Fortnightly, 30 May 2017

Israel and Québec have set up a $12 million Industrial R&D collaboration program. The program was launched during the recent visit to Israel by a 100-strong trade Québécois delegation led by Premier Philippe Couillard. Québec and the Israel Innovation Authority are each committing $3 million over 5 years to support Québec-Israel industrial R&D projects with a further $6 million (half from each country) from private research partners. In preparing and implementing the program, the Israel Innovation Authority is represented by Israeli law firm Yehuda Raveh & Co. and Québec’s Ministry of Economy, Science and Innovation by Dunton Rainville Avocats. The two law firms also signed a cooperation agreement between them.

Innovation was the theme of the Québec trade mission, which included professionals from the aerospace, transportation, IT and healthcare industries. The visit included tours and meetings by delegation members at Elbit Systems, Israel Aerospace Industries, Google Israel, Bombardier in Haifa, Mobileye and the MIXiii BIOMED 2017 Conference and Exhibition in Tel Aviv.

In addition, during the visit, crowdfunding venture capital firm OurCrowd signed a memorandum of understanding in its offices in Jerusalem with HEC Montréal, the Business School of the University of Montréal, to cooperate and identify promising technologies and help commercialize and fund them. (Globes 23.05)

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1.2 Cabinet Approves Afternoon Daycare Subsidies

On 21 May, the Netanyahu government approved an extension of the subsidy for afternoon daycare. Discounts will be given not only to the most economically disadvantaged communities (Groups 1-3), but to all communities in Israel. The subsidy will be differential, so that the more disadvantaged communities will receive a larger subsidy. The subsidy is part of Minister of Finance Moshe Kahlon’s family assistance program.

Under the plan, devised in cooperation with the Union of Local Authorities in Israel, families living in socioeconomic Group 4 (Ofakim, Kiryat Malachi, Yeruham, Kafr Yasif and others), will receive a NIS 350 subsidy per month per child for an afternoon daycare center from age 3 to age 8.

Families living in socioeconomic Group 5 (Ashdod, Tiberias, Mitzpe Ramon, Beer Sheva, and others) will receive a NIS 300 subsidy per month per child for an afternoon daycare center from age 3 to age 8. Families living in socioeconomic Group 6 (Karmiel, Gedera, Pardes Hanna-Karkur, Shlomi, Kfar Yona, Netanya, Rehovot, and others) will receive a NIS 300 subsidy per month per child for an afternoon daycare center for children in first and second grade. Families living in socioeconomic Group 7 (Haifa, Nesher, Kiryat Motzkin, Kiryat Bialik, Petah Tikva, Rishon LeZion, Rosh Pina, Yehud, and others) will receive a NIS 200 subsidy per month per child for an afternoon daycare center in first and second grade.

Families living in socioeconomic Groups 8-10 (Tel Aviv, Modi’in, Maccabim-Reut, Even Yehuda, Ra’anana, Kochav Yair, Herzliya, Savyon, and others) will receive a NIS 150 subsidy per month per child for an afternoon daycare center in first and second grade. According to the Ministry of Finance, these discounts will save a net of NIS 1,500-3,500 per year for each child, and up to NIS 17,500 per child over a five-year period. (Globes 21.05)

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1.3 Finance Minister Kahlon Cancels Import Duty on Shoes

Israel’s Minister of Finance Moshe Kahlon has canceled the 12% customs duty imposed on shoes. Cancellation of the tax will cost the state coffers about NIS 188 million in lost revenues. Kahlon signed the cancellation order after conducting a hearing with the Israel Tax Authority on the matter, which also included baby clothing and accessories. The Tax Authority is preparing its professional response on the issue. It remains to be seen whether the stores will pass on the savings to consumers. (Globes 18.05)

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1.4 Private Power Plants to Replace Hadera Coal Units

Minister of National Infrastructure, Energy, and Water Resources Steinitz announced on 28 May his decision to have the private sector build the power stations to replace the coal-fired units in Hadera. In his remarks to the Knesset, Steinitz made it clear that this measure would be part of the Israel Electric Company reform and that the plants would be transferred for operation by the private sector after they were built. It was commonly assumed that this declaration was a gesture of good will in order to persuade the IEC workers’ committee to consent to the report, which involves reducing the number of workers at IEC by 3,000 and the gradual transfer of all electricity production to the private sector. The reform is still being held up, while the private electricity producers have exerted massive pressure on Steinitz to change his decision, including threats of legal action for violations of the Electricity Sector Law.

According to Steinitz, units for producing 700 MW will be built near Hadera, while the Public Utilities Authority (Electricity) will present its views on the construction of 700 MW more in production capacity by the beginning of 2018. Units 1-4, which have 1,440 MW in production capacity, are scheduled for being shut down by 2022 at Steinitz’s decision, provided that three gas pipelines from the sea to the shore and substitute power plants are built. (Globes 28.05)

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1.5 Israel’s Water Costs to Fall by 14.5% from 1 June

Following Knesset passage of Amendment 27 of the Water Law in January 2017, the Israel Water Authority Council has reduced the rate for the recognized quantity of water (3.5 cubic meters per person) for household consumers by 14.5%, effective as of June 1, 2017. This price cut completes a 30% reduction in water rates over the past four years, together with the water corporations reform, which makes it possible to manage the water sector more efficiently, while cutting the necessary cost of water and sewage services.

The new rate will be NIS 6.54 per cubic meter up to 3.5 cubic meters per person. The lower rate was made by possible by the return of proceeds for water production by private producers for the benefit of the water sector.

In addition, the water rates for farmers will be cut from NIS 2.51 to NIS 1.98 per cubic meter in the first stage, a 20% reduction. Two years from now, the rates will be cut by a further 10% to NIS 1.81 per cubic meter – a total reduction of 30%. This water rate reduction for Mekorot National Water Company’s agriculture consumers is part of a combined measure of transferring the proceeds from water production from the state treasury to the water sector. This measure of part of a general arrangement and water production fee arrangement for homes and agriculture, and making the Water Authority responsible for them. (Globes 28.05)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Israel Transfers Assault Rifle Technologies to India

Israel Weapon Industries (IWI) has set up a joint venture with India’s Punj Lloyd to manufacture small arms including assault rifles, such as Tavor 21 and Galil, under technology transfer arrangement. Punj Lloyd has inaugurated a plant in central India with the help of IWI and the production of small arms will begin this year. Punj Lloyd will manufacture 5.56x45mm Tavor assault rifles that can fire up to 950 rounds per minute, and X-95 short weapon with a long barrel, three-caliber weapon having 360° Picatinny rail. Apart from assault rifles, the joint venture will also manufacture semi-automatic Negev (5.56X45mm and 7.62X51mm) assault light machine gun and 7.62x51mm semi-automatic Galil sniper rifles. The Galil sniper fires up to 1,000 meters, targeting small, mobile or concealed objectives.

Punj Lloyd has set its eye on the Indian Army’s plan to purchase 185,000 assault rifles with telescopic sights in future. However, the company expects the joint venture to make it big in all the procurement plans of armed forces related to small arms.

Indian Prime Minister Narendra Modi is expected to visit Israel this July to mark the 25th anniversary of joint diplomatic relations. Modi’s visit, which will be the first-ever by an Indian Prime Minister, could yield some more defense deals between the two countries including armed Heron TP drones and Phalcon radar systems. The Indian government signed a contract worth more than $1.6 billion with Israeli arms firm IAI. Over the last three years, India has signed 10 defense contracts with Israel, which is second only to Russia. (Various 02.05)

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2.2 Spirent to Open Customer Support Center in Israel

Pleasant Grove, Utah’s Spirent Federal Systems, a leading US provider of positioning, navigation and timing test solutions to the government and its contractors, announced that they are opening a customer support office in Israel. Spirent Federal has a long, proven track record of excellent customer support, and is rapidly responding to increased customer demand for in-country support services in Israel. The flexibility, performance and capability from Spirent Federal’s support team, and their ability to meet the needs of customers seeking comprehensive and valid support and maintenance services builds on the capability and performance of Spirent Federal’s superior products. Faster response times and in-country service will allow users to update systems and resolve issues with greater ease and speed. This enables customers to constantly be on the cutting edge of simulator technology. Spirent Federal’s support team will be available 24/7, which means that customers will experience virtually no down time. Spirent Federal Systems Israel support services began on 19 May 2017. (Spirent Federal Systems 16.05)

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2.3 IAI Signs Significant Deal in India for Air & Missile Defense Systems

Israel Aerospace Industries (IAI) has been awarded an additional, $630 million contract for the supply of LRSAM air & missile defense systems for four ships of the Indian navy. The contract will be carried out, for the first time, with Indian government company Bharat Electronics, which serves as the main contractor in the project as part of India’s “Make in India” policy. Prior to signing the contract, the system was successfully tested in India as part of operational interception trial aboard India’s navy ship, demonstrating again the System’s operational capabilities in a representative scenario with genuine target.

LRSAM is an advanced air and missile defense system, a unique joint development by IAI and India’s Defense Research and Development Organization (DRDO) in collaboration with IAI subsidiary ELTA, RAFAEL, various Indian companies including BEL, L&T, BDL and other private Indian companies. The system comprises several key state-of-the-art elements, advanced phased-array radar (MFSTAR), command and control system, launchers and missiles with advanced RF seekers. The system provides the ultimate protection against a variety of aerial, naval and air born threats and is operational with the Indian Air Force, Indian Navy and Israel Defense Forces and in the near future with Indian Army.

