Fortnightly, 3 May 2017

Fortnightly, 3 May 2017

May 3, 2017


3 May 2017
7 Iyar 5777
7 Shaban 1438




1.1  Ministry of Finance to Facilitate Tech Investment by Israeli Institutions
1.2  Huge Eilat Expansion Master Plan Approved


2.1  Opportunities for Funding U.S.-Israel Cooperation for Renewable Energy and Efficiency
2.2  Delek Takes Over Canada’s Ithaca Energy
2.3  SoftBank Leads $16.5 Million Strategic Investment in Dome9 Security
2.4  SeatGeek Buys Israeli Ticketing Company TopTix for $56 Million
2.5  Arbe Robotics Raises $2.5 Million
2.6  OverOps Receives $30 Million Investment Led by Lightspeed Ventures
2.7  Friendly Technologies Opens an Office in China to Promote its IoT Management Solutions


3.1  Texas Chicken Continues Expanding Middle East Presence with First Restaurant in Bahrain
3.2  Citi Receives CMA License in Saudi Arabia


4.1  Enoc Opens Emirate’s First Solar Powered Service Station
4.2  Saudi to Create Thousands of Jobs from Solar Program


5.1  Lebanese Average Inflation Reached 4.8% Y-o-Y in First Quarter of 2017
5.2  Lebanon’s Trade Deficit Increased Annually by 13.72% in February 2017
5.3  Lebanon’s Trade Deficit Increased Annually by 13.72% in February 2017

♦♦Arabian Gulf

5.4  Qatar March 2017 Balance of Trade Surplus Reaches QR 9.9 Billion
5.5  Clothing & Footwear are the UAE’s Biggest Retail Sector
5.6  Chinese & Russian Visitor Growth Boosts Dubai Tourism in First Quarter
5.7  Saudi Arabia ‘Needs a Million New School Places by 2020’

♦♦North Africa

5.8  IMF Delegation in Egypt Ahead of 2nd Loan Tranche
5.9  Egypt Suspends Fish Exports to Lower Local Prices
5.10  Quarter of Moroccans Lacks Access to Health Care
5.11  Moroccan Economy Resilient Amid Global Economic Crisis


6.1  Turkey’s Trade Deficit Rises 15.8%, Exports Grow Over 7% in April
6.2  Foreign Investment Inflow to Turkey Reaches $457 Million in February
6.3  Greek Economy to Grow by 1.5% in 2017
6.4  PwC Tells Greece – Reform or Forget Recovery
6.5  Greek Supermarkets Report Dramatic Recession



7.1  On Eve of Independence Day, Population of Israel at 8.68 Million
7.2  How Religious are Israelis?


7.3  Algerians to Elect New Parliament Amid Apathy & President’s Absence
7.4  Turkey Fires 3,900 in Second Post-Referendum Purge


8.1  SteadyMed Raises $30 Million in Private Placement
8.2  Teva Launches AirDuo RespiClick and its Authorized Generic
8.3  DarioHealth Expands Global Presence With Direct-to-Consumer Launch in the U.K.
8.4  Surgeons Perform World’s First-Ever Dual Robotic Surgery at Hadassah Hospital in Jerusalem
8.5  Oramed Receives Israel Approval to Conduct Human Study for New Oral Leptin Capsule


9.1  WeissBeerger Improves Beer With Online Data
9.2  Mellanox InfiniBand Delivers up to 250% Higher RoI for High Performance Computing Platforms
9.3  MySize Exceeds 200,000 Downloads of Smart Measurement Application SizeUp
9.4  Bringg Announces Panera Bread as Latest Customer of Logistics Platform
9.5  GPS Police Adds Driver Behavior Monitoring to Fleet Management Service with ERM’s eSafe


10.1  Tourist Hotel Overnights in Israel Increase by 30% in March
10.2  Ben-Gurion Airport Sees 25% Surge in Travel in April


11.1  ISRAEL: Fitch Affirms Israel at ‘A+’; Outlook Stable
11.2  ISRAEL: Israeli Startup Raising Drops in 2017’s First Quarter
11.3  ISRAEL: Housing’s Too Tight to Mention
11.4  ARAB MIDDLE EAST: Arab Women in the Legislative Process
11.5  ARAB MIDDLE EAST: Reforms Can Refuel Growth Engines
11.6  JORDAN: Jordan ‘BB-/B’ Ratings Affirmed; Outlook Remains Negative
11.7  JORDAN: Taxing Times in Jordan
11.8  BAHRAIN: Profile Balances Wealth & Diversified Economy Against Weak Fiscal Position
11.9  SAUDI ARABIA: Saudi Arabia’s Vision 2030, One Year On
11.10  EGYPT: Short-Term Marriages Address Rampant Poverty
11.11  ALGERIA: Algeria’s Growing Security Problems
11.12  CYPRUS: Fitch Affirms Cyprus at ‘BB-‘; Outlook Positive


1.1  Ministry of Finance to Facilitate Tech Investment by Israeli Institutions

The “Globes” campaign for increasing investments by Israeli investment institutions in Israeli high tech is having an effect.  In summing up a meeting on 31 April, Minister of Finance Kahlon instructed officials at his ministry to consider ways of eliminating tax distortions and removing other regulatory barriers that make it difficult for Israeli investment institutions to invest in Israeli high tech.  One possibility under consideration by the Ministry of Finance is establishing a special team on the subject, but this may be unnecessary, with internal work at the Israel Tax Authority being sufficient.

The Ministry of Finance said that Kahlon had no intention of intervening in the investment policy of investment institutions, but he was unwilling to accept distortions and discrimination against Israeli money in favor of foreign money invested in high tech, especially through the venture capital funds.  At the end of the meeting Kahlon said, “I believe in a free economy and a minimum of government intervention, but there are unfortunately places where Israeli money is discriminated against, in comparison with foreign money.  These distortions are preventing investment by investment institutions in Israeli high tech.  It is possible and necessary to correct these distortions, and that is what we will do – we will fix, remove barriers, and reduce regulation.”

The Ministry of Finance was persuaded mainly by complaints by the investment institutions and venture capital funds about differences in taxation between Israeli and foreign investors in venture capital funds.  For example, the state imposes VAT on the annual management fees paid to the venture capital funds by Israeli investors, while foreign investors are not required to pay VAT on their investments.  Annual management fees of 2.5% of the investment are frequently charged, and are likely to amount to substantial sums if the investment is retained for many years.

There are also differences in taxation on success fees in a fund.  US investors, for example, pay 25% capital gains tax, while higher tax rates are imposed on private investors and investment institutions investing nostro funds.  Success fees obtained when a venture capital fund holding is sold are the investors’ sole source of revenue.  On the other hand, the institutions’ request for a safety cushion from the state to insure their investments against loss will probably not be granted.  (Globes 27.04)

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1.2  Huge Eilat Expansion Master Plan Approved

The Southern Planning and Building Commission recently submitted an outline plan for Eilat for construction of 14,300 housing units and 5,400 hotel rooms.  Eilat currently has 60,000 residents, which the plan is designed to increase to 100,000.  The plan also zones space in the town: including existing space, there will be 1.4 million square meters zoned for business and industry, 340,000 square meters zone for commerce, and a total of 25,300 hotel rooms.  The plan takes into account the expected construction on the site of the airport, which is being evacuated.  The outline plan was formulated in order to turn Eilat into a city combining residence and tourism, with industrial and business development, while strengthening the city center, together with the city’s functions as a seaport and international tourist site on Israel’s southern border.

In the framework of the plan, the city center will be used for residence, business, and a municipal park.  The plan states that urban continuity should be created between the city center and residential and tourism spaces in the southern and eastern parts of the city when evacuation of the airport is completed.  The business space in the Shahoret industrial zone in northern Eilat will be expanded, constituting an additional element on which the municipal economy can rely.  An important part of the plan is strengthening tourism in the city and preserving nature and the unique landscape, including the hills, beach, and open spaces.  This includes the international bird sanctuary in northern Eilat, the Eilat forest (Holland Park), the Coral Beach, and the surrounding nature preserve.  The plan also stipulates principles for the preservation of building and natural heritage in the town, referring to the city’s earliest buildings and the Umm Al-Rashrash site.  (Globes 30.04)

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2.1  Opportunities for Funding U.S.-Israel Cooperation for Renewable Energy and Efficiency

BIRD Energy announced its eighth funding cycle for U.S.-Israel joint project proposals with a focus on Renewable Energy and Energy Efficiency.  To be considered, a project proposal must include R&D cooperation between two companies or cooperation between a company and a university/research institution (one from the U.S. and one from Israel).  The proposal should have significant commercial potential and the project outcome should lead to commercialization.  Examples of areas of research and development themes within the scope of this call are: Solar Power, Alternative Fuels, Advanced Vehicle Technologies, Smart Grid, Water-Energy Nexus, Wind Energy, Advanced Manufacturing or any other Renewable Energy/Energy Efficiency technology.

The conditional grant per project is up to 50% of the R&D costs associated with the joint project, and up to a maximum of $1 million per project.  The application process is web-based and requires prior discussion with the BIRD Foundation. Initial concept submissions are due by July 6, 2017, and full proposals are due by August 21, 2017.  Decisions on projects selected for funding will be made on October 25, 2017.

BIRD Energy was established following an agreement between the U.S. Department of Energy/EERE and the Israel Ministry of Energy and Water Resources to promote and support joint research and collaborations in the field of Alternative Energy and Energy Efficiency.  BIRD Energy is administered by the BIRD Foundation, which has been promoting cooperation between U.S. and Israeli companies in various technology areas since 1977.  (BIRD Foundation 20.04)

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2.2  Delek Takes Over Canada’s Ithaca Energy

Delek Group announced its offer to acquire common shares of the UK’s Ithaca Energy had been accepted by 70.3% of the offerees.  Delek will pay approximately $350 million for the shares.  Before the offer, Delek Group held 19.7% of Ithaca’s share capital. Following the response to the offer as stated above, it will hold (through a subsidiary) 76% of Ithaca’s common shares.  A consequence of the success of the offer is that Delek Group will start to consolidate Ithaca’s results in its financial statements.  The investment in Ithaca held before the offer will be measured at fair value.  The difference between the fair value and book value is estimated at a profit of approximately NIS 150 million.

Ithaca Energy is an international energy company active in the North Sea, with operational experience, including deep water drilling, development of reservoirs, and production of oil and gas.  (Globes 23.04)

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2.3  SoftBank Leads $16.5 Million Strategic Investment in Dome9 Security

Dome9 Security announced the close of $16.5 million in Series C funding, led by a new investor, SoftBank Corp., a subsidiary of SoftBank Group Corp.  Existing investors also participated in this round, bringing the total funding in Dome9 to $29 million.  Per the terms of the agreement, SoftBank will be the leading distributor of the Dome9 Arc cloud infrastructure security platform in the Japanese market, enabling organizations running workloads in cloud environments to efficiently manage security, compliance and governance.

The Dome9 Arc SaaS platform allows customers to simplify security operations and speed up compliance in their public and multi-cloud environments.  Dome9 Arc is the only cloud security solution to offer native, API-enabled integration with Amazon Web Services (AWS), Microsoft Azure and the Google Cloud Platform (GCP) as well as an agent-based approach that extends the Dome9 platform to other public clouds and on-premises cloud deployments.  Dome9 offers a full range of cloud security orchestration capabilities, from powerful security visualization and remediation, to active enforcement and protection.

Dome9‘s recent technology advancements and business growth have resulted in multiple industry acknowledgements, including being named as a CRN Emerging Vendor for 2016, winning the Best Cloud Security Product in the 2017 Cybersecurity Excellence Awards, and being recognized as the 2017 Editor’s Choice in Cloud Security Solutions for the Cyber Defense Magazine Awards.

Tel Aviv’s Dome9 has a single-minded focus – to make bulletproof security a reality for every public IaaS cloud at any scale.  Their innovative SaaS platform allows enterprises to visualize and assess the network security posture, detect misconfigurations, actively protect against attacks, and conform to security best practices and compliance requirements across one or more public clouds.  (SoftBank 19.04)

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2.4  SeatGeek Buys Israeli Ticketing Company TopTix for $56 Million

New York based ticketing platform company SeatGeek announced the acquisition of Israeli ticketing software company TopTix for $56 million.  The acquisition by SeatGeek was financed by a new $57 million Series D investment round in SeatGeek led by Glynn Capital, with participation from existing investors Accel, Causeway Media Partners, Haystack Partners, Mousse Partners, and Technology Crossover Ventures.

Established in 2000, TopTix developed the SRO ticketing system, which currently serves 500 clients in 16 countries, processing 80 million tickets annually.  Current TopTix clients, which will now be clients of SeatGeek, range from museums and theaters to festivals and sports teams, including well-known organizations such as the Royal Dutch Football Association, Ravinia Festival and many English soccer clubs.

TopTix will power the expansion of SeatGeek Open, SeatGeek’s primary ticketing platform that launched in August of 2016.  SeatGeek Open enables artists and teams to sell tickets directly within other apps and websites, in places where fans are spending time and consuming content.  This is a radically different approach from that of industry rivals, which limit the distribution of tickets.  Tickets, for example, could be made available through popular ecommerce websites, travel tools, and messaging sites.  Artists and teams, through this massively increased distribution, are able to reach more fans and sell more tickets.  TopTix will operate as a subsidiary of SeatGeek, continuing to service clients across the globe.  (Globes 19.04)

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2.5  Arbe Robotics Raises $2.5 Million

Arbe Robotics has raised $2.5 million to pay for its development.  The Tel Aviv based company’s system uses 4D imaging technology that is based on radar, instead of cameras and sensors.  The main use of radar to date has been in the army and homeland security.  Radar is capable of detecting objects at longer ranges, which will enable autonomous vehicles to travel faster. Image processing algorithms are complicated and require greater processing power, and therefore consume more energy than radar. Furthermore, visual conditions are far less of an obstacle for radar.

Founded in late 2015, Arbe Robotics develops and provides a turnkey solution for level 4 full autonomous driving.  Based on their proprietary imaging radar, the system is the first ever to provide real time 4D mapping in high resolution, thus making any vehicle fully-autonomous.  Arbe Robotics is seeking to market its products mainly in Japan and the US.  (Arbe Robotics 23.04)

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2.6  OverOps Receives $30 million Investment Led by Lightspeed Ventures

OverOps announced a $30 million Series C round led by Lightspeed Ventures, with participation from Menlo Ventures.  Both are existing investors.  Essentially, OverOps delivers a cloud or on-prem solution that helps developers and operations teams nail down bugs in a more automated fashion.  Instead of parsing text and indexing application logs, the company can dynamically index actual code in staging or production and analyze it down to a microscopic machine code level.  There is a lot of machine learning to achieve this level of understanding going on in the background, but essentially it gives them the ability to know what’s normal and when something is outside of the normal state and requires attention.  At that point, the company can send the information automatically in the form of a Jira ticket, a bot message in Slack or a notification from PagerDuty (or however the company chooses to receive these messages) and the developer can get to the heart of the problem quickly without having to hunt and peck for it.

Tel Aviv’s OverOps was launched in 2012, but it took several years to build the product.  Today it has more than 250 customers, including Nielsen, Intuit and Comcast, among others.  The company hopes to keep the current momentum going by targeting larger enterprise customers that are struggling with containerization and micro services and finding ways to deliver applications ever more quickly.  (OverOps 26.04)

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2.7  Friendly Technologies Opens an Office in China to Promote its IoT Management Solutions

Friendly Technologies opened an office in Shenzhen, China to support its local customers and further penetrate the IoT and Smart Home markets.  Friendly has already signed an agreement with an international Chinese company that will allow Friendly to provide its products to the company’s customers.  As part of its increased efforts in the Asia and Asia Pacific regions, Friendly will participate in the CommunicAsia exhibition in Singapore taking place at Marina Bay from 23 to 25 May.

