside China, Brazil, Mexico, Russia, and South Africa, Morocco emerged as a prominent example of a country that has put in place advanced policy frameworks in support of sustainable energy.  The report gave Morocco a score of 74 points for sustainable energy indicators, including access to electricity (100 points), energy efficiency (56 points), and renewable energy (67 points).  In terms of energy efficiency, Morocco scored high with 80 points in the national energy efficiency planning indicator, 100 points in energy efficiency indicator, and 96 points in energy efficiency incentives from electricity rate structures.

However, Morocco scored low in other indicators, including incentives and mandates put in place for the public sector (13 points), for industrial and commercial end users (13 points), transport (0 points), and minimum energy efficiency performance standards (32 points).

Regarding renewable energies, Morocco did well in the legal framework for renewable energy (100 points), planning for renewable energy expansion (83), and attributes of financial and regulatory incentives (83 points).  The report gave a medium score to incentive and regulatory support for renewable energy (62 points), counterparty risk (65), carbon pricing and monitoring (50), and use (23 points).  Morocco produces 28,000 GW hours of electricity, while the rest is imported from Spain.  It seeks to boost its production capacity by 6,500 MW by 2020, with solar and wind energies each representing 2,000 MW, according to a US International Trade Administration 2017 report.  (MWN 12.12)

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4.3  Morocco Makes ‘Impressive Progress’ in Limiting Global Warming

Morocco is among the countries that have made significant progress in limiting the effects of global warming, according to the Climate Action Tracker (CAT).  CAT listed Morocco among the countries that have invested “impressive” efforts to curb the damaging effects of climate change.  The institute of Climate Analysis, Ecofys Consultancy and NewClimate Institute issued the CAT’s Warming Projections Global Update for December 2018, on the sidelines of the 24th World Climate Conference (COP24) held in Katowice, Poland.  For this year’s update the CAT has examined how emissions projections have shifted since the Paris agreement in 2015.

The CAT analysis identified “real movement on the ground, with Argentina, Canada, Chile, Costa Rica, Ethiopia, the EU, India and Morocco taking significant steps in the right direction, and with other countries also taking action.”  The analysis, which assessed 32 countries, gave Morocco a ‘clear progress’ indicator, thanks to the country’s “impressive progress in recent years.”  Clear progress means, according to the analysis, a “clear decrease in projected 2030 emissions level due to actual policy development.”

Morocco also made a great achievement in climate change performance and become the second-best performing country in the Climate Change Performance Index (CCPI) for the year 2019, behind Sweden.  Morocco ranks high in all CCPI categories, including greenhouse gas (GHG) emission, renewable energy, energy use, and climate policy.  The index, which evaluates and compares the climate protection performance of 56 countries and the EU, also looked at Morocco’s progress in reducing greenhouse gas emissions, energy use, and climate policies.  The index stated that Morocco’s renewable energy projects and goals, including the world’s largest “Noor Solar Project,” resulted in a high rating in the climate change ranking.  (CAT 15.12)

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5.1  Lebanon’s Fiscal Deficit Up to $4.50 Billion by Third Quarter

According to the Ministry of Finance, Lebanon’s fiscal deficit expanded from $2B by September 2017 to $4.50B by September 2018.  In fact, fiscal revenues witnessed an annual increase of 3.16% to reach $8.67B while the government spending rose by a yearly 26.16% to stand at $13.18B.  Lebanon’s overall primary balance which excludes Lebanon’s debt service posted a deficit of $590.89M, compared to a surplus of $1.63B by September 2017.  Tax revenues (constituting 81.6% of total revenues) increased by an annual 1.97% to $6.55B.  Revenues from the VAT (28.9% of total tax receipts) climbed by 11.37% year-on-year (y-o-y) to $1.89B, and this can be largely attributed to the new VAT rate of 11%, increased from 10% starting January 2018.  Meanwhile, customs’ revenues (15.5% of tax receipts) dropped by 4.20% (y-o-y) to $1 billion.  As for Non-tax revenues (18.40% of total revenues), they grew by 4.51% to stand at $1.48B by September 2018.  This can be linked to the yearly increase of 22.73% in telecom revenues (constituting 44.13% of total non-tax revenues) to reach $651.28M by June September.  On the expenditures’ side, total government spending increased by a yearly 24.25% to hit $11.98B by September 2018.  In details, transfers to Electricity du Liban (EDL) alone rose by 37.87% to reach $1.24B which followed the 38.52% annual rise in average oil prices to $72.73/barrel over the period.  Moreover, total debt service increased by an annual 7.83% to reach $3.92B by September 2018.  In details, interest payments rose by a yearly 8.09% to stand at $3.79B by September 2018 while the foreign debt principal repayment recorded an uptick of an annual 1.01% to reach $130.44M by September 2018.  (MoF 19.12)

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5.2  Total Number of New Lebanese Registered Cars Down by 9.74% in November 2018

According to the Association of Lebanese Car Importers (AIA), the total number of newly registered commercial and passenger cars continues to shrink by an annual rate of 9.74% to stand at 32,907 by November 2018.  This was triggered by the 9.45% yearly drop in the number of newly registered passenger cars to 30,785 and the 13.81% drop in the newly registered commercial vehicles to 2,122 by November 2018.  In terms of car brands, Kia held the largest share of 15.47% of newly registered passenger cars, followed by Hyundai and Toyota with shares of 13.03% and 12.73% respectively and Nissan with and 12.04 % of the total.  In terms of sales per importer, RYMCO acquired the biggest share of the total newly registered cars with 15.44%, followed by NATCO (14.52%), BUMC (13.04%) and Century Motor Co (12.47%).  In November, the total number of newly registered commercial and passenger cars decreased by 17.47% comparing to the same period last year.  (AIA 14.12)

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5.3  Jordan & Iraq Review Economic Relations, Explore Further Cooperation

Jordan and Iraq on 19 December stressed their keenness to enhance economic relations, and discussed the import of Iraqi oil to Jordan at special prices during a meeting at the Prime Ministry.  Prime Minister Razzaz and the Iraqi Deputy Prime Minister for Economic Affairs and Minister of Finance and Planning Hussein discussed means to enhance bilateral cooperation between the two countries.  During the meeting, the premier stressed the deep-rooted ties between the two nations, underscoring the importance of enhancing them on all levels to serve both countries’ best interests.

Razzaz and Fuad discussed cooperation in a number of fields, especially a crude oil pipeline project between the two countries and activating bilateral agreements to achieve full integration between Jordan and Iraq.  During extensive talks, involving senior officials from Jordan and Iraq, both sides highlighted the need to have cooperative ties rather than competitive ones to best serve their interests, according to Petra.

The project to transport Iraqi crude oil through the oil pipeline between Basra and Aqaba was the highlight of the meeting, as Baghdad aspires to find new ways of exporting oil.  Talks also touched on the possibility for Jordan importing Iraqi oil at preferential prices, and installing power grids as part of reconstruction efforts in Iraq.  In the transport field, the two sides agreed to increase focus on the Karameh-Tureibil Border Crossing and improve air and maritime transport by providing facilities for importers in the Iraqi private sector.  They also discussed the possibility of exempting Jordanian exports to Iraq from customs fees, establishing joint industrial zones, launching integrated industries and starting joint investment projects between both countries’ private sectors to encourage Iraqi investments in the Kingdom.  (JT 20.12)

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5.4  Jordan’s Public Debt Rises to JOD28.5 Billion, Some 94% of Estimated GDP

Jordan’s total public debt amounted to JD28.5 billion, comprising 94.9% of the estimated gross domestic product (GDP) at the end of October 2018, compared with JOD27.269 billion or 94.3% of the GDP in 2017.  The Ministry of Finance said that the most prominent financial debts are of the National Electricity Power Company (NEPCO) and the Water Authority, guaranteed by the central government, which amounted to about JOD 7.4 billion.  The net public debt at the end of October of this year indicated a rise of JOD1.661 billion, compared to the end of 2017.  The ministry explained that the funds were borrowed to offset the general budget deficit and cover guaranteed loans for NEPCO and the water authority, so the public debt reached JOD27.096 billion, constituting 90.4% of the estimated GDP at the end of October 2018, compared with JOD25.435 billion, and constituting 88% of GDP, for 2017.

The existing balance of external debt (budget and guaranteed) at the end of October 2018 edged up by JOD175 million to reach JOD12.042 billion, constituting 40.2% of the estimated GDP for the end of October 2018, compared to JOD11.867 billion, constituting 41.1% of GDP at the end of 2017.  (Petra 23.12)

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►►Arabian Gulf

5.5  The Size of the GCC Retail Market in 2023

Retail sales across four Arabian Gulf countries are projected to increase by more than $24 billion over the next five years, with the UAE expected to lead this trend with an estimated growth rate of 16%, according to Euromonitor International.  Euromonitor’s research reveals that Kuwait, Oman, Saudi Arabia and the UAE are all set to capitalize on the rise of consumerism thanks to favorable demographics, a rise in population and a strong growth trajectory in tourism and per capita income.

The research indicates that the retail industry in the UAE is currently worth $55 billion and is forecast to steadily rise to $63.8 billion by 2023.  Store-based retailing will continue to dominate, accounting for $52.7 billion of the overall market in the UAE, however, non-store retailing, which includes online shopping, direct selling, mobile internet, social media and home shopping, will grow by 78%from 2018 to 2023.  The value of non-store retailing is also forecast to increase across all four Gulf markets between 2018 and 2023, with Saudi Arabia expected to account for the biggest growth of 93.5%, followed by Oman (68%) and Kuwait (48%).  (AB 22.12)

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5.6  Gulf Forecast to See 81% Rise in Chinese Tourists by 2022

The number of Chinese tourists travelling to the GCC is expected to increase 81% from 1.6 million in 2018 to 2.9 million in 2022, according to new research.  Data from Colliers International published ahead of Arabian Travel Market (ATM) 2019, reveals that the GCC countries currently attract just 1% of China’s total outbound market.  However, it said positive trends are expected over the coming years as 400 million Chinese tourists are expected to go abroad in 2030 – up from 154 million in 2018.

China’s links with the GCC have strengthened in recent years due to the introduction of additional and direct airline routes; the strong growth of the Chinese economy and Chinese tourists’ increasing disposable income, it noted.  The Colliers data shows Saudi Arabia will experience the highest proportionate increase in arrivals from China, with a projected compound annual growth rate (CAGR) of 33% between 2018 and 2022.  Both the kingdom and China’s cultural and educational exchanges have been cited as one of the key elements driving this influx.

Looking at the remainder of the GCC, the UAE will follow with a forecasted CAGR of 13%, Oman at 12% and both Bahrain and Kuwait will steadily increase their Chinese visitor arrivals with a growth of 7%.  In the UAE, China is the fifth largest source market behind India, Saudi Arabia, the UK and Oman.  Over the last 12 months, the UAE has stepped up its efforts to attract more Chinese visitors with Dubai’s Department of Tourism and Commerce Marketing (DTCM) recently signing an agreement with Chinese internet giant Tencent to promote the emirate as a preferred destination for Chinese travelers.  Meanwhile, in Oman, Bahrain and Kuwait passport holders from the People’s Republic of China can now receive a 30-day visa on arrival.  (AB 19.12)

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5.7  Kuwait Pharmaceuticals Market Expected to Exceed Revenues of $1.5 Billion by 2022

 Kuwait Pharmaceutical Market poses compelling future potential with growth led by the widespread prevalence of chronic diseases, growing population and the high per capita income of the people in the country.  The limited indigenous manufacturing capabilities also present a number of growth opportunities for multinational and regional pharmaceutical companies to enter the Kuwait pharmaceuticals industry.  The large investments which have been undertaken for development of the healthcare sector through the public-private partnership (PPP) route is expected to grow the pharmaceuticals market in the coming years.  Mandatory health insurance, which is currently applicable only to the expatriates, is likely to be extended to the indigenous population in the future.  This expansion of the healthcare sector in the country will be accompanied by growth in demand for medicines.  The availability of generic products is anticipated to increase as private health insurance schemes are encouraging prescribers to adopt more rational prescription patterns.  Price harmonization across GCC can further lead to substantial reduction in the prices of majority of pharmaceutical products across therapy areas in the country.

As Kuwait accelerates its healthcare development strategy as part of the Kuwait Vision 2035, the MoH is also working on expansion projects for eight existing hospitals adding 4,600 beds, 150 operating rooms and 500 outpatient clinics.  Both Kuwait’s pharmaceutical and healthcare markets have been noted as high-priority sectors, with many projects set to be carried out under public-private partnerships (PPPs).  Furthermore, chronic diseases such as cardiovascular, diabetes, obesity, cancer and respiratory conditions are rising dramatically in Kuwait primarily due to less physical activity and dietary habits such as increased fast food consumption linked to high-income generation.  Thus, the market shares of anti-infectives, gastrointestinal, cardiovascular and musculoskeletal are expected to increase in the Kuwait pharmaceuticals market by 2022.  (Ken 11.12)

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5.8  What a Difference $10 Billion Aid Makes to Gulf’s Weakest Link

Bahrain and Oman are the most vulnerable economies in the Gulf, but one has a $10 billion bailout package and the other is on its own.  That’s why the bonds of Bahrain, whose dwindling foreign-currency reserves fueled concern this year that its currency’s peg to the dollar may be at risk, became 2018’s best performers in the six-nation Gulf Cooperation Council after Saudi Arabia and other rich allies came to the rescue in October.  The aid helped shrink the risk premium that investors demand to hold the island-state’s debt due 2028 over Oman’s to about 40 basis points from an all-time high of 346 basis points in June.  That gap will probably narrow further as JPMorgan Chase & Co starts to include Bahrain’s securities in its emerging-market bond indexes from the end of January.  Bahraini bonds have returned 4.2% this year, while Oman’s have lost 2.8%.

Bahrain has benefited from a close relationship with Saudi Arabia for decades.  The downside of that is it has adopted the kingdom’s foreign policies, which has caused some concern among investors of late, but the upside is the financial aid it gets from its richer neighbor.  Oman, on the other hand, has resisted pressure to take sides in regional spats, so there’s no guarantee Arab nations will come to its rescue.  (AB 12.12)

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5.9  Ajman (UAE) Government Sets $1.13 Billion Budget for 2019 – 21

Sheikh Humaid bin Rashid Al Nuaimi, Ruler of Ajman, has approved the general budget of the Ajman Government for 2019-2021.  The budget amounts to AED4.14 billion ($1.13 billion), a growth of 17%, with the budget for the 2019 fiscal year set at AED1.38 billion ($380 million) and without a deficit.  Sheikh Ammar bin Humaid Al Nuaimi, Crown Prince of Ajman and chairman of the Ajman Executive Council, said that the Ajman Government’s budget reflects the directives to achieve the well-being and happiness of the emirate’s citizens and residents, as well as to provide the best services.

Sheikh Ahmed bin Humaid Al Nuaimi, Ajman Ruler’s Representative for Administrative and Financial Affairs and chairman of the Department of Finance, said that the budget’s largest allocation is divided between infrastructure, community facilities and the environment, which account for 37% of total expenditure.  Economic affairs account for 25% to improve the business environment while 21% is allocated to public services, and 17% to public order and safety.  (AB 17.12)

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5.10  Dubai’s RTA Partners with Careem on E-hail Taxi JV

Dubai’s Roads and Transport Authority (RTA) has partnered with ride-hailing app Careem Networks Company (Careem) on an E-Hail Taxi Joint Venture in order to boost the taxi sector.  The new company’s name and logo will be announced in the next few months, while it will cater to customers as of April 2019.  The e-hail taxi market for limousines, however, will remain open without any changes.

The announcement comes in line with the Smart Dubai initiative by Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, to transform the emirate into the world’s smartest city.  He added that the JV supports Dubai’s Integrated Mobility Platform (S’Hail), which enables customers access to all transit means through a single window (smart app) by integrating RTA’s transit means including the metro, tram, buses, marine transport, and taxis, with the transit means provided by other parties in Dubai, such as limousine companies.

It is also expected to raise the efficiency of taxis through enhanced vehicle accessibility and online booking as well as reduced vehicle waiting time, while customer advantages include the ability to make direct online payments via the app, chart the most suitable journey route, share rides with others and access vehicle and driver details and addition. In addition, it will have an option for a chauffeur service.  Moreover, it will enable the launch of future transit services such as shared journeys, supporting RTA’s efforts in achieving multi-modal integration.

Careem was selected from five e-hail taxi companies operating in the global market following the submission of technical and financial proposals.  Careem will cater to the provision of the e-hail technology, and the management of bookings and drivers through its existing app.  The new company will see 10,843 taxis exclusively run for a limited period.  (Various 24.12)

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5.11  Saudi Arabia Projects $35 Billion Budget Shortfall in 2019

On 18 December, Saudi Arabia announced an expansionary budget for 2019 but projected a shortfall for the sixth year in a row due to low oil prices.  The budget projects a deficit of $35 billion, still about 32% lower than the estimated deficit for the current calendar year.  Spending is estimated at $295 billion, the largest in the oil-rich kingdom’s history, while revenues, mostly from oil, are estimated at $260 billion.

Saudi Arabia, which has introduced economic reforms aimed at reducing its dependence on oil, has posted budget shortfalls since 2014 when crude prices crashed. The finance ministry said the kingdom, which is pumping about 10.5 million barrels of oil per day, succeeded in reducing the estimated budget deficit in 2018 by 31% to $36 billion due to the partial rebound in crude prices.  The ministry also said the country’s economy, which contracted by 0.9% last year, grew by 2.3%.  It expects growth to hit 2.6% in 2019.  The ministry said Saudi would resort to drawing on state reserves and borrowing to plug the deficit.  (AB 18.12)

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5.12  Saudi Arabia Sticking With Expat Fees for Now

Saudi Arabia will keep its policy of imposing fees on foreign workers despite complaints from businesses but is open to reconsidering them if there’s an economic need, Economy and Planning Minister Mohammed Al Tuwaijri said.  The expatriate levies were introduced last year as part of an effort to generate non-oil revenue and encourage companies to hire Saudi nationals, both key goals of Crown Prince Mohammed bin Salman’s plan to overhaul the largest Arab economy and prepare it for a time after oil.  But the charges proved painful for a private sector already struggling to adapt to rapid policy changes and have yet to make a dent in Saudi unemployment, which is at its highest level in more than a decade.