IAI is Israel’s largest aerospace and defense company and a globally recognized technology and innovation leader, specializing in developing and manufacturing advanced, state-of-the-art systems for air, space, sea, land, cyber and homeland security. Since 1953, the company has provided advanced technology solutions to government and commercial customers worldwide including: satellites, missiles, weapon systems and munitions, unmanned and robotic systems, radars, C4ISR and more. (IAI 21.05)

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2.4 Puresec Gets $3 Million in Venture Funding

On 24 May, PureSec announced that it has raised $3 million in venture funding to build out its product and business. The company is building what it describes as the world’s first security platform for serverless architectures. PureSec’s rationale for its existence is that security within a serverless construct is fundamentally different than that in a virtual or physical world. Since the execution of the code is fully managed by the cloud provider, organizations that are going serverless don’t have control over their end points and network, which makes traditional cloud workload protection platforms irrelevant. PureSec was founded in October 2016 to solve this problem. The company develops a security platform that integrates with serverless applications and provides protection against both known and unknown threats.

Currently, organizations looking to move to serverless have a couple of unpalatable options when it comes to security. They can either build their own, manually crafted solutions or fail to adjust traditional security products to a serverless architecture.

Tel Aviv’s PureSec is a security platform which seamlessly integrates with serverless applications and provides protection against both known and unknown threats. (PureSec 24.05)

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2.5 Cathay Pacific to Add 6th Weekly Tel Aviv – Hong Kong flight

Two months ago Hong Kong carrier Cathay Pacific inaugurated its Tel Aviv – Hong Kong route with four weekly flights. Within a week, at the start of April, Cathay Pacific announced that it was expanding the number of weekly flights from four to five due to high passenger demand. Now the Hong Kong carrier says that it will introduce a sixth weekly flight during the holiday season from 18 September to 23 October. The duration of the flights is 10 hours 20 minutes from Tel Aviv to Hong Kong and 11 hours 40 minutes from Hong Kong to Tel Aviv. Cathay Pacific is providing competition for El Al Israel Airlines, which until March had a monopoly on direct Tel Aviv – Hong Kong flights. (Globes 23.05)

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2.6 Hainan Airlines to Launch Tel Aviv – Shanghai Flights

Chinese airline Hainan Airlines, which operates direct flights from Ben Gurion Airport to Beijing, submitted a request recently to operate direct flights between Shanghai and Ben Gurion Airport. Hainan is seeking to begin three weekly direct Shanghai flights from 12 September to 28 October 2017 using Boeing 787s and Airbus 330s. Up until now, there have been no direct flights from Ben Gurion Airport to this destination. The Chinese airline will receive a grant from the Ministry of Tourism to cover marketing activity in order to attract tourism to Israel from Shanghai. Israel has set a goal of increasing the number of tourists arriving in Israel from China. Minister of Transport Yisrael Katz said that increasing the number of airlines allowed to operate scheduled flights to Israel is a national strategic goal. (Globes 25.05)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Dubai Parents Pay Billions in School Fees

The Knowledge and Human Development Authority (KHDA), in its 2016-2017 report, said total fees collected by 185 schools reached $1.85 billion (AED6.8b) in 2016-2017 from $1.66b (AED6.1b) in 2015-2016. It said, however, 57.5% of students paid less than $5,449 (AED20,000) in fees per year compared to 60.7% students in the last term. Some 20% of students were new to Dubai in 2016/17 session, taking the total number of student enrolment to 273,599, comprising 141,806 boys and 131,793 girls. Fifteen new schools opened last session, enrolling 5,842 students.

Number of UK curriculum schools reached 73 (91,903 students), followed by 34 US curriculum (48,397 students) and 33 Indian curriculum (79,844 students). According to KHDA, the emirate is expected to add 120 new schools over the next 10 years, with 10 new schools set to open this year. (AB 24.05)

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3.2 Dow Signs Agreements for Coatings and Silicones Investments in Saudi Arabia

The Dow Chemical Company signed agreements to advance the Company’s innovation agenda in Saudi Arabia (KSA) which will bring leading edge technologies to KSA that support the Kingdom’s Vision 2030 economic diversification and advanced manufacturing development plan.

Dow signed an agreement to construct a state-of-the-art manufacturing facility to produce a range of polymers for coatings and water-treatment applications, and a memorandum of understanding for a feasibility study related to a proposed investment in the Company’s Performance Silicones franchise. Located in the PlasChem Park in Jubail, the coatings facility will service the needs of the Saudi Arabian market with an innovative range of acrylic-based polymers for industrial and architectural coatings and water-treatment and detergent applications. The new coatings facility will complement Dow’s existing coatings capabilities in the Middle East, which include an existing facility at Jebel Ali, in Dubai, United Arab Emirates.

The proposed silicones investment will include constructing a fully integrated, world-scale siloxanes and high performance silicones complex geared towards markets and industries such as home and personal care, automotive, high performance building and construction, solar energy, medical devices, and oil and gas. When complete the complex will support the economic impact of KSA through the creation of approximately 350 full-time, technology-skilled jobs.

In June, 2016, Dow became the first company to receive a trading license from the Government of Saudi Arabia, allowing 100% ownership in the country’s trading sector. (Dow 20.05)

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3.3 ExxonMobil & SABIC Sign Agreement for Next Phase of Proposed US Petrochemical Project

Affiliates of Exxon Mobil Corporation and SABIC (Saudi Basic Industries Corporation) signed an agreement on 20 May to conduct a detailed study of the proposed Gulf Coast Growth Ventures project in Texas and begin planning for front-end engineering and design work. The agreement was signed during the Saudi-US CEO Forum in Riyadh.

In April 2017, ExxonMobil and SABIC selected a site in San Patricio County, Texas, for the proposed petrochemical complex that would include an ethane steam cracker capable of producing 1.8 million tonnes of ethylene per year, a monoethylene glycol unit and two polyethylene units. The project is one of 11 major chemical, refining, lubricant and liquefied natural gas projects associated with ExxonMobil’s Growing the Gulf initiative in the United States that have been made possible by the abundance of low-cost U.S. natural gas.

ExxonMobil and SABIC have successfully collaborated on several petrochemical joint ventures in Saudi Arabia, including the Al-Jubail Petrochemical Company and Saudi Yanbu Petrochemical Company. Most recently, the companies constructed world-scale specialty elastomers facilities at the Al-Jubail joint venture complex to help meet the growing demand for rubber-based industrial and automotive products. (ExxonMobil 20.05)

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3.4 NOV Expands Ability to Deliver Market-Leading Tubular Technologies in Saudi Arabia

Houston, Texas’ National Oilwell Varco (NOV) has broken ground on two manufacturing plants that will significantly strengthen the Company’s market-leading positions in providing composite pipe technologies and tubular coatings within Saudi Arabia. Both facilities will be located at MODON 3 near the city of Dammam.

NOV has provided comprehensive tubular services to customers in Saudi Arabia for more than 40 years. The investment in a state-of-the-art 130,000 ft² facility will expand NOV’s legacy Tuboscope pipe inspection, repair, threading, and machining services to include internal and custom coating capabilities and the Company’s proprietary TK liner platform. NOV’s comprehensive coating capabilities, covering pipe from 2 to 24 in., will allow customers to extend the life of their pipe, enhance production, and decrease nonproductive time.

National Oilwell Varco (NOV) is a leading provider of technology, equipment, and services to the global oil and gas industry that supports customers’ full-field drilling, completion, and production needs. (NOV 18.05)

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3.5 Saudi Aramco & Jacobs Form JV for Social Infrastructure Program Management

Saudi Aramco entered into an agreement with Dallas based Jacobs to form a Saudi Arabia-based joint venture company to provide professional program and construction management (PMCM) services for social infrastructure projects throughout the Kingdom and across the Middle East and North Africa. Jacobs’ presence in Saudi Arabia spans more than 40 years. The new company’s services will include a full-spectrum of professional PMCM activities, with expertise in supporting all phases of the project lifecycle for social infrastructure projects. The company will advance training and help create quality jobs for Saudi nationals through the development of a sustainable and competitive program.

Saudi Aramco is a world leader in integrated energy and chemicals. Jacobs is one of the world’s largest and most diverse providers of full-spectrum technical, professional and construction services for industrial, commercial and government organizations globally. (Saudi Aramco 20.05)

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3.6 Raytheon & Saudi Arabia Military Industries Announce Strategic Partnership

In a ceremony witnessed by King Salman of Saudi Arabia and U.S. President Donald J. Trump, Raytheon Company and the Saudi Arabia Military Industries Company signed a MoU to cooperate on defense-related projects and technology development. The agreement will enable continued global growth for Raytheon in key market areas such as Air Defense Systems, Smart Munitions, C4I Systems and Cyber Security of Defense Systems and Platforms. This partnership will also contribute directly to the Kingdom of Saudi Arabia’s localized defense ecosystem with regional expert capabilities, and will provide a long-term foundation for Saudi Arabia’s economic development.

As part of this new agreement, Raytheon announced plans to establish Raytheon Arabia, a Saudi legal entity wholly-owned by Raytheon that will focus on implementing programs to create indigenous defense, aerospace and security capabilities in the Kingdom. The new company will be based in Riyadh and is expected to include in-country program management, supply and sourcing capabilities, improved customer access and centralized accountability. These programs will positively impact Saudi and U.S. economies including job creation.