Ramat Gan’s Friendly Technologies is a leading provider of carrier-class device management software for IoT/M2M, Smart Home, and Triple Play services.  With its best-of-breed approach, Friendly enables service providers to avoid device dependency and manage multiple types of devices on a single platform.  Friendly provides support for standard protocols including TR-069, OMA-DM, LWM2M, MQTT and SNMP, in addition to non-standard protocols.  Friendly’s solutions allow service providers and their customers to control, monitor, and manage all device types including routers, STBs, RGs, mobile hotspots, Smart Home hubs, sensors and appliances, smartphones, dongles, IP phones, M2M devices, smart power and water metering devices, health care devices and more.  (Friendly Technologies 27.04)

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3.1  Texas Chicken Continues Expanding Middle East Presence with First Restaurant in Bahrain

As a part of its ongoing mission to become the global franchisor of choice, Texas Chicken announced its first new restaurant opening in the Kingdom of Bahrain.  With the latest grand opening on 8 April, Texas Chicken is growing its footprint in the Middle East alongside Ali Bin Rajab & Sons, the operating franchisee selected for the Bahraini expansion.  The new deal with Ali Bin Rajab & Sons is slated to include 5 total restaurants in the Kingdom of Bahrain by 2020. As an operator, the restaurant group has 20 years of experience in quick-service restaurants.  All Bahraini Texas Chicken locations will feature the signature menu items that have given the brand its worldwide popularity, including hand-battered and double-breaded original and spicy fried chicken, scratch-made honey butter biscuits freshly baked throughout the day, and a variety of home-style sides.

Founded in San Antonio, Texas in 1952 by George W. Church, Church’s Chicken, along with its sister brand Texas Chicken outside of the Americas, is one of the largest quick service chicken restaurant chains in the world.  Church’s Chicken and Texas Chicken have more than 1,600 locations in 27 countries and global markets and system-wide sales of more than $1 billion.  (Texas Chicken 20.04)

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3.2  Citi Receives CMA License in Saudi Arabia

The Saudi Arabian Capital Market Authority (CMA) announced that a license has been granted to Citi.  The business will be branded Citigroup Saudi Arabia and will provide a full range of investment banking, debt and equity capital markets, markets, and securities research capabilities to its local and international institutional clients.  Citi has been present in the Arab world since 1955 and offers full scale corporate and investment banking services. Citi’s institutional capabilities in the region include Treasury & Trade Solutions, Corporate & Investment Banking, Markets & Securities Services and Capital Markets Origination.  (Citi 25.04)

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4.1  Enoc Opens Emirate’s First Solar Powered Service Station

Emirates National Oil Company (Enoc) Group has opened its first solar-powered service station in Dubai.  The service station located near Dubai Internet City on Sheikh Zayed Road will produce 120 kilowatt per hour at peak capacity.  The excess 30% of the energy will be transmitted back to Dewa main grid.  With two service station openings already announced earlier this year, the launch of the UAE’s first solar powered service station demonstrates Enoc’s efforts to become an environmentally responsible energy player.  The petrol station will also deploy several energy saving technologies such as variable refrigerant flow air-conditionings units, motion sensor energy lighting and vapor recovery system that uses a process to recover vapor released from the petrol dispensers/storage tanks and condense it back into fuel form.  The VR system is expected to convert up to 20,000 liters of fuel, the statement added.  (AB 27.04)

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4.2  Saudi to Create Thousands of Jobs from Solar Program

Saudi Arabia is hoping its solar-power program will generate 7,000 jobs and build a local manufacturing industry that can export products to the world, reducing domestic demand for its crude oil in the process.  The Ministry of Energy and Natural Resources requires bidders seeking to build about 3.45 gigawatts of solar and wind plants by 2020 to spend 30 percent of the capital they invest through home-grown workers and companies, said Turki al-Shehri, head of the renewable project development office for the kingdom.  The remarks indicate the importance of the renewable energy program to a kingdom that’s among the world’s biggest exporters of crude oil. With a growing population and surging demand for electricity, Saudi Arabia is seeking new energy supplies to ensure that more of its oil reaches export markets instead of being consumed at home.

Ministers are working on a second auction of power-purchase deals for renewable energy developers that would grant government-guaranteed contracts for up to 25 years.  Results from the current 1.02 GW program are due by the end of the year, following a 700 MW program already tendered.  Another 1.73 GW of contracts will be awarded in a third round in time to reach the 2020 target.  The contracts are for both solar and wind farms.  The ministry offers land and grid connection for the projects, requiring developers only to build the power plants.  It’s focusing on sites where it can displace the most expensive fuels – diesel, heavy fuel oil and forms of crude oil that Saudi Arabia now consumes to generate electricity.

The program also includes building banks, a tourist industry and manufacturing from the proceeds of energy, some of which will come from selling a stake to investors in state oil company Saudi Arabian Oil Co, or Aramco.  Local content rules embedded in the auction currently underway will be increased in the coming years as Saudi companies develop their capabilities.  (Bloomberg 26.04)

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5.1  Lebanese Average Inflation Reached 4.8% Y-o-Y in First Quarter of 2017

According to the Lebanon’s Central Administration of Statistics (CAS), Lebanon’s average inflation rate reached 4.8% in Q1/17.  The sub-indices “water, electricity, gas, and other fuels” (contributing 11.9% of CPI) and “Transportation” (13.10% of CPI) recorded the steepest respective increases of 17.4% and 8.7% y-o-y, as they continued to reflect last month’s recovery in oil prices.  “Food and non-alcoholic beverages (20% of CPI) as well as “Clothing and Footwear” components also pushed Q1’s inflation rate higher, as they climbed by annual 1.2% and 14.2%, respectively.  On a different note, the “health” sub-index was the only component to show contracting prices after recording a 1.3% yearly slip by Q1/17.  In March 2017 alone, the CPI inched up 0.66% up from the previous month.  The most substantial uptick of 8.24% was recorded for the “clothing and footwear” sub index, while upticks in most of the other CPI components remained incremental.  (CAS 21.04)

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5.2  Lebanon’s Trade Deficit Increased Annually by 13.72% in February 2017

Lebanon’s trade deficit stood at $2.79B by February 2017, widening from the $2.46B registered by the same period last year.  Total imports grew by 13.27% year-on-year (y-o-y) to $3.25B, while exports rose only by 10.57% y-o-y to $457.72M.  The top imported goods to Lebanon were Mineral Products with a share of 28.07%, followed by 9.94% for products of the Chemical and Allied Industries and 8.64% for Machinery and Electrical Instruments.  The value of imported Mineral Products rose from $691.56M to $913.07M by February 2017.  The value of products of Machinery and Electrical Instruments increased from $258.45M to $280.92M.  Also, the value of products of the Chemical and Allied Industries rose from $303.02M to reach $323.44M by February 2017.  As for exports, the top exported products from Lebanon were pearls, precious stones and metals with a stake of 23.96% of the total, followed by prepared foodstuffs, beverages and tobacco grasping a share of 15.51% of total exports, and base metals and articles of base metal with a share of 11.16% of the total.  In details, the value of Pearls, precious stones &metals rose from $70M to $109.69M by Feb.2017, while prepared foodstuffs, beverages and tobacco rose from $67.61M to stand at $70.98M in the same period.  The value of base metals and articles of base metal also increased from $39.88M to $51.08M by Feb.2017.  In the second month of the year, the deficit rose by 23.79% y-o-y, to stand at $1.42B in Feb.2017.  Lebanon’s top three import destinations in the same period were Kuwait, China, and Russia with shares of 10.44%, 8.82%, and 8.18%, respectively.  The top three export destinations in February 2017 were: Syria with 13.11%, followed by South Africa with 8.68% and the KSA with 8.18%.  (CAS 20.04)

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5.3  Jordan Meets US Administration Over Bilateral Ties

Jordanian Minister of Planning and International Cooperation Fakhoury held several meetings with senior officials of the US administration to discuss bilateral relations in Washington.  Fakhoury met with officials from the White House, the State Department, the Treasury Department and the USAID, along with members of Congress.  The meetings came as a follow-up on the US support program for 2017 and to renew the memorandum of understanding for 2018-2022, which aims to support Jordan’s reform and development efforts.  The minister highlighted the recent meeting between King Abdullah and US President Donald Trump as a “success”, as they discussed several issues such as regional peace and the fight against terrorism.

The minister highlighted Jordan’s international role as a key host of Syrian refugees and the challenges the Kingdom is facing as a result of the unprecedented regional instability.  On the internal level, Fakhoury said that Jordan is currently working on a comprehensive reform program to achieve prosperity for its citizens and turn challenges into opportunities through maintaining macroeconomic and financial stability in coordination with the IMF.  The official highlighted efforts to improve the business environment by attracting investments, developing human resources and employment strategies, increasing public-private partnerships, and enhancing social protection.

The minister said that US officials affirmed their country’s commitment to continued support for Jordan, expressing their understanding of the role and challenges the Kingdom is facing and appreciating the reform process conducted by the King.  The minister stressed the importance of taking into account, when deciding on the amount of support, the capacity of host countries, previous refugee waves, the size of the economy, the refugees-to-citizens ratio, natural and financial resources and the per capita income.  (JT 01.05)

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►►Arabian Gulf

5.4  Qatar March 2017 Balance of Trade Surplus Reaches QR 9.9 Billion

Qatar’s total exports of goods in March, including exports of goods of domestic origin and re-exports, amounted to around QR 19.7 billion, an increase of 18.4% compared to March 2016, and increased by 0.1% compared to February 2017.  Imports of goods in March 2017 amounted to around QR 9.8b, decrease of 9.6% over March 2016.  However, on a month-on-month (M-o-M) basis, imports increases by 20%.

In March 2017, the foreign merchandise trade balance showed a surplus of QR 9.9 b, an increase of about QR 4.1 b or 70.7% compared to March 2016 and decreased by nearly QR 1.6 b or 14% compared to February 2017, according to the Ministry of Development Planning and Statistics.  The year-on-year (March 2017 to March 2016) increase in total exports was mainly due to higher exports of petroleum gases and other gaseous hydrocarbons (LNG, condensates, propane, butane, etc.) reaching QR 11.4 b in March 2017, an increase of 18.1%.  An increase was shown in petroleum oils and oils from bituminous minerals (crude), reaching QR 3.3 b, up 42.8% and increases in petroleum oils and oils from bituminous minerals (not crude) reaching QR 1.7 b, an increase of 119%.

Japan was at the top of the countries of destination of Qatar’s exports with close to QR 3.7 b, a share of 18.7% of total exports, followed by South Korea with almost QR 2.8 b and a share of 14.3%, India, with about QR 2.6 b, had a share of 13.2%.  Motor cars and other passenger vehicles during March 2017, were at the top of the imported group of commodities, with QR 700 million, showing a decrease of 9.2% compared to March 2016.

In second place was parts of aircraft and helicopters etc., with QR 270m, a decrease by 32.6% and in third place was electrical apparatus for line telephony/telegraphy, telephone sets etc.; parts thereof with QR 260m, a decrease of 59.5%.  In March 2017, the US was the leading country of origin of Qatar’s imports with about QR 1.2 b, a share of 12.2% of the imports, followed by Germany with QR 910m, a share of 9.3% and the UAE with QR 900m, a share of 9.2%.  (bq 30.04)

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5.5  Clothing & Footwear are the UAE’s Biggest Retail Sector

Dubai’s apparel and footwear market, valued at $11.5 billion in 2016, accounted for the largest share of the emirate’s retail sector.  The report, released by the Dubai Chamber of Commerce and Industry during the 11th World Retail Congress, found that apparel leads the category with 73% market share.  This was followed by footwear (18%) and sportswear (9%).  The report said demand within this segment was supported last year by value and mid-range offerings by retailers, particularly during shopping festivals and sales events.  This trend is expected to continue through 2021, leading the category to achieve a projected compound annual growth rate (CAGR) of 3.4% in the medium term, it added.

Personal accessories was identified as the second-largest product category within Dubai’s retail sector, with an estimated market value of $4.2 billion.  Key factors that supported its growth in 2016 included rising demand for smart watches and the growing popularity of online retail in the emirate.  The category is projected to grow at a CAGR of 4.4% over the medium term to reach $5 billion by 2020.  Consumer electronics claimed the third-largest share of the local retail market last year, generating sales worth $2.3 billion.  The segment is expected to remain stable over the medium term, growing at a forecast CAGR of 0.4%.

The value of Dubai’s home and garden market was estimated at $1.7 billion as of 2016, and the segment is projected to see a steady CAGR of 3.2% over the medium term to reach $1.9 billion by 2020.  Dubai’s beauty and personal care market was valued at $1.53 billion, while sales of consumer appliances in Dubai were valued at $622 million last year.  (AB 22.04)

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5.6  Chinese & Russian Visitor Growth Boosts Dubai Tourism in First Quarter

Dubai’s tourism sector sustained the momentum of its strong 2017 start, with the emirate reporting an 11% increase in overnight visitation in the first three months of the year.  Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism) said in a statement that the city saw 4.57 million travelers in Q1, more than double the growth achieved in the first quarter of 2016.  Among Dubai’s top 20 source markets for inbound tourism, China and Russia continued to top the growth trajectory charts with 64% and 106% increases over Q1 2016, delivering 230,000 and 126,000 tourists respectively.  The big jump comes as citizens from both countries can now obtain free visas-on-arrival in the UAE.

Retaining their stronghold on the top three positions were India, Saudi Arabia and the UK, accounting collectively for 30% of total Q1 visitation to Dubai, with India becoming the first ever market to record nearly 580,000 visitors in any one quarter, Dubai Tourism said.  From a regional perspective, Dubai saw another first as Western Europe took on pole position, contributing 22% of the overnight visitor volumes, ahead of the traditional GCC market leadership.

Dubai’s hotel room inventory stood at 104,503 spread across 680 establishments at the end of the first quarter of 2017, the latter figure representing a 6% growth over the end of March last year, the statement noted.  Occupied room nights were also up year on year, totaling 7.96 million compared to 7.55 million at the end of Q1/16, with the average occupancy rate across all hotel and hotel apartment categories increasing 2% over the same period to reach 87%, it added.  (AB 24.04)

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5.7  Saudi Arabia ‘Needs a Million New School Places by 2020’

It is estimated that Saudi Arabia will need over a million new school places by 2020 in grades 1-12, of which 150,000 are expected to come from the private sector.  Research by PwC Middle East’s Education practice showed that the number of private schools in the Gulf kingdom has been growing at 3% per annum, with the strongest growth being seen at the primary level, where enrollment in public schools has declined.  It added that despite further growth expected in the private sector, market share for private schools is unlikely to grow from around 11% to the aspirational 25% unless significant changes are seen to encourage growth and investment.

The report also indicates that tightening restrictions on international visa and scholarship qualifications may cause a proportion of the estimated 190,000 Saudi students that study abroad each year to look for university places at home.  PwC said finding places will be harder with added pressure on funding public provision in the kingdom meaning additional demand for private institutions, which will consequently need to enhance their capacity and offerings.  PwC added that Saudi Arabia faces tough policy choices in higher education with around 125,000 additional seats required in post-secondary education by 2020.  (AB 19.04)

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►►North Africa

5.8  IMF Delegation in Egypt Ahead of 2nd Loan Tranche

A delegation from the International Monetary Fund (IMF) arrived in Cairo on 30 April to follow up on the progress in the country’s economic reform program ahead of delivering the $1.25 billion second tranche of an IMF loan.  The visit is due to last until 11 May and includes meetings with officials from the Central Bank of Egypt (CBE) and finance ministry to discuss plans for the second phase of the country’s reform program, including the 2017-2018 state budget, and structural reforms adopted by the government.