The world’s largest crude exporter is trying to strike a balance between boosting a lackluster economy and implementing fiscal and economic reforms.  After contracting 0.9% in 2017, the economy is expected to grow 2.3% this year and 2.6% next, according to the government, which announced an expansionary budget on 18 December.  The kingdom is planning a stimulus package next year that is both “financial and regulatory.”  It’s also pushing ahead with a privatization drive after plans to sell stakes in state assets got off to a slow start.  The kingdom expects to privatize seven companies in the first quarter of 2019 and 19 in total next year.  (AB 19.12)

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5.13  Red Sea Project Set to Add $5.8 Billion to Saudi Arabia’s GDP

A project to develop 22 islands in the Red Sea off the coast of Saudi Arabia will add SR22 billion ($5.86 billion) to the Gulf kingdom’s GDP, it has been announced.  Saudi Arabia’s King Salman was briefed on the project by a delegation from the Red Sea Development Company, led by chief executive John Pagano at Araqa Palace in Riyadh.  Pagano delivered a visual presentation on the master plan of the Red Sea Project, underlining its economic and development goals and its objective to become a global destination for luxury tourism.

The first phase of the project, scheduled to be completed in 2022, will include an airport, marinas, residential properties, recreational facilities and up to 3,000 hotel rooms.  A total of 22 islands will be developed as part of the project that is expected to create an estimated 70,000 jobs and attract approximately one million tourists per year.

The Red Sea Development Company was registered by the Saudi Ministry of Commerce and Investment in May as a closed joint-stock company wholly owned by the Public Investment Fund (PIF).  The Red Sea project is a luxury and sustainable international tourist destination on the west coast of Saudi Arabia and one of the three major projects of PIF.  The project is located along the western coast of Saudi Arabia, between the cities of al-Wajh and Umluj, 500km north of Jeddah.  (AB 14.12)

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5.14  Pakistan Receives $1 Billion from Saudi Arabia to Ease Economic Crunch

In another boost to the nation’s dwindling dollar reserves, Pakistan on 14 December received $1 billion from Saudi Arabia.  South Asia’s second-largest economy is expecting its third and final $1 billion tranche from Riyadh next month to help ease Pakistan’s financial crunch.  Islamabad is looking to bridge a gap of at least $12 billion caused by its latest balance-of-payments crisis and is currently negotiating its 13th bailout since the late 1980s with the IMF.

Prime Minister Imran Khan has been loath to undertake reforms proposed by the IMF and since his election victory in July the former cricket star has shuttled between China, Saudi Arabia and the UAE in an effort to secure bilateral funding from those allied nations.  Pakistan said in October that Saudi Arabia would deposit $3 billion directly and provide another one-year deferred payment facility of up to $3 billion for oil imports.  The announcement came after Khan attended the Future Investment Initiative in Riyadh.  (AB 14.12)

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5.15  UAE Rated Most Advanced MENA Country for Online Shopping

As the e-commerce market gains momentum regionally and globally, the UAE is making strides and the Emirates is rated the most advanced country for online shopping in the MENA and is ranked fourth among the top 10 developing economies, according to the United Nations Conference on Trade and Development’s (UNCTAD) B2C E-Commerce Index 2018.

The UAE does well in internet usage and accounts, with room to improve for secure servers and postal reliability in order to emerge as a top-ranked nation in B2C e-commerce readiness, the Unctad’s latest report on e-commerce said.  The UAE is positioned first in the Arabian Gulf and is leveraging this to become a regional hub.  One sign is the purchase of the UAE’s online retailer by Amazon in May 2017 for $583 million.  Another is the $735 million Dubai CommerCity, the first dedicated e-commerce park in Mena.

According to Euromonitor International figures, the UAE’s e-commerce landscape is worth Dh44.2 billion during 2018, with bill payments, transport and retailing being the key segments for online commerce in the country.  Internet retailing in the UAE is valued at Dh7.4 billion – exclusive of VAT – in 2018, growing by 18.8% over the previous year. The channel is expected to grow by a CAGR 13% over the forecast period to reach Dh15.5billion in value during 2023, experiencing the largest value growth across all business segments, Euromonitor said.  (Various 13.12)

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5.16  UAE Eyes More Workers from Nepal, Rwanda and Cambodia

The UAE is keen to strengthen ties with Rwanda, Nepal and Cambodia, with a view to encourage more workers to the Gulf state, a senior official has said.  Nasser bin Thani Al Hamli, Minister of Human Resources and Emiratisation, has held talks with the Foreign Minister of Rwanda, the Minister of Labour of Nepal and the Minister for Immigration Affairs of Cambodia.  The meeting discussed ways of developing the cooperation between the UAE and their countries, especially in the areas of labor and workers’ issues.  The meetings took place separately on the sidelines of the United Nations’ Intergovernmental Conference in Marrakech, Morocco.  During the meetings, Al Hamli highlighted the UAE’s keenness to enhance its bilateral partnerships with countries that provide it with workers and participate in related international events.  (AB 12.12)

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►►North Africa

5.17  Egypt’s Trade Deficit Falls 10.1% in Annual Terms

Egypt’s trade deficit decreased by 10.1% year-on-year (YOY) in September 2018 to reach $3 billion, compared to $3.35 billion in September 2017.  Official figures published by CAPMAS show that the country’s trade deficit declined by almost a quarter (24.1%) over a month from the $3.95 billion recorded in August 2018.  CAPMAS cited rising crude exports as a key driver for the improving figures, having increased 36% YOY.  The agency also said that strong exports of clothes (39.5% YOY) and fertilizers (55.6% YOY) also made a significant contribution.  (CAPMAS 19.12)

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5.18  CAPMAS Reports 16.8 % Increase in Value of Egypt’s Exports in 2017

CAPMAS announced that the total value of Egypt’s exports reached $26.29b in 2017, compared to $22.49b in 2016, an increase of 16.8%.  CAPMAS added in its annual bulletin on foreign trade that the total value of non-petroleum exports reached $22.49b in 2017, compared to $19.64b in 2016, an increase of 14.5 %.  On the other hand, the total value of petroleum exports reached $3.80b in 2017, up from $2.86b in 2016, an increase of 32.9%.  In terms of the exports’ manufacturing degree, CAPMAS revealed that Egyptian exports during 2017 were concentrated in finished goods, which reached 46.1% of the total Egyptian exports.

Meanwhile, the CAPMAS declared that the value of semi-manufactured goods exports was $6.55b in 2017, up from $5.97 b in 2016, an increase of 9.6%.  Concerning the most important goods whose export values witnessed an increase in 2017, the report stated that crude oil reached $2.0b in 2017, compared to $1.77b in 2016, an increase of 18.1%.  Meanwhile, the value of ready-made clothing and related accessories reached $1.45b in 2017, against $1.26b in 2016, an increase of 15.1%.

The CAPMAS also revealed that the value of plastics and their products reached $860m in 2017, compared to $620m in the previous year, a hike of 38.7%.  The value of iron and its products reached $761m in 2017, up from $548m in 2016, a jump of 38.9%.  In the context of the major countries which receive the Egyptian exports, the CAPMAS stated that Italy came in the first place with 8.3% of total exports, noting that exports to Italy increased by about 50% in 2017, recording $2.198b, up from $1.46b in 2016.

The report announced that Turkey ranked second in representing 7.3% of total exports, as exports increased by 39.1%, reaching $1.92b in 2017, versus $1.38b in 2016.  Saudi Arabia came in the third place with 5.9% of the total exports, as the value of exports decreased by 12.8% to reach $1.56b in 2017, down from $1.79b in 2016.  The USA ranked fourth, representing 5.2% of total exports, noting that the value of exports increased by 23.4%, amounting to $1.37b in 2017, up from $1.11b in 2016.  In terms of the economic blocs, the CAPMAS stated that the Arab countries ranked first with 37.3% of the total exports, followed by western European countries with 26.3%, then east European countries with 13.7%.  Notably, the CAPMAS is the official statistical agency of Egypt that collects, processes, analyses, and disseminates statistical data and conducts census.  (CAPMAS 20.12)

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5.19  Egypt’s Constitutional Committee Authorizes Egypt-Cyprus Pipeline Agreement

Egypt’s Constitutional Committee authorized the Egypt-Cyprus agreement to establish a natural gas subsea pipeline on 9 December.  The committee decided that the agreement complies with Egyptian law and the country’s constitution, and gave the go-ahead for the project to start.  The original agreement was signed between Minister of Petroleum Tarek El Molla and Cypriot Minister of Energy Yiorgos Lakkotrypis on 19 September.  It will see the construction of subsea natural gas pipeline between the Cypriot Aphrodite natural gas field and Egyptian liquefaction facilities, with a capacity of 700 million standard cubic feet per year (mscf/y).  An official source told Al Mal in September that work will begin in Q1/19, with a view to starting operations in 2022.  (EOG 10.12)

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5.20  Morocco’s Trade Deficit Increased by 7.7% by November

Morocco’s Foreign Exchange Office (FEO) reported the figures in its monthly foreign trade indicators for November 2018.  Morocco’s increase in imports was mainly driven by the purchases of energy products, up 18.4% to MAD 18.4 billion; purchases of processing goods, up 7.8% to MAD 7.8 billion; and finished consumer products, up 7.1% to MAD 6.5 billion.  The three import categories represent 73.3% of the total increase in imports.

Exports also increased by 9.7% to MAD 249.04 billion in the first 11 months of 2018.  The rise can be attributed to increased exports in all sectors, but particularly that of automotive, up by MAD 5.73 billion, phosphates and derivatives, up MAD 5.3 billion; and agriculture and food, up MAD 3.06 billion.  The FEO pointed out that the three export categories represent 63.8% of the total increase in exports, noting that the aviation, textile and leather sectors, recorded an increase of 1.46% and 1.36%, respectively.  (MWN 18.12)

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5.21  Morocco’s FDI Reaches MAD 31.82 Billion

Morocco’s Foreign Direct Investments reached MAD 31.82 billion in 2018, up 36.7% compared to the same period a year earlier.  This performance is attributed to an increase of revenues to reach MAD 11.48 billion, and expenditures increasing by 2.93%, said the Foreign Exchange Office.  Remittances from Moroccans living abroad decreased by 1.7%, reaching MAD 59.65 billion at the end of November 2018.  The travel balance recorded a decrease of 1.8%, reaching MAD 49.7 billion between January and November 2018, compared to MAD 50.62 billion during the same period of 2017.  (MWN 18.12)

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5.22  Morocco Attracted 200,000 Chinese Tourists in 2018

The number of Chinese tourists in Morocco rose from 10,000 in 2015 to nearly 200,000 people this year, according to the minister of tourism Mohammed Sajid.  He met with the Chinese deputy minister of culture and tourism recently in Marrakech.  Sajid said the two countries signed an agreement to organize a cultural and tourism year of Morocco in China and another event in honor of China in Morocco in 2020.  The Chinese deputy minister made an official four-day visit to Morocco.  He said that relations between the two countries are undergoing sustained development and announced a Chinese cultural center in Rabat is due to open soon.  In September, Sajid met the Civil Aviation Administration of China administrator to discuss a new deal to open a direct flight between the countries and remove airspace restrictions.  (MWN 18.12)

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6.1  Retail Trade Volume in Turkey Shrunk in October

Calendar-adjusted retail sales volume with constant prices slipped 7.5% on a yearly basis in October, the Turkish Statistical Institute (TUIK) announced on 18 December.  Non-food – except automotive fuel – sales showed the biggest annual drop among main economic activities with 12.1%.  Automotive fuel sales fell 7.6%, while food, drinks and tobacco sales rose 1.6%.  The volume of medical goods and cosmetic sales among non-food went up 5% on an annual basis in October.  Sales by mail orders and over the internet climbed 4.5% while textile, clothing and footwear sales rose 2.8%, during the same period.

However, the sales volume of electronic goods and furniture shrank by 23.3% in the month, while computers, books, and telecommunications equipment’s sales volume decreased 20.3%.  TUIK also revealed that the calendar-adjusted retail turnover with current prices surged 18.2% year-on-year in October.  (TUIK 18.12)

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6.2  Cypriot Social Welfare Expenditure Fell to 19.1% of GDP in 2016

Spending on social protection in Cyprus, as a percentage of GDP fell to 19.1% in 2016 from 19.9% the year before, which translates to €3.530 billion compared to €3.532 billion in 2015.  The majority of the social welfare benefits that were provided to beneficiaries in 2016 (85%), were non-means tested – this accounted for €2.936 billion in 2016.

In most cases, the beneficiaries, having made cash contributions to various insurance funds (e.g. the Social Insurance Fund), gained the right to benefits, without their income being a criterion.  In other words, the majority of social protection benefits are not explicitly or implicitly conditional on the beneficiary’s income and/or wealth falling below a specified level.

Furthermore, the majority of the benefits were cash benefits (€2.769 billion), whereas benefits in kind constituted only 19.9% of the total of social protection benefits (€686 million).  As regards cash benefits, 90.1% (€2.494 billion) were provided periodically, for example pensions and other benefits, whereas lump sum benefits constituted 9.9% of the cash pay-out.  The most significant Social Protection Expenditure functions was for the elderly for illness/healthcare, which combined, constituted 67.3% of welfare benefits (compared to 67.4% in 2015).  The largest share of old age benefits were pensions which amounted to €1.569 billion, constituting 93.2% of the total old age benefits.  The Social Insurance Scheme is the largest provider of social payments in Cyprus with benefits reaching €1.423 billion, representing a 40.3% share of the total benefits.  (FM 19.12)

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6.3  Value of Cypriot Construction Activity Spiked 22% in 2016 to €2.14 Billion

According to the ‘Construction and Housing Statistics 2016’ survey, the production value of Cyprus’ building sector increased 22.2% to €2.146 billion from €1.756 billion the year before.  The value added at current prices shows an increase of 23.5%.  More new and bigger homes were built – with Limassol leading the way – while the number of jobless in the sector also fell – many observers would attribute the upturn to the passport for investment scheme kicking in.  The scheme encourages foreign investors to buy new properties as a pathway to citizenship.

Cyprus construction activity registered a rise of 20.7% compared to a marginal 0.2% upturn in 2015, based on the production index of the sector.  The share of new construction of residential buildings is 50.8% of the total, non-residential buildings is 27.7%, while civil engineering projects accounted for 21.5%.  For 2015 the figures were 48.9% residential, 27.3% non-residential and 23.7% civil engineering projects.  The number of full-time employees in the sector increased from 19,242 to 21,130 persons in 2016.  The housing stock at the end of 2016 amounted to 449,000 dwelling units, of which 60.9% were in urban areas.  (FM 20.12)

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6.4  Greek Jobless Rate Drops to 18.3% in the Third Quarter

Greece’s jobless rate fell to 18.3% in July-to-September from 19% in the second quarter, data from the country’s statistics service ELSTAT announced on 13 December.  About 71.8% of Greece’s 871,756 jobless are long-term unemployed, meaning they have been out of work for at least 12 months, the figures showed.  Greece’s highest unemployment rate was recorded in the first quarter of 2014, when joblessness hit 27.8%.

The data showed that women and young people in the 15-19 age group were most affected among the unemployed.  The jobless rate for women was 23.3 versus 14.3 for men in the third quarter, while for people aged 15-19 it stood at 44.3%.

Athens has already published monthly unemployment figures through September, which differ from quarterly data because they are based on different samples and are seasonally adjusted. September unemployment fell to 18.6%.  Quarterly figures are not seasonally adjusted.

Greece’s economy expanded for a ninth straight quarter in the July-to-September period and at a faster pace than the quarter before, mainly driven by stronger consumer spending.  (ELSTAT 13.12)

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7.1  Israel Calls Early Elections on 9 April 2019

On 24 December, Prime Minister Netanyahu called ‎early elections for 9 April, setting the stage for a ‎three-month campaign.  The general elections were not due until November.  The latest coalition crisis came about over lack of support for the ultra-Orthodox army recruitment bill.  Likud MK David Bitan said that the situation had been forced on his party and that Netanyahu had wanted to remain in office the full term until November 2019.

Announcing the elections, PM Netanyahu ‎listed his government’s accomplishments and said he hoped his current religious, ‎nationalistic coalition would be the core of ‎Israel’s next government as well.‎  Coalition insiders tried to downplay the ‎role the conscription bill – controversial ‎legislation that has threatened the government’s ‎stability multiple times – played in the decision. ‎

Moments after the coalition faction heads’ meeting ‎ended on 24 December, an official statement was released ‎saying, “Exercising national and budgetary ‎responsibility, the heads of the coalition parties ‎have unanimously decided to dissolve the Knesset and ‎call for early elections at the beginning of April. ‎The partnership in the Knesset and the government ‎will continue during election time.” ‎ The government will officially introduce a bill ‎calling for the dissolution of the Knesset on ‎26 December.‎

PM Netanyahu, who also served a term in the late 1990s, ‎has been prime minister for the past decade.‎  His supporters point to a humming, high-tech ‎economy, his handling of security issues, ‎particularly countering the threat of Iranian ‎influence in the region, and his gains on the ‎diplomatic stage, including a close alliance with ‎President Trump that has paid important ‎dividends.  President Trump’s recognition of Jerusalem as Israel’s capital ‎and his withdrawal from the international nuclear ‎deal were both welcomed by Netanyahu.  The Israeli ‎leader also has quietly forged ties with Sunni Arab ‎states, further sidelining the Palestinians, who ‎have severed ties with the U.S. because they believe ‎Trump is biased against them.‎  The first public opinion poll after the announcement ‎of early elections predicted another solid victory ‎for Netanyahu and Likud.‎  (Various 25.12)

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7.2  Jordan’s Gender Gap Widens to Rank Near Bottom of Index

Jordan dropped three spots to rank 138th out of 149 countries in the 2018 Global Gender Gap Index report announced by the World Economic Forum (WEF).  When the report was first introduced in 2006, Jordan was 93rd globally, but its rank has gradually gone down the scale over the years, with the report stating that the country’s overall performance this year “remains largely unchanged”.  Weighing Jordan against other countries in the region, the country was placed 10th, 19 spots behind Tunisia, which recorded the narrowest gender gap regionally at 119th, followed by the UAE at the 121st spot.  Also ahead of Jordan in the region were Kuwait, Qatar, Algeria, Bahrain and Mauritania, in addition to Egypt and Morocco.

Despite the progress in countries like Tunisia, complete financial equality between the genders in the Middle East and North Africa, which is the region with the widest gender gap in the world, would take some 153 years to attain, according to the report.

Even though Jordan dropped three ranks since last year, its ranking has improved in two of the four categories, climbing up six spots in the “Educational Attainment” index to achieve a rank among the top 50 countries worldwide at 42nd.  The second area in which the Kingdom witnessed significant improvement was the “Health and Survival” index, going up 11 ranks to reach the 102nd placement.  Nonetheless, the country’s score was weighed down by a near-the-bottom ranking in “Economic Participation and Opportunity”, where its position stood at 144th, as well as “Political Involvement” where it ranked 129th.  The data also showed another significant finding, which is that the proportion of women married by the age of 25 is 30%, while it is 7% for men.  (WEF 18.12)

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7.3  GCC Student Numbers Forecast to Grow Despite Fee Concerns

The total number of students in the GCC education sector is projected to reach 14.5 million in 2022 despite growing concern over rising fees, according to new research.  According to Alpen Capital, the region will see a compound annual growth rate (CAGR) of 2.3% from an estimated 12.9 million in 2017.  A growing school age population, high per capita income, continued government spending and long term strategic government initiatives are expected to drive the future growth of the GCC education sector, the report said.  Between 2017 and 2022, the pre-primary and tertiary segments is expected to grow at a faster rate than the other segments, it added.  The report noted that the number of students in private schools is projected to grow at a CAGR of 4.1% while enrolments at public schools is likely to increase at a slower pace, recording a CAGR of 1.3% between 2017 and 2022.