Headquartered in Waltham, Massachusetts, Raytheon Company is a technology and innovation leader specializing in defense, civil government and cybersecurity solutions. (Raytheon 20.05)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Israel’s Disposable Plastic Bag Use Falls Very Sharply

Israel’s Ministry of Environmental Protection has reported an 80% reduction in the use of disposable plastic bags in the first quarter of 2017. The ministry’s figures show that major retailers sold 55 million plastics bags at NIS 0.10 per bag in the first quarter, while the major retailers bought over 280 million plastic bags in the fourth quarter for distribution, for which consumers did not pay directly. The law requiring consumers to pay supermarkets for disposable plastic bags went into effect in January 2017. The Ministry of Environmental Protection reported that most major retailers had reported reductions of 80-90%, while the two largest had reported reductions of less than 55%.

The law requiring a NIS 0.10 charge per plastic bag for consumers applies only to the large supermarket chains. When the law finally went into effect after long delays, the low price charged for bags was criticized by those who said that it would not deter people from using them and would not educate consumers to use reusable shopping bags. The current figures, however, show that the price being charged for disposable bags, which is much lower than in European countries, for example, has caused a change in consumer behavior. At the same time, pharmacy chains, grocery stores, and minimarkets are unaffected by the law.

The NIS 5.5 million collected by supermarkets from the sale of plastic bags is being deposited in a cleaning fund for purposes stipulated by the law, including the encouragement of reusable bags, education and public relations about the goals of the law, and cleaning operations. The law also states that the major retailers must report the volume of plastic bags used to the Ministry of Environmental Protection. Seven of the 22 major retailers required to report under the law have not yet made their report. (Globes 25.05)

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4.2 Jordan Hopes to ‘Go Green’ with National Green Growth Plan

The Ministry of Environment on 24 May launched the National Green Growth Plan (NGGP) to guide green-growth projects and align relevant policies and investments with national development goals. The NGGP lists 24 projects in six sectors where the potential for implementing green investments is feasible, and also addresses barriers facing the implementation of green projects in Jordan, according to officials. An outcome of a two-year collaboration with over 100 national and international experts, the plan is aimed at leading Jordan into a sustainable economy that creates more jobs and achieves social inclusion, while also reducing negative environmental impacts. The plan has identified water, energy, agriculture, waste management, transport and tourism as the six main sectors in which green economic projects are viable, according to the plan.

Jordanian Minister of Environment Khayyat considered the shift to a green economy as one of the “most important” tools to address the economic and environmental challenges faced by the Kingdom. During the plan’s launch ceremony, Khayyat said that demand for water and energy, two of Jordan’s most limited resources, is increasing and is only exacerbating by the influx of Syrian refugees into the country.

The NGGP was funded by the German federal environment ministry and implemented by the Ministry of Environment and the Global Green Growth Institute (GGGI). Green economy in Jordan was institutionalized in 2014, when the Cabinet approved the formation of a high-level national steering committee for green economy, and a unit for green economy was set up at the ministry, according to officials. (JT 25.05)

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4.3 Saudi Company Invests $180 Million in Jordanian Solar Power

Jordanian Minister of Energy and Mineral Resources Dr Saif laid the cornerstone on 23 May for the construction of solar power plants in Mafraq, implemented by Saudi company, Abdul Latif Jameel Energy and Environmental Services, worth in total $180 million. The plants will generate an overall 133.4 megawatts, approximately 2% of the Kingdom’s total power capacity, and provide 500 jobs during the construction phase. (Al Ghad 24.05)

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4.4 World’s Largest Solar Power Plant to be Named Noor Abu Dhabi

The world’s largest independent solar power plant to be built in Abu Dhabi at a total cost of AED3.2 billion will be named “Noor Abu Dhabi,” which means “the light of Abu Dhabi” in Arabic. Sheikh Hazza bin Zayed Al Nahyan, deputy chairman of Abu Dhabi Executive Council, made the announcement a day after a ceremony to launch the plant, to be built in Suwaihan, 120km south-east of Abu Dhabi. The project is part of the emirate’s bid to diversify its economy and provide alternative sources of energy at competitive prices while following the best possible environmental and technological practices.

The Abu Dhabi Water and Electricity Authority (ADWEA) and a consortium of Japan’s Marubeni Corp and China’s JinkoSolar Holding signed a contract to build and operate the new plant, which will generate 1,177 MW from Q2/19. It will have double the capacity of the 550 MW Desert Sunlight Solar Farm, the current world’s largest solar power plant in California, United States. The plant is 60% owned by ADWEA and the government of Abu Dhabi, and 40% by the international consortium, WAM added. Under its “Clean Energy Strategy 2050”, the emirate plans to increase contribution of clean energy in the total energy output to 7% by 2020, 25% by 2030, and 75% by 2050. (AB 26.05)

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4.5 ACWA Power Aims to Double Assets by 2020 with Privatized Saudi Renewables

Riyadh-based power and water company ACWA Power expects to double its $35 billion asset base within the next three years, mainly by taking over soon-to-be privatized Saudi utilities, its CEO has said. In an interview with Arabian Business, Paddy Padmanathan said the kingdom’s plans to generate 9,500 MW of renewable energy under its Vision 2030 economic plan presented a multibillion-dollar opportunity for ACWA and other power companies in the region.

Saudi Electricity Company (SEC) is being split up and sold on the open market, with bids for the first of four state-run power generation companies expected to go out by the fourth quarter of this year. Padmanathan said ACWA would be bidding and expects to win at least two of the four ‘bundles’, which together have a 70,000MW capacity and are worth an estimated $7.5 billion. He claimed a further $7.5 billion of investment would be required to repower and re-operate the generators to new standards including renewable sources such as solar and wind – creating a possible $12 billion-$15 billion worth of investment opportunity in the sector.

ACWA has grown to accumulate $35 billion of power assets under management in the 12 years since it was formed, but the huge investment opportunities on offer in Saudi Arabia is likely to significantly escalate the company’s growth by 2020. (AB 21.05)

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5: ARAB STATE DEVELOPMENTS

5.1 Lebanese Average Inflation Rose by 4.68% Y-o-Y by April 2017

According to the Central Administration of Statistics (CAS), Lebanon’s average inflation rate rose by 4.68% by April 2017 compared to the same period in 2016. The average costs of “Housing, water, electricity, gas and other fuels”, which hold a combined 28.4% weight in the Consumer Price Index (CPI), rose by 7.58% year-on-year (y-o-y) by April 2017. In fact, the biggest weight of 13.6% in this category goes to “Owner Occupied” rental costs which increased by 4.05% y-o-y. The average costs of Water, electricity, gas and other fuels” hold a share of 11.8% in the CPI, and grew by 16.21% y-o-y by April 2017. The average price index for “food and non-alcoholic beverages”, which accounts for 20% of the CPI, rose by 1.98%y-o-y to 102.30. On average, transportation costs, with a 13.1% weight in the CPI, grew by 7.82% y-o-y by April 2017 while average health costs slid by 1.57% over the above mentioned period. In April alone, the CPI grew by 4.44% from 95.53 in April 2016 to 99.77 in April 2017 also on account of respective y-o-y increases of 5.58% and 4.44% in the costs of “Housing, water, electricity, gas and other fuels” and “Food and non-alcoholic beverages”. (CAS 23.05)

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5.2 Number of Tourist Arrivals to Lebanon Reached 5 Year High by April 2017

According to the Lebanese Ministry of Tourism, the number of tourist arrivals rose by a yearly 17.45% to 503,805 by April. This rise was partly due to the relatively stable security situation in Lebanon and the Easter holiday in April 2017. In details, the number of visitors from Arab countries, representing 36% of the total, increased by a yearly 28.17% to 179,828. The number of Iraqi visitors rose by an annual 36.08% to 82,632, and the number of Egyptians increased by an annual 2.72% to 26,595 by April 2017, as incomers from these countries with political instability seek Lebanon for employment or refuge and not tourism. However, given that the GCC governments lifted the ban about visiting Lebanon, the number of incomers from Saudi Arabia and Kuwait doubled to stand at 18,782 and 12,035 by April 2017. Nonetheless, Emirati tourists plunged by 31.91% to 732.

Moreover, European tourists, grasping a share of 31% in total, grew 13.83% y-o-y to 163,002 by April. French tourists saw their number rise by an annual 25.58% to 47,212, and visitors from Germany and Italy also rose in number by 26.41% and 17.15% to 23,582 and 10,604, respectively, by April 2017. American tourists, also increased by an annual 10.63% to 69,950 by April 2017. This rise was mainly due to the growth in the number of visitors from the US and Canada which rose from 31,933 and 22,355 to 40,465 and 27,215 by April 2017, respectively. (MoT 26.05)

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5.3 Number of Registered Cars Down 2.75% by April in Lebanon

According to the Association of Lebanese Car Importers, the number of newly registered commercial and passenger cars fell by a yearly 2.75% to 11,581 cars by April 2017. This was triggered by the 4.01% yearly drop in the number of newly registered passenger cars to 10,654 and the 14.59% rise in newly registered commercial vehicles to 926. Japanese cars were the most demanded cars in Lebanon in the first 4 months of 2017, grasping a 34.82% share of total passenger cars. Also, Korean cars were second in the ranking with a market share of 34.02% by April 2017, while European cars maintained their third rank with a market share of 21.96%. However and in terms of brands, Kia kept on holding the largest share of newly registered passenger cars (20.51%), followed by a 10.68% stake for Hyundai. Toyota and Nissan came next in the ranking, as Toyota grasped 10.63% of newly registered passenger cars, while Nissan held 8.38%. In terms of sales per importer, Natco acquired the biggest bulk of registered cars with 20.51% of the total, followed by BUMC (12.23%), Rasamny-Younis Motor (12.12%) and Century Motor Co. (11.04%). (ALCI 18.05)

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5.4 Jordan Comes in 68th Place on Economic Complexity Index

Jordan is the 68th most complex economy in the world, according to the Economic Complexity Index (ECI), and the world’s 86th largest export economy. In 2015, Jordan’s exports stood at $9.8 billion, as opposed to $21.8 billion worth of imports, which resulting in a negative trade balance of $12 billion. The Kingdom’s GDP in 2015 stood at $37.5 billion. GDP per capita over the same year stood at $10,900. Jordan’s top exports are potassium fertilizers, at $860 million; planes, helicopters, and/or spacecraft, worth $602 million; calcium phosphates, $592 million; knit sweaters, $462 million; and unpackaged medications, $418 million; according to the 1992 revision of the HS classification. The kingdom’s top imports are cars, at $1.27 billion; refined petroleum, $1.25 billion; crude petroleum, $1.22 billion; gold, $798; and petroleum gas, $741 million.