Ahmed Kajok, deputy finance minister, said that the national economic reform program agreed with the IMF targets an economic growth rate of 5.5% by the year 2018/2019, aimed at securing increased employment through reforms to increase competitiveness, attract investment, increase exports and reduce the budget deficit from 3.5% of the Growth Domestic Product (GDP) during 2015/2016, to a surplus starting 2017/2018.  The program also aims to reduce internal debt to 90% of GDP by 2018/2019.  These steps, together with monetary policies, aim to achieve stability at the macroeconomic level and reduce inflation.  The IMF and international support to Egypt’s reform program sends significant message to local and foreign investors, backing government plans to focus on removing all obstacles to enable the development of national industry.  The IMF loan will finance the budget deficit as well as enhance foreign currency reserves at the Central Bank.

According to CBE figures 1 April, Egypt’s foreign debt jumped 40.8% year-on-year to $67.32 billion in December.  Egypt is negotiating billions of dollars in aid from various lenders to help revive the economy and ease a dollar shortage that has crippled imports and driven away foreign investors.  Egypt has received the first tranche of a three-year $12 billion loan deal struck with the IMF, and is expecting to receive the second tranche soon.  The second tranche of a $3 billion loan from the World Bank was disbursed to Egypt last month.  (Ahram Online 29.04)

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5.9  Egypt Suspends Fish Exports to Lower Local Prices

Egypt has halted fish exports after a surge in sales to foreign markets following last November’s currency devaluation led to supply shortages locally and a spike in domestic prices, President Abdel Fattah Al Sisi said.  Sisi did not say how long the suspension would last but promised Egyptians, who have seen their purchasing power sharply eroded by the devaluation, that measures would be enforced to help the market adjust prices lower.   Egypt used to export 40,000 tonnes of fish a year.  Within the first three months of 2017, Egypt exported 120,000 tonnes.  Much of Egypt’s fish exports heads to the Arabian Gulf states.

Egypt abandoned its peg of 8.8 pounds per dollar on November 3 and the currency now trades at about 18 per greenback.  The plunge in the pound has driven inflation to over 30%, stoking public pressure on Sisi to revive the ailing economy, tame prices and create jobs.  The suspension of fish exports comes after the government this month imposed a tariff on sugar exports of 3,000 Egyptian pounds per tonne.  (Reuters 26.04)

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5.10  Quarter of Moroccans Lacks Access to Health Care

The World Bank 2017 Economic Memorandum has revealed that more than 25% of Moroccans do not have access to medical care, exposing the inefficiency of insurance plans.  The World Bank painted a bleak picture of the healthcare in Morocco in the current year’s Economic Memorandum.  The report shed light on the system’s inadequacy, including small number of medical doctors in comparison with the population and the ineffectiveness of health insurance plans.

The Economic Memorandum underlined that around 25% of Moroccans (8.5 million) do not have access to medical care.  Added to this, it revealed that there are 6.2 doctors for every 10,000 inhabitants, in contrast to Algeria and Tunisia, which have double that amount for the same number of inhabitants.  Also, while the global average number of beds in mental healthcare institutions amounts to 4.4 for every 10,000 inhabitants, the report stated that Morocco provides only one bed for that number.

The Economic Memorandum also spotlighted the insufficiency and dysfunction of insurance plans in Morocco.  Only 60% of Moroccans are covered by the Compulsory Health Insurance (AMO) and Medical Assistance Plan (RAMED) initiatives.  This is not enough, according to the World Bank, which noted a lack of coverage for informal sector and self-employed workers.  The report also pointed out problems related to poor human resource management, absenteeism and corruption.  (WB 26.04)

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5.11  Moroccan Economy Resilient Amid Global Economic Crisis

The Moroccan economy has shown remarkable resilience throughout the 2008-2009 worldwide financial crisis and the European economic slowdown, according to a recently published report by the Mediterranean Co-Production Observatory.  The report notes that the Kingdom has emerged from the recent international economic shocks practically unscathed.

Good harvests and the resistance of national demand explain the economic stability of Morocco.  The document, entitled “Co-production in Morocco: context, achievements and prospects”, specifies that even in 2011, while an unstable Tunisia going through the Arab Spring saw its GDP decline, Moroccan economic growth rebounded and flew above the average of countries in the south and east Mediterranean.

GDP growth, stable at around 4% since 2010, is expected to continue its gradual upward trend towards the 6% by the end of the decade, stated the report, adding that “political stability and reforms undertaken over the past 10 years seem to have made Morocco a safe haven within a Mediterranean space swept by uncertainty.”

The report presents a thorough analysis of the resilience of the Moroccan economy.  It explains that transformations of the productive apparatus have resulted in a rise in the range of value chains.  In particular, this has enabled a rebalancing of external trade and a better distribution of wealth creation among partners.  The report adds that the Moroccan economy can thus produce a wider and more complex range of products, taking advantage of the increase in final consumption expenditure generated by these higher value-added activities and the emergence of middle classes.  Moreover, the report highlights how these developments took place in a context of integration of Morocco within Europe and sub-Saharan Africa, allowing the Kingdom to capitalize on growth drivers in each area.

The economic strategy focused on industrial niches with high added value, states the report, stressing the importance of Morocco’s new global businesses: automotive, aeronautics and electronics, as well as the services sector, where Moroccan companies now enjoy comparative advantages.

The Mediterranean Co-production Observatory, which is managed by the Institute for Economic Prospects of the Mediterranean World (IPEMED) and supported by the public investment bank Bpifrance and the Paris-Ile-de-France Chamber of Commerce and Industry, aims to analyze qualitatively Mediterranean investors’ strategies, behavior, expectations, and the difficulties they encounter in order to fit into the local fabric.  (MCPO26.04)

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6.1  Turkey’s Trade Deficit Rises 15.8%, Exports Grow Over 7% in April

Turkey’s year-on-year trade deficit rose by 15.8% in April to over $4.9 billion, according to a preliminary estimate revealed by the Customs and Trade Ministry on 2 May.  Exports for the month rose to $12.83 billion, which is a 7.83% increase from April 2016, according to the ministry. Imports also increased by 9.58% to $17.74 billion.  In April, the country’s total foreign trade volume soared by 8.65% year-on-year to reach $30.58 billion, it said.  Turkey exported goods worth $1.13 billion to Germany, its largest market, while exports to the U.A.E. amounted to $1.2 billion, and exports to Iraq were $857 million.  China with $1.65 billion, Germany with $1.63 billion and Russia with $1.46 billion were the main sources of imports.

On 28 April, the Turkish Statistical Institute (TÜİK) revealed that Turkey’s foreign trade deficit narrowed by 10.3% year-on-year in March to reach $4.5 billion.  Meanwhile, Turkish exports advanced 4% year-on-year to reach almost $11.9 billion in April on the back of performances by the steel, automotive, mining and jewelry sectors, the country’s main exporters’ association, TİM, said on 1 May.  (AA 02.05)

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6.2  Foreign Investment Inflow to Turkey Reaches $457 Million in February

Turkey received $457 million in foreign direct investment in February, the Economy Ministry stated in a report on 24 April.  Foreign investment in Turkey reached $1.059 billion in the first two months of this year, down by 34.3% compared with the same period last year.  The manufacturing sector got the largest amount of foreign direct investment at $162 million, followed by the mining sector with $151 million in the January to February period.  There were 420 new foreign-funded companies established in February 2017, making a total of 54,038 companies with international capital operating in Turkey.  A total of 6,927 of these were funded by German capital, while U.K. investors financed 3,008.  (AA 25.04)

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6.3  Greek Economy to Grow by 1.5% in 2017

Greece’s economy will only grow by up to 1.5% this year, the leading IOBE think tank said as it trimmed its forecast due to slow progress on the country’s bailout review.  IOBE had projected 1.5 to 1.8% growth this year in its previous estimate in January, compared to the 2.7% forecast by the government, but has cut that estimate as the protracted review of the bailout has increased uncertainty.  The review was supposed to be wrapped up late last year.

The talks over energy and labor reforms, pension cuts and tax hikes have dragged on for months, mainly due to differences between EU lenders and the International Monetary Fund over the country’s fiscal targets after its bailout expires in 2018.  Greece has agreed to implement more austerity after its €86 billion ($93.66 billion) bailout package ends, the third rescue plan since the debt crisis began in 2010, to persuade the IMF to participate financially in its program, as sought by Germany.

The negotiations resumed in Athens this week and Greece hopes a deal can be reached by 22 May, when Eurozone finance ministers will discuss the issue.  Concluding the review will also unlock funds which Athens needs to repay loans maturing in July.  IOBE expects Greece’s jobless rate, the highest in the Eurozone, to continue to decline for the fourth consecutive year in 2017 to 22.2%, but at a slower pace than last year.  (Reuters 26.04)

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6.4  PwC Tells Greece – Reform or Forget Recovery

The extent of the destruction the Greek economy has suffered in the last few years, also undermining the effort to restructure it, becomes clear when comparing specific data, not on a quarterly or annual basis, but over the longer term.  The country remains in a vicious cycle of recession, the economy will not grow by more than 1% this year, and any positive signs have proved temporary or insufficient to alter the overall picture.

According to “Economic Outlook for Greece 2017-2018,” a study by PricewaterhouseCoopers (PwC), investment in the country’s economy dropped from €60 billion in 2010 to €20 billion last year.  Investments are showing no signs of sustainable recovery as savings remain in the red and banks continue to deleverage their financial reports.  Consumption has been in constant decline, with a small recovery last year followed by a fresh drop in recent months.  The average disposable income has gone down primarily due to the increased taxation and hikes in social security contributions, while the capital controls remain and banks are dependent on emergency liquidity assistance (ELA) for their financing.

PwC notes that disposable incomes are unlikely to grow significantly anytime soon.  There are just a few domestic investments that could fuel a recovery and no significant funding for investments is expected from abroad.

At the same time it will be hard for fiscal performance to post a significant improvement without any deep structural reforms, including in the social security system.  The banks’ lack of liquidity, the delayed repayment of the state’s dues to its suppliers and the capital controls are likely to persist.

PwC further argues that despite the delays in the second bailout review, Greece could avoid any unforeseeable tension and political events and achieve some growth, but not any greater than 1%, and the same challenges will remain next year too.  An exit from the vicious cycle, says PwC, will require not only a change in the Greek debt’s sustainability terms, but also a drastic acceleration of structural reforms and the boosting of competitiveness and growth.  (PwC 01.05)

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6.5  Greek Supermarkets Report Dramatic Recession

The supermarket sector in Greece is experiencing a deep recession ranging from 8 to 15% year-on-year across its categories.  It was estimated that 2017 will see a 4 to 5% decline in supermarket turnover compared with 2016.  The Greek market is experiencing a much steeper decline than last year.  There is a very deep recession.  The estimate for a 4% drop in turnover will come on the back of a major decline in 2016 compared to 2015, which, depending on the surveying company, ranges from 4.5 to 6.5%.  In its recent annual general meeting, the Hellenic Food Industry Federation (SEVT) noted the dramatic drop in consumption of basic commodities such as milk and bread, while a senior market research company official told Kathimerini that “our clients, suppliers and retailers, were crying in the first quarter.”  (EKathimerini 26.04)

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7.1  On Eve of Independence Day, Population of Israel at 8.68 Million

Israel’s Central Bureau of Statistics published on 27 April, as it does every year shortly before Israeli Independence Day, updated statistics regarding the country’s population.  This year, 70 years since the establishment of the State of Israel, the population of the country stands at 8,680,000 people.  This is 10 times as many people as there were in Israel at the time of the state’s founding, when only 806,000 people were in Israel.  Since last year, Israel’s population has grown by 159,000 people – an increase of 1.9%.  The Bureau projects that, in the year 2048, the country will contain 15.2 million people.  (CBS 27.04)

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7.2  How Religious are Israelis?

Figures released ahead of Israel’s 69th Independence Day reveal secular Jews a minority, with most identifying as religious or traditional.  A majority of Israeli Jews identify as either religious (Orthodox) or traditional, with a minority identifying as secular or irreligious, a report by the Central Bureau of Statistics shows.  Figures provided by the CBS show that of Israel’s total population of 8.68 million, 74.7% are Jewish, or roughly 6.484 million.  Another 20.8% are Arabs, totaling 1.808 million, while 4.5%, or 388,000, did not fall into either category.

Of those 6.484 million Jews, the CBS reports that less than half (44%) of them consider themselves secular or non-religious.  Nearly one-third of Israeli Jews identify as religious (32%), while the remaining 24% say they are traditional.  When broken down further, the religious population includes 9% of the country which identifies as Haredi, 11% as religious (dati), and 12% as religious-traditional.

American Jewry, by comparison, has been characterized in recent studies as overwhelmingly secular, with just 10% of America’s nearly six million Jews identifying as Orthodox.  According to Pew, 30% of Jews identify with no Jewish denomination or movement, while 53% identify with non-traditional movements including Reform (35%) and Conservative (18%).

Among non-Jews in Israel, 4% self-identify as extremely religious, 52% as religious, 23% as mildly religious and 21% as not at all religious.  (CBS 26.04)

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7.3  Algerians to Elect New Parliament Amid Apathy & President’s Absence

In a sports arena festooned with national flags, Algeria’s ruling FLN Party pumped up supporters at one final weekend rally before the parliamentary election on 4 May with Liberation-era songs and screenings of old speeches by its veteran leader, President Abdelaziz Bouteflika.  Bouteflika, 80, has rarely been seen in public since a stroke in 2013, but the message was clear enough: A vote for FLN is a vote for the stability his supporters say he has delivered to Algeria since it emerged from a 1990s civil war.

FLN, which has dominated Algeria since it won independence from France in 1962, and the pro-government National Rally for Democracy (RND) are widely expected to win the election against a weak, divided opposition that includes leftists and Islamists.  But the challenge facing the FLN and RND is apathy among voters who see the National Assembly as a rubber-stamp legislature unwilling and unable to offer any real change.

In the last election in 2012, FLN won 221 seats and the RND 70 seats in the 462-seat People’s National Assembly by playing the stability card following the Arab Spring revolts in Tunisia, Egypt and Libya.  But turnout was just 43%.

With some 70% of Algerians under the age of 30, Bouteflika — in power since 1999 — is the only leader many have known, but he is rarely seen now in public.  In February he cancelled a visit by German Chancellor Angela Merkel, reviving speculation about his health and a possible transfer of power before the next presidential election due in 2019.  No clear successor has emerged.

The parliamentary election comes as Algeria, an OPEC member and major gas supplier to Europe, attempts sensitive reforms of its vast social welfare system, price increases for subsidized fuel and spending cuts following a steep decline in global oil prices that have slashed its export earnings.  There are no reliable opinion polls in Algeria, but the FLN and its allies, which have benefited from their association with high state spending, are still hoping to consolidate their parliamentary majority.  Low turnout will likely help the FLN again. Its traditional supporters — the elderly, the military, civil servants — are more likely to vote, and the FLN local party network is also strong in rural areas.  (Reuters 01.05)

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7.4  Turkey Fires 3,900 in Second Post-Referendum Purge

On 29 May, Turkey expelled more than 3,900 people from the civil service and military as threats to national security, in the second major purge since President Erdogan was granted sweeping new powers.  Erdogan won those concessions in a referendum in mid-April, which rights groups and some Western allies believe has brought the country, a NATO-member and European Union candidate, closer to one-man rule.  The expulsions – carried out in conjunction with media curbs – affected prison guards, clerks, academics, employees of the religious affairs directorate and 1,200 members of the armed forces including nearly 600 officers.  They were fired for suspected links to “terrorist organizations and structures presenting a threat to national security”, according to a decree in the Official Gazette.

In all, some 120,000 people have been suspended or sacked from their jobs and more than 40,000 arrested in the aftermath of the failed putsch, which killed 240 people, mostly civilians.  The mass detentions were initially supported by many Turks, who supported Erdogan in blaming Gulen.  But criticism has mounted as the arrests widened, with relatives of many of those detained or sacked denying their involvement in the coup and calling them victims of a purge.