Saudi Arabia is expected to remain the largest education market in the GCC in 2022.  In terms of annualized growth, the number of students in Oman and Qatar is projected to grow at a faster rate than the other member nations.  Saudi Arabia is also anticipated to account for the highest number of schools in GCC by 2022.  Alpen said the demand for public and private schools in the GCC region is likely to increase at a CAGR of 1.9% to 36,747 by 2022, reflecting a requirement of more than 3,200 schools over the next five years.  It added that the growing preference for private education continues to drive the demand for international schools and universities across the GCC region.

The report said the influx of international institutions and oversupply of education providers in the GCC region is likely to challenge the sustainability of institutions without a long-term plan.  This has led to increasing competition among private operators, resulting in pricing pressures and margin erosion for private operators.  (AB 15.12)

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7.4  Turkey Spent Over $48 Billion on Education in 2017

Turkey’s total expenditure on education soared 9.8% to $48.3 billion in 2017, compared to the previous year, the Turkish Statistical Institute (TUIK) said on 19 December.  The expenditure on education as a percentage of gross domestic product (GDP) dropped to 5.7% in 2017 from 6.2% in 2016, according to the data.  In 2017, 74.5% of expenditure was public while households accounted for the remaining 19%.

Tertiary education accounted for 31% ($10.3 billion) of the total education expenditure of public institutions, while 26% ($8.7 billion) was for upper secondary education.  Meanwhile, private institutions allocated 45.3% ($4.4 billion) of total spending for upper secondary education, and 27.1% ($2.66 billion) for tertiary education.  Upper secondary education showed the highest increase in education expenditures with 20.6%.

The education expenditure per student in the country reached $2,220, rising 8.2% versus the previous year.  The highest level of expenditure per student in 2017 was for tertiary education with $3,736.  Around 140 million schoolbooks were delivered free of charge in September 2018 alone in Turkey, where children receive 12 years of elementary education for free.  Public universities also serve with no tuition fees in the country.  (TUIK 19.12)

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8.1  BrainsWay Selected by USA FDA Innovation Challenge to tackle Opioid Addiction

BrainsWay‘s deep transcranial magnetic stimulation (Deep TMS) system was one of only eight medical devices selected by the U.S. Food and Drug Administration (FDA) from over 250 applications to participate in the “FDA Innovation Challenge: Devices to Prevent and Treat Opioid Use Disorder,” a new program launched by the FDA to help combat the opioid crisis.  BrainsWay will work directly with the FDA to accelerate the conduct of a clinical study and expedite potential marketing application review of its Deep TMS system for the treatment of Opioid Use Disorder (OUD).

BrainsWay’s Deep TMS system has been FDA cleared for the treatment of Major Depressive Disorder (MDD) since 2013 and was FDA cleared (De Novo) for the treatment of Obsessive Compulsive Disorder (OCD) in August 2018.  BrainsWay also announced completion of the first shipment of its Deep TMS system for the treatment of OCD in adults to 20 sites in the USA.

Jerusalem’s BrainsWay is engaged in the research, development and sales and marketing of a medical system for non-invasive treatment of common brain disorders.  The medical system developed and manufactured by the company is based on a unique breakthrough technology called Deep TMS, which can reach significant depth and breadth of the brain and produce broad stimulation and functional modulation of targeted brain areas.  In the U.S., the Company’s device has been FDA cleared for the treatment of major depressive disorder (MDD) since 2013, and is now FDA cleared (De-Novo) for the treatment of Obsessive Compulsive Disorder (OCD).  The Company’s systems have also received CE clearance and are sold worldwide for the treatment of various brain disorders.  (BrainsWay 11.12)

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8.2  BiomX and J&J Innovation Collaborate for Microbiome-based Biomarkers for IBD

BiomX has entered into a collaboration with Janssen Research & Development to utilize BiomX’s XMarker microbiome-based biomarker discovery platform.  The XMarker platform will be used to stratify responders and non-responders to inflammatory bowel disease (IBD) therapeutics.  The collaboration was facilitated by Johnson & Johnson Innovation Limited.

There is growing evidence that the composition of the microbiome is a promising predictive tool for disease and for patient response to therapy in conditions such as IBD, cancer and liver disease.  BiomX’s novel XMarker platform applies a unique metagenomics-based approach to decipher full microbial genomic signatures that can be further developed into predictive biomarkers.  The platform combines ultra-high-resolution DNA analysis, machine-learning techniques and high-scale cloud computing resources to build classifiers of high sensitivity and specificity.

Ness Ziona’s BiomX is a microbiome drug discovery company developing customized phage therapies that target and destroy harmful bacteria in chronic diseases such as inflammatory bowel disease (IBD) and cancer.  They discover and validate proprietary bacterial targets and customize our natural and engineered phage compositions against these targets.  (BiomX 12.12)

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8.3  Check-Cap Receives FDA Conditional Approval of IDE Application to Initiate U.S. Pilot Study of C-Scan®

Check-Cap announced that the U.S. FDA has conditionally approved the Company’s Investigational Device Exemption (IDE) application to initiate a U.S. pilot study of the C-Scan® system.  The FDA’s conditional approval of the IDE requires Check-Cap to provide additional information to the FDA and Check-Cap may begin enrolling patients immediately upon approval by the study site’s Institutional Review Board (IRB).  The U.S. pilot study (NCT03735407) will be a single-arm study enrolling subjects considered to be of average risk for polyps and colon cancer. The study will evaluate the safety, usability, and subject compliance of the C-Scan® system.

Usafiya’s Check-Cap is a clinical-stage medical diagnostics company developing C-Scan®, the first and only preparation-free capsule-based screening method for the prevention of colorectal cancer (CRC) through the detection of precancerous polyps.  The patient-friendly test has the potential to increase screening adherence and reduce the overall incidence of CRC.  The C-Scan® system utilizes an ultra-low dose X-ray capsule, an integrated positioning, control, and recording system, as well as proprietary software to generate a 3D map of the inner lining of the colon.  C-Scan® is non-invasive and requires no preparation or sedation, allowing the patient to continue their daily routine with no interruption as the capsule is propelled through the gastrointestinal tract by natural motility.  (Check-Cap 13.12)

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8.4  Aleph Farms Jump-starts First Cell-Grown Steak

Aleph Farms has kicked off the first cell-grown minute steak, delivering the full experience of meat with the appearance, shape, and texture of beef cuts.  The food tech start-up’s new product demonstrates its capabilities for growing different types of natural beef cells isolated from the cow into a fully 3-D structure similar to conventional meat.  The breakthrough not only obtains the true texture and structure of beef muscle tissue steak, but also the flavor and shape, establishing a new benchmark in cell-cultured meat technology.

Aleph Farms successfully grown slaughter-free steak, without the need for devoting vast tracts of land, water, feed, and other resources to raise cattle for meat and uses no antibiotics.  Cell-grown meat is typically grown from a few cells of a living animal, extracted painlessly.  These cells are nourished and grow to produce a complex matrix that replicates muscle tissue.  One of the barriers to grown meat production has been getting the various cell types to interact with each other to build a complete tissue structure as they would in the natural environment inside the animal.  The challenge is to find the right nutrients and their combination that would allow the multicellular matrix to grow together efficiently, creating a complete structure.  The company overcame this obstacle thanks to a bio-engineering platform developed in collaboration with the Technion – Israel Institute of Technology, Haifa.

Ashdod’s Aleph Farms was co-founded in 2017 by Israeli food-tech incubator The Kitchen, a part of the Strauss Group and the Technion.  The company is supported by US and European venture capital firms. Aleph Farms joined The RisingFoodStars—the European Institute of Technology (EIT) Food’s club of outstanding agrifood start-ups in July 2018.  (AlephFarms 12.12)

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8.5  Evogene & TMG Develop Nematode Resistant Soybean through Genome Editing

Evogene and Brazil’s TMG – Tropical Melhoramento & Genetica, a leading plant breeding company aiming to develop genetic solutions to delivery yield and profit to growers and collaborate to meet the world demand for grains and fibers; announced a collaboration for the development of non-GMO nematode resistant soybean utilizing genome editing technologies on TMG’s commercial soybean lines.

Pursuant to the collaboration, Evogene will utilize its CPB (Computational Predictive Biology) platform to identify the required genome edits to attribute nematode resistance in soybean and will perform such edits on TMG’s proprietary commercial soybean germplasm.  TMG will validate the efficacy of the edited soybeans in greenhouse assays and in field trials in Brazil and will incorporate the edited genes in TMG breeding pipeline.  TMG is one of the largest soybean breeding companies in Brazil, with its proprietary germplasm planted across four million hectares throughout South America.

The agreement provides commercialization rights for the resulting products by both parties, subject to royalty payments made by each to the other party on its product sales.  In addition, Evogene will receive an undisclosed down-payment and will be entitled to a development milestone payment.

Rehovot’s Evogene is a leading biotechnology company developing novel products for major life science markets through the use of a unique computational predictive biology (CPB) platform incorporating deep scientific understandings and cutting-edge computational technologies. Today, this platform is utilized by the Company and its subsidiaries to discover and develop innovative products in the following areas: ag-chemicals, ag-biologicals, seed traits, integrated castor oil ag-solutions and human microbiome-based therapeutics.  (Evogene 18.12)

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8.6  Biop Receives FDA Approval for its Medical Digital Colposcope

Ramat Gan’s Biop Medical announced it received approval from the U.S. FDA for its first product, the Biop Medical Digital Colposcope.  The filing of the Biop Digital Colposcope is the first stage of the device filing to the FDA.  The FDA approval is an important step in the company’s regulatory and marketing strategies towards product launching in the US.  Currently, Biop Medical is preparing the second stage of the FDA application due to be filed early 2019.

Founded in 2013 and based in Ramat Gan, Biop developed a device that maps the cervix and identifies cancerous and precancerous cells in epithelial tissues.  The company has raised $4.45 million to date, from investors including South Africa-based medical equipment company Avacare Health Group and the Israel Innovation Authority, a government tech investment arm.  (Biop 17.12)

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8.7  FDA Approves INSIGHTEC’s Exablate for Treatment of Parkinson’s Disease

INSIGHTEC announced that The Center for Devices and Radiological Health (CDRH) of the FDA has approved an expansion of the indication of Exablate Neuro to include the treatment of patients with tremor-dominant Parkinson’s disease (PD).  The Exablate Neuro is a focused ultrasound device for performing incisionless thalamotomy guided by MR imaging.  This expansion adds medication-refractory tremor from PD to the current Exablate Neuro indication for incisionless, focused ultrasound thalamotomy for medication-refractory essential tremor.

During the focused ultrasound treatment, sound energy passes safely through a patient’s skull with no surgical incisions to heat and precisely ablate the target in the thalamus.  The treatment allows the neurosurgeon to create a personalized treatment plan and to evaluate feedback of the patient’s symptom relief or potential side effects in real-time.  Patients must be at least 30 years of age.  This approval was based on data from a study led at the University of Virginia School of Medicine and was also conducted at Swedish Neuroscience Institute in Seattle.

Haifa’s INSIGHTEC is a global medical technology innovator transforming patient lives through incisionless brain surgery using MR-guided focused ultrasound.  The company’s award-winning Exablate Neuro™ is used by neurosurgeons to perform the Neuravive™ treatment to deliver immediate and durable tremor relief for essential tremor and tremor-dominant Parkinson’s disease patients.  Research for future applications in the neuroscience space is underway in partnership with leading academic and medical institutions.  (INSIGHTEC 18.12)

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8.8  OWC Reports Successful Cannabinoid-Enriched Sublingual Disintegrating Tablet

OWC Pharmaceutical Research Corp. reported the successful production of its cannabinoid-enriched sublingual disintegrating tablet, specifically developed as smoking substitute.

Smoking and inhalation are currently the most common using methods of administering medical cannabis.  However, the precise concentration of active cannabinoids in inflorescences is inconsistent and difficult to determine. In addition, smoking may have deleterious side effects and social acceptance issues, which may reduce compliance of drug administration.  OWCP’s sublingual disintegrating tablet will offer an alternative to smoking and inhalation, allowing for controlled, consistent dosing and diligent compliance to medical regimens and offer quick pain and other symptoms relief as Sublingual absorption provides a direct route for cannabis to enter much quicker to the blood system.

OWCP now reports that it has completed the successful production of its sublingual tablet, which will allow the company to begin its clinical testing program for this dosing form. OWCP has received an IRB approval to conduct a pharmaco-kinetic (PK) safety study of its sublingual tablet.  In addition, OWCP has applied for an amendment to its study protocols to enable the comparison of its tablet with a known cannabis-based pharmaceutical, which is registered for treatment of spasticity in Multiple Sclerosis patients.  The company has also received a permit from the IMCA (Israel Medical Cannabis Agency) to conduct an efficacy study of the tablet on chronic pain syndrome.

Ramat Gan’s OWC Pharmaceutical Research Corp., through its wholly-owned Israeli subsidiary, One World Cannabis, (collectively OWC) conducts medical research and clinical trials to develop cannabis-based pharmaceuticals and treatments for conditions including multiple myeloma, psoriasis, fibromyalgia, PTSD and migraines.  OWCP is also developing unique and effective delivery systems and dosage forms of medical cannabis.  All OWC research is conducted at leading Israeli hospitals and scientific institutions and led by internationally renowned investigators.  (OWC 18.12)

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8.9  Kalytera Phase 2 Clinical Study Evaluating CBD in Prevention of Acute GVHD Reports Interim Data

Kalytera Therapeutics announced positive interim data from its ongoing Phase 2 clinical study evaluating cannabidiol (CBD) for the prevention of acute graft versus host disease (GVHD) following bone marrow transplant.  Kalytera’s ongoing Phase 2 clinical study is an open label, multicenter study to evaluate multiple doses of CBD for the prevention of acute GVHD following allogeneic hematopoietic cell transplantation, commonly referred to as bone marrow transplantation.  The study will evaluate the PK profile, safety, and efficacy of CBD at doses of 75, 150 and 300 mg BID.  All patients in the study receive CBD treatment for 7 days prior to their bone marrow transplant procedure and for 98 days following the procedure.

CBD is a non-psychotropic ingredient of cannabis that does not cause euphoria or cognitive effects.  The formulation of CBD that Kalytera is evaluating for the prevention of acute GVHD is a proprietary formulation that is designed to improve product stability and absorption after oral dosing.

Kazrin’s Kalytera Therapeutics is pioneering the development of CBD therapeutics.  Through its proven leadership, drug development expertise, and intellectual property portfolio, Kalytera seeks to establish a leading position in the development of CBD medicines for a range of important unmet medical needs, with an initial focus on GVHD and treatment of acute and chronic pain.  (Kalytera 20.12)

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8.10  CathWorks FFRangio System Receives US FDA Clearance

CathWorks announced that its FFRangio System received US FDA 510(k) clearance.  The FFRangio system demonstrated accuracy versus the invasive FFR wire in a blinded comparative study, FAST-FFR.  The results of the FAST-FFR pivotal study were used to establish substantial equivalence of the FFRangio system.

The CathWorks FFRangio System quickly and precisely delivers the objective FFR guidance needed to optimize PCI therapy decisions.  FFRangio is derived from routine X-rays acquired during a diagnostic angiogram procedure, is non-invasive and performed intra-procedurally during coronary angiography, eliminating additional clinical risk, time and cost associated with invasive FFR.  FFRangio provides a 3D reconstruction of the entire coronary tree with FFR values along each vessel.

Kfar Saba’s CathWorks is a medical technology company focused on applying its advanced computational science platform to optimize PCI therapy decisions and elevate coronary angiography from visual assessment to an objective FFR-based decision-making tool for physicians.  FFR-guided PCI decision-making is proven to provide significant clinical benefits for patients with coronary artery disease and economic benefits for patients and payers.  The company’s focus is specifically on bringing the CathWorks FFRangio™ System to market to provide quick, precise, and objective intraprocedural FFR guidance that is practical for every case.  (CathWorks 21.12)

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9.1  Habana Labs’ Goya AI Processor Receives PCI-SIG Certification

Habana Labs announced that its Goya AI inference processor, successfully passed the PCI-SIG™ compliance testing at the Taipei, Taiwan workshop.  As a result, the Goya™ AI processor card and the HL-1000 chip, have been added to the PCI-SIG integrators list for PCI Express™ (PCIe™) 3.0 x16, operating at 8 Giga-transfers per second (GT/s), as Add-in cards and Components lists respectively.  The PCI-SIG workshop promotes compliance with real products to eliminate interoperability issues and ensure proper implementation of the PCIe specification.

Habana Labs has already started production of its first Goya inference processor PCIe card and delivered it to customers in multiple geographies and market segments.  The Goya processor silicon has been tested since June of 2018 and is now in production.

Goya has set two industry records, by delivering 15,012 images/second throughput with 1.3msec latency on the ResNet-50 benchmark, while simultaneously attaining an unmatched power efficiency record of 150 images/second/watt.

Caesarea’s Habana Labs was founded in 2016 to unlock the true potential of AI by providing an order of magnitude improvements in processing performance, cost and power consumption.  The company set out to develop AI processors from the ground up, optimized for the specific needs of training deep neural networks and for inference deployment in production environments.  (Habana Labs 12.12)

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9.2  My Size’s Mobile Smart Tape Measure App Reaches One Million Downloads

My Size announced that its mobile smart tape measure app, SizeUp™, has reached one million downloads worldwide.  Launched to the global iOS and Android markets in 2016, SizeUp™ reached this significant milestone as the easy-to-use mobile measurement application became a favorite for DIYers and project lovers around the world.

The global adoption of SizeUp™ has been critical to My Size, as it puts its technology in the hands of as many users as possible.  Additionally, it serves as a market validation of My Size’s patented technology, which also serves as the foundation for its fashion apparel measurement app MySizeID™.  SizeUp™ joins an impressive list of applications to reach one million downloads early on in its existence.

SizeUp™ is a mobile smart tape measure which allows users to instantly and accurately measure objects by placing their smartphone at one end of the object, lifting it slightly, and moving it to the other end either vertically or horizontally.  SizeUp™ is easy to calibrate in order to ensure accuracy, can measure intervals between surfaces, and automatically stores the last measurement taken.  It is available to all users for free for 30 days, with a full featured version available for purchase following the trial period.