The top export destinations of Jordan are the United States, $1.82 billion; Saudi Arabia, $1.27 billion; India, $878 million; Sudan, $781 million; and Iraq, $749 million. The top import origins are Saudi Arabia, $3.12 billion; China, $2.96 billion; the United States, $1.12 billion; Germany, $938 million; and Turkey, $863 million. (AlGhad 16.05)

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►►Arabian Gulf

5.5 Saudi Arabia Only Arab World Country to Name a Woman to Lead an Airport

Saudi Arabia just became the only country in the Arab World to name a woman to lead an airport. Hind al Zahid was appointed by the board at Dammam Airports Company to lead the company as Executive Director this week. Her appointment makes her the most senior female aviation executive in the region, with a company that manages the largest airport in the world by size, King Fahad International Airport.

Traditionally conservative Saudi Arabia has been on a liberalization drive as it attempts to transform its economy. Over the last few months, it has appointed women to lead three of its core financial institutions as CEOs, including its national stock exchange, Tadawul, as well as Samba Financial Group, and the Arab National Bank, both among the largest banks in the Middle East.

Al Zahid has previously also served as executive director of the Women Economic Forum from 2009 to 2016. She is the highest ranking aviation executive in the country, as well as the rest of the Middle East, after Kuwait Airways corporation CEO Rasha al-Roumi resigned from her position last month citing “lack of government backing”. (ABME 17.05)

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5.6 Saudi Imposes 100% Tax on Cigarettes & Energy Drinks from 10 June

Saudi Arabia will impose a selective tax on cigarettes, energy drinks and carbonated drinks from 10 June. The decision will make Saudi the first country in the Gulf Co-operation Council to fix the implementation date, according to the General Authority of Zakat. The General Secretariat of GCC on 23 May took a decision to impose 100% tax on cigarettes and energy drinks. The carbonated drinks will attract a tax of 50%. The country will implement the value-added tax (VAT) from 1 January.

The selective taxes that will be implemented by all Gulf countries target several items, including tobacco products and power drink by 100% and fizzy drinks by 50%. The Zakat Authority is responsible for collecting VAT and ST, ensuring that all taxpayers comply with relevant laws and that no one evades taxes. Those who withhold information or violate regulations or obstruct Zakat Authority’s employees from carrying out their duties will be fined up to SR50,000. (Saudi Gazette 28.05)

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►►North Africa

5.7 Morocco Automotive Market 2017 Snapshot

Currently contribution around 5% to country GDP, Morocco’s automotive industry has developed rapidly over the past decade years, supported by the country’s strong political and macroeconomic stability, favorable business environment and strategic geographic location. In recent years, Morocco has overtaken Egypt as the largest automaker in North Africa and the second largest in Africa, behind South Africa. The rapid expansion of the domestic automotive sector can be attributed to government initiatives aimed simulating industrial development and production. Introduced in 2014, the Industrial Acceleration Plan (PAI) aims to boost industrial contribution to GDP from 14% to 23% by 2020 and create 50,000 new jobs. Under the program, productive industrial clusters, or ecosystems, are to be developed in order to simulate growth, competition and the creation of dynamic and complementary industries. Sectors targeted under the PAI include automotive, aeronautics and textiles.

Under the current development plan, the PAI has created a $2.18b Industrial Development Fund to allow for the consolidation and modernization of Morocco’s industrial activities and is targeting 90,000 new jobs and exports of $10.2b by 2020. This initiative follows the 2009-2015 National Pact for Industrial Emergence (PENI), which targeted the development of key export industries including automotive, agribusiness and pharmaceuticals. (BMI 23.05)

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5.8 US-Morocco Free Trade Agreement Far Exceeded ITA Expectations

The Moroccan American Center for Policy (MACP) said that in the twelve years since its implementation, the US-Morocco Free Trade Agreement (FTA) has dramatically exceeded the predictions initially set by the United States International Trade Commission (ITA).

In broad terms, the ITA predicted that US exports were likely to increase by $740 million, and US imports from Morocco to increase by $198.6 million. US exports reached this target by 2007, in just its second year of implementation. Through mostly sustained improvement up to 2016, US exports to Morocco have actually increased by about $1.4 billion, amounting to a 286% boost. At the same time, Moroccan exports to the US reached their target in 2008 and since 2010 have grown by about $560 million overall.

In addition to generating economic benefits for both countries, the FTA kicked off a series of initiatives further strengthening the US-Morocco bilateral relationship and Morocco’s reform trajectory. In July 2004, the US Senate voted 85-13 in favor of the United States-Morocco Free Trade Implementation Act; and the House of Representatives followed suit with a 323-99 vote in favor. The momentum continued, and in 2007 and again in 2013, Morocco signed two consecutive Millennium Challenge Corporation Compacts; and in 2012, the US and Morocco launched a bilateral Strategic Dialogue—one of about two dozen such agreements in existence. (MACP 22.05)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1 No Bailout Funds for Greece as Eurozone Finance Chiefs Fail to on Agree Deal

Eurozone finance ministers have failed to agree a debt relief plan for Greece, raising the prospect of a summer crisis for the single currency bloc if Athens misses a loan repayment. A meeting of the Eurozone’s 19 finance ministers broke up late on 22 May, amid a row with the International Monetary Fund about Greece’s debt burden. The standoff came just hours after France and Germany pledged to deepen co-operation in the single currency and seize Brexit opportunities for their banking industries.

After more than eight hours of talks in Brussels, Greece’s creditors – the Eurozone members states and the IMF – were unable to bridge their differences on Greece’s ability to repay its debts in the long run. The Eurozone-IMF standoff is the final obstacle to Greece unlocking a tranche of bailout funds that will let it repay €7.3b (£6.3b) of loans due to be paid in July. The EU agreed an €86b rescue package for Greece in July 2015, an unprecedented third bailout that stopped the country from crashing out of the Eurozone.

Although the headline figure has been approved, Greece needs to carry out scores of detailed reforms before receiving the cash, which is paid in instalments. It secured €10.3b last May, but the latest payment has been held up for months. It appeared the way was clear earlier in May when the Greek government agreed to extra pension cuts and tax increases demanded by creditors.

Northern European countries do not want to sign off for Greece unless the IMF agrees to be part of the third bailout. Countries such as Germany and the Netherlands think the IMF will add rigor to the program and fear the EU institutions will be too soft on Athens. But the IMF has so far refused to get involved in Greece’s third bailout because officials think the country’s debts cannot be managed in the long-run. The Washington-based fund has repeatedly said it is looking for “a credible strategy to restore debt sustainability”.

At the heart of the dispute is a demand that Greece run a budget surplus equivalent to 3.5% of GDP. The European side thinks Greece can hit this target, but the IMF has long argued that any country with high unemployment, (currently 23% in Greece) would struggle to meet such demanding fiscal targets over decades. The IMF continues to insist anything higher than a 1.5% surplus is not credible: its officials are urging the Eurozone to be realistic about Greece’s ability to keep a tight cap on public spending over decades. The IMF does not want to write off Greece’s debts, but is arguing for longer grace and repayment periods so they do not weigh so heavily on its economy. (Various 25.05)

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6.2 Greek Parliament Approves New Austerity Measures

The Greek parliament late on 18 May adopted a new round of austerity cuts which the government hoped would secure a pledge of debt relief and loan disbursements by EU-IMF creditors. The bill entails €4.9 billion ($5.4 billion) in pension cuts and lower tax breaks in 2018-2021 and was passed by a majority of 153 lawmakers from the ruling coalition. A total of 128 voted against the measure and 17 MPs from the neo-Nazi Golden Dawn party were absent during the debate as they were barred after one of their members shoved a rival in the house earlier, prompting a showdown. Prior to the vote police fired tear gas as an anti-cuts demonstration outside parliament turned violent, with some hooded youths throwing Molotov cocktails. Police said more than 10,000 people took part in the protest.