Since the attempted putsch, Ankara has also faced widespread western criticism of its record on freedom of speech.  Authorities on 29 April also banned some television dating programs, which Deputy Prime Minister Kurtulmus said last month were at variance with Turkey’s faith and culture.  Advertising for matchmaking services was also banned.  Hours earlier Turkey blocked online encyclopedia Wikipedia, with the telecommunications watchdog citing a law allowing it to ban access to websites deemed obscene or a threat to national security.  A government official told Reuters the dating show ban would only apply to satellite channels that “do advertising for sexual products”, and not to prime time television.

Turkey last year jailed 81 journalists, more than any other country, according to the New York-based Committee to Protect Journalists.  (Reuters 30.04)

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8.1  SteadyMed Raises $30 Million in Private Placement

SteadyMed has entered into a definitive agreement to sell its ordinary shares and warrants to purchase its ordinary shares for aggregate gross proceeds of approximately $30 million in a private placement.  The financing was led by Adage Capital Management, OrbiMed, Deerfield Management and Kingdon Capital Management.  JMP Securities served as lead placement agent for the offering. H.C. Wainwright & Co. acted as co-placement agent for the offering.

Rehovot’s SteadyMed is a specialty pharmaceutical company focused on the development of drug products to treat orphan and high value diseases with unmet parenteral delivery needs. The company’s lead drug product candidate is Trevyent, a development stage drug product that combines SteadyMed’s pre-filled, sterile, single use, disposable, PatchPump® infusion system, with treprostinil, a vasodilatory prostacyclin analogue to treat pulmonary arterial hypertension (PAH). SteadyMed intends to commercialize Trevyent in the U.S. and has signed an exclusive license and supply agreement with Cardiome Pharma Corp. for the commercialization of Trevyent in Europe, Canada and the Middle East.  (SteadyMed 21.04)

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8.2  Teva Launches AirDuo RespiClick and its Authorized Generic

Teva Pharmaceutical Industries announced the simultaneous launch of AirDuo RespiClick (fluticasone propionate and salmeterol) inhalation powder and its authorized generic for the treatment of asthma in patients aged 12 years and older who are uncontrolled on an inhaled corticosteroid (ICS) or whose disease severity clearly warrants the use of an ICS/long-acting beta2-adrenergic agonist (LABA) combination.

AirDuo RespiClick and its authorized generic are fixed-dose combination asthma therapies containing an ICS and a LABA, the same active ingredients as Advair.  The authorized generic is known as fluticasone propionate and salmeterol inhalation powder (multidose dry powder inhaler).  Teva is launching both products at the same time in an effort to address the need for more affordable asthma treatment options in the U.S.  Teva expects that sales of the authorized generic will represent most of the sales of the two products.

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions used by approximately 200 million patients in 100 markets every day.  Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,800 molecules to produce a wide range of generic products in nearly every therapeutic area.  In specialty medicines, Teva has the world-leading innovative treatment for multiple sclerosis as well as late-stage development programs for other disorders of the central nervous system, including movement disorders, migraine, pain and neurodegenerative conditions, as well as a broad portfolio of respiratory products.  (Teva 20.04)

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8.3  DarioHealth Expands Global Presence With Direct-to-Consumer Launch in the U.K.

DarioHealth Corp. announced the launch of a direct-to-consumer channel in the United Kingdom.  Following the success of the direct-to-consumer channels in the U.S. and Australia, DarioHealth will leverage its knowledge to provide new opportunities for the greater U.K. diabetes community to analyze and personalize their treatment.

With this launch, DarioHealth proves its continued commitment to the U.K. market as it expands market penetration, providing consumers more accessibility to DarioHealth products.  Until today, DarioHealth was only available through pharmacies and diabetes educators in the U.K.  Now, consumers will have the opportunity to receive personalized diabetes care via an online shopping experience, and be enabled to monitor their health in a more convenient way.  DarioHealth will bring its expansive online digital marketing efforts, while having a strong infrastructure and partner in Advance Therapeutics (UK) Ltd., a U.K. wide distributor of specialist medical devices for the treatment of diabetes.

Caesarea’s DarioHealth Corp. is a leading global digital health company serving tens of thousands of users with dynamic mobile health solutions.  They believe people deserve the best tools to manage their treatment, and harnessing big data, they have developed a unique way for their users to analyze and personalize their diabetes management.  With their smart diabetes solution, users have direct access to track and monitor all facets of diabetes, without having the disease slow them down. The acclaimed Dario Blood Glucose Monitoring System all-in-one blood glucose meter and native smartphone app gives users an unrivaled method for self-diabetes management.  (DarioHealth 26.04)

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8.4 Surgeons Perform World’s First-Ever Dual Robotic Surgery at Hadassah Hospital in Jerusalem

The world’s first-of-its-kind dual robotic surgery was performed on 23 April at Hadassah Hospital Ein Kerem in Jerusalem, announced.  The revolutionary dual robotic surgery assisted in the repair of a severe spinal fracture suffered by Aharon Schwartz, 42, a factory worker in Jerusalem who was injured when a steel object pinned him to the ground, fracturing his leg in two places and breaking six of his spinal vertebrae.  The 3-hour surgery took place in the state-of-the-art $30m underground hybrid operating theater at Hadassah’s Sarah Wetsman Davidson Hospital Tower.  Patient Schwartz will completely recover from the surgery and will be walking again very shortly.

The Mazor Robotics Renaissance Guidance System transforms spine surgery from freehand procedures to highly-accurate, state-of-the-art procedures that may reduce fluoroscopy—even for minimally-invasive surgery (MIS), scoliosis, and other complex spinal deformity cases.  The Siemens Artis Zeego Robotic Technology enables smoother, swifter and trouble-free patient positioning and execution procedures.  (HWZOA 28.04)

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8.5  Oramed Receives Israel Approval to Conduct Human Study for New Oral Leptin Capsule

Oramed Pharmaceuticals announced that based on positive preclinical data, the Company is developing a new drug candidate, a weight loss treatment in the form of an oral leptin capsule. Leptin, also known as the “obesity hormone” is a protein that regulates hunger.  According to Grand View Research, the overall obesity market is expected to reach $15.6 billion in 2024.

Israel’s Ministry of Health has approved Oramed’s commencement of a proof of concept single dose study for its oral leptin drug candidate to evaluate its pharmacokinetic and pharmacodynamics (glucagon reduction) in ten type 1 diabetic patients.

Jerusalem’s Oramed Pharmaceuticals is a platform technology pioneer in the field of oral delivery solutions for drugs currently delivered via injection.  Established in 2006, Oramed’s POD technology is based on over 30 years of research by scientists at Jerusalem’s Hadassah Medical Center.  Oramed is seeking to revolutionize the treatment of diabetes through its proprietary flagship product, an orally ingestible insulin capsule (ORMD-0801).  (Oramed Pharmaceuticals 02.05)

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9.1  WeissBeerger Improves Beer With Online Data

Israeli startup Weissbeerger is bringing high-tech to the local bar.  It has developed technology that connects beer spigots to the Internet and provides reports about what is happening with them.  The company’s technology provides independent data, such as whether the beer received by the customer was poured at the right speed and temperature, whether it was poured from a fresh barrel, and whether the barrel should be replaced.  The information is gathered in cooperation with the bar owner and beer manufacturer for the sake of improvements and measurements.  The data indicate at which times beer consumption changes, the distribution of customers according to regions in which people drink more or less, and the rate at which beer is poured during events.  Located in Tel Aviv, WeissBeerger has over 60 employees, and does business in Europe, Asia, the Western hemisphere, and Israel.  (Globes 19.04)

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9.2 Mellanox InfiniBand Delivers up to 250% Higher RoI for High Performance Computing Platforms

Mellanox Technologies announced that EDR 100Gb/s InfiniBand solutions have demonstrated from 30 to 250% higher HPC applications performance versus Omni-Path.  These performance tests were conducted at end-user installations and Mellanox benchmarking and research center, and covered a variety of HPC application segments including automotive, climate research, chemistry, bioscience, genomics and more.

Due to its scalability and offload technology advantages, InfiniBand has demonstrated higher performance utilizing just 50% of the needed data center infrastructure and thereby enabling the industry’s lowest Total Cost of Ownership (TCO) for these applications and HPC segments.  For the GROMACS application example, a 64-node InfiniBand cluster delivers 33% higher performance in comparison to a 128-node Omni-Path cluster; for the NAMD application, a 32-node InfiniBand cluster delivers 55% higher performance in comparison to a 64-node Omni-Path cluster; and for the LS-DYNA application, a 16-node InfiniBand cluster delivers 75% higher performance than a 32 node Omni-Path cluster.

Yokneam’s Mellanox Technologies is a leading supplier of end-to-end Ethernet and InfiniBand intelligent interconnect solutions and services for servers, storage, and hyper-converged infrastructure.  Mellanox intelligent interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance.  (Mellanox 24.04)

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9.3  MySize Exceeds 200,000 Downloads of Smart Measurement Application SizeUp

MySize announced that the Company is progressing well and continues on its leadership path in ecommerce, having crossed the 200,000 mark in downloads of its flagship product SizeUp, a smart measuring tape.  Since its first introduction in September 2015, there have been 216,192 downloads of SizeUp, with an average of 700 downloads a day, following the launch of SizeUp DIY on 5 January at CES.  SizeUp enables users to instantly and accurately measure a flat object, by moving the Smartphone from one side of an object to the other.  Measurements can be taken in either inches or centimeters.

Airport City’s MySize has developed a unique measurement technology based on sophisticated algorithms and cutting edge technology with broad applications including apparel industry, e-commerce, shipping and parcel industry measurement.  This proprietary technology is driven by several patent-pending algorithms which are able to calculate and record measurements in a variety of novel ways.  (MySize 28.04)

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9.4  Bringg Announces Panera Bread as Latest Customer of Logistics Platform

Bringg has started rolling-out its customer-centric delivery platform across the Panera Bread network of bakery-cafes.  Bringg’s customer-centric logistics platform helps Panera U.S. bakery-cafes maintain control and visibility over their expanding delivery offering.  With the Bringg platform, at Panera bakery-cafes can use a single web-based or mobile dashboard to dispatch orders, manage drivers and track them in real time, as well as set up alerts for specific events, create reports for performance optimization, and much more.  Drivers have everything they need to ensure the perfect delivery right on their mobile phone, including the ability to manage their tasks, navigate to their next destination and communicate with customers.

Tel Aviv’s Bringg is the leading customer-centric logistics platform for enterprises, with customers in more than 50 countries including some of the world’s best-known brands.  Their highly flexible yet powerful solution enables companies to quickly streamline the way they deliver goods and services, creating both operational efficiency and the optimal experience for their entire ecosystem – from the headquarters to the field and all the way to the customer.  Bringg’s open platform is simple to implement, use and manage through its different modules – web-based applications for dispatch and administration, mobile apps for drivers and service people, and a branded mobile experience for customers.  (Bringg 27.04)

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9.5  GPS Police Adds Driver Behavior Monitoring to Fleet Management Service with ERM’s eSafe

ERM Advanced Telematics announced that Calgary’s GPS Police, a leading provider of fleet management services in North America, has expanded its fleet management services with the company’s eSafe driver behavior monitoring.  GPS Police’s customers include companies the oil & gas, transportation, law enforcement and government sectors mostly in central Canada as well as across North America.  GPS Police has been using ERM’s telematics solutions and devices to enable its base vehicle tracking service for the past three years.  GPS Police recently expand its relationship with ERM and has begun implementing a wide range of telematics solutions, beginning with a driving behavior monitoring and black box solution based on the ERM’s eSafe accessory.

eSafe contains predefined profiles for over 35 vehicle types from passenger cars to public transportation vehicles to heavy duty truck.  eSafe includes the definitions for 22 driving activities and maneuverer set according to each vehicle type, including advanced combinations of accelerating, braking and turning in different driving situation, such as on paved road, over speed bumps, on traffic circles, on off-road conditions and more.  eSafe also contains black box capabilities for recreating the driving scenarios that led to accidents.

eSafe’s high level of differentiation among vehicle profiles and maneuverer delivers GPS Police with analyzed intelligence and not just raw data, which enables GPS Police to provide its customers a highly accurate driver monitoring service.  For instance, eSafe can differentiate between braking and acceleration patterns of a passenger vehicle driving on paved roads compared to a field service vehicle or light duty truck driving in off road conditions.

Rishon LeTzion’s ERM Advanced Telematics designs, develops and manufactures innovative vehicle security and GPS/GSM tracking and telematics solutions.  ERM’s product portfolio includes a comprehensive range of modular and state-of-the-art location tracking devices covering vehicle tracking and security, vehicle diagnostics and driver behavior.  ERM partners with Telematics service providers to integrate its products and solutions into their applications in order to form a wide variety of unique solutions for Fleet Management, Stolen Vehicle Recovery and other Telematics services.  (ERM Advanced Telematics 27.04)

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10.1  Tourist Hotel Overnights in Israel Increase by 30% in March

The Israel Hotel Association today reported that the number of foreign tourist hotel overnights in March (before the Passover holiday) was 30% higher than in March 2016 and 37% higher than in March 2015, although the 925,000 foreign tourist hotel overnights in March 2014, before Operation Protective Edge, was 7% more than in March 2017.

The number of Israeli overnights in March this year reached almost 900,000, about the same as in March 2016 and March 2015, but 25% more than in March 2014. Total hotel overnights, including both Israelis and foreign tourists, hit 1.8 million in March, 11% more than in March 2016, 16% more than in March 2015, and 7% more than in March 2014.

Hotel occupancy in March 2017 averaged 64%, 10% higher than in March last year. As of March, the number of available hotel rooms totaled 52,388, 3% more than in the preceding year.

According to Central Bureau of Statistics figures, hotel overnights totaled 4.8 million in the first quarter of 2017, 11% more than in the corresponding period last year, as a result of a 27% jump in Israeli hotel overnights during this period.  Foreign tourist hotel overnights accounted for 48% of the total, compared with 42% in the corresponding period in 2016.  Hotel occupancy averaged 58% in the first quarter, compared with 53% in the corresponding period last year.  (IHA 26.04)

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10.2  Ben-Gurion Airport Sees 25% Surge in Travel in April

Exceeding all forecasts, Ben-Gurion International Airport is expected to close the month of April with a sharp 25% rise in travelers.  The increase follows the previous month’s record activity, when over 1.72 million passengers passed through the airport.  The top destinations for Israelis in April were Turkey, Cyprus and France.

In 2016, business boomed for the airport, with 17,387,971 passengers passing through it on international flights — an increase of 11%, or 1.6 million passengers, from 2015.  At the same time, Eilat’s Ovda Airport reported a 97.8% increase in passengers in 2016, after the airport was exempted from landing fees while construction continues on the new Ramon Airport, scheduled to open in 2017.  According to the Israel Airports Authority, 128,595 passengers passed through Ovda Airport in 2016, compared with 65,006 in 2015.

Since Israel signed the Open Skies agreement with the European Union in 2012, which has brought more flights to and from European countries at reduced prices, traffic at Ben-Gurion Airport has increased by around 50%.  Flights to and from six countries have led the growth at Ben-Gurion Airport: Turkey, with 1.6 million passengers on mostly connecting flights to other destinations; the United States, with 1.45 million passengers; Germany, with 1.23 million passengers; Italy, with 1.5 million passengers; and Russia and France, each with 1 million passengers.  (IH 26.04)

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11.1  ISRAEL:  Fitch Affirms Israel at ‘A+’; Outlook Stable

On 26 April 2017, Fitch Ratings affirmed Israel’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘A+’ with a Stable Outlook.  The issue ratings on Israel’s senior unsecured Foreign- and Local-Currency bonds have also been affirmed at ‘A+’.  The Country Ceiling has been affirmed at ‘AA’ and the Short-Term Foreign- and Local-Currency IDRs at ‘F1+’.

Key Rating Drivers

Israel’s IDRs balance strong external finances, robust institutional strength and solid macroeconomic performance against a government debt/GDP ratio that is high relative to peers and ongoing political and security risks.