Airport City’s My Size has developed a unique measurement technology based on sophisticated algorithms and cutting-edge technology with broad applications including the apparel, e-commerce, DIY, shipping and parcel delivery industries.  This proprietary technology is driven by several algorithms which are able to calculate and record measurements in a variety of novel ways.  (My Size 12.12)

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9.3  Fieldbit Releases Next Generation of Augmented Reality for Technical Services

Fieldbit announced the launch of Fieldbit 5.0, the latest version of the company’s proprietary field service application that enables enterprises to create, capture and efficiently share knowledge across entire organizations using smart glasses and smart phones.  The innovative redesign enhances technician productivity and performance via a user-friendly and intuitive interface capable of being deployed across the web and on Android and Apple iOS devices.

Fieldbit 5.0 offers unique implications for different operating systems.  For Android, first-time users can expect an easy-to-use layout requiring no previous training to utilize.  Additionally, the new software boasts integrated knowledge and ticketing systems to optimize the process of requesting real-time, interactive support.  Apple iOS users can expect a new AR experience as well.  Fieldbit 5.0’s new engine optimizes image recognition and simultaneous localization and mapping (SLAM) algorithms to create a new experience with AR annotations, which can now be viewed from various angles.

Founded in 2014, Ra’anana’s Fieldbit is a leading developer of real-time augmented reality collaboration solutions.  Its enterprise class, cloud-based technology enables on-site service engineers to collaborate seamlessly with experts in the service center, and to receive all the know-how and guidance they need to solve issues quickly.  Fieldbit increases remote resolution and first time fix rates, minimizing costly downtime and enhancing customer satisfaction.  (Fieldbit 12.12)

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9.4  ECI Debuts 1.2T Dual Channel Blade for New Age of Adaptive Optical Networking

ECI announced the debut of the TM1200, a 1.2T blade (dual 600G channel) which allows for a truly programmable, adaptive optical network.  The TM1200 delivers unmatched spectral efficiency and elasticity through software-controllable continuous modulation.  Moreover, it maximizes capacity in a granular manner to best match client needs and variable channel conditions.

Traditionally, line-side modulation was only programmable in large increments – such as 100G, 200G or 400G – often relying on different line cards.  The TM1200 uniquely delivers software-controlled continuous modulation in 50 Gbps increments up to 600 Gbps line rate, rather than supporting specific modulation schemes.  Therefore, the optimal modulation scheme and transmission rate can be adjusted, and the sweet spot for maximizing line rates discovered, for any given optical route or set of channel conditions.

Petah Tikva’s ECI is a global provider of ELASTIC network solutions to CSPs, critical infrastructures as well as data center operators.  Along with its long-standing, industry-proven packet-optical transport, ECI offers a variety of SDN/NFV applications, end-to-end network management, a comprehensive cyber security solution, and a range of professional services.  ECI’s ELASTIC solutions ensure open, future-proof, and secure communications.  (ECI Telecom 12.12)

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9.5  CyberInt Launches Managed Cloud Security Services

CyberInt is launching a new cloud security offering.  With CyberInt Managed Cloud Security Services, organizations gain complete visibility and control of their cloud environments; compliance with global security and privacy legislation; and access to the highest levels of cyber security experts.  Current cloud security tools and guidelines are not sufficient, leaving companies’ cloud environments, applications, and data vulnerable to threats. With CyberInt, organizations get complete visibility, ongoing audit and compliance, and stronger security around cloud-hosted data.  The robust security offering delivers a comprehensive public cloud strategy and established security management services, directly addressing the challenge of managing complex, multi-cloud environments.

Recently recognized as one of the 20 most promising enterprise security solution providers for 2018 by CIOReview, Petah Tikva’s CyberInt eliminates potential threats before they become crises by looking at all online activities and digital assets from an attacker’s perspective and provides managed detection and response services to customers worldwide.  Leveraging Argos™ real-time digital risk protection platform with a global cyber expert analyst team, as well as managed SOC, threat hunting, deep dive investigations, real-time incident response and risk assessment services, CyberInt provides holistic end-to-end protection to digital businesses in retail, ecommerce, gaming and financial industries.  (CyberInt 12.12)

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9.6  SafeDK Revealed Thousands of Malicious In-App Mobile Ads Auto-Redirecting Users to Porn Sites

SafeDK announced the official release of the world’s first mobile user level ad journey, as part of its patent pending ad-visibility technology.  The solution helps publishers track ads behind specific user complaints, identify and resolve malicious ad’s sources, cut time spent by customer support and eliminate the need to reproduce the issue.  SafeDK used user-level analysis technology and utilized its wide coverage of 400M Monthly Active Users to track a specific user ad-journey, which led the company to uncover thousands of ads that auto-redirect users to porn sites.  The company instantly alerted the ad networks that served the malicious ads and provided them with the information needed to manage the crisis as quickly as possible.

In-app malicious and fraudulent code that ‘piggybacks’ on innocent ads and auto redirect users to inappropriate sites has turned into an epidemic in the industry.  Ad network SDKs are leaning on 3rd party programmatic solutions that are vulnerable to breaches and are exposed to manipulations.  SafeDK’s user-level ad creative and performance data is the only solution which lets publishers identify ad-related issues which occur to specific users.  Furthermore, the technology does not require any collection of private user information, which is essential for publishers in the GDPR era.

Herzliya’s SafeDK is a leading end-to-end mobile SDKs management platform which enables top app publishers to analyze, monitor and optimize the behavior of SDKs and ad-networks in their apps.  Mobile apps commonly incorporate 3rd party SDKs, which are seen as black boxes by the app owners integrating them.  With SafeDK, app owners can analyze, control and optimize SDK related impact on performance, stability, ad quality, blacklist violations and campaigns performance.  Also, SafeDK lets publishers switch off problematic SDKs in real time and control specific permissions.  (SafeDK 14.12)

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9.7  Foresight and RH Electronics to Join Forces in a Strategic Alliance

Foresight Autonomous Holdings announced the signing of a non-binding Development and Investment Agreement with RH Electronics, a primary contractor in the manufacturing and assembly of electronic systems.  The agreement covers the terms of RH’s engagement, directly and/or through its approved contractor, Tonson Labs, for a multi-phase project to develop chip-based FPGA and ASIC solutions for QuadSight™, Foresight’s four-camera vision system.  Initially, RH will lay the infrastructure for an FPGA-board platform.  Following completion of phase 1 and successful pass of acceptance tests, RH is planned to proceed towards development and manufacturing of an ASIC chip for the QuadSight™ system.

The parties are targeting to enter, within two months, into a binding agreement based on the principles of the initial non-binding agreement, pursuant to which the parties will determine the minimal quantities of QuadSight™ production units, and the commercial terms of production.  In addition, under such binding agreement RH will receive a “right of first refusal” for the manufacturing of QuadSight™ systems and will prepare the infrastructure for such manufacturing facilities.

Ness Ziona’s Foresight Autonomous Holdings, founded in 2015, is a technology company engaged in the design, development and commercialization of stereo/quad-camera vision systems and V2X cellular-based solutions for the automotive industry.  Foresight’s vision systems are based on 3D video analysis, advanced algorithms for image processing and sensor fusion.  The company’s systems are targeting the Advanced Driver Assistance Systems (ADAS), semi-autonomous and autonomous vehicle markets.

Established in 1984, RH Electronics is a leading EMS (Electronics Manufacturing Services) and CM (Contract Manufacturing) provider based in Nazareth Elite, Israel, with factories around the world.  RH has advanced production technologies in the fields of electronics PCBA, mechanics, cables and machining at one stop shop. RH is active in the field of top turnkey solution of design, engineering, testing, manufacturing and subcontracting services.  (Foresight 17.12)

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9.8  Dish Mexico Selects Gilat & Hispasat for Delivery of Broadband Services to Mexico

Gilat Satellite Networks announced that Dish Mexico has chosen Gilat’s SkyEdge II-c multi-service platform, operating over Hispasat’s HTS satellite, Amazonas-5, to deliver high-quality broadband services in Mexico.  Mexico will be connected with ON, a new high-quality satellite Internet access service, to benefit the unserved and underserved people of Mexico.  This service will include high speed broadband connectivity over satellite as a solution for remote regions where terrestrial service is not available.  The broadband service will utilize Gilat’s highly efficient X-Architecture and DVB-S2X VSATs operating over Ka-band capacity from Hispasat’s recently launched Amazonas-5 satellite.

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 their 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 17.12)

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9.9  Essence Group Paves the Way With State-of-the-Art Functionality for Monitored Security

Essence Group is developing next generation security solutions to reinvent the way security monitoring stations protect their customers.  Essence Group solutions currently protect three million homes and businesses worldwide.  Their approach to secure living is what perfectly places Essence Group to understand the issues related to 21st century security.

The company is due to release its next generation professional security platform that leverages this know-how, and utilizes state-of-the-art technologies such as IoT infrastructure, artificial intelligence and big data to provide customers with the highest level of protection in these challenging times.  Highlighting this point is that Essence is now able to prevent the hacking of Mifaire tags.  Mifaire tag hacking has created security breaches for multiple monitoring and access control companies worldwide.  Any company that uses Mifaire tags can use this new solution to stop intruders from imitating the signal that disarms an alarm system or allows access to a building or office.

Initial tests have shown a system with superb customer experience for the end user and for the monitoring station, including: near real time alerting for the monitoring station; automated decision making; streaming HD video over long range wireless channels; anti-jamming of RF channels to ensure continual service.

Herzliya’s Essence Group is a global provider of IoT connected-living solutions for communication, security and healthcare service providers, serving households and small-medium businesses.  Leveraging experience and innovation with a global presence and 20 million devices deployed worldwide, Essence is committed to developing and supporting solutions that enhance partners’ businesses and enable people to live fuller, better lives.  The multiple award-winning Care@Home Multi-Service Platform is an Aging-in-Place product suite offering seamless home care monitoring indoors and outdoors, allowing independence for seniors and peace of mind to their loved ones.  (Essence Group 21.12)

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10.1  Israel’s November CPI Falls by 0.3%

Israel’s Consumer Price Index (CPI) fell 0.3% in November, the Central Bureau of Statistics reported on 13 December.  The drop was bigger than expected by the pundits.  The fall of 0.3% comes after the unexpected rise of 0.3% in October, on the basis of which the Bank of Israel increased the interest rate for December from its historic low of 0.1% to 0.25%.  Inflation over the past 12 months remains at 1.2%, at the lower end of the Bank of Israel’s 1%-3% target range.  The CPI has risen 1.1% since the start of 2018.

Notable price falls in November included fresh fruit (6.2%), culture and entertainment (0.9%), furniture (0.8%) and public transport (0.8%). Notable price increases were in clothing (2.9%) and fresh vegetables (1.4%).

The Central Bureau of Statistics also published the Housing Price Index today for September October.  The Index showed the price of the average deal falling 0.2% in September-October compared with August-September.  Housing prices have fallen 1.8% over the past 12 months.  The average price of a new home remained unchanged between August-September and September-October.  (CBS 14.12)

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10.2  Israel Poverty Report Finds Less Poverty but More Poor People

The Latet (To Give) organization published a report on 13 December, claiming 77.4% of the families receiving state support have at least one breadwinner, and 19.7% have two or more breadwinners.  The report indicates that like last year, one of every three children and one of every four Israelis is poor.  At the same time, it is important to note that in contrast to the definition of poverty in the official poverty report by the National Insurance Institute, Latet’s definitions of poverty are multi-dimensional.

Latet’s index estimates the degree of want in a family in five aspects reflecting needs essential for dignified living in Israel: housing, education, health, nutritional security and ability to meet the cost of living.  A family reporting a shortage in at least three of the five indices is classified as poor.  Latet’s unique model counts 500,000 more poor people in Israel than the National Insurance Institute, bringing the total to 2.5 million.  Latet’s model puts the number of poor families in Israel at 533,000.  According to in-depth surveys conducted by Latet, 34.1% of the public regards poverty and social gaps as the most urgent problem requiring attention from the government, while state security was in second place with 33.3%.  Asked what two issues are most urgent, 66% included poverty and social gaps as either most urgent or second most urgent, compared with 54.1% for state security.

A positive aspect of the report was a rise in the average monthly income of those receiving state assistance from NIS 3,348 in 2017 to NIS 4,176 in 2018, an increase of nearly 25%.  Latet attributes a large part of this increase to the increase in the minimum monthly wage, which currently stands at NIS 5,300.  The report also states that the feeling of employment security improved this year, with 19.9% of those receiving state assistance reporting that they were likely or very likely to lose their current jobs, far less than the 33.1% who reported the same thing last year.

It appears, however, that the public is not giving the government credit for these results; 75.6% of the public believes that the government bears more responsibility, a larger proportion than for any other party, but only 24.4% believes that the government is actually dealing with the problem.  36.9% of the public believes that the government is refraining from setting targets for reducing poverty because the long-term results are of no interest to politicians.  72% of the public believes that dealing with poverty is either a low priority on or totally absent from the national agenda.

The alternative poverty report also reported other findings:  94% of the senior citizens receiving state support said that their old-age allowances either did not enable them to fulfill their basic living needs in dignity, or did so only partially, about the same proportion as last year (92.2%).  66.7% of the senior citizens receiving state support said that they were unable to properly maintain their health because of their economic situation, and 89.8% were unable to make payments for nursing, compared with 85.7% in 2017.  70.9% of those receiving state assistance reported being swamped with debt, compared with 77.4% last and 34.1% of the general population in 2017.  48.9% of those receiving assistance reported having a bank account blocked or attached for debt, a bailiff’s action, or lawsuits, compared with 8.4% of the general population.  50.7% of those receiving state aid reported lacking a properly working air-conditioner or heating at home, or being unable to afford to operate it.  11.5% of those receiving assistance had attempted to commit suicide, or had planned to do so in the past year, because of economic distress, down from 18% in 2015.  (Globes 13.12)

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10.3  Israel Ranks as World’s Third Most Educated Country

Israel is the third most educated country, according to 2017 data compiled by the Organization for Economic Cooperation and Development (OECD).  The OECD calculated the percentage of each country’s population between the ages of 25 and 64 who have completed a two- or four-year degree beyond high school – including both academic and vocational programs.

The data shows that 50.9% of Israelis in the target age bracket have a higher-education degree.  The report noted that Jewish Israelis enter college at a later age than most Western counterparts because most serve in the military for at least two years after high school.

The United States came in at No. 5, with only 46.4% of its population in the target age group having completed a higher-education program – even though half of the world’s top-ranking universities are American.  South Korea came in at No. 4, with 47.7% having completed a higher-education program, but it tops the list of most educated people aged 25-34 (66.6%).  Japan is No. 2 (51.4%) and the most educated country in the world is Canada (56.7%) – although Canada faces an over education, underemployment problem.  (OECD 20.12)

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11.1  ISRAEL:  IVC Finds Israeli Startup Closures Diminishing

Fewer and fewer startups are closing down each year in Israel according to a new report published by the IVC Research Center.  The report analyzes the number of startups closing down and the amount of money they raised.  According to the report, 3,307 high-tech startups terminated their activity in 2012-2017 after raising a cumulative $3.8 billion.  The study did not examine the reasons why the startups closed down.

Some 634 startups closed down in 2013 after raising $1.4 billion, 710 in 2014 ($665 million), 590 in 2015 ($327 million), 540 in 2016 ($350 million) and 352 in 2017 ($406 million).  The report did not include 2018, but IVC believes that 550 startups will close down in 2018 by the end of the year.

IVC figures show that 1,147 startups were founded in 2013, meaning that the ratio between startups that closed down and startups that were founded that year was 55%.  In addition, 1,353 startups were founded in 2014 (52%), 1,290 in 2015 (45%), 1,102 in 2016 (49%), and 823 in 2017 (42%).

There are 8,360 high-tech startups currently active in Israel, two and a half times the number that closed down starting in 2013.  IVC says that the active companies raise an average of $4.43 million per year.  The startups that closed down operated for an average of 5.5 years before closing down, during which they raised an average of $623 million a year.  The report also shows that the companies that closed down survived an average of four years between their last financing round and the date on which they closed down.

The report states that 2,400 startups, 75% of those that closed down, did not disclose the amount they raised, assuming that they raised any money.  Another 400 startups raised less than $1 million each and raised an aggregate total of $120 million.  Startups that raised $30 million or more before closing down raised an aggregate $2.7 billion, including $850 million by Better Place, $134 million by Quixey, $92 million by BIO Control Medocal, and $89 million by Mobli.

2,590 startups, 78% of all those that closed down, did so in the early stages, while 686 startups closed down in the initial revenue stages and only 33 closed down in the growth stages.  At the same time, two thirds of all the capital raised by startups that closed down during was raised by startups in the initial revenue stages, including $850 million by Better Place.  Even excluding this amount, companies in this category still accounted for half of all the capital raised by startups that closed down.

1,228 startups, 37% of all those that closed down, were Internet companies.  Due to the low development costs in this sector, IVC says, they raised only an aggregate of $468 million in capital before closing down.  432 life science startups raised an aggregate $808 million before closing down, and 828 communications startups raised an aggregate $800 million before closing down.  (Globes 24.12)

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11.2  ISRAEL:  Analysis – Initiated Marketing of Consumer Credit

In recent years, the Bank of Israel’s Banking Supervision Department has given greater attention ‎to the consumer and prudential aspects of the increase in credit to households.‎

From the prudential aspect, the Department has taken a variety of measures to ‎assess and limit the risk in the consumer credit portfolio.  In January 2015, it ‎required making a conservative loan loss provision in order to illustrate in ‎advance the developing risk in this area.  Additional examinations and checks ‎were made at the banks, as part of which the underwriting, monitoring and ‎control processes were examined.  The Department showed the risks in the ‎consumer area to the banks’ management and boards of directors to make sure ‎that they would act as necessary.  The Department also analyzed the distribution ‎of credit in the economy by income level, and published the analysis to the banks ‎and the public.‎

The Banking Supervision Department’s measures led to a slowdown in the ‎growth rate of credit provided to households by the banks in the past year.‎

From the consumer aspect, the Banking Supervision Department required that ‎credit marketing be aimed at customers with the ability to repay, in order to ‎prevent financial entanglements among economically weaker population groups.  ‎In addition, the banks were required strictly uphold proper marketing practices ‎toward their customers.  The central credit register that is expected to go online ‎in 2019, which is one of the important projects being led by the Bank of Israel, ‎will make it easier for all lenders, banks and nonbank entities, to properly assess ‎the customers’ repayment capacity based on full information, in order to prevent ‎the provision of credit to customers who do not have the ability to repay.‎

The Banking Supervision Department has placed a special emphasis on the ‎initiated marketing of credit to households by the banking system – a ‎process by which the bank approached a specific customer with an offer to ‎provide credit – at branches, through digital channels, by phone, and even during ‎the handling of another request from the customer.  While this practice exists in ‎Israel and abroad, initiated marketing also carries risks for customers.  For ‎instance, during an initiated contact, the customer generally does not have ‎sufficient opportunity to assess all of the conditions or to compare prices with ‎other credit alternatives in the market, or to assess the overall burden of liability ‎so that he can properly plan how to repay the credit.‎

As such, the Banking Supervision Department provided written instructions to the ‎banks and the credit card companies in 2015 on how to make an initiated ‎approach to customers with a credit offer.  The banks are required to set out in ‎their policy the target groups for their initiated marketing, and to exclude from it ‎groups of customers that do not have the ability to repay, as well as other ‎groups of customers (such as the very elderly or very young).  We emphasize ‎that these groups were excluded from initiated marketing only, but they can ‎obviously still approach the banks to request credit at their own initiative, and ‎each request will be judged on its own merits.  In addition, the Department ‎required the banks to make sure that the credit solutions are consistent with the ‎needs of the customers.‎

In the past year, the Banking Supervision Department has examined the ‎initiated marketing of consumer credit in the banking system through ‎examinations and other checks.