Greece’s Prime Minister Tsipras grudgingly accepted to legislate another round of cuts and lower tax breaks – applicable in 2019 and 2020 respectively – to unlock the cash payment ahead of looming debt repayments in July. In return, Greece will introduce poverty support measures – such as subsidies on rent and medicine – over the same period of time. (AFP 19.05)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Shavuot Holiday to be Marked on Eve of 30 May

On 30/31 May, the Jewish world will observe the holiday of Shavuot. Shavuot is the second of the three major pilgrim festivals (Passover being the first and Sukkot the third) and occurs exactly fifty days after the second day of Passover. This holiday marks the anniversary of the day when the Jewish People received the Torah at Mount Sinai. This is a biblical holiday complete with special prayers, holiday candle lighting and Kiddush, with many forms of work and labor are prohibited. The word shavuot means weeks and it marks the completion of the seven-week counting period between Passover and Shavuot. During these seven weeks the Jewish people cleansed themselves of the scars of Egyptian slavery and became a holy nation ready to enter into an eternal covenant with G‑d with the giving of the Torah. Before the giving of the Torah the Jews were a family and a community. The experience of Sinai bonded the Jews into a new entity: the Jewish people; the Chosen Nation. This holiday is likened to their wedding day – beneath the wedding canopy of Mount Sinai, G‑d betrothed the Jews.

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7.2 Trump Direct Flight from Saudi Arabia to Israel Thought to be First Ever

US President Donald Trump was said to have blazed a new trail between the Arab world and Israel on 22 May, when his plane was believed to be the first to fly directly from Saudi Arabia to the Jewish state. Trump left Riyadh for Ben Gurion airport for talks with Israeli Prime Minister Netanyahu. A spokesperson for the Civil Aviation Authority of Israel told AFP he was not aware of any flight taking that course before.

Israel has no diplomatic relations with Saudi Arabia despite informal ties on certain levels, particularly around shared concerns over Iran. Any links are diplomatically delicate, with the Arab world strong supporters of the Palestinian cause. Egypt and Jordan are the only two Arab countries to have signed peace deals with Israel. Israeli citizens, however, can travel to Saudi Arabia and thousands of Muslims attend the annual hajj pilgrimage there, flying with stopovers in neighboring countries. A plane carrying reporters accompanying Trump had to stop in Cyprus rather than fly directly. (AFP 22.05)

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7.3 PM Netanyahu Names Ayoob Kara Communications Minister

Prime Minister Benjamin Netanyahu has named Ayoob Kara, a minister without portfolio at the Prime Minister’s Office, as communications minister. The cabinet approved the nomination during its weekly meeting on 28 May. Kara is the first Druze-Israeli politician to be named for the role.

In February, Netanyahu announced that he had decided to assign the communications portfolio to Regional Cooperation Minister Hanegbi (Likud) for a period of three months. Kara’s appointment was said to surprise coalition and opposition members alike. It is also believed to be a prelude to major reorganization and opening of the communications market in Israel. (Various 29.05)

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*REGIONAL:

7.4 Lebanon Hosted the First Gay Pride Ever Held in the Arab World

Sunday, 21 May, marked the end of a week of festivities in Lebanon following its first Gay Pride, which was also the first Gay Pride in the Arab world. It was held in Batroun, in the north of the country, and was the closing event in a series of celebrations and debates in the city’s bars and nightclubs. While it is a great step forward, it also shows that there is still some way to go in terms of rights for the LGBT community: instead of a parade, the activists from Beirut Pride had to make do with a restaurant lunch.

Even though it was rather forward thinking of Lebanon to allow the event to actually happen, the country remains very conservative and still considers homosexuality to be a legal offense. Article 534 of the Lebanese Penal Code recommends a sentence of one month to a year of imprisonment along with a fine in cases of “unnatural sexual relations.” The country’s conservatism also limits political demonstrations. For example, a seminar organized in Beirut by the NGO Proud Lebanon on 13 April was canceled due to pressure from Muslim theologians who threatened to protest in front of the hotel where the seminar was to take place.

In 2004, the country finally allowed the gay organization, Helem, to be formed, and allowed them to publish a quarterly magazine. Since 2009, a dozen judges have also refused to criminalize sexual orientation, and the gender reassignment surgery of a trans man was legalized in January. Recently, Lebanon’s oldest and largest chain of restaurants aired its latest ad campaign, showing a lesbian couple on TV for the first time in the history of the country. (Various 22.05)

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7.5 Average Age of Egyptian Woman Climbs to 73.3 Despite Increased Death Rate

The average age of Egyptian women climbed to 73.3 in 2016 from 70.5 registered in 2009, CAPMAS said in a statement on 28 May marking the International Day of Action for Women’s Health. The increase in the average age of women comes despite an increase in the female death rate, which increased from 5.6 in every 1,000 females annually in 2008 to 6.0 in every 1,000 in 2015.

The most common cause of death for females in Egypt is circulatory disease, which claimed the lives of 48.6% of those who died in 2015, compared to 40.7% in 2010. Females who died during pregnancy and childbirth ranked last on the list of major causes, accounting for 0.2% of deaths in both 2010 and 2015. According to figures from 2015, 61.2% of women aged between 18 and 64 said they didn’t have any health issues, while 24.1% said they have chronic illnesses such as diabetes, high blood pressure and heart disease.

CAPMAS also revealed data on reproductive health, with 86.9% of urban women in the same age group having used contraceptives, compared to 85.2% in rural areas. A total of 84.1% of women in urban areas suffered Female Genital Mutilation (FGM) performed on them, compared to 94.1% in rural areas. FGM is considered a felony in Egypt’s penal code, with prison sentences for both those conducting the procedures and those who “escort” the victims. (CAPMAS 28.05)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 IATI Life Science Report 2016: Number of Life Sciences Companies Rise 50% in a Decade

A new report by Israel Advanced Technology Industries (IATI) cites that the Israeli life sciences industry growth has slowed slightly in the past two years, in comparison with the global industry. The window of opportunity for NASDAQ issues closed in 2015/6, but the venture capital funds continued raising money for financing the next generation of promising companies.

The total number of companies in the industry grew, mainly as a result of a boom in digital health. What has slowed over the past two years is the medical devices sector, the former hot spot, which up until now has been responsible for the most impressive exits in the life sciences industry. The changes in the industry have had a negative impact on this sector, but it is still the largest in the industry, although also the most crowded.

According to the report, the number of life sciences companies has grown consistently over the past decade. A decade ago there were 800 companies in Israel, and there are now over 1,200 companies. Some 110 – 140 companies were founded a year during the past decade, except for 2016, when only 90 companies were founded. The rate at which companies closed, an average of 62 a year, also slowed in 2016, when only 23 companies closed down. (IATI 22.05)

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8.2 OurCrowd Invests $2.5 Million in Scopio Labs

OurCrowd announced that it will invest $2.5 million (as part of a recently completed $7 million investment round) in Scopio Labs, a developer of an advanced digital microscopy and diagnostics platform. This is OurCrowd’s 23rd health tech investment for a total of $80 million, making OurCrowd the world’s leading equity crowdfunding platform for healthcare investments.

Scopio Labs, founded in 2015, develops next-generation digital microscopes, based on computational imaging breakthroughs, as well as a suite of dedicated image analysis tools. Their products enable dramatic clinical and research improvements in diverse areas such as cancer, hematology and cytology, while powering further innovation in areas such as academic research and drug discovery. The company will use the funds to expand the team based in Tel Aviv, and is hiring computer vision experts, physicists and software developers. (OurCrowd 24.05)

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8.3 New Report Shows Israeli Cows Are World’s Best Milk Producers

Israeli cows are world’s best milk producers, a new report by the Agriculture Ministry said on 24 May. The report, released ahead of the Shavuot holiday, said the average Israeli cow produces some 11,970 liters (3,162 gallons) of milk a year. The data also showed a 3.5% increase in demand for milk and dairy products in 2016. Between milk and other dairy drinks, yogurt, cheese and pudding cups, Israelis consume an average of 178 liters (47 gallons) of milk a year per capita, the report showed.

Some 774 dairy farms operated in Israel in 2016 compared to 1,026 in 2006. Still, the average dairy farm production has increased by 71% over the same period. In 2016, consumer demand for dairy products saw a 53% spike ahead of Shavuot. (IH 25.05)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 PV Nano Cell Announces Japanese Patent Granted Related to Sicrys Silver Inks

PV Nano Cell announced that the Japanese Patent Office (JPO) has granted its silver nano particles patent1. Japan represents one of the largest and most advanced research and development markets for advanced electronics. PV Nano believes that their innovative line of conductive digital silver inks offers significant value to their potential customers in the Japanese market.

PV Nano Cell’s Silver Nano particles patent titled “STABLE DISPERSIONS OF MONOCRYSTALLINE NANOMETRIC SILVER PARTICLES,” covers a concentrated dispersion of nanometric silver particles, plurality of nanometric silver particles, in which a majority are single-crystal silver particles, the plurality of nanometric silver particles having an average secondary particle size (d50) within a range of 30 to 300 nanometers, the particles disposed within the solvent; and a method of producing the dispersion.

Migdal Ha’Emek’ s PV Nano Cell has developed innovative conductive inks for use in solar photovoltaics (PV) and printed electronics (PE) applications. PV Nano Cell’s Sicrys™ ink family is a single-crystal, nanometric silver conductive ink delivering enhanced performance. Sicrys™ is also available in copper-based form, delivering all of the product’s properties and advantages with improved cost efficiency. Sicrys™ silver conductive inks are used in a range of inkjet printing applications, including photovoltaics, printed circuit boards, antennas, sensors, touchscreens and other applications. (PV Nano Cell 18.05)

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9.2 Airobotics Granted World’s First Approval to Fly Commercial Drones Without a Pilot

Airobotics is announcing that it is the first company worldwide granted with the authorization to fly fully automated drones without a pilot. The certification, presented by the Civil Aviation Authority of Israel (CAAI), is solidifying Airobotics’ status as a world-leader in the field of automated drones, allowing for the most innovative Beyond Visual Line of Sight (BVLOS) commercial drone operations. This milestone proves that decisions and actions that were once taken by a human drone pilot, can now be taken by Airobotics’ computer software and artificial intelligence. Essentially, an authorized pilot is now replaced by an authorized computer.