Israel’s external balance sheet remained strong in 2016.  The country has returned annual current account surpluses each year since 2003 and posted an estimated surplus of 3.9% of GDP in 2016.  This was lower than the record 2015 surplus of 4.6% of GDP, given deterioration in the trade balance on the back of robust import demand and sluggish growth in goods exports (services exports grew strongly).  Fitch expects current account surpluses to persist in 2017 and 2018, albeit at lower levels, averaging 3.2% of GDP.

There has been further accumulation of foreign-exchange reserves, which reached $98.5 billion at end-2016 (11.5 months of current external payments) from $90.6 billion at end-2015.  Reserves rose further to $103.3 billion by end-March 2017.  Fitch expects Israel’s net external creditor position to be 43% of GDP in 2017, an improvement from 35.1% in 2014 and 23% in 2008.  This is more than three times the ‘A’ median, and only just short of the ‘AA’ median.  Fitch’s international liquidity ratio for Israel has also continued to improve strongly.

Further gas sector development will lend additional support to the external balance sheet.  Production at the Tamar gas field off the coast of Israel, which commenced in 2013, has reduced the need for gas imports.  The government approved an amended natural gas framework in July 2016, thus providing the regulatory green light for the development of the larger nearby Leviathan gas field.  The controlling consortium, which has agreed a number of supply contracts, is aiming for production to start in 2020.

Israel’s public finances remain a weakness relative to ‘A’ category sovereigns.  Government debt/GDP continued to reduce in 2016, falling to 62.2% (end-2007: 74.6%, end-2003: 95.2%), but was still some way above the peer median of 52%.  Budget deficits were relatively small in 2015-16, with the central budget deficit narrowing to 2.1% of GDP in 2016, as the strength of private consumption and the housing market contributed to revenue outperformance even as some tax rates were cut.  However, we expect the budget deficit to widen in 2017-2018 and forecast government debt/GDP to remain fairly stable in 2017-2018 rather than continuing a downward path.

Other features of public debt are fairly favorable.  The share of external debt is low, declining to less than 8% of GDP in 2016 from 20% of GDP in 2006 and the government is gradually lengthening the maturity of its debt: average time to maturity reached 7.5 years in 2016.  Israel benefits from high financing flexibility.  It has deep and liquid local markets, good access to international capital markets, an active diaspora bond program and US government guarantees in the event of market disruption.

Israel’s ratings will continue to be constrained by political and security risks, but its credit profile has shown resilience to periodic conflict and political shocks over an extended timeframe.  Conflicts with military groups in surrounding countries and territories flare up intermittently and can be damaging to economic activity or lead to increased spending commitments (although Israel’s defense capabilities have continued to improve).  The ongoing war in Syria poses risks to Israel and neighboring countries, which could have an impact on Israel. Relations with some countries in the region can be tense.  There has been no progress towards peace between Israel and the Palestinians.  Fitch believes prospects for a realistic peace process remain bleak.

Domestic politics can be turbulent, with coalition governments often not lasting their full term.  In 2017 the risk of fresh elections has sharpened owing to rifts within the patchwork coalition.  In tandem, Prime Minister Benjamin Netanyahu has come under increasing pressure over a number of ongoing police investigations.  None of the coalition parties has a clear incentive for elections, but relations are fractious and could suddenly precipitate a new vote.

Five-year average real GDP growth is on a par with rating category peers.  Growth accelerated in 2016 to 4% on the back of a strong labor market and rising incomes together with some recovery in investment.  Expansionary fiscal policy and accommodative monetary policy, with the Central Bank policy rate staying at a record low of 0.1%, were also supportive.  Effects related to vehicle imports provided a one-off 0.5pp boost to the GDP calculation, according to the Bank of Israel.  This will not be repeated in 2017 and we expect growth to moderate to 3.1%.

GDP growth has been slowing in recent years, despite the 2016 performance.  Annual growth averaged 3.3% in 2012-2016, compared with 4.5% in 2004-2011, due in part to slower working-age population growth, less productive additions to the labor force, sluggish world-trade and competitiveness challenges.  In response, the government is seeking to enact structural reforms to improve efficiencies in some markets and the business environment overall, as well as boosting labor market participation.

Inflation was negative in 2015 and 2016 due to lower commodity prices, currency strength (especially against the euro), administrative price reductions and measures to stimulate competition.  On balance, Fitch expects robust domestic demand, higher rents and elimination of one-off factors to push inflation back into the lower-end of the Bank of Israel’s 1% – 3% target range in late 2017 or early 2018 despite further appreciation of the shekel.  Further one-off administrative measures by the government to reduce the cost of living could slow this process.

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

Rating Sensitivities

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

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

– Sustained easing in political and security risks.

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

– Sustained deterioration of the government debt/GDP ratio, either through widening fiscal deficits or a structural decline in GDP growth.

– Serious worsening of political and security risks.

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

Key Assumptions

Fitch assumes regional conflicts and tensions will continue. The tolerance of the rating depends on the economic and fiscal implications of any conflict.  Fitch does not assume any breakthrough in the peace process with the Palestinians or a prolonged serious deterioration in domestic security conditions.  (Fitch 26.04)

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11.2  ISRAEL:  Israeli Startup Raising Drops in 2017’s First Quarter

Israeli startups raised $1.03 billion in the first quarter of 2017, down 8% from the corresponding quarter of 2016, IVC-ZAG reported on 26 April.

In the first quarter of 2017, Israeli high-tech companies raised $1.03 billion in 155 transactions, according to the latest report by IVC – ZAG (Zysman, Aharoni, Gayer & Co.) law firm.  This amount is 4% down from $1.07 billion raised in 165 deals in the preceding quarter and 8% down from$1.11 billion raised in 174 deals in the first quarter of 2016.

Israeli High-Tech Capital Raising, Q1/2013 – Q1/2017 ($m)

The number of transactions was down 10% in the first quarter of 2017 compared with the quarterly average of 172 deals in the previous three years.  The average financing round reflected a slight increase, with $6.6 million, compared to the $6.5 million and $6.4 million averages in the preceding and corresponding quarters.

Early rounds – seed and A rounds – fell 16% and 31% respectively, with only 37 seed rounds and 40 A rounds closing in the first quarter of 2017, totaling $247 million, 8% down from $267 million raised in early rounds in the preceding quarter, and 23% down from the $320 million raised in the corresponding quarter of 2016.  The number of all later rounds (B, C and later) was up 20% with 78 deals in the first quarter of 2017 compared with 65 deals in the preceding quarter, and only 5% above the 74 deals in the corresponding quarter of 2016.  In terms of capital raising, only C rounds managed to top their previous record, with $285 million raised in 17 deals in the first quarter of 2017, compared with $100 million (9%) raised in the previous quarter and $234 million (21%) in the corresponding quarter of 2016.

Adv. Shmulik Zysman, founding partner of ZAG-S&W (Zysman, Aharoni, Gayer & Co.) international law firm said, “Although 2017 started as a strong and stable year for Israeli high-tech capital raising, with figures similar to previous quarters, the number of financing rounds in the first quarter was the lowest since the corresponding quarter in 2012, while the number of new startups continued to grow.  We expect the Mobileye deal – which shifted paradigms regarding valuations of Israeli companies – to have future impact on the industry in terms of growth in capital raising volumes.  The deal is yet another proof of the high quality and standards of Israeli companies.”

He added, “The fact that most of the capital goes into mature companies currently reflects, on the one hand, the maturity of companies today, but also the low appetite of investors for young companies, which embody greater risk.  If it continues, this trend is liable to harm young companies’ ability to realize their potential. In addition, according to the report, most of the capital injected into the Israeli market continues to come from abroad.  Thus, it emerges that high-tech investments in Israel are biased toward foreign investments in low-risk companies, which is liable to affect the future of Israeli high-tech as a whole.”

In the first quarter of 2017, venture capital-backed deal-making was down, with both the proceeds and number of deals shrinking noticeably.  These figures mark the lowest point in venture capital fund investments since the second quarter of 2015, with $577 million in only 68 transactions, a 19% fall from $710 million in 95 deals in the preceding quarter, and 26% down from $777 million raised in 100 venture capital-backed deals in the first quarter of 2016.  While capital raised in financing rounds involving venture capital funds marked the lowest point in venture capital fund participation since the second quarter of 2015, the number of venture capital-backed financing rounds was the lowest quarterly figure recorded since 2010.  The average venture capital-backed financing round in the first quarter of 2017 was up, however, with $8.5 million, compared with $7.5 million and $7.8 million in the preceding and corresponding quarter of 2016.

Israeli venture capital funds invested $162 million or 16% of total capital in Israeli high-tech companies in the first quarter of 2017.  The amount was 26% above the $129 million invested in the preceding quarter and 17% up from the $138 million invested in the corresponding quarter of 2016.  Israeli venture capital funds’ share was up in the first quarter of 2017, compared with these two quarters, when their share reached 12% of total capital each.

The IVC-ZAG Survey reveals that this upturn stems from the increase in first investments made by Israeli venture capital funds in the first quarter of 2017 – $87 million, or 54% of their investments.  The share of first investments was up, compared with 45% in the fourth quarter of 2016 and 31% in the first quarter of 2016.  While Israeli venture capital fund investment in the past tended to lean towards early stage investments, in the first quarter of 2017, 65% of first investments went to late stage companies.

IVC Research Center CEO Koby Simana said, “Our analysis shows that venture capital funds, both Israeli and foreign, are shifting their activity focus to investments in later stages – in terms of companies’ product development stage, financing stage or capital raising round.  This change creates a void in the early stages that is not fully met by other investors, such as accelerators or private investors.  On the one hand, it creates an opportunity for new investors willing to focus on young startups and early stage companies without much competition, but on the other hand – spells danger to the future of the local venture capital model.  If venture capital funds pass up the opportunity to join at early stages and hold the majority of shares in a company, they will have less control over their deal-flows.  If there are no investments in early stages and early rounds now, two years down the line there could well be a shortage of promising late stage companies.”

Capital Raised by Stage

Mid-stage companies continued to lead quarterly capital raising in the first quarter of 2017, with $478 million (47%), 11% below the $534 million raised in the preceding quarter, the highest quarterly amount for this stage, but 17% above the $409 million raised in the first quarter of 2016.

The first quarter of 2017 was the weakest for early stage rounds in three years, with 41 companies raising only $199 million, or 19% of total capital.

ZAG-S&W (Zysman, Aharoni, Gayer & Co.) is an international law firm operating out of offices in Israel, the United States, China and the United Kingdom. The firm’s attorneys specialize in all disciplines of commercial law for both publicly held and private companies, with particular expertise in hi-tech, life science, international transactions and capital markets. ZAG-S&W provides result-driven legal and business advice to its clients, addressing all aspects of the clients’ business activities, including penetration into new markets in strategic locations. In recent years the firm has acted on a majority of the equity and debt financing transactions by Israeli technology companies on the NASDAQ. It has been the firm’s experience that the best results, those that give our clients the competitive advantage they need, are attained by coupling professional experience, global presence, and connections with the investor communities in Israel and abroad.  (IVC-ZAG 26.04)

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11.3  ISRAEL: Housing’s Too Tight to Mention

Israel has a housing problem.  Construction has not kept up with the rising number of households, so the young and the less well-off find it increasingly difficult to afford their own homes, while rising rents take up a growing portion of the income of poorer households.  In a recent report, the IMF suggests ways to improve housing affordability, which would also help Israel avoid risks to growth from this sector.

It is getting more and more expensive to buy a home in Israel. In the 10 years to the end of 2016, average housing prices rose by about 125% and rents by 62%.  The situation is especially difficult in Tel Aviv, Israel’s financial and business hub, where it would take the average household 13 years to buy a home—almost twice the national average – if all their income were dedicated to solely this purpose.

The reasons for this housing shortage are manifold.  Municipalities have strong incentives to approve construction of commercial properties rather than residential projects that pay less tax to municipalities and need additional infrastructure and public services.  The state owns most of the land that is not yet developed and the planning, approval, and construction process faces cumbersome administrative hurdles that stretch out the time from the start of planning to completion for up to 13 years, although recent reforms are estimated to have expedited the planning and approvals process by 2-6 years.

Heaviest hit are the young and low-income families.  As it takes more time to save up the down payment for a new flat, they must rent apartments for longer.  In turn, their rising demand drives up rental costs.  But it is the poorest who feel the impact the most: the share they spend on rent has jumped 5%age points in the decade to 2013-15.

Meanwhile, on the other end of the income spectrum, wealthier households have responded to low interest rates in recent years by increasingly investing in flats for rent.  This reinforces the upward pressure on prices that makes it more difficult for young, less well-off households to achieve home ownership.  Israel’s rental apartments are mainly offered by small-scale landlords, in part because rental income is taxable for companies but largely not taxable for individuals.

In response to the mass protests in 2011 opposing the continued rise in the cost of living, especially the cost of apartments for young families, the Israeli authorities have already taken significant steps, including shortening planning procedures, using “blanket agreements” with municipalities to promote residential development, and discouraging investor demand through tax measures.

The IMF recommends more measures to expand supply and improve affordability:

* correcting municipal incentives for residential property development would make the supply of housing more responsive to demand in a lasting manner;

* privatizing more land for residential projects, dramatically expanding the scale of urban renewal, and improving public transportation to help relieve demand in major centers;

* allowing broader entry of foreign construction companies and streamlining building regulations would reduce construction time and costs; and

* further developing and improving the rental market.  (IMF 26.04)

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11.4  ARAB MIDDLE EAST:  Arab Women in the Legislative Process

Sada reported on 26 April that women continue to face challenges in accessing the higher echelons of political power, but also in playing a more substantive role in the policymaking process.

On May 4, Algeria will hold its second legislative election since the introduction of women’s quota system in 2012.  Many are set to see whether female legislators will be able to play a more pivotal role in the political realm.  Over the past decade, the Middle East and North Africa (MENA) region has witnessed a consistent, though slow, increase in the presence of women in legislative bodies.  While the introduction of quota mechanisms in many Arab countries – mainly Algeria, Morocco and Tunisia – has opened the door for increased levels of female representation, quota mechanisms do not appear to have a significant immediate impact on the appointment of female politicians to influential legislative committees in Arab parliaments.  Even after gaining access to the political realm, women continue to be marginalized from the bodies where important policy deliberations and concessions occur.

Committee work involves the most significant law-making deliberations in the legislative body, and assignments to them are crucial for both male and female legislators in terms of career advancement and access to resources.  Since women are often considered “newcomers” in the political arena, committee assignments are especially important because they can help build necessary reputations and political expertise.  In developing democracies, legislative bodies are increasingly becoming an invaluable space for interaction between incumbents, legislators, and citizens; thus, prominent committee assignments also play a substantive role in facilitating access to resources and members of the ruling elite.

Previous studies have classified legislative committees across the world into four main types.  Power committees – such as finance and the budget, legislative issues, national defense and internal affairs – typically hold the most prominence, granting members status and special authority.  Economic and foreign affairs committees deal with development, planning, and foreign policy issues.  Social issues committees address health, education, housing, and youth.  Finally, women’s issues committees deal with women, children, and the family.  Of the three countries examined, Tunisia is the only country with a committee that addresses “women’s affairs” explicitly. In Algeria and Morocco, women’s issues are included in social issues committees that also address such topics as children, rights of the disabled, the elderly, labor, and health.

Algeria, Morocco and Tunisia are interesting cases for better understanding the relationship between the introduction of quotas and the role of women in parliamentary committees.  Compared to the rest of the Arab world, these three countries have similar historical experiences, strong political party structures, and remarkable growth in female representation.  Since independence from France, Algeria’s and Tunisia’s political systems became presidential systems with recurrent elections – dominated by the ruling regime’s party – while Morocco has been a parliamentary monarchy with multi-party electoral competition.