 These examinations showed that in general, credit is marketed to ‎customers with a reasonable repayment capacity, and there was no ‎phenomenon of “pushing” credit to customers who could not repay it or to ‎financially weaker customers.

 However, the Banking Supervision Department did identify other problems ‎in the marketing processes in some cases, and it is monitoring their ‎rectification in accordance with its requirements:

-Banking corporations are required to make sure that their employees, at ‎branches and call centers, do not apply any pressure on customers to ‎obtain credit services. Examinations conducted by the Banking Supervision ‎Department found certain cases where call center employees acted to ‎convince customers to take a loan even though the customers had said they ‎were not interested.  It was found that the improper convincing in those ‎cases included repeated offers, applying pressure on customers to decide ‎‎“today”, and the use of inappropriate verbal coercion.‎

-The Banking Supervision Department is requiring the banking corporations to ‎prepare for a mechanism that will prevent the harassment of customers ‎with repeated offers of credit after they have said they are not interested in ‎the service, and is even instructing the banking corporations to prepare for ‎the implementation of a mechanism that will allow customers to give prior ‎notice that they are not interested in initiated contact from the bank. This is ‎due to cases that were found where call center employees contacted ‎customers with repeated offers to obtain loans, even after the customers ‎said they were not interested or refused the offers.‎

-The Banking Supervision Department is requiring the banking corporations to ‎increase the disclosure they provide to customers by improving ‎guidelines for conducting a conversation with a customer and increasing ‎controls over the conversations in practice: ‎

-The banks must bring to the customer’s attention, at the beginning of the ‎conversation, the customer’s financial state in the account, both on ‎the debit side and on the credit side.  In particular, the banks must ‎bring to the customers attention details about deposits that are available ‎to them, including their date of repayment and their interest rate.  The ‎objective is to enable the customers to make an informed decision on ‎whether to take out a loan or to withdraw a deposit, in view of the ‎interest rate differentials between the two.  In financial terms, the use of ‎a deposit is generally more worthwhile for the customer than taking out a ‎loan, since the interest that the customer receives on a deposit is much ‎lower than the interest he would pay on a loan.‎

-Another example is the requirement to advance disclosure of the ‎interest rate on the loan offered at the beginning of the marketing ‎conversation, and before the customer has formed his opinion on the ‎offer.  This requirement is due to the work process in some cases where ‎the sale is comprised of two stages: In the first conversation, the ‎customer gives his agreement in principle to submit a request for credit ‎before the bank tells him what the interest rate is, and the bank updates ‎him regarding the approved interest rate only in the second ‎conversation.  The Banking Supervision Department wants to make sure ‎that the customer understands what the interest rate is and considers it ‎at an early stage of the sales process, before giving his agreement in ‎principle to submit a request for credit.‎

-The disclosure of the interest rate is especially important in cases where ‎the customer is offered a loan to fully or partially pay back previous ‎loans.  From a financial standpoint, it is generally not worthwhile for a ‎customer to recycle existing loans with a more expensive loan.  The ‎exception to this is a customer that is having difficulties repaying the ‎loans, and the recycling is required in order to spread out the payments.‎

-The banks must make sure to bring interest rate benefits to the ‎customer’s attention, insofar as an existing customer is entitled to such a ‎benefit based on a general arrangement (belonging to a certain segment ‎of the population, such as soldiers, students, and so forth), or based on ‎special agreements (for instance agreements that apply to certain ‎groups of workers).‎

The Banking Supervision Department is requiring that the banks make sure ‎that loans offered through direct channels are not more expensive than ‎loans offered to customers at branches.  The Department’s position is that ‎technological improvements enable the banking corporations to streamline ‎and to offer their customers services at lower prices.  This position also ‎applies to the price of consumer loans.‎

The Banking Supervision Department is requiring the banking corporations to ‎make sure that the variable pay mechanisms for employees who market ‎credit are not based on personal credit sales targets or on other targets ‎that may encourage aggressive marketing and increase risk.  The ‎Department found that variable pay based on personal targets may increase ‎the risk of marketing that does not meet the appropriate disclosure and ‎fairness standards.‎

Another material requirement of the Banking Supervision Department is ‎intended to ensure an organizational culture of the customer’s best ‎interest in the bank’s operations.  As such, a requirement was presented to ‎increase control and examination of the consumer credit provision ‎processes, and particularly the initiated marketing conversations, by ‎gatekeepers at the banking corporations—controllers, legal counsel, ‎compliance, risk management, and internal audit—in order to ensure that all ‎of the banking corporations’ obligations toward their customers are met.‎

The Banking Supervision Department is continuing its work on consumer credit, ‎and in the coming year, it will monitor the rectifications of the deficiencies that ‎were found.  It is also preparing for the publication of a specific directive on the ‎marketing of consumer credit by the banking system.‎  (BoI 12.12)

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11.3  LEBANON:  Moody’s Changes Outlook on Lebanon’s Rating to Negative, Affirms B3 Rating

On 13 December 2018, Moody’s Investors Service changed the outlook to negative from stable on the Government of Lebanon’s issuer ratings and affirmed the ratings at B3.

The negative outlook reflects an increase in risks to the government’s liquidity position and the country’s financial stability, in large part as a consequence of domestic and geopolitical risks that have become more intractable.  In particular, in the absence of fiscal consolidation measures that would allow the release of some international loans and partly reverse the widening in risk premia observed in recent months, Lebanon’s fiscal metrics that have already been among the weakest of all the sovereigns rated by Moody’s would weaken further, contributing to yet higher liquidity and financial stability risks.

The affirmation of the B3 rating reflects Moody’s assumption that a government will be formed in the near term and will implement some fiscal consolidation that would unlock the CEDRE (“Conférence Economique pour le développement, par les réformes et avec les entreprises”) public investment package, which in turn would support GDP growth and ease liquidity risks.  The rating affirmation also takes into account the central bank’s demonstrated capacity to maintain a degree of financial stability despite very large macroeconomic imbalances and through times of political tensions, although the effectiveness of its financial operations may be diminishing.

Moody’s has also affirmed Lebanon’s (P)B3 senior unsecured Medium Term Note Program rating and its (P)Not Prime other short-term rating.

The foreign and local-currency bond and bank deposit ceilings remain unchanged.  Specifically, the foreign-currency bond ceiling is unchanged at B1, the foreign-currency bank deposit ceiling is unchanged at B3, and the local-currency bond and deposit ceilings are unchanged at Ba2.  The short-term foreign-currency bond and deposit ceilings are also unchanged at Not Prime.

Ratings Rationale

Rationale for the Change in the Outlook to Negative from Stable:  Heightened Political Tensions and Delay in Fiscal Consolidation Jeopardize Donor Disbursements, Weigh on Investor Sentiment

The negative outlook on Lebanon’s rating reflects an increase in domestic and geopolitical tensions that is hindering the authorities’ capacity to halt the widening of fiscal and external imbalances.  This situation has a negative impact on Lebanon’s access to financing from international donors.  More generally, heightened political risk contributes to wider risk premia and higher funding costs.

One main risk is that political tensions and the policy standstill continue to further jeopardize capital inflows and committed donor disbursements, with significant repercussions on Lebanon’s ability to maintain financial stability and service its debt at sustainable costs.

On the domestic side, a resolution of the political deadlock that prevents a government formation since the 6 May 2018 parliamentary elections is a prerequisite in order to unlock the $11 billion public investment support package committed by the international donor community during the CEDRE conference held in April 2018 in return for fiscal consolidation measures worth 1% of GDP per year over the next five years.

As regards geopolitical risks, Moody’s assessment is that they have increased in light of the withdrawal of the United States (Aaa stable) from the Joint Comprehensive Plan of Action (JCPOA) agreement signed between Iran (unrated) and the permanent members of the UN Security Council plus Germany (Aaa stable), followed by the imposition of sanctions on Hezbollah in late October which target not only the organization’s political and militant arm, but also “foreign persons and government agencies that knowingly assist or support Hezbollah”.  These secondary sanctions further increase uncertainty among investors and in the international donor community in light of the group’s anticipated participation in Lebanon’s cabinet.

Largely as a result of the domestic and geopolitical risks, Moody’s estimates that the risk premia on Lebanon’s government’s international debt have widened by 300 basis points since April to around 800 basis points, marking a significant increase in the cost of international debt.

Slowing Deposit Growth as Budget Deficits Remain Wider for Longer Exacerbates Government Liquidity Risk

Moody’s expects the budget deficits to remain wider for longer than it previously expected, raising the government’s debt burden, at a time when banks’ deposits, that have been channeled by the central bank to finance the government’s needs, are slowing.

Without any government to implement some fiscal consolidation, the budget deficit is likely to stand at 10.5% of GDP in 2018, compared with 8.9% previously expected by Moody’s.  Higher interest payments, larger transfers to the loss-making Electricité du Liban due to higher oil prices through most of the year, and lower revenue all contribute to a wider deficit compared to 2017.

For 2019 and 2020, Moody’s anticipates a limited narrowing of the fiscal deficit, to 9.5% and to 9.0% of GDP, respectively.  Taking into account subdued real GDP growth, around 1-2% in the next three years, Moody’s estimates that the government’s debt burden – excluding domestic debt holdings of public entities accounting for about 11% of GDP – will continue to increase to over 150% of GDP by 2021 from an anticipated 141% in 2018.

Reflecting the government’s intention to issue domestic debt closer to market rates starting 2019, debt affordability, as measured by interest/revenue, will exceed 50% next year and stay around these levels, the weakest amongst all Moody’s-rated sovereigns.  Such weak debt affordability makes Lebanon’s fiscal and credit profile particularly vulnerable to a prolonged increase in the cost of debt.

Persistently wide deficits and large debt refinancing needs will keep the government’s borrowing needs above 30% of GDP.  Beside larger than earlier expected financing needs, government liquidity risks are exacerbated by a slowdown in commercial banks’ private sector deposit growth and the above-mentioned wider risk premia on international debt.

Private sector deposits have been a main source of indirect financing for the government.  Through a series of financial operations starting in May 2016, the Banque du Liban (BdL), the central bank, incentivized commercial banks to attract new deposits and park their liquid foreign assets at the BdL.  The objective has been to stabilize the economy’s net foreign asset position in the context of the reduced pace of cross-border inflows that started in 2011 in the wake of the regional Arab Spring upheavals.  This centralization of liquidity at the BdL has allowed it to maintain interest rates low and stable by purchasing the government debt which is not absorbed by the banking system.  The BdL’s domestic debt holdings have thus expanded to 50% of the government’s total local currency debt as of September 2018 from about 27% at the end of 2010.

After a strong acceleration between mid-2016 and late 2017, deposits have slowed down, despite ongoing incentives provided by the BdL.  Based on banks’ balance sheet data up to October 2018, Moody’s estimates that annual private sector deposit growth will be around 3% in 2018, equivalent to about $5 billion instead of the $6.5 billion anticipated before, and lower than the fiscal deficit at $6 billion.

Heightened political risk, higher interest rates by the US Federal Reserve, and lower confidence in sustained financial stability as highlighted by the increased trend toward deposit dollarization, are likely to have accounted for the slowdown in deposit growth and are indicative of the diminishing effectiveness of the BdL’s policies.

Unless depositors’ confidence in political and financial stability is restored, the government’s access to funding will remain constrained, with prospects of further liquidity and fiscal pressure reflected in the negative outlook.

Widening External Imbalances Weigh on Foreign Exchange Reserve Buffer Required to Ensure Exchange Rate and Financial Stability

Tightening financing conditions in international debt markets and declining net foreign assets at the BdL point to higher external vulnerability risks and financial stability risks for Lebanon.

Lebanon’s very wide current account deficit, which Moody’s expects to remain above 20% of GDP in the next few years, has long highlighted the country’s external vulnerability.  This has been mitigated by a large stock of foreign exchange reserves, which, at $34.6 billion as of October 2018, provides ample coverage of goods and services imports (at over 13 months).  At an average of about 65% of M2 over the past three years, the stock of foreign exchange reserves also provides coverage for significant local currency deposit conversions to US dollars in a stress scenario.

However, foreign exchange reserves are less ample when assessing financial stability risks related to potential deposit outflows or lower inflows.  In particular, the ratio of net foreign assets to the M3 broad money measure (including foreign currency deposits) is declining toward the 20% upper threshold deemed prudent under IMF reserve adequacy metrics for countries with large banking systems, from almost 50% in 2011.  Another measure of reserve adequacy relates short-term external debt to foreign exchange reserves. BdL’s practice in recent years to maintain a floor for foreign exchange reserves at $30-32 billion and intervene when that level looked like it may be breached, is consistent with maintaining adequate coverage of short-term external debt.

The deteriorating balance of payments dynamics observed in 2018 which reflect commercial banks’ worsening net foreign asset position partially in response to their participation in BdL’s operations, highlights the economy’s gradually diminishing external shock absorption capacity captured in the negative outlook.

Rationale for Rating Affirmation at B3

The affirmation of the B3 rating is based on Moody’s baseline assumption that a government is formed and able to implement some fiscal consolidation that diminishes the fiscal, liquidity and external stress explained above. The B3 rating also takes into account BdL’s demonstrated capacity to ensure financial stability and channel financing to the government, albeit now at increasing costs.

More generally, Lebanon’s institutions have a track record of supporting the government’s willingness and capacity to meet their debt payments, even through highly challenging economic, social and political periods including a civil war in 1975 – 90.

With some fiscal consolidation back on track, Lebanon’s economy would be supported by the disbursement of significant donor commitments of over $11 billion over the next five years (equivalent to about 3-4% of GDP per year) that would boost investment.  Donor disbursement would happen conditional on a reduction in the fiscal deficit by 1% of GDP per year over the next five years.  Evidence that fiscal consolidation is underway would also likely shore up investors’ and depositors’ confidence.

What Could Change the Rating Up

The negative outlook indicates that an upgrade is unlikely.

Moody’s would likely change the outlook to stable if significant reforms unlocked the CEDRE public investment package, raised GDP growth prospects and durably restored investors’ and depositors’ confidence and deposit growth.  This would support the effectiveness of the central bank’s measures aimed at channeling financing for the government at sustainable costs while maintaining financial stability.

What Could Change the Rating Down

Moody’s would likely downgrade Lebanon’s ratings if in the absence of credible and effective fiscal consolidation prospects, possibly as a result of continued domestic political deadlock and/or intensified geopolitical pressures, the government’s access to financing at affordable costs became further impaired.  In particular, a further significant slowdown in deposits would denote lower policy effectiveness and point to increasing risks to financial stability, putting downward pressure on the rating.  (Moody’s 13.12)

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11.4  BAHRAIN:  Moody’s Changes Outlook on Bahrain’s Rating to Stable, Affirms B2 Rating

On 17 December 2018, Moody’s Investors Service changed the outlook to stable from negative on the Government of Bahrain’s issuer ratings and affirmed the ratings at B2.

The key driver of the outlook change to stable is Moody’s assessment that Bahrain’s government and external liquidity risks, while remaining elevated, have materially reduced following the announcement of a $10 billion financial support package from Bahrain’s Gulf Cooperation Council (GCC) neighbors.  Financial support and the fiscal consolidation measures (the Fiscal Balance Program, FBP) that are set to accompany it will support investors’ confidence and help to reduce the government’s financing needs. In turn, this will slow a further weakening in Bahrain’s public finances in a way that is consistent with a B2 rating.

The affirmation of Bahrain’s B2 rating reflects Moody’s view that, despite the recent reduction, the sovereign’s external vulnerability will remain very high with persistently low foreign exchange reserves.  Moreover, Moody’s expects that, despite some fiscal consolidation, Bahrain’s government debt burden will continue to rise, as political and social considerations will prevent a full implementation of the FBP.  These credit challenges are set against Bahrain’s key credit strength – its relatively diversified and dynamic economy.

Bahrain’s long-term foreign-currency bond ceiling is unchanged at Ba3.  Its long-term foreign-currency bank deposit ceiling is unchanged at B3.  The short-term foreign-currency bond and bank deposits ceiling remain unchanged at Not Prime, while the long-term local currency country risk ceilings are unchanged at Ba2.

In addition, the long-term foreign-currency bond and bank deposit ceilings for Bahrain – Off Shore Banking Center remain unchanged at Baa2, while the short-term foreign-currency bond and bank deposit ceilings remain unchanged at Prime-2.

Ratings Rationale

Rationale for the Change in the Outlook to Stable from Negative

GCC Financial Backstop Reduces Government and External Liquidity Risk

On 4 October 2018, Bahrain announced a $10 billion (26% of 2018 estimated GDP) financial support agreement signed with Saudi Arabia (A1 stable), UAE (Aa2 stable) and Kuwait (Aa2 stable).  The package aims to support a set of fiscal reforms – summarized in the Fiscal Balance Program – which Bahrain has committed to implement under the agreement.

Moody’s anticipates that funds from the financial support package will be disbursed during 2018-22 in the form of long-term concessionary loans, more than covering the scheduled external debt payments (principal and interest) of the government (approximately $9.4 billion, including the $750 million sukuk that was repaid in late November 2018).  The disbursements will directly support Bahrain’s government liquidity position and reduce the risk that the central bank foreign exchange reserves could be rapidly depleted.

Importantly, Moody’s estimates that Bahrain will be able to draw on additional extraordinary support from the GCC neighbors to support the stability of its exchange rate peg during the course of the FBP implementation.  Moody’s also expects that the presence of the GCC backstop will allow the government and government-related entities to regain access to international capital markets, which had become compromised during much of 2018, further supporting liquidity.