For the past 24 months, Airobotics went through rigorous field testing and product verification process, inspected by CAAI, in order to prove the system’s safety case. After accumulating over 10,000 flight hours and automated flight cycles, producing dozens of technical manuals, engineering books, reports and analysis, Airobotics had passed all necessary tests and received the certification enabling the system to operate without a pilot as a safe, reliable drone solution. The certification process started with an Alpha version in March 2015, progressed to a Beta version on August 2015, through to MVP (Minimum Viable Product) last year.

The innovative certification process led by CAAI was based on the latest existing international standards for UAVs. This modern certification approach takes into consideration specific risk analysis and safety cases. Airobotics, together with the CAAI, is setting a new benchmark for the evaluations and approval of UAV operations for the rest of the world. Based on the experience Airobotics has gained in Israel, the company is scaling its operations to additional markets, starting with Australia and USA.

Petah Tikva’s Airobotics has developed a pilotless drone solution, the first of its kind in the global market. Airobotics provides an end-to-end, fully automatic solution for collecting aerial data and gaining invaluable insights. The industrial grade platform is available on-site and on-demand, enabling industrial facilities to access premium aerial data in a faster, safer, more efficient way. (Airobotics March 2017)

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9.3 IMI Systems has won two Naval RCWS tenders in the Far East

IMI Systems has received two contracts from two Far Eastern Navies for the supply of WAVE 350 Naval Remote Controlled Weapon Stations (RCWS) to be integrated on top of naval platforms. IMI Systems’ WAVE family of weapon stations are state of the art, combat proven, fully stabilized RCWS developed by IMI to answer modern battlefield challenges, providing a complete solution for targeting and weapon handling from within a protected position. The unique system’s features of stabilization, target tracking and image processing enhance crew and gunner capability of acquiring targets and improving hit probability night and day, static or on the move.

The WAVE family of RCWS is designed as a compact, lightweight, low profile system and is easily installable on all types of combat vehicles, marine vessels and platforms and static posts. Naval WAVE 350 is equipped with 12.7mm NSVT or 0.5 Cal WKM-B machineguns and was designed especially for marine environment and challenges. Its modular design allows the selection a variety of optical devices, and enables flexible control, connections to additional systems, and could be easily tailored to specific customer and budget.

Established in 1933 is a wholly owned company by the government of Israel, IMI Systems is a defense systems house specializing in the development, marketing and implementation of comprehensive combat-proven solutions for the land, air, naval and homeland security requirements of the modern battlefield. As a reputable company, IMI Systems is positioned among the world’s leader defense solution providers and exports 70% of its products to its customers worldwide. (IMI 25.05)

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9.4 Altair Provides 4G LTE Connectivity to New Wireless Home Phone from Verizon

Altair Semiconductor, a leading provider of LTE chipsets, in partnership with Ecrio, the leading supplier of embedded VoLTE solutions, announced that its ALT3800 CAT-4 chipset is powering the latest home phone solution from Verizon. The Wireless Home Phone T2000 utilizes VoLTE technology and the consumer’s existing telephony handsets to connect to Verizon’s 4G LTE network. The Wireless Home Phone T200 provides a range of high-quality services, including wireless voice, compatibility with Group 3 fax machines, call waiting, call forwarding, and three-way calling. Altair and its partners Novatel and Ecrio worked in close collaboration to bring this product to market.

The ALT3800 chipset is architected to support the most advanced LTE and LTE-A standards, setting the benchmark for high speed broadband access performance, power consumption and cost. It is used in a range of devices, including tablets, netbooks, connected consumer devices, indoor and outdoor CPEs, mobile hotspots and M2M modules.

Hod HaSharon’s Altair Semiconductor is a leading provider of LTE chipsets. Altair’s portfolio covers the complete spectrum of cellular 4G market needs, from supercharged video-centric applications all the way to ultra-low power, low cost IoT and M2M. Altair has shipped millions of LTE chipsets to date, commercially deployed on the world’s most advanced LTE networks. (Altair 24.05)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israeli Exports to US Amount to $3.1 Billion in First Quarter of 2017

The Israel Export Institute (IEI) released data stating that Israeli exports to the U.S. increased by 5% in Q1/17, amounting to $3.1 billion. The IEI stated Israeli exports to the U.S. in 2016 broke a six-year record, totaling $11.6 billion. Bilateral trade came to $19 billion, marking a 3% growth over 2015’s level. The IEI noted that the U.S. is Israel’s largest and most important commercial business partner in the world, and it is the leading target export market, as well as the most significant importer of goods to Israel.

The increase in exports to the U.S. in 2016 was primarily the result of more high-tech products being exported. The data showed medical equipment exports also saw a sharp rise of 23% compared to 2015, amounting to $690 million. Export increases were also marked in other high-tech fields: Electronic components exports grew by 5% and came to $920 million; telecommunication equipment by 11% to $500 million; and electro-optics equipment by 1%, amounting to $800 million. (IEI 18.05)

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10.2 Finance Ministry Says Home Sales Continue to Fall

On 28 May, the Ministry of Finance chief economist published his weekly review of the residential real estate sector for March. The review states that the number of deals continues to fall, mainly in a yearly comparison and the proportion of investors, particularly in the Sharon district. At the same time, there was a slight drop in housing purchases by both those buying their first home and those buying better housing. In addition, for the first time since October, the number of deals for secondhand housing fell, as well as for new homes.

The Ministry of Finance chief economist referred to the state of the real estate market as stagnation, not a slowdown in sales. According to the figures, 8,800 housing units were sold in March, the same as in the preceding month and 18% less than the corresponding month last year. The Ministry of Finance attributes the fall to the spread of the downtrend to the secondhand market.

The March figures indicate that 2,200 new housing units were sold (1,900 excluding buyer fixed price deals), 46% fewer than in March 2016. At the same time, it should be noted that in comparison with the preceding month (February), the number of new housing deals actually increased, mainly in the Tel Aviv and Hadera areas. Nevertheless, the Ministry of Finance stresses, “Even in these two districts, the number of deals in March was significantly lower (by 20-30%) in comparison with March 2016.”

The Ministry of Finance said that the most substantial fall in purchases by investors was in Netanya and the HaSharon district, with only 112 housing units purchased for investment, 24% fewer than in the preceding month and 60% fewer than in March 2016. (Globes 28.05)

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11: IN DEPTH

11.1 ISRAEL: Vietnam, an Emerging Partner in Israel’s ‘Asia Pivot’ Policy

On 13 May, Alvite Ningthoujam posted in BESA Center Perspectives Paper No. 468 that Israel is increasingly looking for partnerships in economic, political, cultural, and military sectors with countries in Southeast Asia, and relations with Vietnam in particular are on the upswing. While cooperation between Israel and Vietnam is largely focused on civilian sectors, defense ties are also growing more robust, with Israel getting involved in upgrading aging Vietnamese weapons systems and collaborating on weapons development. There is a visible bonhomie between the nations, and Israel-Vietnam ties are likely to deepen.

Vietnam’s relationship with Israel has been getting steadily stronger over the past few years. In what could be considered an extended, modern-day “peripheral doctrine”, Israel is doing all it can to enhance cooperation with the Asian countries. This can be seen with regard to China, India, Singapore, Thailand, the Philippines, Myanmar, South Korea and Japan. Thriving economic and military-security cooperation has become the hallmark of its relations with these countries (though in some cases, political relations have yet to be strengthened).

Israel and Vietnam are carefully crafting a potential partnership based on their respective national interests – economic, military, and political.

Contemporary Israel’s Vietnam policy resembles the overtures it made during the 1950s and early 1960s towards the Sub-Saharan countries, with which it shared technical expertise in agriculture and healthcare. With the aim of forging friendly, supportive relations, Israel focused on multifaceted initiatives in Africa, including technical assistance, training programs, joint-economic enterprises, trade, and so on. Military cooperation and arms trading were also important elements of Israel’s relations with African countries, including Uganda, Kenya, Ethiopia, Zaire and Ghana.

A similar trend is now being followed with Vietnam. Israeli-Vietnamese relations are expanding in the fields of agriculture, commerce, science, and technology, and – most importantly – in the defense sphere.

Israel and Vietnam established diplomatic relations in July 1993 and their economic relationship is relatively healthy. Bilateral trade volume touched $1.3 billion last year, and the countries aspire to take it to an annual $2 billion. In 2004, the countries signed the Agreement of Economic and Trade Cooperation for further development of trade. Israel imports cellular phones, electronic components, seafood, coffee, textiles and footwear from Vietnam, and exports machinery and equipment, hi-tech goods and fertilizer.

In the first quarter of 2017, Israel had 25 foreign direct investment (FDI) projects in Vietnam worth over $46 million. In December 2015, during a visit by Vietnamese Deputy Prime Minister Hoang Trung Hai to Israel, formal discussions were launched on a Free Trade Agreement (FTA). This raised the prospects for further growth in the investment, finance, services, science and technology, and labor sectors. Cooperation in the health sector is also expanding: the two countries have signed an agreement in which Israel has agreed to assist Vietnam in the construction of a 300-bed hospital with some of its latest technology and equipment.