In response to the Arab uprisings, each of these countries implemented various political reforms, including ones concerning women’s political representation.  Algeria introduced Law 12-03 of 2012, which required political parties to include female candidates on their party lists, with higher quotas set for larger constituencies.  As a result, women’s presence in the Algerian parliament leaped from a mere 7.7% in 2007 to 31.6% in 2012.  Morocco’s Law 59-11 of 2011 doubled women’s reserved seats from 30 out of 325 seats (as seen in the 2002 and 2007 parliaments) to 60 out of 395 seats.  As for Tunisia, the 2014 constitution enshrined equal political representation by introducing a gender parity clause that stipulated electoral lists alternate male and female candidates.  Though Tunisia’s post-revolution Assembly of Representatives did not witness such a dramatic increase in female representation (currently 31.3%, up from 27.6% in 2009), this can be attributed to both Tunisia’s role as a pioneer in women’s rights since independence and the former regime’s state feminism policies, including support for a voluntary party quota.

A cursory look at the committee assignments in these three countries shows that the most influential committees are generally dominated by male legislators, even though these countries have greater overall female representation in parliament than most of the MENA region.  While this pattern can be attributed to women’s decisions to join social issues committees, it may also mask a general trend of discrimination in which women are consistently denied access to influential committees. Interestingly, although women’s numerical representation in Algeria’s and Tunisia’s lower chambers is almost identical, there are stark differences in their committee assignments.

In Algeria, female representatives make up 22.6% and 21.9% of the power committees and the economic and foreign affairs committees, respectively (Figure 1), despite the fact that women constitute 31.6% of the Algerian parliament.  Of all women who are on any committee, only about 20% participate on one of these committees, compared to nearly 60% who are concentrated in social issues committees.

Figure 1: Women’s Representation on Legislative Committees in Algeria

In Tunisia, there is a more balanced distribution across legislative committees.  For instance, women account for about 33.7% and 31.4% of the power committees and the economic and foreign affairs committees – much closer to the overall proportion of women in the Tunisian parliament, which like the Algerian parliament is about 31% female.  Tellingly, 31.0% of all women on any committee are on a power committee, compared to only 14.4% on the women’s issues committee.

Figure 2: Women’s Representation on Legislative Committees in Tunisia

These findings are consistent with previous work on women’s committee appointments in developing democracies.  While the initial introduction of quota systems may not lead to an immediate increase in women’s presence in influential committees, this effect tends to diminish over time.  Tunisia first introduced a voluntary quota system among political parties in 2004, and women’s representation has steadily increased, which can partially explain the more equitable distribution of female politicians in power committees.  In contrast, the 30% quota that was recently implemented in Algeria in 2012 has not yet resulted in greater female incorporation in such committees.

This pattern is also evident in Morocco. Acknowledging the fact that Morocco has lower female representation in the legislature than Algeria and Tunisia, our data show that female politicians were largely marginalized in 2002, when the “gentlemen’s agreement” among political parties to reserve 10% of the seats for women was first implemented (Figure 3).  Female MPs were least represented in the power committees and heavily concentrated in social issues and economic and foreign affairs committees.  Yet women’s presence in the power committees has incrementally increased over the past decade from 4.7% in 2002 to 9.9% in 2007. In 2012, the proportion of power committee members who were women continued to grow to 14.6% which is much closer to their proportional presence in the legislature (aided by the increased quota, which brought women’s overall parliamentary representation to 16.8%).  Morocco’s 2016 legislative election witnessed a further increase in female representatives, who now hold 20.5% of seats, suggesting this trend may continue to increase once a coalition government is formed and committee appointments are finalized.

Figure 3: Women’s Representation on Legislative Committees in Morocco 

These findings provide further evidence that promoting women’s descriptive representation may not lead immediately to more influence and political power for women.  Traditionally, politics in the MENA region has been a male-dominated arena because most political parties and incumbent male legislators have viewed quotas with disdain and offered few or no opportunities to train or integrate women.  Yet women’s presence in more prominent committees may increase as quota systems and female representation become more widely accepted, as in Tunisia.  In Algeria, women still have a long way to go to catch up with their Tunisian neighbors; nonetheless, the fact that a quarter of the women in parliament managed to acquire seats in power and economic and foreign affairs committees immediately after the quota was introduced in 2012 points to the potential gains that women can achieve in the legislative elections in May 2017.

Marwa Shalaby is the fellow for the Middle East and director of the Women’s Rights in the Middle East Program at the Baker Institute at Rice University. Laila Elimam is a research associate at the Women’s Rights in the Middle East Program at the Baker Institute at Rice University.  (Sada 26.04)

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11.5  ARAB MIDDLE EAST:  Reforms Can Refuel Growth Engines

On 2 May, the IMF Middle East and Central Asia Department announced that growth is slightly improving in the countries of the Middle East and North Africa region, largely driven by higher oil prices and improved export prospects, says the IMF’s latest regional economic assessment.  But civil conflict and high unemployment continue to weigh on the region’s outlook.

The IMF’s Regional Economic Outlook for the Middle East and Central Asia emphasizes that countries will need to continue with plans to diversify their economies and implement policies that support jobs and productivity, like education and infrastructure reforms.  “This more favorable global environment, together with some firming of commodity prices, is providing some welcome breathing space for the region after what has been a difficult period,” said IMF Middle East and Central Asia Department Director Jihad Azour at the report’s launch in Dubai.

“However, our projections indicate that growth will be too low to create enough jobs or improve living standards. Many countries—especially oil importers—are also carrying high levels of debt.” Both oil exporters and importers are therefore “facing two critical policy imperatives: fiscal consolidation and structural reforms,” he emphasized.

Growth is Picking Up

Headline growth rates for the region’s oil importers are projected to increase from 3.7% (see table) in 2016 to 4% in 2017—thanks in large part to policies that have reduced fiscal deficits and improved the business climate, as in Morocco and Pakistan. In the region’s oil exporters, non-oil growth is projected to accelerate as well from 0.4% in 2016 to 2.9% in 2017, although production cuts following the OPEC+ agreement will temporarily reduce overall growth.

The expected increase in growth for the region’s oil-importing countries will not be enough to make a serious dent in the region’s high unemployment rate—at about 12%. For the region’s oil-exporting countries, policy adjustments, such as reductions in public spending, will continue to constrain economic activity. Conflicts are also likely to continue to weigh on the region.

Deficits Improving

Even though fiscal deficits narrowed in oil exporters, deficit-reduction efforts need to continue, building on the progress already achieved in reducing spending, like in Algeria and Saudi Arabia.  According to the report, fiscal deficits are expected to decrease from 10% of GDP in 2016 to less than 1% in 2022, a significant improvement which will help build resilience.

Fiscal positions have also improved for oil importers.  For the broader region, average fiscal deficit fell from 9¼% of GDP in 2013 to about 7% of GDP in 2016, thanks in large part to reduced fuel subsidies (Egypt, Morocco, Sudan) and efforts to increase revenue and strengthen tax collection (Pakistan).

But, public debt remains high, with some oil-importing countries’ debt-to-GDP ratio exceeding 90%.  Debt servicing costs (which are particularly high in Egypt, Lebanon, and Pakistan) are likely to increase in line with anticipated higher global interest rates.  High debt levels also deter investors and add to financial stability risks.

Higher debt servicing costs will put further pressure on fiscal positions, reducing the scope for public spending—like on infrastructure and education—to support growth. Continued fiscal adjustment is needed, supported by efforts to strengthen tax revenue by broadening the tax base, and complete subsidy reforms.

Implement Reforms to Jumpstart Job Creation

The region’s oil exporting economies need to continue diversifying away from hydrocarbons into non-oil sectors to ensure consistent and sustainable growth.  The United Arab Emirates and Saudi Arabia’s strategic visions show a strong commitment toward diversifying investments and finding new revenue engines.  These plans would need to be complemented by policies to boost the role of the private sector—like the recently opened Kuwait Business Center—and to attract more foreign investment.

For oil importers, growth rates are still too low to reduce unemployment.  With little room for spending, governments are constrained.  To promote private sector activity and boost jobs, governments can provide education and training opportunities, increase female labor force participation (such as through gender budgeting in Morocco) and upgrade investor protection regulations, as in Jordan and Mauritania.

Cost of Conflict

Ongoing regional conflicts—which have led to a large number of refugees and internally displaced people—continue to exact not only a high humanitarian cost, but also significant economic consequences, both for countries directly impacted by conflict and their neighbors.  “We know that conflicts remain a serious concern for countries in the Middle East and North Africa region; it’s a concern that we share at the IMF,” Azour said.

Together with other international partners, the IMF is helping countries affected by conflict to cope with the immediate adverse economic consequences, and stands ready to support rebuilding efforts once the conflicts ease. For example, the Fund is providing extensive technical assistance in Somalia and has extended financial support to Afghanistan and Iraq.  “Improving the humanitarian and economic situation in the parts of the region affected by conflicts is not the merely the responsibility of the countries themselves; it is a global imperative,” he emphasized.  (IMF 02.05)

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11.6  JORDAN:  Jordan ‘BB-/B’ Ratings Affirmed; Outlook Remains Negative

On 21 April 2017, S&P Global Ratings affirmed its ‘BB-/B’ long- and short-term foreign and local currency sovereign credit ratings on the Hashemite Kingdom of Jordan.  The outlook is negative.


The ratings on Jordan are constrained by its high public debt, the economy’s large external financing needs driven by large structural current account deficits, and by pressures from the ongoing regional conflicts that have had a negative impact on the country’s growth trajectory.  The ratings are supported by the authorities’ efforts toward fiscal consolidation that have been apparent since last year and which we expect will result in a reduced accumulation of government financial obligations over the forecast horizon to 2020 compared with 2011-2015.  International assistance from the U.S. and the Gulf Cooperation Council (GCC; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) are also a ratings support.

Given the regional instability affecting Syria and Iraq, as well as Israeli-Palestinian tensions, we expect international support for Jordan will remain strong.  Maintaining Jordan’s relative stability is an important foreign policy objective for the U.S. and the GCC.  Bilateral international support has included budgetary and non-budgetary grants (3.5% of GDP on average over 2009-2016), U.S. military aid (approximately 1% of GDP), and U.S.-guaranteed Eurobonds issued in 2014-2016.  Jordan also benefits from concessional lending and donor flows from multilateral agencies (about 2% of GDP), which have been important sources of financing Jordan’s twin fiscal and external deficits.  We expect this support to continue in 2017-2020. We view these commitments as an important rating strength.

Real GDP growth decelerated to 2.0% in 2016, from 2.4% in 2015.  Services exports–particularly from tourism, remittance inflows, and foreign direct investment (FDI) inflows–all declined, continuing the trend since 2014.  Remittances have historically been the mainstay supporting consumption growth in the economy.  Instead, households have been turning increasingly to bank financing in recent years. In 2016, banks’ credit to the private sector grew by 10%, double the pace in 2015.

We have revised down our growth forecast for Jordan by about 1% over 2017-2020.  We now expect that real GDP growth will average 2.7% annually compared with our previous projection of 3.6%.  Jordan’s economic growth has also not kept pace with the rapid rise in its population, driven primarily by inflows of refugees.  Given the more than 50% increase in the country’s population since the start of the Syrian crisis in 2011, we estimate that GDP per capita will decrease to $4,100 in 2017 from $4,400 in 2011.  This represents a cumulative reduction of 30% in real terms.  Including our growth forecasts through 2020, the 10-year weighted average real GDP per capita contracts by 1.3%, significantly lagging peers at similar income levels.

Over the next four years through 2020, we anticipate that growth will continue to be challenged by regional tensions, the wars in Syria and Iraq, continuing (albeit slowing) refugee inflows, and muted private remittance inflows from the GCC, based on our assumption of largely flat oil prices.  A normalization of trade routes with Iraq – with which Jordan’s border was closed in 2015 – would benefit exports and receipts from transit fees, though the imposition of steep tariffs could dilute this.

Nevertheless, despite weaker economic activity, the government’s fiscal consolidation efforts in 2016 were broadly on track; the central government deficit narrowed slightly to 3.3% of GDP, from 3.6% in 2015.  The authorities aim to reduce public debt to 77% of GDP by 2024 from 94% in 2016.  Given our expectation of weak economic growth, social pressure against austerity measures, and other implementation risks, we believe the pace of consolidation and debt reduction will be slower than the authorities currently assume.

The authorities’ efforts are supported by a $723 million (1.8% of estimated 2017 GDP) extended fund facility with the International Monetary Fund.  Alongside the implementation of growth-enhancing reforms, the program aims to reduce public debt through a mix of revenue- and expenditure-side measures, including the removal of exemptions.

The array of exemptions, in place for more than a decade, is one of the main contributors to the decline in tax revenues to 15% of GDP in 2016, from 23% in 2006.  While the authorities have already started to implement some measures on the revenue side, such as hiking fuel prices and raising sales taxes, dismantling tax exemptions is likely to prove more contentious, particularly in the context of the low-growth environment and rising unemployment.

Another main reform relates to maintaining NEPCO’s operational balance.  The state-owned electricity company’s weak performance has resulted in significant financial costs to the government in recent years.  Between 2011 and 2015, NEPCO sustained heavy losses of about 5% of GDP annually when disruptions to the supply of relatively cheap gas from Egypt began.  NEPCO borrowed to fund its purchase of costlier diesel fuel supplies in 2012-2013, with a sovereign guarantee.  The government also subsidized the difference between NEPCO’s buying and selling price. In mid-2013, the government began directly paying NEPCO’s debt-servicing costs.  More recently, the company achieved operational breakeven after switching back to cheaper liquefied natural gas.  Therefore, pressures on general government finances from this front have abated, at least for the time being.

An automatic tariff adjustment mechanism is now in place.  The mechanism would pass on any increases in oil prices (calculated as the average over the past three months) over NEPCO’s operational breakeven to consumers via a fuel surcharge.  According to the authorities, NEPCO achieves operational break even when the price of oil is $55 per barrel.  We note that this tariff adjustment mechanism has not yet been tested, as the average price of Brent in the first quarter was lower than the $55 threshold over which the fuel surcharge would kick in.

We anticipate that the government will continue servicing NEPCO’s debt.  We include NEPCO’s debt, along with the debt of other state-owned enterprises benefiting from a government guarantee (together totaling 12% of 2016 GDP), as part of the general government debt stock, which we estimate at nearly 81% of GDP in 2016.  At the central government level, however, we estimate gross debt at 94% of GDP.  The difference between the two amounts is explained by the social security sector’s holdings of government paper.  We net out these internal holdings of government debt, as per our criteria.  We view this level of debt as a vulnerability in the event of additional financial or economic shocks to the sovereign.  With the implementation of fiscal reforms, we project that central government debt will gradually reduce to 85% of GDP in 2020.

Jordan’s external financing needs remain high (over 145% of current account receipts on average in 2017-2020), owing to the large structural current account deficit (CAD) and the high proportion of short-term debt.  Nonresident deposits in the financial sector make up most of the short-term debt.  Although these deposits have remained relatively stable, and we understand that they mainly relate to the Jordanian diaspora, we view a reversal as a potential risk.  Preliminary data indicate that Jordan’s CAD widened slightly to 9.2% of GDP in 2016, from 9.1% in 2015 and 7.3% in 2014.  This remains in part due to the closure of key trade channels with Iraq and Syria, as well as muted tourism receipts, all of which offset fuel-price-related gains (given that Jordan is a net fuel importer).  We forecast that the CAD will remain elevated at an average of 7.5% over 2017-2020, and will be financed by FDI, debt inflows, grants and project lending.

The Jordanian dinar’s peg to the U.S. dollar supports price stability, although it also limits the central bank’s room for policy maneuver.  The pick-up in inflation in recent months reflects the rise in commodity, food, and transport prices; rather than a firming-up of domestic demand.  We expect headline inflation will trend upward over the forecast horizon through 2019.


The negative outlook reflects the challenges and implementation risks to Jordan’s fiscal consolidation and external financing, particularly in the context of weak GDP growth, high unemployment, and continuing regional instability.

We could consider lowering the ratings if we believed that implementation risks to fiscal consolidation had increased, if external financing needs became greater than we currently project, or if foreign and official funding waned.  We could also lower the ratings if the government’s debt profile worsened, for instance through higher interest costs or a greater reliance on foreign currency-denominated borrowing.