FBP Implementation, Albeit Likely Partial, Will Slow Further Weakening of Public Finances

The fiscal reforms announced by the government as part of the FBP would represent very significant fiscal consolidation.  While Moody’s expects some implementation hurdles and, as a result, a more gradual fiscal consolidation, some of the measures outlined becoming effective will slow the weakening of Bahrain’s fiscal metrics.

The FBP targets a reduction in government spending relative to GDP to 19.5% in four years from an estimated 26.6% in 2018, with an increase in revenue to 19.3% from 17.5%, which would restore budget balance by 2022.  The measures include spending cuts from a voluntary retirement scheme for eligible civil servants, more targeted social transfers and increases in water and electricity tariffs and savings from better spending efficiency and rationalization; on the revenue side, the FBP plans the introduction of a 5% value added tax, a review of existing government fees and services and the repricing of tariffs charged to domestic industrial consumers of natural gas.

Given the challenge of achieving such large and broad fiscal consolidation, and in light of Bahrain’s limited track record of implementing significant fiscal tightening, Moody’s assumes only a partial implementation of the FBP.  While VAT looks likely to be implemented, maintaining some of the planned expenditure cuts over several years will likely be challenging.

Even with a partial implementation, however, Bahrain’s fiscal deficit is likely to narrow sufficiently to lower the government’s gross borrowing requirements to around 25% of GDP by 2022 from an estimated 35% of GDP in 2017.  Government debt is also likely to increase at a much more moderate pace than earlier envisaged.  At this stage, Moody’s expects government debt to rise to around 95% of GDP in 2022 (including debt owed to the central bank), from 89.4% in 2018, compared to more than 110% of GDP previously projected.

Rationale for the Rating Affirmation at B2:  External Vulnerability Will Remain Very High

Moody’s expects that Bahrain’s external vulnerability will remain very high.  While the disbursements from the GCC package will cover all government external debt payments over the next four years, they will not be sufficient to materially increase Bahrain’s foreign exchange reserves at the same time.

Moody’s expects that reserves will remain in a range that covers only about 1-2 months of imports of goods and services. Although up from the latest levels ($1.4 billion or 6 months of import coverage at the end of October 2018), reserves will continue to provide only a very thin buffer to protect the sovereign against potential external shocks, including potential declines in oil prices below Moody’s medium-term assumptions.

Government Debt Metrics Will Continue to Deteriorate, Albeit More Slowly Than Previously Envisaged

Bahrain’s fiscal strength will remain very low, although the further weakening in debt metrics will be materially slower than previously anticipated.  Under the assumption of a partial implementation of the FBP, Moody’s expects that government debt relative revenues will rise above 430% in 2022 from estimated 408% at the end of 2018.  Meanwhile, debt affordability will remain low, with interest payments to revenue rising slightly, to 21% in 2022 from 19% in 2018, and vulnerable to increases in global interest rates, although the concessionary nature of the funding from the GCC support package will mitigate some of this impact.

Relatively Diversified Economy Supports B2 Rating

Bahrain’s B2 rating remains supported by the country’s relatively diversified and dynamic economy.  Hydrocarbon production accounts for about 15% of nominal GDP in 2018, implying a smaller sensitivity of nominal GDP to fluctuations in oil prices compared to the rest of GCC.  Moody’s expects that Bahrain’s non-oil growth will be around 3% in the next few years, with fiscal consolidation weighing on growth momentum somewhat.  Overall GDP growth is likely to average around 2%.

Over the longer term, Bahrain’s economic strength will benefit from the new hydrocarbon discovery announced in April 2018, although the boost to growth, as well as export and fiscal revenues starting in 2023, is as yet unknown.

The B2 rating also takes into account the proven commitment of the GCC countries to support Bahrain’s financial, economic and social stability, which includes ongoing disbursements from the GCC Development Fund that was set up to fund Bahrain’s infrastructure and housing projects.  We estimate that at the end of 2018, approximately $5 billion of the available funds (equivalent to 13% of GDP) remain available and the expected disbursements of 2 – 2.5% of GDP per year will continue support Bahrain’s non-oil growth in the next five years.

What Could Change the Rating Up

Over time, a more rapid and significant fiscal consolidation than currently expected, that would set the government’s debt burden on a stable and eventually declining path, would likely would likely prompt Moody’s to upgrade the rating.  Effective fiscal consolidation would be reflected in a durable and material reduction of Bahrain’s fiscal vulnerability to declines in oil prices as measured by falling fiscal breakeven oil prices.

A sustained rebuilding of the central bank’s foreign exchange buffers that would materially decrease external vulnerability risks would also likely lead to an upgrade.

What Could Change the Rating Down

Moody’s would likely downgrade the rating if it became apparent that fiscal consolidation will be materially slower than currently envisaged, potentially threatening the disbursements of GCC support and/or undermining investors’ confidence.  In this scenario, fiscal metrics would weaken and liquidity and external vulnerability risks would rise again, possibly rapidly.

More generally, protracted delays in disbursements from the GCC that would lead to a further significant erosion of foreign exchange reserves and undermine market confidence in the GCC backstop would also put negative pressure on the rating.  (Moody’s 17.12)

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11.5  OMAN:  Oman’s Economic Ambitions

Nima Khorrami Assl posted in Sada on 14 December that Oman’s drive for economic diversification is contributing to its rapprochement with Israel, which can offer its expertise and technology for agriculture, entrepreneurship, and defense.

Israeli Prime Minister Benjamin Netanyahu’s 25 October visit to Oman spawned speculation about Muscat’s position on the stalled Israeli – Palestinian peace process and myriad regional security challenges.  However, it is Oman’s economic concerns that drive its interest in renewing relations with Israel, after having cut ties in 2008.  Oman has struggled to shift to a post-oil economy in recent years.  Worries over the health of Sultan Qaboos bin Said and an uncertain succession have given the sultan and his government added urgency to start such an economic transition.  Crude exports currently account for up to 71% of government revenues, which Muscat, rather predictably, has been relying on to ease the economic burdens of rising youth unemployment, increasing Yemeni refugee flows and subsidizing the basic living costs of around 84,000 low-income households, or roughly one-third of its citizens.

Oman’s already dwindling oil and gas reserves, which are set to deplete in 14 and 27 years respectively, are becoming costly to extract at a time when suppressed global oil prices have diminished their returns.  Muscat has been forced to seek alternative ways to increase its revenue and address its growing budget deficit, which stood at 3.5 billion Omani rials ($9.1 billion) in 2017, or around 10% of GDP.  The government has contemplated fuel and energy subsidy cuts and additional taxes, but it is wary of public pushback against such austerity measures.  The Omani government removed fuel subsidies in 2016, which drove oil prices up so much that public protests broke out in Muscat on 2 February 2017 – the first major demonstrations since 2011 – forcing the government to reinstitute a smaller subsidy the following week.

Instead of austerity measures, Muscat sees economic diversification as a solution, making it the top priority in its Vision 2040 development plan, issued in 2017.  The plan, a repackaging of Oman’s Vision 2020 launched in 1995, focuses on modernizing agriculture, creating technology and startup ecosystems, boosting tourism and establishing free industrial zones near the port cities of Salalah and Duqm.

Israel can be of immense assistance to Muscat, especially in the agriculture and the high-tech sectors.  While Oman can source these technologies from other countries, it also recognizes that Israeli leadership increasingly values having relations with Arab states as part of its wider strategy of countering Iran.  Following the lead of Saudi Arabia and the UAE in slowly warming up to Jerusalem, the public meeting between Netanyahu and Sultan Qaboos, during which he officially called for the recognition of Israel, puts Muscat ahead of the curve in pursuing normalization and all its economic and strategic benefits.

As part of Vision 2040, Oman’s Council of Ministers mandated the Ministry of Agriculture and the Oman Food Investment Holding Company (OFIC) to develop, invest in, and implement programs aimed at boosting farm production.  This includes increasing exports of dates, honey, and fruits.  To achieve this, Oman aims to introduce precision irrigation and non-thermal processing to increase crop yield and quality while using less water.  Given Israel’s own arid climate and water scarcity – in addition to a strategic desire for agricultural independence and food security – Israeli companies are among the leading players in the global market for such agricultural technology.  Israeli firms such as Metzer, Amiram and Hazera have particularly distinguished themselves in carrying out effective projects in Africa and China to improve irrigation, seeding technology, pest control, desalination, renewable energy and waste management.  The technology Oman needs to achieve its agricultural targets, Israel has in abundance.

Israel has also been successful in the establishing and managing highly functional startup ecosystems despite its relatively small population.  This includes experience regulating and coordinating university programs with those of the incubators, accelerators, and seed and venture capital funds – as well as relevant ministries and public bodies, such as the Ministry of Industry, Trade and Labor and the Israel Innovation Authority – within a single framework to promote innovation.  Oman has made some progress on its own to become a regional startup hub.  Various incubators and funds have set up in Muscat in recent years, among them Riyada, Zubair SEC, Al Raffd Fund and Iskan Oman Investment.  However, there seems to be a mismatch between the startups these funds support and the research and policy agendas of the Ministry of Commerce and Industry, the Public Authority for Crafts Industries, and leading academic institutions such as Sultan Qaboos University.  For example, while the government seeks to nurture tech startups, Sultan Qaboos University has yet to set up an independent information technology (IT) or computer science college.  National universities also do not synchronize their research programs with the Ministry of Labor’s projected demands within the job market.  Therefore, officials at the Supreme Council for Planning can learn a great deal from Israel’s experience.

Moreover, as part of its wider diversification move, Oman has been relentless in pursuing diversified sources of defense equipment.  This is evident in recent deals with India, including the signing of a memorandum of understanding in February 2018 to let the Indian navy berth at the port of Duqm.  Increased illegal border crossings from Yemen are feeding Oman’s fears that terrorist cells could emerge inside its refugee camps.  Tensions with Saudi Arabia and the UAE over its neutrality in Yemen and Qatar are also stoking worries that Oman may become a target of these countries’ increasingly hawkish foreign policy.  Vision 2040’s aim of developing Salalah and Duqm as major maritime hubs further pits Oman against the UAE economically.  Although the United States has also increased its military sales to Oman, the current U.S. administration appears to be siding with the UAE and Saudi Arabia over unresolved border disputes between Abu Dhabi and Muscat, making access to Israeli surveillance and monitoring technologies an attractive backup.

Most importantly, Oman hopes to enlist the services of Israeli cybersecurity firms given its private and governmental sectors’ vulnerabilities to large scale, sophisticated cyberattacks from either its immediate neighbors or more distant states.  Having seen how Qatar and the UAE have targeted each other’s networks in recent years, increasing and strengthening its cyber resilience is among Muscat’s top priorities.  Israeli private firms already play a critical role in enhancing the cyber capabilities of the UAE and Saudi governments, seemingly attaching no strings such services save a tacit recognition of it as a legitimate state.  It should not come as a surprise that Muscat too wants to get its hands on their software.

For Jerusalem, resetting relations with Muscat gives it access to a new and relatively lucrative market in a strategic location.  Israeli firms would also gain easier access to the nearby Indian market by operation through Oman, which has fewer logistical hurdles.  NaanDanJain, an Israeli-Indian firm that specializes in water irrigation systems for rice production, can potentially set up a storage and processing facility in Oman without having to obtain as many permits as it would in India.  Similarly, Israeli companies can seek to establish working relations with the Oman India Fertilizer Company (OMIFCO) to develop and sell products for export to India for a lower cost of labor.  Israeli IT firms could potentially also tap into the large pool of Indian IT talent already residing in Oman – thereby avoiding the bureaucratic red tape of establishing a presence in India.

Israel (as an innovation hub) and Oman (as a logistical hub) are both important to China’s and India’s wider global strategies, as seen by their investments in Israeli tech firms and in developing Oman’s port of Duqm.  Oman and Israel could use this to forge a reciprocal relationship for trade with these economic giants, building on their geographical and technological attributes.  For instance, Israel is already a major supplier of weapons and technology to India – which buys 49% of all Israeli arms exports, making Israel its largest military supplier after Russia and the United States – and China – to which Israel sold $3.5 billion worth of goods and services in the first eight months of 2018, primarily surveillance and cybersecurity technology.  Partnering with well-funded Omani entities, such as the Oman India Joint Investment Fund and the Duqm-based China-Arab Wanfang Investment Management (Ningxia) Company, would further enable Israel to set up factories or research and development centers for export to these major hubs.

Yet for that to happen, Oman’s pragmatic, principled and independent foreign policy will be indispensable in the post-Qaboos era.  Given the highly personalized nature of decision making under his rule, there is a danger his efforts might get interrupted even though he has already prepared the ground for his inevitable departure.  The more stubborn obstacle is whether Israel is truly committed to the establishment of a Palestinian state, as this has been of paramount importance to Muscat for decades.

Nima Khorrami Assl is a freelance political risk consultant focusing on geopolitics.  (Sada 14.12)

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11.6  EGYPT:  How Russia Challenges the United States’ Investment in Egypt

Mohamed Maher posted in Fikra Forum on 11 December that to outside observers, it sometimes appears that decision makers in Washington take the close relationship between Egypt and the United States for granted.  On the one hand, this makes sense: The United States has invested a great deal of money and political capital in its relationship with Cairo.  Egypt is the second largest recipient of American aid behind Israel, receiving over $80 billion over the last 40 years.

Yet America’s interests in Egypt have never been more threatened.  In fact, the United States could lose the benefits of its long-term investment in Egypt due to the continuing rapprochement between Cairo and Moscow, which seems to have hit a new peak after four years in development.  Evidence from the past year indicates that this trend towards cooperation between the two states is significantly more than just a fleeting trend or an attempt by the Egyptians to improve their negotiating position with the United States.

Today, bilateral relations between Egypt and Russia evoke the memories of the Cairo-Moscow relationship during the Soviet era before Anwar Sadat, when Egypt was firmly within the Soviet Union’s political orbit.  Despite President Sadat’s reorientation of Egypt’s foreign policy to fit more in line with the policies of the United States and Western nations, this earlier history appears to have provided an appealing precedent for both Cairo and Moscow.

For one thing, Russia is clearly eager to expand its relationships in the Middle East when it senses opportunity.  After Russia managed to save its historical ally Assad in Syria and solidify its political, military and economic presence there, it appears to be seeking benefits of relationships not limited to the Levant.  In order to restore the former glories of the Soviet Union in the broader Middle East – one of Putin’s grand aspirations – and threaten Western interests in the region, Syria is not enough.  Instead, Egypt’s historical leadership role in the Arab world makes it a particularly appealing partner for the Russian president.

Recent developments in Egyptian-Russian relations also challenge the notion that these close ties are temporary or short-term.  To the contrary, evidence shows that relations between Cairo and Moscow are heading towards a strategic partnership that will consequently erode the formers’ decades-long partnership with Washington.

Signs of this development are multifaceted, including military, political, and economic cooperation.  In the military sphere, Russian President Vladimir Putin and his Egyptian counterpart President Abdel Fattah el-Sisi most recently signed a comprehensive strategic partnership agreement at the Russian presidential palace in the Black Sea resort town of Sochi in October.  Sisi has described the agreement as opening “a new chapter in the history of cooperation between Cairo and Moscow.”  Just days after signing the agreement, the two countries performed their annual joint military exercises in Egypt, “Defenders of Friendship 2018,” part of a larger deal reached several years earlier.  The deal and exercises coincided with the previously suspended “Bright Star” joint military exercises between Egypt and the United States, previously halted during the turmoil of the Arab Spring and only recently resumed.

President Sisi and President Putin also see nuclear power as a venue for cooperation, signing a final agreement in December 2017 to establish a nuclear power plant in northwestern Egypt.  Putin characterizes the plant as leading to further cooperation with Egypt and described the Arab state as an old and reliable partner in the MENA region.  State-owned Russian firm Rosatom is set to build the plant with a Russian loan worth some $25 billion, marking the largest non-raw material export deal in Russia’s history.

Rapprochement between Egypt and Russia has also included significant movements towards greater economic cooperation.  Negotiations are still ongoing between Moscow and Cairo for Egypt to join the Eurasian Economic Union – comprised of Russia, Kazakhstan, Kyrgyzstan, Armenia and Belarus – which would make Egypt its first Arab member.  During the same meeting in Sochi, Putin voiced his support for this close economic cooperation.  Joining would allow Egypt greater freedom of movement for goods and services with other countries in the Union.  Officials from both countries are also negotiating to establish a new Russian industrial area in the Suez Canal Zone with investments of nearly $7 billion.

Politically, Egypt and Russia have adopted nearly identical positions on the conflicts in Syria and Libya.  The Egyptian-Russian understanding is best exemplified in their position in the Syrian conflict, which for Egypt is in marked opposition to the position of its American, Western and Gulf allies.  Cairo has fully aligned with Russia’s position in Syria and in return Russia has helped Egypt become a key player in the conflict.  Russia helped coax the warring factions to participate in negotiations in Cairo this past June, including insurgent militias from Eastern Ghouta, Northern Homs and the Assad regime.

Egypt’s stance on Syria is all the more remarkable for its political repercussions – Egypt’s position has threatened its ties with Gulf allies, which aim to undermine the Syrian regime because of its close relationship with Iran.  Egypt first decisively damaged its strategic interests with Gulf nations and the United States when it defiantly voted with Russia (against Saudi Arabia) in a 2016 UN Security Council Resolution.  Following the most recent military operation carried out by the United States and its allies against the Assad regime, Egypt’s foreign ministry issued a statement saying that such operations threatened the safety of the Syrian people, failing to mention that the American military operation came in response to the Assad regime’s use of chemical weapons against Syrian civilians.

As for the Libyan crisis, Moscow and Cairo have once again converged through their support of the Libyan National Army led by General Khalifa Haftar.  Russia has supported Haftar and provided him with spare military parts and technical advice, contravening the ban on armament imposed on Libya.  There have been several, mostly indirect, arms agreements between the two sides, with weapons from Belarus or other countries close to Moscow coming into Libya through Egypt.

These strategic developments in Egyptian-Russian relations have had a significant impact on Egypt’s relationship with the United States, and they should be understood as a direct response to earlier U.S. policies that Cairo found threatening.  Ultimately, the policies of the Obama administration bear the bulk of responsibility for harming Egyptian-American relations: Cairo refuses to forget the position of the United States against its historical ally, Hosni Mubarak, when it pressured him to step down during the January 2011 Revolution.  Washington’s constant discussion of democracy and human rights with Egyptians, including linking delivery of aid to Cairo’s progress in these areas, has also made the Egyptian administration more skeptical of its friendship with Washington.

However, the most important matter is Washington’s delay of some arms shipments to Egypt in the midst of the Egyptian army’s battle with the Islamic State in the Sinai Peninsula.  While the United States stated that these measures were taken to pressure the new Egyptian government to abide by human rights norms during its security crackdown against opposition elements, most notably the Muslim Brotherhood, Cairo received an entirely different message.