Israel’s agricultural involvement with Vietnam – an area in which Israel has deep expertise over many decades – is significantly on the rise. To augment cooperation, Israel’s Agency for International Development Cooperation, Ministry of Foreign Affairs (MASHAV), and embassy in Hanoi have implemented a training program in the country for Vietnamese citizens. In December 2013, Israel’s Agriculture Minister Yair Shamir and Vietnamese officials agreed to establish a joint Research and Development (R&D) program in agriculture to expand businesses in this area. Some of the areas in which Israeli companies can offer assistance to Vietnam are breeding, preservation technology, water use, and models for scientific research.

Remarkable progress can already be seen, and Israel has become an important partner for Vietnam’s dairy industries – so much so that it has become an essential component of Vietnam’s “dairy diplomacy”. Israel-developed agricultural technology is now widely used in almost every province in Vietnam.

Simultaneously, there is steady growth in openly acknowledged military-security relations between the countries. In addition to trading arms, Israel and Vietnam are engaged in joint ventures in the production of weapons systems suitable to the needs of the Vietnamese armed forces. Israel’s entry into this defense market is timely, as Hanoi is undergoing modernization programs for all three military services. It is increasing defense expenditures, which touched nearly $4.6 billion in 2015 and are expected to reach $6.2 billion by 2020. These steps have likely been taken by the Vietnamese government in response to the Chinese military build-up in the South China Sea.

Israel has carved a niche in the global arms market by developing and manufacturing some of the most technologically advanced systems for maritime security, air defense, electronic warfare systems, reconnaissance drones, arms and ammunitions, short/long-range missiles, and avionics and other subparts. These systems are reasonably priced, and the securing of deals to acquire them is relatively easy as they tend to come with fewer strings attached.

Vietnam’s large army is equipped with aging weapons systems and Israel has the potential to upgrade some of them. Elbit Systems is reported to have secured an upgrading contract for Vietnam’s Mil Mi-17 helicopters. In 2011-12, Israel Weapon Industries established a production facility (at a cost of $100 million) in Vietnam to help supply Galil ACE 31 and 32 assault rifles to the Vietnam People’s Army (VPA). In 2014, the countries worked towards signing agreements to establish a “formal framework” to upgrade their bilateral defense relations, including promotion of future technology transfer and industrial cooperation. In 2015, Israel set up a defense attaché in Vietnam.

The frequency of visits by military officials, which has become an annual phenomenon, is another manifestation of the keenness on both sides to intensify defense ties. In January 2017, General Pham Ngoc Minh, Deputy Chief of Staff of the VPA, met Mishel Ben-Baruch, Director of the Israeli Ministry of Defense’s International Defense Cooperation Division (SIBAT), to explore ways to expand military cooperation to include training, education programs and exchanges. Following a meeting in Hanoi in late February between Vietnamese President Tran Dai Quang and Israel Military Industries (IMI) chairman Yitzhak Aharonovitch, Vietnam began to consider purchasing Israeli-made Delilah standoff-range air-to-surface missiles (including, for example, the Orbiter-2 Unmanned Aerial System [UAS], manufactured by Aeronautics). Vietnam has also fortified some of the islands in the disputed South China Sea with the EXTRA rocket system acquired from Israel.

Between 2010 and 2016, Vietnam imported Spyder, Derby and Python-5 missiles and ELM2288/ ER and ELM2022 air defense radars from Israel. More trade in such items can be expected, as the lethal arms embargo against Vietnam was lifted by then US president Barack Obama in May 2016. At this stage, immediate competition from other international arms vendors is unlikely, as Israel’s share in Vietnam’s imports is relatively low. Russia, for instance, is accountable for 80% of Hanoi’s recent military purchases. However, this possibility cannot be ruled out, as a Moscow-based military expert has already questioned the capability of Israel-made missiles.

Arms exports remain an important instrument of Israel’s foreign policy for both politico-diplomatic and economic reasons. The perpetual nature of the security challenges emanating from its hostile neighbors, and their unrelenting attempts to isolate and castigate Israel politically from the standpoint of regional and international groupings, continue to motivate Israel’s arms sales diplomacy. Israel’s economic and technological assistance and arms transfers to Vietnam can be understood as emanating from this strategy.

While Israel’s arms diplomacy helps it to build political relationships, the funds generated by arms exports sustain its R&D programs in military technology, which it needs to maintain its edge over its regional adversaries. This applies to almost all its relations with Southeast Asian countries. Given that the Asia-Pacific countries contributed $2.6 billion to the Israeli arms business in 2016 out of a total global export of $6.5 billion, Israel will certainly continue to encourage defense cooperation with Vietnam and other nations as a means of diversifying its revenue sources.

The state visit of Israeli President Reuven Rivlin to Vietnam in late March 2017 added further impetus to the already flourishing ties. He pushed not only for the existing cooperation to continue, but also for Vietnam’s political support, especially in multilateral fora such as the UN. If good relations are to last, this element – in addition to economic and military cooperation – will be very necessary.

That said, an atmosphere was created by the Rivlin visit, and more avenues for cooperation have opened in all the sectors. It is now up to the two countries to determine how they can most effectively take advantage of the plethora of opportunities they can offer one other. Prime Minister Benjamin Netanyahu’s “pivoting to Asia” policy is taking shape, and Vietnam is emerging as a crucial partner.

Alvite Ningthoujam is a Senior Research Associate at the New Delhi-based think tank Vivekananda International Foundation, where he focuses on Middle Eastern security dynamics, international terrorism, and ISIS. His other research areas include Israel’s arms exports, Indo-Israeli relations, and Israeli-Southeast Asian ties. (BESA 17.05)

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11.2 QATAR: Mitigating the Adverse Effects of Sustained Low Hydrocarbon Prices

Lebanon’s Bank Audi issued its periodic report in the Qatari economy:

Economic activity relatively slowing down but still non-recessionary: Qatar’s economic activity has fallen as the economy faces up to sustained low hydrocarbon prices. Headline growth has declined to the slowest pace since 2003, registering 2.7% in 2016 amid a stagnant hydrocarbon sector output reflecting in large measure the effects of a self-imposed moratorium on additional output from the giant North Field. Fiscal adjustment and tighter banking liquidity actually took a toll on nonhydrocarbon activity in 2016. There was a particular sharp slowdown in manufacturing and transport, offset by strong outturns in construction, wholesale and retail trade and financial services. For 2017, real GDP growth is forecasted to slightly rise to 3.4% by the IMF, in light of the higher forecast for hydrocarbon prices and Qatar’s competitive edge in LNG production.

Current account balance tumbling into deficit for the first time since 1998: Due to the impact of low oil prices on hydrocarbons export revenue and the stagnant hydrocarbon sector output, Qatar witnessed a sharp deterioration in current account balance, shifting from a surplus of $13.8 billion in 2015 (8.4% of GDP) to a deficit of $ 8.3 billion in 2016 (5.3% of GDP) for the first time since 1998, while the capital and financial accounts have improved, as outflows eased substantially in the past two years. Qatar’s foreign trade figures showed a contraction in exports by 25.9% alongside a 12.1% rise in imports in 2016, contributing to a 48.1% decrease in the foreign trade surplus. In parallel, the fiscal budget balance posted a deficit of 4.1% of GDP in 2016, compared to a surplus of 5.6% of GDP in 2015, interrupting a long history of fiscal surpluses, mainly tied to low hydrocarbon prices in the oil and gas markets.

Tighter monetary conditions despite sustained low inflation level: Qatar’s monetary conditions were characterized during the first quarter of the year 2017 by a continuous low inflation level despite subsidy cuts, monetary policy tightening following US interest rate hikes on the back of a fixed exchange rate regime, and a sustained comfortable level of net international reserves. In details, Qatar’s Consumer Price Index remained low during the first quarter of 2017, growing by 1% on average year-on-year, despite subsidy cuts. This followed a slight uptick in inflation in 2016, as the latter averaged 2.7%, owing primarily to higher energy costs associated with the government’s subsidy cuts. On the other hand, Qatar Central Bank’s net international reserves reached $ 33.9 billion at end-March 2017, up from $ 31.3 billion at end-2016, yet down from $ 36.8 billion at end-2015. The broader Money Supply (M2) expanded by 4.2% during the first quarter of 2017 to reach $ 142.4 billion at end-March 2017, following a net contraction in 2016.

Surge in bank lending to the public sector funded by external liabilities amid dampened liquidity Qatar’s banking sector has been witnessing decent activity amid tough conditions in recent times, with the dampened liquidity in the past couple of years related to the decline in hydrocarbon prices putting pressure on lenders’ funding base and impacting private sector lending while curbing profitability. Nonetheless, the sector remains financially sound and apt to weather low hydrocarbon prices with sufficient capital adequacy, asset quality, liquidity and profitability buffers. Furthermore, funding conditions somewhat improved in the past few months with the relative increase in commodities prices. Measured by total assets of banks operating in Qatar, total sector activity grew by 13.5% last year and by a further 1.6% in the first quarter of this year to reach the equivalent of $ 352.3 billion at end-March.