We could revise the outlook to stable if Jordan implements key political and structural reforms that support more sustainable economic growth and reduce fiscal and external vulnerabilities.  (S&P 21.04)

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11.7  JORDAN:  Taxing Times in Jordan

David Schenker wrote in the Washington Institute on 19 April that under increasing pressure from regional wars and more than a million refugees, Amman is ratcheting up taxes on ordinary citizens to bridge the budget gap.

Tax season is tough for most Americans.  Not typically so for Jordanians.  In the Kingdom of Jordan — arguably Washington’s best Arab ally in the war against the terrorist Islamic State organization — historically only about 3% of the locals pay taxes.

But this year is different. Facing a burgeoning budget deficit, months ago in an effort to raise revenues the Government levied a 16% Value Added Tax or “VAT” on the population. Irrespective of income, citizens of the Kingdom now have to pay tariffs on a broad range of goods and services.

For a plurality of the kingdom’s families currently under the poverty line of 500 dinars — or $705 — a month, this regressive tax is having a serious impact.  Although the VAT doesn’t cover medicines and many food staples like rice, sugar, wheat, bread, chicken, fish and meat, the new tax is proving a bitter pill to swallow because the costs of gas, oil, diesel fuel, kerosene and electricity have all increased.  Annual vehicle registration fees are up, too.  On some cars, fees have spiked from $120 to $268 per year. Adding insult to injury, the price of Jordan’s favorite desert, knafeh — a sweet confection of sugar, cheese, pistachio nuts and rose water — has swelled from $6.50 to $9 per kilo.

Other vices have also been targeted.  For the nearly 45% (conservative estimate) of Jordanian men who smoke, the cost of cigarettes has increased about 10%.  The price of alcohol has also surged.  A single domestic tall boy purchased from a store now costs $5.

Worse, it was initially misreported that mansaf — Jordan’s national dish of lamb, rice, and yoghurt — would also be taxed, in particular by raising the price of the fermented yoghurt known as “jamid.”  The allegation was so controversial it sparked a debate in parliament.  To quell the rumor mongering, on 21 February, the Government published an advertisement on the front page of a leading daily newspaper, describing in detail what products would be affected.

While the unprecedented media campaign may have better informed Jordanians, it clearly didn’t make them any happier.  Complaining is a national pastime in the kingdom, but the ongoing griping about the price hikes this time is unusually relentless.  Not surprisingly, young Jordanians are especially incensed about tax increases on mobile phone service.  Tariffs included, $7 worth of cellphone talk time can now cost up to $12 to purchase.  To prevent enterprising youths from employing free web-based chat and texting alternatives such as WhatsApp and Viber, the Government has proposed charging users of these apps $5.50 per month.

Outraged, in early February, one Jordanian tried to organize a boycott campaign of the telecommunications companies. He was arrested, and released after a week.  Still, product boycotts and demonstrations demanding that King Abdullah fire the Prime Minister are becoming a routine occurrence, far surpassing even the ubiquitous anti-Israel protests.

Despite the popular pushback, however, taxes in Jordan look like they are here to stay.  The wars in neighboring Iraq and Syria – and hosting nearly 1.4 million Syrian refugees – have proved very costly for Jordan.  To balance the budget and meet its International Monetary Fund (IMF) economic reform commitments, the kingdom needs to curtail subsidies and raise nearly $2 billion in revenues.  Further price hikes on electricity are expected in the coming months as one way to raise the missing revenue.

Meanwhile, for average Jordanians already living under economic duress, the VAT is just another source of pressure.  While Jordan remains reasonably stable, the stresses appear to be taking a toll.  For example, private school enrollment – a traditional emolument for middle-class children in the kingdom – is reportedly falling, suggesting dwindling disposable income.  At the same time, between 2007 and 2015, the divorce rate more than tripled to 6.9%, likely, at least in part, due to financial pressures.  Suicides are up as well.  All of this is occurring even though Washington gave Jordan $1.7 billion dollars in economic and military assistance last year.  No wonder that the mood in the kingdom is pretty dour these days.

While tax day in the United States is no picnic, at least it’s only one day — and this year it’s now over.  Lately for Jordanians, every day is tax day, so it’s never over.  Now accustomed to this annual institution, generations of Americans subscribe to Mark Twain’s witticism, “The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.” It’s only been a couple of months, but Jordanians, it can be assumed, agree.

David Schenker is the Aufzien Fellow and director of the Program on Arab Politics at The Washington Institute.  (TWI 19.04)

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11.8  BAHRAIN:  Profile Balances Wealth & Diversified Economy Against Weak Fiscal Position

The Government of Bahrain’s Ba2 credit rating with a negative outlook is supported by the country’s high wealth levels, a diversified economy and the positive net international investment position, Moody’s Investors Service said in a report on 26 April.  However, the sovereign also faces credit constraints, including the sharp deterioration in government finances since 2009, a trend intensified by lower oil prices.

The negative outlook on the rating reflects heightened government and external liquidity risks and the government’s so far slow and incremental response to lower oil revenues.

“The government’s ability to continue managing its debt and deficit levels will determine the sovereign’s rating trajectory in the coming years,” said Steffen Dyck, a Moody’s Vice President — Senior Credit Officer and co-author of the report.  “In the absence of significant revenue and expenditure reforms, and given our expectation that oil prices will remain range-bound between $40-$60 per barrel over the coming years, Bahrain’s fiscal deficits will stay wide and government debt will rise to 85% of GDP by 2020.”

Moody’s expects Bahrain’s growth performance to moderate in the coming years, on the back of stagnant oil and gas output and the expected negative impact on growth from fiscal consolidation.

As such, Moody’s forecasts average real GDP growth of slightly more than 3% in 2011 to 2020, which is broadly in line with Oman, but relatively lower than other Gulf Cooperation Council (GCC) member countries, such as Kuwait, Saudi Arabia and United Arab Emirates.

In the absence of more aggressive measures, Moody’s expects that Bahrain will continue to post large fiscal deficits over the coming years.  Following an already very wide deficit in 2015 – estimated at 18.4% of GDP — Moody’s estimates that it narrowed only gradually to 16.5% in 2016 and will remain sizable at 9.8% in 2017.

The negative outlook could return to stable if there is evidence that a clear and credible fiscal and economic policy response is likely to stabilize government debt at levels below 80% of GDP, and would be accompanied by a strengthening of fiscal and external buffers.  (Moody’s 26.04)

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11.9  SAUDI ARABIA:  Saudi Arabia’s Vision 2030, One Year On

Simon Henderson wrote in TWI‘s PolicyWatch 2790 on 24 April that royal rivalries, oil uncertainties, and premature optimism about reform initiatives could jeopardize the kingdom’s hopes for transformative economic change.

On 25 April 2016, Saudi Arabia announced Vision 2030, an ambitious economic plan intended to confirm the kingdom’s status as “the heart of the Arab and Islamic worlds, the investment power house, and the hub connecting three continents.”  The accompanying vision statement was long on rhetoric and short on detail, making it difficult to judge the progress achieved one year later.  But its grand goals have captured the imagination of international business figures seeking deals and investments, especially the proposed initial public offering (IPO) for part of the state-owned oil company Saudi Aramco, expected in 2018. Anecdotal evidence also suggests that the program is popular with Saudi youths, who are tantalized by the prospect of a more liberal society.  Yet several obstacles loom:

-The persistent slump in oil prices, which is curtailing revenues badly needed to implement the proposed changes.

-The costly financial and political distraction of the war in Yemen, where efforts to reinstate the internationally recognized government have so far failed.

-The kingdom’s basic resistance to change, epitomized by the deep conservatism of the Ulama, the clerical leadership that remains a significant political force.

-Uncertainty about whether the current crown prince will actually become king and, if so, whether he will endorse the project.

Mixed Messages On Oil?

The kingdom has the largest easily recoverable oil reserves in the world.  But the architect of Vision 2030 — Muhammad bin Salman (MbS), the thirty-one-year-old deputy crown prince who is widely regarded as the king’s favorite son and true heir apparent — prefaced the plan with a disclaimer about relying on those reserves.  “We are not dependent solely on oil for our energy needs,” he wrote. “We are determined to diversify the capabilities of our economy…  As such, we will transform Saudi Aramco from an oil producing company into a global industrial conglomerate.”

Indeed, the key to Vision 2030 is the release of funds made possible by a partial Aramco sell-off, raising a fundamental contradiction: foreign investors are being asked to put their money into the Saudi hydrocarbon sector, but the kingdom appears eager to move away from oil.  This incongruity is particularly striking at a time when headlines like “Oil dives below $50 as confidence in OPEC wavers” have been splashing across the pages of leading newspapers.

Riyadh has valued the IPO at $2 trillion, leaving hordes of investment bankers and lawyers salivating at the potential slew of contracts.  The announcement also prompted British prime minister Theresa May to visit the kingdom earlier in April in a bid to win some of the business for the London Stock Exchange.  Yet the Financial Times recently called the $2 trillion figure “hard to believe,” noting that Aramco discloses very few financial details and explaining how the paper’s own analysis “points to a valuation roughly half that size.”  The well-regarded business section of the London Sunday Times offered a similarly incredulous headline: “$2 trillion for Saudi oil?  Forget it.”

The need for an IPO is partly a consequence of stagnant oil prices (themselves the result of growing U.S. shale production and other factors).  In 2016 the kingdom ran an enormous budget deficit of $75 billion, more than 10% of its GDP.  This followed a five-year period in which the government exceeded its budgeted expenditures by nearly a quarter.  Last September, it cut subsidies on a range of goods and services (e.g., gas, electricity) while trimming public salaries, potentially undermining the social contract with Saudi citizens.  On 22 April, however, the government announced that it was restoring public-sector benefits and awarding an extra two months’ pay to troops stationed on the border with Yemen.

Yemen Taking a Toll

Besides steering Vision 2030, MbS is also leading the troubled war effort next door in his capacity as defense minister.  Two years ago, Saudi Arabia put together an Arab coalition to fight the Iranian-backed Houthi rebels and their allies, with the goal of restoring President Abdu Rabu Mansour Hadi in Sana.  Yet the campaign has become stalemated, with the rebels controlling the northwestern region that holds the bulk of the country’s population.  A potential advance on the Houthi-controlled port of Hodeida could change the coalition’s fortunes, but it also risks a humanitarian crisis if food supplies through the port are disrupted.  The Saudi military is already having to fend off accusations of attacks on civilian targets, which spurred Washington to cut off the supply of some munitions.  Meanwhile, the war is costing tens of millions of dollars per day, and the kingdom’s underreported casualties include twelve soldiers who died last week when their helicopter was downed by friendly fire attributed to allied Emirati forces.

Potential Conservative Backlash

Previous reform attempts in Saudi Arabia have been cautiously framed in terms of reverting to Islamic norms, but Vision 2030 breaks this mold.  Although certain hardline measures remain in place, including the notorious ban on women driving, the government has relaxed other restrictions over the past year (e.g., by allowing mixed audiences at music and drama performances).  In a 20 April Washington Post story, the head of the new Saudi entertainment authority declared, “We want to change the culture,” noting that the program’s larger goal is “spreading happiness.”  Similarly, the government needs to boost economic efficiency by allowing men and women to mix in the workplace as well.

According to the same Post story, “a recent Saudi poll found that 85% of the public, if forced to choose, would support the government rather than religious authorities on policy matters.”  Although the caveat “if forced to choose” suggested some hesitation, the general nature of the response was telling.  Thus far, the Ulama have been muted in their criticism of the recent changes, apparently not wanting to challenge MbS because it could be seen as an insult to the king.  Yet the government’s upcoming Las Vegas-style entertainment park (sans drinking and gambling) may be too much for them to ignore, especially if it is accompanied by accusations of crony capitalism in the awarding of contracts.

The Succession Question Mark

Vision 2030 is widely seen as a vehicle for the personal ambition of MbS, whose elevation to the throne seems increasingly likely.  Yet the exact means by which he would leapfrog the current crown prince – his older cousin Muhammad bin Nayef (MbN), the kingdom’s interior minister and key counterterrorism interlocutor with Washington – perplexes students of Saudi succession.  As the system currently operates, MbN is supposed to become monarch when King Salman dies.  Whether he would then elevate MbS to crown prince is an open question.  At the moment, a significant portion of the royal family is upset with the younger prince’s indifference toward the tradition of respecting seniority, and their desire for at least the appearance of consensus could spur them to back MbN come succession time.  If so, that could spell trouble for Vision 2030 – MbN seems standoffish toward the plan and might alter it significantly if he becomes king.

As for the reported awkwardness in MbN’s relationship with MbS, a recent Post article noted that there is less apparent political tension between the two men than a year ago, but that MbS “appears to be firmly in control of Saudi military strategy, foreign policy, and economic planning.”  The latter point was seemingly confirmed Saturday when Riyadh announced new cabinet appointments that build up the younger prince’s powerbase at the expense of MbN’s.  The biggest headline concerned Prince Khaled bin Salman, the twenty-eight-year-old brother of MbS who was named ambassador to Washington.  Moreover, MbN’s days as president of the Council of Political and Security Affairs – supposedly the kingdom’s main decision making body on defense and foreign policy – appear numbered.  Any such sidelining would likely further antagonize those royals who are already troubled by what MbS has done so far.

Closing US Policy Gaps

When MbS met with President Trump at the White House last month, the prince gave a briefing on the progress of Vision 2030 and highlighted how expanded economic cooperation could create as many as a million American jobs in the next four years.  The latter notion seemed to catch the president’s imagination and may be a crucial factor in whether he decides to visit Saudi Arabia during next month’s foreign tour.  Despite the importance of burnishing bilateral relations and encouraging Vision 2030’s more promising proposals, however, Washington still has policy differences to resolve with Riyadh, especially on oil and Yemen.  The administration would also be well advised to steer clear of taking sides if tensions mount within the royal family.  The U.S. role should be to offer public support for Vision 2030 while quietly working to steer the kingdom away from overambitious targets that could undermine the plan’s potential.

Simon Henderson is the Baker Fellow and director of the Gulf and Energy Policy Program at The Washington Institute, and coauthor of its 2017 Transition Paper “Rebuilding Alliances and Countering Threats in the Gulf.”  (TWI 24.04)

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11.10  EGYPT:  Short-Term Marriages Address Rampant Poverty

Elizabeth Lehmann, Eva Plesner and Flemming Weiss-Andersen wrote in Qantara on 21 April that hundreds of under-age Egyptian girls enter temporary marriages with rich tourists from the Persian Gulf during the summer in return for money for their families.  These unions – dubbed summer marriages – are not legally binding and end when the foreigners return to their own countries.

It was a summer’s day in 2008 when someone knocked at the door. Howeida was 15 years old at the time.  A man stood in the doorway.  He spoke briefly to her father and her step-mother.  Then the matter was settled: Howeida would be married to a man from Saudi Arabia for a sum of around €1,750.  The “marriage” lasted a whole 20 days, during which Howeida was repeatedly raped. Then, the man simply departed. His summer vacation was over.

Howeida was a so-called “summer bride” – a romantic name for prostitution.  Every year, rich tourists from the Gulf states travel to Egypt and choose a girl for the summer.

The dowry was an unimaginably large sum for the family – several annual salaries.  “It all sounded so enticing.  My family told me that I would get clothes and presents.  I was still so young.  In the end I gave my consent,” recounts Howeida.  Her family bought a refrigerator and a washing machine with the dowry.

Marriage Contracts Found in Any Bookshop

The paperwork for such summer marriages is quickly dealt with: marriage contracts can be found in any bookshop.  A whole network of intermediaries and lawyers ensure that the marriages take place quickly and discreetly.  They are not officially registered.  As such, the marriages can be annulled just as quickly as they were concluded.