American pressure on Cairo regarding human rights has certainly proven a futile effort at diplomacy: Egypt has been excessively sensitive to any signs of pressure, even in the areas of democracy and human rights.  Although any measures to put pressure on the regime could hurt Egyptians in their pocketbooks, this quickly rouses their “national pride.”  The regime takes advantage of this by evoking the legacy of colonialism and attempts by the great powers to intervene in Egyptian affairs.  In this way, the regime stokes Egyptians’ nationalistic fervor, inflames public opinion, and mobilizes them to keep resisting these attempts at foreign pressure, even in the case of human rights.  This strategy has had remarkable success, and has consistently been implemented from the 1952 Revolution until the present day.

Internally, the Egyptian regime interpreted an American shift in support as an indication that they could no longer depend on the United States as a reliable ally, leaving an opening for Russia to secure the needs of the Egyptian army.  Thus, 2014 marked the first shift towards Russia through Russia and Egypt’s major arms agreement worth more than $3 billion – a deal funded by the Saudis and Emiratis.

Though U.S. pressures on Cairo began years earlier, the full extent of these repercussions on the US-Egyptian relationship will continue to unfold in 2019.  If the United States hopes to redirect the course of this relationship, it cannot rely on its old investments.  Rather, if the United States intends to push back Russia, it should use lessons from the recent past to create more stable ties with the largest country in the Middle East, adopting an approach that incentivizes Egypt to change positively instead of pressuring the regime in ways that only pushes it further away.  Egypt’s rapprochement with Russia is a result of this very pressure, so a new approach that can incentivize Egyptians to change is essential.

Mohamed Maher is an Egyptian journalist and researcher based in the United States.  (Fikra 11.12)

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11.7  LIBYA:  After Palermo: Achievements and Future Challenges For Libya

Anna Borshchevskaya, Ben Fishman, and Barbara A. Leaf wrote in The Washington Institute for Near East Policy PolicyWatch 3052 on 17 December that the Italian-sponsored stabilization conference produced some positive outcomes, but a genuine breakthrough requires U.S. involvement.

Despite significant skepticism, last month’s international conference on Libya provided a welcome boost to the UN-led political transition plan.  Held 12-13 November in Palermo, Italy, the gathering produced consensus on an adjusted timeline for elections and provided a stage for important working groups on security and economic priorities, with most actors playing nice under the Mediterranean sun.

Still, the UN effort will require much more than positive rhetoric going forward.  The United States can best support the UN Support Mission in Libya (UNSMIL) and its envoy Ghassan Salame through high-level engagement with European and regional partners – not only to ensure their genuine support for the revised political roadmap, but also to fend off their reflex efforts to aid certain local allies at the expense of Libyan unity, a practice that has stymied progress in the past.  Achieving stability there is key to securing U.S. regional interests against resurgent terrorist activity, retaining Libyan oil production, and minimizing the Mediterranean influence of rivals such as Russia – the latter a goal that was highlighted just last week by National Security Advisor John Bolton in the administration’s new Africa strategy.  A political transition and a legitimate, cooperative government are required to achieve these goals, not just periodic airstrikes on Libyan territory.

What Palermo Achieved

Whereas past international conferences often highlighted differences among the actors, Palermo brought most of the relevant Libyan and international players together at a sufficiently high level to convey an emerging consensus on the required steps for transition.  Even Libyan National Army commander Gen. Khalifa Haftar attended after declaring he would boycott the event, though he arrived at the last minute and restricted his participation to a separate meeting with Salame, Italian prime minister Giuseppe Conte, Libyan Government of National Accord prime minister Fayez al-Sarraj, the presidents of Egypt, Tunisia and the European Council, the prime ministers of Russia and Algeria and France’s foreign minister.  Notably absent at this sideline event: David Satterfield, the acting assistant secretary of state for Near Eastern affairs who served as the top U.S. official at the main conference.

Palermo also revitalized progress on security and economic reform, where the UN is now closely involved.  On security, UNSMIL and its international partners will continue to monitor the UN-negotiated ceasefire in Tripoli and look for opportunities to expand it beyond the capital.  In the meantime, Libya’s new interior minister Fathi Bashagha, who attended Palermo, has redeployed police in Tripoli and secured international commitments for long-needed training programs.  The conference also endorsed the Cairo-led dialogue to restructure Libya’s armed forces.  Eventually, though, the UNSMIL and Egyptian security tracks should be linked to avoid legitimizing rival power structures.

On the economic front, Palermo pushed forward a set of temporary reforms that Libya’s Central Bank began implementing in September to address the currency crisis and reduce the black market economy, which has enriched criminal networks and militias.  More aggressive reforms are required, from devaluing the Libyan dinar to significantly reducing fuel subsidies.  Nevertheless, the country is finally on a positive economic trajectory, with the National Oil Corporation reporting its highest earnings of the year in October.

The Elections Dilemma

Participants at Palermo generally supported Salame’s plan to postpone elections until spring 2019 and convene a broad National Conference sometime before then.  Yet even this delayed timeline will be difficult to meet.  Libyan actors are almost certain to spar over the location, participants, agenda, and length of the National Conference.  Most important, the conference will need to be tied to the draft constitution in some fashion if it is to produce clear principles that are broadly shared across Libya.  At the moment, the constitution is on a separate, convoluted track requiring “a legal basis” in order to hold a referendum on its contents.

More dauntingly, elections need to be held according to an electoral law, which will require decisions on type (presidential vs. parliamentary system), sequencing, districts and regional representation – issues that depend on achieving some measure of conclusiveness in the National Conference deliberations and, possibly, the constitutional drafting process.  Papering over differences on these matters would be a recipe for another round of contested elections, much like the 2014 polls that broke Libya into two rival governments.  In contrast, holding broadly acceptable elections would give the population the best opportunity for ending the protracted post-Gadhafi transition period.

Minimizing Disruptions

Even in the most optimistic scenario, progress on the political, security, and economic tracks may face blowback from internal and external players who benefit from the chaotic status quo.  Accordingly, UNSMIL and Salame should continue their deliberate efforts to involve all of Libya’s major factions while maintaining support from the main international actors.  Senior Italian officials expended enormous effort to get representative groups to attend the Palermo conference, but in the end, most Libyan factions met with international delegations separately rather than engaging with each other.  If the fundamental questions about Libya’s future national identity are to be answered, the international community will need to pressure these parties to meet face to face at the National Conference.

Other major hurdles include implementing an audit of the Central Bank, which the Government of National Accord and Haftar agreed to in July after he committed to return oil facilities and revenue to the National Oil Corporation.  The parties must also prepare for the fact that the fragile security situation could break down at any time, especially as the political stakes grow higher and militia or terrorist spoilers target key Libyan or international institutions.

The Outlier: Russia

Libya has quietly emerged as yet another potential arena for Russian interference in the absence of U.S. leadership.  President Vladimir Putin has leaned toward Haftar for years, but lately he has worked to build ties with the Sarraj government and other actors as well, positioning himself as a potential arbiter.

Likewise, Haftar has ostentatiously sought Russia’s backing, flying to Moscow whenever he feels pressure from the United States or his episodic backers in Egypt and the United Arab Emirates.  He flew there again just days before Palermo, meeting with Defense Minister Sergei Shoigu, senior army official Valery Gerasimov and Yevgeny Prigozhin, owner of the shadowy Wagner mercenary group that many describe as an unofficial arm of the Defense Ministry.  Gerasimov’s attendance is telling given that Russian “contractors” have reportedly been operating in east Libya – Haftar’s stronghold – on and off over the past few years, most recently in the run-up to Haftar’s visit.

Acquiring a larger role in a strategically vital North African country would give Moscow a springboard for greater influence in the rest of the region while advancing a number of other strategic goals.  Libya’s ports would fit with Moscow’s effort to secure naval access throughout the Mediterranean Sea.  The Kremlin is also eager to access Libyan energy resources, revitalize old arms sales, and resume economic contracts. Moreover, an outsize Russian role would demonstrate another victory in the face of Western “failure,” in line with Putin’s larger goal of projecting power at America’s expense and thereby bolstering his domestic legitimacy – all without bringing genuine resolution to Libya.

Where is the United States?

Given the absence of high-level U.S. involvement in the Palermo talks and other recent transitional efforts, the first order of business for Washington is to name a new ambassador to Libya – albeit dispatched to Tunis rather than Libya given the security concerns raised by the 2012 Benghazi attack.  There is simply no substitute for a seasoned, full-time U.S. diplomat who can lead outreach to local actors and oversee the requisite regional coordination.

Second, Washington should engage visibly, and in a sustained fashion, at the political level.  Secretary of State Mike Pompeo’s recent Brussels meeting with Sarraj is a welcome move, though such outreach would have been far more valuable had it occurred at Palermo, with multiple Libyan players.  Other regional actors and potential spoilers demonstrated the priority they place on Libya by sending presidents and prime ministers.

Third, the United States should do what it does best: convince close regional partners (Egypt, the UAE) and European allies (Britain, France, Italy) to align their efforts with the UN’s program.  This includes separate bilateral activities (e.g., counterterrorism) that have knock-on political effects such as empowering certain militias.  In so doing, they could block Russian efforts to continue building Haftar up as a dominant independent force.

Finally, Washington should bank on the U.S. quality that most other outside powers lack: a reputation as an honest broker.  Ironically, that reputation may have been heightened precisely because the United States drifted away from engaging in Libya over the past two years.  Now is the time for Washington to reengage – UNSMIL’s efforts are gaining momentum, and only the United States can give the mission the political space required to advance the next stages of Libya’s long-overdue transition.

Anna Borshchevskaya is a senior fellow at The Washington Institute.  Ben Fishman served as director for North Africa at the National Security Council before rejoining the Institute as senior fellow.  Barbara Leaf was U.S. ambassador to the UAE before joining the Institute as a senior fellow.  (TWI 17.12)

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11.8  TUNISIA:  Fitch Affirms Tunisia at ‘B+’; Outlook Negative

On 11 December 2018, Fitch Ratings affirmed Tunisia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a Negative Outlook.

Key Rating Drivers

Tunisia’s rating is constrained by high and growing public and external debt reflecting wide twin deficits, subdued economic growth and a challenging political and social environment.  This is balanced against strong structural features relative to ‘B’ peers, low GDP growth volatility and a clean debt service record.

The Negative Outlook reflects persistent pressures on external liquidity arising from large financing needs that will average 13.2% of GDP per year in 2018-2020 under Fitch’s forecasts, deterioration in the terms of trade, low foreign-currency (FX) reserves and a high inflation differential with trading partners.  Despite some progress towards budget consolidation, the implementation of unpopular fiscal reforms remains slow and there are pressures for wage increases amid high social discontent and deepening political divisions.  The lack of budgetary headroom and low external buffers amplify the economy’s high susceptibility to exogenous shocks, for example from a rise in oil prices, tighter international funding conditions, weaker European demand or security risks.

High accumulated current account deficits (CAD) have caused a rapid rise in Tunisia’s gross external debt to 87.5% of GDP in 2017 from 60.1% in 2014 and Fitch forecasts it will rise to 102.8% in 2020.  The CAD will widen to 10.6% of GDP in 2018 from 10.3% in 2017 on the back of the depreciation of the dinar and the rise in oil prices.  A tighter policy mix and rise in the domestic hydrocarbon production with the coming online of the Nawwara gas field will contribute to an improvement in the CAD to a still high level of 8.5% of GDP in 2020, under the agency’s forecasts.  The central bank’s newly introduced competitive FX auctions will increase the flexibility of the dinar and reduce pressures on Tunisia’s dwindling FX reserves.

Strong support from the official creditor community in the context of Tunisia’s democratic transition is a key support for the rating and helps mitigate external liquidity risks.  Official loan disbursements will cover nearly half the sovereign’s financing needs in 2018 and 2019.  Following weak results in 2016 and 2017, Tunisia’s performance under its 2016-2020 arrangement with the IMF has materially improved with a successful completion of three program reviews in 2018, but implementation risks are high.

Some multilateral donors have come close to their internal prudential limits in terms of financial support to Tunisia.  The authorities expect these creditors to continue channeling their support under alternative arrangements, but this aggravates medium-term external liquidity risks, particularly in the event of a significant fiscal slippage.

The central government (CG) deficit will narrow for the first time in four years in 2018, shrinking to 4.8% of GDP (including grants), in line with the budget target, from 6% in 2017.  The improvement accrued from significant permanent direct and indirect tax increases but future consolidation efforts will fall on the spending side of the budget.  The government aims to reduce the wage bill from 15.6% of GDP (including tax credits to civil servants) in 2018 to 12.4% in 2020 by restraining hiring and containing wage increases.  It also expects to cut the energy subsidy bill by continuing to adjust hydrocarbon prices on a quarterly basis.  A pension reform aiming at addressing the short-term liquidity shortfall of the public provident fund was submitted to Parliament in June.

Fitch projects the CG deficit to narrow to 4% of GDP in 2019 and 3.5% in 2020 against official targets of 3.7% and 2.5% respectively, as the agency expects only slow progress on reducing the payroll amid continued demands for wage increases by labor unions.  The general government (GG) deficit (which includes social security and local governments’ balances) will consequently narrow to 3.6% of GDP in 2020 from 5.9% in 2017.  A rise in oil prices, further delays to the approval of the pension reform or continued pressures on the wage bill would pose material downside risks to the deficit trajectory.

GG debt will rise from 70.7% of GDP in 2017 to 73.7% in 2018 and remain broadly stable over the next two years, under Fitch’s baseline.  Nearly 70% of GG debt is foreign-currency denominated, rendering the debt trajectory vulnerable to a depreciation of the exchange rate.  The authorities plan to tap international markets again in 2019 and repeated Eurobond issuances have increased the sovereign’s exposure to market risks.

Tunisia’s moderate economic recovery is broadening, supported by strong crop production and robust growth in tourism, which is underpinning activity in services.  GDP growth will accelerate from 1.9% in 2017 to 2.6% in 2018 and further to 2.8% in 2019 under Fitch’s forecasts.  A tighter policy mix, pressures on purchasing power and rising costs of inputs will gradually restrain domestic demand while exports will be lifted by strong agricultural harvests, recovery in phosphates mining and the depreciation of the dinar.

Inflation has stabilized in recent months close to its 26-year peak of 7.8% in June.  Fitch expects inflation will slowly decelerate over H1/19 due to the slow transmission of monetary tightening, improved food supply and base effects but the agency projects it will remain well above the long-term average of 4% over the next two years.

The financial health of several major state-owned enterprises (SOEs) is undermined by governance shortcomings, low autonomy and their quasi-fiscal roles resulting in underpricing of services and ballooning payroll.  Transfers to ailing SOEs are a burden for the budget and the restructuring of several loss-making public companies, including the national carrier Tunisair, are a source of contingent liabilities for the sovereign.  The scope for privatization of large companies is limited by strong opposition from labor unions.  Government guarantees on SOE debt were 13.8% of GDP at end-2017.  Additional contingent liabilities for the sovereign arise from the protracted litigation over Banque Franco-Tunisienne (BFT).

The banking sector faces tight market funding conditions and is highly dependent on central bank financing, which amounted to 15.2% of GDP at end-October.  Credit growth has consistently outpaced deposit inflows and a new central bank circular requires commercial banks to gradually reduce their high loan/deposit ratio towards 120%, against a current sector average of 150%.  The sector’s profitability is weak and could be eroded by further increases to Banque Centrale de Tunisie’s policy rate that will raise funding costs while lending interest rates are capped.  Non-performing loans (NPL) are high and represented 14.1% of total loans at end-September, with a much higher ratio of 19.7% in public banks.  A new law has reduced legal obstacles to write-offs of NPLs in public banks and should facilitate their gradual restructuring.

Disagreements over a possible dismissal of the current Prime Minister have led to the dissolution of the alliance between the president’s Nidaa Tounes and Ennahda, the two largest parties in Parliament.  The government appears to be still supported by a majority of parliamentarians but political volatility will remain significant and constrain policy-making in the run-up to the 2019 parliamentary and presidential elections.  Tunisia’s proportional electoral system and fragmented political landscape mean that the legislative elections are likely to result in a hung parliament and the direction of policy after the elections is uncertain.

Rating Sensitivities

The main factors that may individually, or collectively, lead to a downgrade:

-Continued weakening in external finances, such as widening of the current account deficit and further drawdown in international reserves, leading to pressures on external liquidity.

-Political developments or social unrest hindering further progress on macroeconomic adjustment policies and reforms or resulting in the IMF program going off track.

-Failure to narrow the fiscal deficit or materialization of contingent liabilities, for example from the weak state-owned enterprises, leading to a faster rise in government debt/GDP than our current projections.

The current Outlook is Negative. Consequently, Fitch does not currently anticipate developments with a material likelihood of leading to an upgrade.  However, the main factors that may individually, or collectively, result in the Outlook being revised to Stable include:

– Implementation of adjustment policies and reforms supporting macroeconomic stability and reducing downside risks for the economy.

-Reduction in budget deficits consistent with stabilizing the public debt/GDP ratio over the medium term.

-A sustainable improvement in Tunisia’s current account deficit, leading to lower external financing needs and stronger international liquidity buffers.

Key Assumptions:  We expect global economic trends to develop as outlined in Fitch’s Global Economic Outlook.  (Fitch 11.12)

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11.9  MOROCCO:  IMF Approves $2.97 Billion for Morocco Under their Precautionary & Liquidity Line

On 17 December, the Executive Board of the International Monetary Fund (IMF) approved a two-year arrangement for Morocco under the Precautionary and Liquidity Line (PLL) for SDR 2.1508 billion (about $ 2.97 billion, or 240% of Morocco’s quota).  The access under the arrangement in the first year will be equivalent to SDR 1.25066 billion (about $ 1.73 billion or 140% of quota).

Despite a sharp pick up in global oil prices, the authorities have reduced fiscal and external vulnerabilities and implemented important reforms with the support of three consecutive 24-month PLL arrangements.  The new PLL arrangement will provide insurance against external shocks and support the authorities’ efforts to further strengthen the economy’s resilience and promote higher and more inclusive growth.

The authorities intend to treat the new arrangement as precautionary, as they have done under the previous three arrangements.  Morocco’s first PLL arrangement for SDR 4.1 billion (about $ 6.2 billion at the time of approval) was approved on 3 August 2012.  The second PLL arrangement for SDR 3.2 billion (about $5 billion at the time of approval) was approved on 28 July 2014 and Morocco’s third arrangement for SDR 2.5 billion (about $3.5 billion at the time of approval) was approved on 22 July 2016.

The PLL was introduced in 2011 to meet more flexibly the liquidity needs of member countries with sound economic fundamentals and strong records of policy implementation but with some remaining vulnerabilities.

Following the Executive Board on Morocco, Mr. Mitsuhiro Furusawa, IMF Deputy Managing Director and Acting Chair of the Board, made the following statement:

“Morocco has made significant strides in reducing domestic vulnerabilities in recent years.  Growth remained robust in 2018 and is expected to accelerate gradually over the medium term, subject to improved external conditions and steadfast reform implementation.  External imbalances have declined substantially, fiscal consolidation has progressed, and the policy and institutional frameworks have been strengthened, including through the implementation of the recent Organic Budget Law, stronger financial sector oversight, a more flexible exchange rate regime, and an improved business environment.

Nevertheless, the outlook remains subject external downside risks, including heightened geopolitical risks, slow growth in Morocco’s main trading partners, and global financial market volatility.  In this context, a successor Precautionary and Liquidity Line (PLL) arrangement with the Fund will provide valuable insurance against external risks, and support the authorities’ policies aimed at further reducing fiscal and external vulnerabilities and promoting higher and more inclusive growth.

“Building on progress made under past PLL arrangements, further fiscal consolidation will help lower the public debt to GDP ratio over the medium term while securing priority investment and social spending.  These efforts should be based on tax and civil service reforms, sound fiscal decentralization, strengthened oversight of state owned enterprises, and better targeting of social spending.  Greater exchange rate flexibility will further enhance the economy’s capacity to absorb shocks and preserve competitiveness.  Adopting the central bank law and continuing to implement the 2015 Financial Sector Assessment Program recommendations will help further strengthen the financial sector policy framework.  Finally, reforms of education, governance, the labor market, and continued improvement in the business environment will be essential to raise potential growth and reduce high unemployment levels, especially among the youth, and to increase female labor participation.”  (IMF 17.12)

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11.10  TURKEY:  Fitch Affirms Turkey at ‘BB’; Outlook Negative

On 14 December 2018: Fitch Ratings affirmed Turkey’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB’ with a Negative Outlook.

Key Rating Drivers

Turkey is navigating the fallout from a sharp depreciation of the lira earlier in the year.  Currency weakness stemmed from the materialization of external financing vulnerabilities, aggravated by political and geopolitical developments, all areas of weakness for the sovereign credit profile.  The slowdown will challenge a long-standing commitment to fiscal discipline that underpins strong public finances relative to rating peers.  Growth is volatile compared with peers, and inflation is higher and set to remain so. Structural indicators are generally better than rating peers.

The Negative Outlook reflects the significant and multifaceted risks to the adjustment path posed by economic policy settings, domestic political and geopolitical risks and global financing conditions.

Maintaining a balanced policy stance that is consistent with the current rating in the face of lower growth and rising unemployment will test economic policy, an area where Fitch considers credibility has deteriorated.  Fiscal and monetary policies were tightened in H2/18 and the authorities’ economic targets suggest they are prepared to tolerate a sustained period of below trend growth.  With Fitch assuming that external financing conditions will tighten in 2019, a premature loosening of domestic policy settings could lead to renewed pressure on the currency.

The completion of a prolonged electoral cycle in March 2019 and the ongoing transformation to an executive presidency (likely to closer align formal administrative structures and the presidential administration) could provide an environment more conducive for economic reform that would begin to tackle long-standing structural weaknesses, although Fitch is cautious about prospects for implementation.

Fiscal policy has been tightened in H2/18 as the government strived to hit its central government deficit target of 1.9% of GDP.  New revenue measures are expected to more than offset foregone revenues from targeted tax cuts introduced in October.  A deficit of 1.8% of GDP is budgeted for 2019, which implies a sharp adjustment given the expected slowdown in growth.  Consolidation measures worth 2% of GDP have been identified, primarily on the expenditure side.  Fitch projects that the 2018 and 2019 targets will be missed due to the impact of the weak economy on revenues.  The fiscal targets are at the central government level and spending by other entities within the general government perimeter has risen recently.  The general government deficit is forecast to widen to 2.8% of GDP in 2018 and 2019 from 2% in 2017.

The moderate level of general government debt is forecast to remain a rating strength.  Fitch expects general government debt/GDP to rise to 31.9% at end-2018 from 28.3% at end-2017 owing to the widening of the fiscal deficit and the fall in the lira (46% of central government debt was FX-denominated at end-October).  This is well below the forecast median for current ‘BB’ peers of 48.3%.  Debt/revenue is projected to be close to half the current peer median, despite the weakness of the domestic economy, reflecting the large revenue base.  Contingent liabilities, which are rising from a low base (driven primarily by PPPs), are unlikely to have a material impact on public finances over the forecast period, but pose a risk over the medium term.  Sovereign support for the banks over the current period of economic weakness is possible.

Monetary policy has long proved unable to anchor inflation in single digits.  Inflation spiked to 25.2% in October after the currency depreciation and is set to remain well in excess of rating peers.  Inflation will decline owing to the collapse in domestic demand, although base effects are likely to keep it over 20% until H2/19.  At an average of 20.7%, inflation in 2019 is expected to be the highest of all bar two of the sovereigns rated by Fitch.  We expect inflation to remain in double digits by end-2020.  Uncertainties around the monetary policy response pose a substantial risk to the inflation outlook.

External vulnerabilities evident in a large external financing requirement and low international liquidity ratio were exposed by the tightening of external financial conditions around mid-year.  Some corporates with FX mismatches have restructured their FX debt, but banks have rolled over syndicated loans and the sovereign tapped the Eurobond market (in euros and US dollars) in the final quarter.  Although a rebalancing is underway, the external sector will remain a key credit weakness.  Foreign-exchange reserves have fallen this year (less so net of bank placements) and gross external financing needs (including short-term debt) for 2019 are projected at 274% of end-2018 FX reserves.

The flexible exchange rate and a slump in domestic demand have played a key role in the external adjustment.  The current account was in surplus in August, September and October, a swing of $13.4 billion (1.8% of GDP) y-o-y.  Import compression and rising exports are projected to narrow the current account deficit to 3.7% of GDP in 2018 and 1.9% in 2019 from 5.6% in 2017, although the import component of exports and the structure of supply contracts will neutralize some of the benefits of a cheaper currency for exporters.  Fitch expects a renewed widening of the current account deficit once the economy regains momentum in 2020.

Banks are being pressured by the weaker operating environment.  Fitch downgraded 20 Turkish banks on 1 October and 26 of the 28 Fitch-rated banks currently have a Negative Outlook.  There are significant risks to banks’ credit profiles as a result of the weaker GDP growth, lira depreciation and high interest rates, which put pressure on asset quality, margins and capitalization.  The Negative Outlooks also reflect refinancing and liquidity pressures, given sector reliance on foreign funding markets, as well as the risk of a reduction in market access given the volatile Turkish operating environment and tighter global financing conditions.

Asset quality has deteriorated. NPLs (loans overdue by 90+ days on an unconsolidated basis) were 3.5% at end-October, up from 3% at end-June.  Various forbearance measures introduced by the regulator and a new debt restructuring mechanism put in place in August could delay the recognition of asset quality problems.  Capital adequacy is above the regulatory requirement, at 18.1% at end-September.  However, Fitch estimates that regulatory forbearance on exchange rates and securities valuations provided a 250bp-300bp uplift to this number.  Fitch estimates banks total external debt due within the next 12 months net of more stable sources of funding to be $50 billion-$55 billion, compared with available foreign currency liquidity of $75 billion-$80 billion.

Turkey is set for a prolonged period of below trend growth against a backdrop of tight domestic policy settings and tough external conditions.  Credit availability has dropped sharply, firms are reporting delays in collecting receivables, domestic demand has slumped and the unemployment rate is rising.  The economy contracted by 1.1% q-o-q in Q3 and Fitch assumes a sharper fall in Q4, lowering full year growth to 3.5%.  A slow pick-up in growth in sequential terms is expected in 2019, although base effects mean the headline rate is forecast at just 0.6%, the lowest since 2009.  Net trade and services will provide the main support for growth.  Average growth for 2018-2020 of 2.5% compares with a forecast median for current ‘BB’ peers of 3.4% and an average for 2010-2017 of 6.8%.

Political and geopolitical risks weigh on Turkey’s ratings and World Bank governance indicators are below the ‘BB’ median.  Tolerance of dissenting political views is reducing in the opinion of independent observers.  A presidential system is being formalized, which is causing some administrative disruption.  Local elections, due in March 2019, will complete a prolonged electoral cycle and are expected to be keenly contested.  The weakening economy does not yet appear to have had a major impact on support for the ruling AKP. Domestic security conditions have improved recently.

Relations with the US have improved from their recent low point, with sanctions against two ministers removed, and Turkey was awarded a significant reduction exemption enabling it to continue to import some oil from Iran.  However, there are a number of active pressure points in relations with both the US and the EU.

Rating Sensitivities

The main factors that, individually, or collectively, could lead to a downgrade are:

-Failure to rebalance the economy and implement reforms that provide a path to addressing structural deficiencies and reducing inflation and external vulnerabilities.

-A sudden stop to capital inflows or hard landing of the economy, particularly if it heightens stresses in the corporate or banking sectors.

-A marked increase in the government debt/GDP ratio to a level closer to the peer median.

-A serious deterioration in the political or security situation.

The main factors that, individually, or collectively, could lead to a stabilization of the Outlook are:

-A sustainable rebalancing of the economy evidenced by a reduction in the current account deficit and inflation that reduces external vulnerabilities.

-A political and security environment that supports a pronounced improvement in key macroeconomic data.

Key Assumptions:  Fitch forecasts Brent Crude to average $72.5/b in 2018, $65/b in 2019 and $62.5/b in 2020.  (Fitch 14.12)

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11.11  TURKEY:  Turkey’s Recession Becomes Official

Mustafa Sonmez observed on 14 December in Al-Monitor that the shrinking Turkish economy needs external funds to start growing again, but luring foreign investors back is a tall task that Turkey is unlikely to accomplish in the short run.

The Turkish economy entered turbulence in the second half of the year amid a sharp increase in foreign exchange prices, which, in turn, fueled inflation.  Though the president maintained there was no crisis, successive indicators spoke of a rapid downturn.  Finally, the growth data for the third quarter — released Dec. 10 by the Turkish Statistical Institute (TUIK) — offered a telling picture of what is going on.

According to TUIK, Turkey’s gross domestic product (GDP) grew only 1.6% in the third quarter, down from 5.3% in the second quarter and 7.2% in the first one — a sharp decline that matches the definition of recession.  For Turkey’s economy, a growth rate of 5% to 6% is considered “the normal.”  Thus, the 1.6% rate in the third quarter indicates that the economy is now “officially” in recession.

A sectoral analysis of this state of recession, combined with available indicators for the fourth quarter, show that the turmoil is devolving into a contraction and depression.  Given the high inflation marking the turmoil, one could speak even of slumpflation, which is a very difficult type of a crisis.

The sectoral analysis offers little optimism for the coming period.  The agricultural and industrial sectors grew only 1% and 0.3%, respectively, in the third quarter, while the construction sector — the star of the economy in the past 15 years — shrank 5.3%, becoming the first to plunge into crisis.

Looking at the spending rubric, one could also observe that the growth rate fell to 1.6% despite some improvement in exports due to the depreciation of the Turkish lira and an increase in government spending.  Final consumption expenditure of resident households grew only 1%, while durable goods consumption shrank by a frightening 24%.  While public spending grew 7.5%, this rate is hardly sustainable, given also the government’s stated commitment to budget discipline.  The increase in exports did contribute to growth, but remained modest despite the big slump of the lira.

Investments, meanwhile, did not grow at all, but rather declined 3.6%, which is another indication of depression in the next quarter.

In terms of dollars, the year-on-year GDP decreased by $48.8 billion to about $833 billion.  Accordingly, GDP per capita in the third quarter decreased by $284 from last year, falling to $10,272.  The figure falls further to some $9,700 if more than 4 million immigrants, most of them Syrians, are added to the country’s population.  The labor force, meanwhile, has seen its share from the GDP decline. Payments to labor stood at about 31%, down from about 38% in the first quarter.

The outlook of the third quarter makes the fourth one rather obvious.  With inflation running at more than 20%, the Turkish economy is contracting.  Despite a 1.4% drop in inflation in November — a direct result of Ankara’s tax reductions to rejuvenate the market — year-on-year consumer inflation stands at 21.5% and is likely to hit 22% by the end of the year.  Among emerging economies, the only inflation comparable to that of Turkey’s is seen in crisis-hit Argentina, running at about 45%.

Along with this sticky inflation, a rapid decline is observed in imports, which reflects the industry’s shrinking demand for imported raw materials and machinery.  This constitutes the most important sign that the economy has stopped growing and even began to contract.  As a result, Turkey posted a current account surplus of $1.4 billion in the third quarter, in the wake of deficits of $16 billion and $15 billion in the first and second quarters, respectively.

The key factors that drove the recession are the drastic flight of foreign investors and the sharp increase in foreign exchange prices.  According to Central Bank data, $18.5 billion in foreign capital moved out of Turkey in the July-September period, when the recession began.  This was in stark contrast to the first half of the year, when Turkey attracted an inflow of $13.5 billion in foreign funds.

The abrupt reversal in the summer was marked by severe political tensions between Ankara and Washington, which bore heavily on investor sentiment.  As foreign exchange prices shot up amid the foreign exodus in the third quarter, imports almost ground to a halt and the current account deficit turned to a surplus.  To compensate for the fleeing funds, Turkey appears to have used $9 billion from its reserves, while another $8 billion came from unknown sources that appear in the “net error and deficit” section of the country’s balance of payments.

In sum, the figures show that foreign funds are no longer coming to Turkey and that money has become more expensive abroad. Indeed, the foreign exchange movements in October offer another sign of Turkey’s transition from recession to depression.  The flight of foreign money continued in October, reaching $1.5 billion in that month alone and $20 billion since July.  This means that the Turkish economy, which is unable to grow without foreign funds, will continue to ail until the confidence of foreign investors is restored.

The official growth rate in the fourth quarter will be released in March, but pundits are already forecasting a contraction of at least 3%, which would put the overall growth rate for the year at less than 2.5%.  The international credit rating agency Moody’s is even more pessimistic, predicting a 1.5% growth for 2018 and a 2% contraction in 2019.

To start growing again, the Turkish economy needs a meaningful inflow of foreign capital.  The return of foreign investors depends on the improvement of domestic indicators, primarily inflation, and a significant easing in Turkey’s risk factors, meaning that the country’s risk premium should decrease at least by half to some 200 basis points. This, however, is not likely to happen soon.

Mustafa Sonmez is a Turkish economist and writer. He has worked as an economic commentator and editor for more than 30 years and authored some 30 books on the Turkish economy, media and the Kurdish question.  (Al-Monitor 14.12)

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11.12  TURKEY:  Turkey Economic Report – 2018

Bank Audi’s Turkey Economic Report 2018, released on 12 December, observed that macro concerns are shifting from currency woes to the real economy in Turkey today.

Turkish Economy Amid Macro/Monetary Crisis In 2018

Seventeen years after the previous crisis of the beginning of the past decade, Turkey has experienced a significant economic/monetary shock in 2018.  Long-standing external finance vulnerabilities have been exposed by tighter external financing conditions and exacerbated by deteriorating economic data, economic uncertainty and US sanctions, feeding into self-reinforcing concerns about the private sector’s vulnerability to currency weakness.  This has been manifested most clearly through a plunge in the Turkish lira and ensuing market pressures, leading to a prelude of a monetary crisis.  The result was that the Turkish lira has declined by close to 60% relative to the US dollar, from 3.79 at the beginning of the year to reach a peak of 7.22 on 12 August to then appreciate to reach 5.25 by the closing of this report.

Strong Monetary Tightening Amid Soaring Inflation Rates

Monetary conditions were marked by spiking Turkish lira volatility, dwindling international reserves and elevated levels of inflation (exceeding 25%), which prompted the Central Bank of Turkey to implement a strong monetary tightening to support price stability, while shifting to a simplified monetary policy that has involved abandoning a multi-rate framework and ensuring funding via a single rate.  In parallel, Turkish securities registered noticeable price falls during the first eleven months of 2018.  The BIST 100, which represents the 100 largest companies by market capitalization, registered a 17.3% drop during the first eleven months of 2018.  Concurrently, the country’s five-year CDS spreads expanded by 220 bps over the period, moving from 165 bps at end-2017 to 385 bps at end-November 2018, in a sign of a deterioration in market perception of sovereign risks at large.

Adequate banks’ capitalization and sound primary liquidity in the face of asset quality concerns and wholesale funding issues

The Turkish banking sector has had to face volatile and tough operating conditions domestically, with political pressures and tensions contributing to a currency crisis and taking a toll on investor sentiment and activity growth throughout part of the year.  While the currency depreciation and domestic tensions have raised concerns over asset quality and funding metrics of banks operating in the country, it is to Turkish banks’ luck that this is happening at a time when their financial buffers in terms of liquidity and capital adequacy, which have proven relatively resilient so far, are at their best (primary liquidity ratio of 29.3% and capital adequacy ratio of 18.2% at end-October 2018).

Some differences and some similarities between the 2000-2001 crisis and the 2018 crisis 

Regarding similarities, both crises revolved around exchange rate depreciation of almost similar magnitudes.  Both the 2000-2001 crisis and the current crisis were partly triggered by growing external vulnerabilities amid a surging current account deficit to GDP ratio (from -0.4% in 1999 to -3.6% in 2000 and from -3.8% in 2016 to almost -5.6% in 2017).  In addition, Central Bank reserves reported low reserve adequacy ratios during both crises (around 4 months of imports back then and today).  As to differences, Turkey faced a banking crisis in 2000-2001 following risk accumulation in banks’ balance sheets prior to the crisis, erupting into acute losses in the banking system (ROE of -74.2% and -21.4%), with NPLs/Total loans reaching 18.6% at the time.  Today, the sector is so far generating ROE of 15.1% and a NPL ratio of 3.5%.  Overnight rates reached 80% during the previous crisis while they are still at 24% in this year’s turmoil.

Macro fears shifting from external imbalances and currency qualms to real sector concerns

Looking forward, the outlook doesn’t look that dim, especially that external imbalances are starting to improve.  The IMF forecasts the current account deficit to improve from 5.7% of GDP today to 1.4% of GDP in 2019.  One of the main reasons of the improvement in the CAD is the slowdown in the real economy, which means less imports of goods and services. Real GDP growth is actually set to slow down to 3.5% in 2018 and 0.4% in 2019 before bouncing back in 2020.  So the economy is rebalancing, with less output growth but better external imbalances amid sound public finances, which supports the outlook of the currency looking forward.  In sum, macro fears have now shifted from the external imbalances and currency concerns to the real economy and sluggishness concerns at large.  (Bank Audi 12.12)

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