Howeida is now 28.  She has been married 8 times, each time for only a few days.  She is ashamed of her past and does not wish to state her real name.  She wears a black niqab that only reveals her eyes.  Concealed underneath is a pretty woman with fine skin and shoulder-length black hair.

When she was married for the first time, she lived with her father, her step-mother and her six half-siblings in three small rooms in a village on the outskirts of Ouseem, some 20 kilometers northwest of Cairo.

Things were not as simple as Howeida imagined it would be at the time.  “I was still innocent. I still believed in love. The first night was just awful.  Afterwards, I had psychological problems.”  Nonetheless, that did not prevent the family for marrying off Howeida again the next summer.  This time, it was to a man from Kuwait, yet he only paid around €600, as Howeida was no longer a virgin.

Addicted to the Money

Howeida’s story is not unusual, explains Ahmed Moselhy.  The lawyer advises NGOs in cases of prostitution and human trafficking.  “Many girls want to help out their families and enter into the marriage voluntarily.  And then over and over again, as the money can be addictive,” says Moselhy.  He then makes a macabre calculation: “The families here in the surrounding area usually have eight or more children.  Every daughter equals a car or a new story on the house.”

The outskirts of Cairo are incredibly poor.  A quarter of the residents here have to make do on less than two dollars a day.  This plays into the hands of sex tourists.  Sometimes they will even pay more than €100,000 for a girl – depending on her looks, age, duration of the marriage and whether or not she is a virgin.  There are even package deals, including hotel room or apartment.  The “groom” can maintain a clear conscience, as extramarital sex is forbidden in Islam.  Nor does he face any risk of criminal proceedings as a result of the marriage contract.

Impact of Legal Proceedings Limited

The same cannot be said for the intermediary.  In 2012, Moselhy, the lawyer, took the matchmaker “Ousha” and her accomplices to court – a total of eleven persons.  They received prison sentences ranging from six months to 18 years.  The charge was human trafficking.  Yet, business hardly suffered as a result.  There are no official figures, but NGOs estimate that thousands of men continue to come to Egypt each year in the search for a summer bride.

Howeida has since abandoned the business.  She still lives with her father and step-mother.  “I no longer fear them, but I hate them.  Especially my father.  Why did he allow this to happen?”  Howeida is now looking for the right man for a genuine marriage.

In real terms, however, her fate is sealed.  As a former summer bride, she is no longer regarded as a “respectable woman.”  There is hardly a man in Egypt’s conservative society who would consider marrying such a woman.  ( 2017 21.04)

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11.11  ALGERIA:  Algeria’s Growing Security Problems

Vish Sakthivel wrote in TWI‘s PolicyWatch 2791 on 25 April that by encouraging Algiers to develop a more comprehensive approach to the persistent extremist threat in the south and east, Washington can also help manage the crises in Libya and Mali.

In recent months, terrorism has frequently dominated news coverage of Egypt, Libya and Tunisia.  Developments in neighboring Algeria, which remains largely closed to international media, have been less visible, but the upcoming 4 May legislative elections in Africa’s largest country will occur against a backdrop of growing security problems.  Although Algiers is trying to encourage a disillusioned, restive population to get out and vote, the recent uptick in terrorist activity may complicate matters.  In the east, terrorists have launched a spate of attacks, most notably a 26 February suicide bombing outside a police station in Constantine.  In the south, where the population has thus far not been seduced by jihadist ideology, Islamist terrorist networks are nevertheless making inroads due to economic opportunism.  While U.S. ties with Algeria are not especially close, there is much the Trump administration can do to help maintain the relative stability of one of the few North African states that has largely avoided the ongoing regional tumult.

An Outdated Approach

In 2005, Algiers adopted the Charter for Peace and National Reconciliation, a political roadmap intended to close the chapter on the decade-long civil war between Islamist insurgents and the state.  That conflict, which broke out in 1991, ultimately claimed over 100,000 lives.  By 2002, most of the Islamist insurgents had been killed, exiled, or reintegrated into society.  But the victory was in many ways pyrrhic, with some extremists going underground and eventually forming al-Qaeda in the Islamic Maghreb (AQIM).

For its part, the state was long divided between the conciliators, who wanted to negotiate a resolution to the conflict, and the eradicators, who preferred to annihilate the Islamists.  Notwithstanding President Abdelaziz Bouteflika’s conciliatory efforts, the eradicator camp still dominates Algerian military and counterterrorism policy.  Accordingly, the state continues to treat Islamist violence as an extension of the 1990s conflict, leading authorities to narrowly focus on eliminating residual domestic threats in a piecemeal, ad hoc manner.  “Countering violent extremism” is largely treated as a military endeavor, while terrorism remains a persistent problem.

Jihadist Recruitment

Despite the military’s successes on the battlefield, Algeria’s terrorism problem seems to be worsening.  In the 1990s, jihadists proved their ability to exploit the country’s many marginalized communities.  In neighboring Mali and Niger, jihadism has often gained a foothold via opportunism rather than religion or ideology, with terrorist groups recruiting and profiteering through smuggling, kidnapping and other modes of income in the absence of conventional economic prospects.  Unemployment, disenchantment, and lack of opportunity have all helped AQIM and its numerous splinters thrive, while bad governance and corruption have made local communities and even police complicit in their smuggling networks.

The Algerian south is vulnerable to such opportunism.  Historically, extremists had little influence there because the local population feared they would threaten the area’s already limited tourist traffic or harm its oil and natural gas economies.  Southerners were also spiritually averse to jihadist discourse. More recently, however, terrorist groups have been taking up causes of import to southerners, adopting anti-state rhetoric identical to that of various popular movements.  For example, AQIM and similar elements have promoted themselves as guardians of local hydrocarbon resources by supporting grassroots anti-fracking movements around Ain Salah.

At the same time, jihadist contraband networks provide economic alternatives for disaffected young people, as well as political alternatives when peaceful protest and social organizing prove fruitless.  An oft-cited example is that of Lamine Bencheneb, a member of the initially nonviolent Abna al-Sahra (Sons of Sahara) Movement, which demanded redress for the high levels of unemployment in the southern oil/gas zones.  First ignored and eventually repressed, the group resorted to violence, carrying out an attack in the southeastern Illizi province in 2007.  The state subsequently assured local leaders it would address their demands, but in 2011, Bencheneb defected to form the Sons of Sahara for Islamic Justice Movement (MSJI), which carried out a 2012 suicide attack on the national police headquarters.  He was later killed when security forces responded to a 2013 hostage incident at the In Amenas gas facility, where thirty-nine foreigners also perished.

Algeria’s Reticence

Amid such developments, the Algerian establishment seems to understand that it must move beyond purely military and criminal approaches to the radicalization problem in order to preempt unrest.  In the south in particular, local dynamics and developmental deficiencies are key vulnerabilities that require a more comprehensive approach — one that accounts for the area’s understandable political and economic grievances. Yet the state does not yet appear to have adopted such a holistic approach.

This hesitance may be rooted in Algeria’s gradually declining oil revenues, shrinking foreign exchange reserves, and looming austerity measures, all of which fuel instability and make it more difficult to invest in the south’s development.  The country is open to economic diversification, but this will take time.  A more comprehensive political opening is also viewed with trepidation — the state worries that such measures would threaten its entrenched interests, while the public still fears the unknown.  Rumors of a fifth term for the octogenarian Bouteflika, who is widely believed to be infirm or incapacitated, suggest the government is on autopilot.  Despite Algeria’s problems, the state is lukewarm to assistance from U.S., European or even international organizations, holding fast to its policies of military nonintervention, rigid national sovereignty and at times, economic nationalism as staples of its postcolonial legitimacy.

U.S. Policy Options

Despite some promising counterterrorism cooperation since 9/11, U.S. relations with Algiers are not particularly robust.  Yet the Trump administration has several options for helping the country ameliorate its problems with radicalization and terrorism.  One important avenue for such engagement is Flintlock, the annual three-week military exercise organized by U.S. Africa Command (AFRICOM) and involving sixteen regional states.  The event is designed to augment interoperability between U.S., European, and African partners by empowering local units to conduct counterterrorism and counterinsurgency operations.  In this sense, Flintlock is a mechanism that allows for multilateral training of Algerian forces without stirring the country’s concerns over sovereignty.

While the framework is good, however, Flintlock is not a cumulative exercise that builds on previous work with the same units.  Accordingly, some officials in AFRICOM and elsewhere suggest moving from an episodic three-week rendezvous to more thorough, sustained engagement that enhances civil-military relations and builds much-needed capacity among local allies.  To this end, the United States should consider negotiating an add-on component to the joint military exercises.  For example, in Mali, where Flintlock’s “train and equip” model was also deemed unsustainable, AFRICOM now gives greater attention to infrastructure issues and medical aid under its Medical Civil Action Program (MEDCAP).

Washington would have ample leverage in negotiating such arrangements with the Algerian government, which has its own strong interest in protecting the vulnerable southern provinces.  More broadly, U.S. officials have reportedly had greater success engaging the younger generation of Algerian military and intelligence officers in recent years.  The “Bilateral Dialogue Between the United States and Algeria on Security and the Fight Against Terrorism” (not to be confused with the broader “Strategic Dialogues”) presents another opportunity to press the government for more mutually beneficial cooperation.  Concluding earlier this month, the fourth annual dialogue focused on regional security threats, crises in the Levant, violent extremist groups, organized crime, and the challenges of combating terrorism.

In terms of economic support, Washington already has programs in place to help Algeria.  The State Department’s Middle East Partnership Initiative and a handful of U.S.-funded NGOs have been providing educational opportunities in the south, setting up unemployment/career centers and facilitating cultural exchanges between northern and southern youths.  Although increasing the funding for such efforts may not be feasible in light of the administration’s stated desired to reduce the State Department budget, cutting these productive programs would be unwise.

Given the deteriorating situations on its southern and eastern borders, an unstable Algeria would be detrimental to U.S. interests.  Algiers plays an important intermediary role in Mali, remains an ally in the UN-led Libya peace process, and helps train the Tunisian military to defend against an increasingly pernicious terrorism threat. Algeria has too much promise — and too much at stake — for Washington to disengage.

Vish Sakthivel is an adjunct fellow with The Washington Institute and a Fox Fellow at the Foreign Policy Research Institute. She is writing her dissertation on Islamism in Algeria, where she recently lived for a year.  (TWI 25.04)

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11.12  CYPRUS:  Fitch Affirms Cyprus at ‘BB-‘; Outlook Positive

On 21 April 2017, Fitch Ratings has affirmed Cyprus’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BB-‘.  The Outlooks are Positive. The issue ratings on Cyprus’s senior unsecured bonds have also been affirmed at ‘BB-‘.  The Country Ceiling has been affirmed at ‘BBB-‘ and the Short-Term Foreign- and Local-Currency IDRs and issues at ‘B’.

Key Rating Drivers

The economic recovery, now in its third year following the 2013 banking crisis and ensuing bail-out program, is supportive of the ongoing financial sector, fiscal, and economic adjustment. GDP grew by 2.8% in 2016, up from 1.7% in 2015, and led by strong domestic demand across sectors.  Tourism enjoyed record growth, with a near 20% increase in arrivals.  Fitch projects GDP growth of 2.7% in 2017 and 2.5% in 2018, aided by the labor market recovery and a strong pipeline of investments.

A number of factors continue to weigh heavily on Cyprus’s credit profile.  The banking sector’s exceptionally weak asset quality poses a significant downside risk to the recovery.  Very high gross general government debt (GGGD), at 107.8% of GDP in 2016 relative to the ‘BB’ median of 46%, and net external debt (NXD) at over 150% of GDP (estimate as of 3Q16) relative to the ‘BB’ median of 18%, limit the private and public sectors’ abilities to finance economic activity and deal with external or domestic shocks, and imply that there may be the prospect of further economic rebalancing over the medium term.

The banking sector is benefiting from improved macro conditions, as evidenced by higher liquidity, with deposits up 6% in February versus a year earlier. The Bank of Cyprus, placed into resolution in 2013 and recapitalized partly through a bail-in of depositors, fully repaid its remaining ECB emergency liquidity assistance balance in January.  Overall sector deleveraging is ongoing, with assets down to 3.8x GDP in 2016 from almost 6x in 2009.

The ratio of non-performing exposures (NPEs) to total loans was 46.2% at end-2016, still the highest of Fitch-rated sovereigns, and up from 45.3% a year earlier.  Measuring the stock of NPEs (excluding the shrinking loan book) shows a €3 billion or 11% decline from 2015.  A narrower measurement of NPEs (90-day past due) shows a decline in the ratio, to 33.9% in 2016 from 35.8% a year earlier.  Unreserved problem loans, represented by gross NPEs minus system-wide provisions also improved, albeit from an extremely elevated level, to €14 billion from €16 billion (79% of GDP from 93% a year earlier).

Banks’ efforts to manage their loan books have accelerated since the new foreclosure framework was introduced in 2015, as reflected in a higher number of restructurings.  Early feedback on the restructuring process has been uneven across banks; with the overall current re-default rate estimate of 28% indicating some initial progress towards resolution of NPEs.  However, this remains tentative and highly reliant on a macroeconomic and property market recovery.  The property sector is illiquid, but indicators point to a stabilization in prices and pickup in activity (sales contracts up 38% and building permits up 18% in 2016 versus 2015).

The budget recorded a surplus of 0.4% of GDP in 2016 compared with a deficit of 0.1% a year earlier (excluding the bank recap).  GGGD-to-GDP ended the year at 107.8%, reflecting the accumulation of cash reserves.  Fitch expects the cyclical recovery to support small fiscal surpluses of 0.1% of GDP in 2017 and 0.4% in 2018, leading to a decline in GGGD-to-GDP to around 100% by 2018. Risks to the fiscal outlook are tilted to the downside, as presidential elections and the expiry of wage settlements in 2018 could lead to fiscal relaxation.  The financing outlook is comfortable, with cash buffers covering needs until 1Q18.

The current account deficit widened to 5.3% of GDP in 2016, from 2.9% a year earlier.  The result is distorted by the inclusion of special purpose entity flows (NPEs, mainly non-resident shipping industry), and authorities estimate that excluding these entities, the current account would have recorded a deficit of around 0.5% of GDP, narrowing from 1.5% in 2015.  For 2017 and 2018, Fitch projects the deficit (including NPEs) to remain elevated at around 5% of GDP, reflecting growth of consumption-led imports and a modest recovery in oil prices.

Estimated at over 150% of GDP as of 3Q16, NXD reflects the highly indebted private and public sectors.  Also, the NXD figure was revised up substantially following the shift of external statistics compilation to the BPM6 framework in June 2014, owing to the inclusion of capital-intensive ship-owners as Cypriot economic units irrespective of the location of their activities.

Negotiations for a deal between Greek and Turkish Cypriots to reunify the island have resumed in April following a two month halt.  The likelihood of success, terms and economics of a potential Cyprus reunification remain uncertain.  A reunification would benefit both sides in the long term by boosting the economy, but would entail short-term costs and uncertainties.

Focus on reaching an agreement, the economic recovery, and exit from bailout program could have reduced the urgency and diverted political capital away from structural reform implementation, where progress has been slow; and in some areas has stalled, including the privatization of the telecom operator and the public administration wage reform package.  Presidential elections could further delay progress in politically sensitive areas.

Cyprus’s rating is supported by a high level of GDP per capita, a skilled labor force, and strong governance indicators relative to ‘BB’ peers.

Key Assumptions

In its debt sensitivity analysis, Fitch assumes a primary surplus averaging 2.1% of GDP, trend real GDP growth averaging 2%, an average effective interest rate of 3.3% and GDP deflator inflation of 1.7%.  On the basis of these assumptions, the debt-to-GDP ratio would have peaked at almost 108% in 2016, and will edge down to around 85% by 2025.

Gross debt-reducing operations such as future privatizations are not considered in Fitch’s debt dynamics.  Our projections also do not include the impact on growth of potential future gas reserves off the southern shores of Cyprus, the benefits from which are several years into the future, although now less speculative.    (Fitch 21.04)

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