Equities under downward price pressures, bond prices up tracking US Treasuries move: Qatar’s capital markets witnessed mixed price movements over the first four months of 2017. The Qatar Exchange came under downward price pressures, following price stability in 2016, while the fixed income market posted mostly upward price movements, tracking US Treasuries move, along with extended contractions in five-year CDS spreads. In details, the Qatar Exchange general index fell by 3.6% over the first four months of 2017 to close at 10,064.35 at end-April 2017, after posting a shy rise of 0.1% in 2016. As to the cost of insuring debt, Qatar’s five-year CDS spreads continued to underline the very low risk of default, contracting by 21 bps during the first four months of 2017 to reach a 19-month low level of 59 bps at end-April 2017. (Bank Audi 22.05)

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11.3 SAUDI ARABIA: Saudi First Quarter Deficit Narrows, Some Allowance Cuts Reversed

Saudi Arabia’s sharply narrower first quarter deficit highlights the positive fiscal impact of higher oil prices. But the partial reversal of a cut in public sector allowances shows reforms are not yet well entrenched, Fitch Ratings said on 23 May.

Saudi Arabia’s Ministry of Finance published the government’s first-ever quarterly budget performance update on 11 May as part of its efforts to improve fiscal transparency. At SAR26 billion ($6.9 billion), the Q1/17 deficit decreased by 71% from a year earlier. The major contribution came from higher oil prices, which saw oil revenues more than double to SAR112 billion.

The strong Q1/17 outturn supports our view that the budget deficit will fall substantially this year, although the fall for the full year will be less dramatic than for the first quarter. Oil prices reached their trough in Q1/16, and the year-on-year comparison in oil revenues will be less favorable for the remainder of the year.

The budget update highlights the continuing importance of oil prices to fiscal performance. Non-oil revenues were little changed, while expenditure fell 3% from Q1/16, helped by a 5% fall in spending on wages (the largest single expense) and lower spending on subsidies, grants and social benefits.

The government has not stated any intention to deviate from its reform path and first quarter expenditure figures show no signs that the overall 2017 expenditure target will be breached. However, the reversal of about a third of a cut in allowances for public sector workers raises questions about the government’s ability to implement a more predictable policy process. It suggests the risk of a return to fiscal policy-making where spending is adjusted to short-term revenue fluctuations during the course of the year.

The policy reversal on public sector allowances is worth around SAR9 billion per year or about 0.3% of GDP. While any negative impact on fiscal consolidation this year is likely to be dwarfed by the improvement due to higher oil prices, it weakens efforts to make private sector employment more attractive to Saudis, who are traditionally drawn to highly-paid and stable public sector jobs.

The implementation of planned cuts in energy subsidies, which will be combined with social benefits for the poor, and of increases in expat levies, will be important to gauging the continued commitment to fiscal consolidation.

We assume that the fiscal deficit will continue to fall on the back of higher oil prices and a partial implementation of government reform measures. This should contain the deterioration of Saudi Arabia’s balance sheet.

Our downgrade of Saudi Arabia’s sovereign rating to ‘A+’/Stable in March reflected the continued deterioration of public and external balance sheets, the significantly wider than expected fiscal deficit in 2016 and continued doubts about whether the ambitious reform program can be implemented. (Fitch 23.05)

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11.4 OMAN: IMF Staff Completes 2017 Article IV Visit to Oman

An International Monetary Fund (IMF) team visited Muscat from 3 – 16 May to hold the 2017 Article IV consultation discussions with Oman. At the conclusion of the visit, the IMF made the following statement:

“We have had constructive discussions with the authorities over the past two weeks. The authorities recognize that the sustained decline in oil prices underscores the need to undertake sustained fiscal adjustment, accelerate economic diversification, and increase the role of the private sector to stimulate the economy. Economic growth moderated in 2016 to about 3%, from 4.2% in 2015, with non-hydrocarbon growth slowing from 4.2 to 3.4% given the continued impact of low oil prices. We expect overall growth will remain flat in 2017, as the oil production cuts agreed with OPEC will fully offset the 2.5% growth in the non-hydrocarbon sector, which is expected to slow due to planned fiscal consolidation.

“We are encouraged by the authorities’ efforts to turn the goals of the 9th Development Plan into concrete actions through the Tanfeedh implementation process. Successful implementation of these initiatives will boost medium-term growth prospects. We expect non-hydrocarbon growth to average about 3.5% over the medium term. Improving the business environment, including by streamlining regulatory processes and increasing the level of vocational skills, will support efforts to increase private sector employment. While inflation is expected to increase in 2017 reflecting an expected increase in imported food prices and the continued impact of subsidy reforms, it should moderate subsequently.

“The authorities took important policy measures in 2016, including fuel price reform, to address the impact of lower oil prices on government finances, but implementing the budget proved challenging. The combination of lower oil prices and higher spending has resulted in a widening of the budget deficit to around 22% of GDP. The authorities have set appropriately ambitious fiscal targets in the 2017 budget that would reduce the deficit by almost half to 12% of GDP if achieved. Steadfast implementation of the budget will protect policy credibility and sustain investor confidence, which has underpinned Oman’s access to international financing at favorable terms over the past year. Over the medium term, timely implementation of the increase in corporate income tax and planned introduction of VAT and excise duties will underpin a continued improvement in the fiscal position. The current account deficit, estimated at 17% of GDP in 2016, is also expected to decline.

“The authorities and the IMF team agreed that to maintain fiscal sustainability and support the exchange rate peg over the medium to long term, additional fiscal adjustment – beyond the measures that are already in the pipeline – will be needed. The team encouraged the authorities to anchor the proposed adjustment in a medium-term fiscal framework and recommended that additional measures could include phasing out remaining subsidies, restraining government expenditures – both recurrent and capital, and increasing non-oil revenues further. The team advised the authorities to continue to strengthen their framework for debt and asset management to ensure financing needs are effectively managed, while further fiscal reform would also help limit borrowing costs.

“The Omani banking system remains well capitalized, deposits have increased, liquidity conditions appear to have eased, and credit to the private sector continues to grow. Interest rates are likely to increase as U.S. monetary policy tightens further. Gross reserves of the Central Bank of Oman increased in 2016 from $17.5 billion to $20.3 billion and are considered adequate on a number of metrics. The exchange rate peg to the U.S. dollar continues to serve Oman well given the current structure of the economy.

The IMF team would like to thank the authorities for their hospitality, cooperation and candid discussions.” (IMF 18.05)

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11.5 SAUDI ARABIA: IMF Staff Completes 2017 Article IV Mission to Saudi Arabia

An International Monetary Fund (IMF) team held discussions from 30 April to 11 May on the 2017 Article IV Consultation with Saudi Arabia. At the conclusion of the mission, the IMF made the following statement:

“Saudi Arabia has embarked on a bold reform program under Vision 2030. The reforms aim to diversify the economy, give a larger role to the private sector, increase the number of jobs for Saudis in the private sector, and adjust fiscal policy to ensure macroeconomic stability. The reforms are ambitious and further efforts on effective prioritization, sequencing, coordination, and communication will be needed to maximize the chances of their successful implementation.

“The government is adapting its fiscal policy to lower oil prices. The aim of bringing about a large, sustained, and well-paced fiscal adjustment to achieve a balanced budget is appropriate. The target of balancing the budget, however, does not need to be met in 2019 as set out in the Fiscal Balance Program (FBP) given Saudi Arabia’s strong financial asset position and its low debt. A more gradual fiscal consolidation to achieve budget balance a few years later would reduce the effects on growth in the near-term while still preserving fiscal buffers to help manage future risks.

“Energy price reforms are a key priority, but there is scope for a gradual implementation to give households and businesses more time to adjust. The household allowance is a welcome and powerful tool to support low- and middle-income households as energy prices increase, while support to industry should be available on a limited, temporary, and transparent basis. Successfully implementing non-oil revenue reforms such as the excises and VAT is very important.

“The recent steps to increase the transparency of fiscal policy through the publication of the Fiscal Balance Program and the First Quarter Budget Report are very welcome. This greater transparency will help private businesses and investors better plan their investment and employment decisions.

“The authorities are beginning to make good progress in identifying and reducing obstacles to private sector growth, including by reducing custom clearance times, making it easier to start a business, and moving toward completion of the new bankruptcy and commercial mortgage laws. In collaboration with the business community, these efforts should continue.

“Additional reforms are expected to be announced in the coming months to boost the private sector, including an ambitious privatization and PPP program to reduce the role of the government in the economy.

“Creating more jobs for Saudi nationals in the private sector is essential. A national dialogue between the government, businesses, and those who want to work or take entrepreneurial opportunities could help find solutions to the jobs challenge that are tailored for all. Consideration needs to be given to how to increase the competitiveness of Saudi workers in the private sector. Allowing greater mobility of expatriate workers in the economy would help close the wage gap between Saudi nationals and expatriates.

“Encouraging more female employment will have a positive economic impact. Women are as well educated as men, and their participation in the labor force has been increasing in recent years. However, the level is still low which means that their skills and endeavors are not contributing as much as they could to the growth and productivity of the economy.

“Banks are well regulated and supervised, and SAMA has successfully managed emerging financial sector risks over the past year. Efforts by the Capital Market Authority to develop the local capital markets are very welcome and will provide more financing and saving opportunities in the domestic economy.

“The exchange rate peg to the U.S. dollar continues to serve Saudi Arabia well given the structure of the economy. (IMF 17.05)

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11.6 TUNISIA: Fitch Affirms Tunisia at ‘B+’; Outlook Stable

On 26 May, Fitch Ratings affirmed Tunisia’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘B+’. The Outlook is Stable. The issue ratings on Tunisia’s senior unsecured bonds have also been affirmed at ‘B+’. Fitch has affirmed the Short-Term Foreign- and Local-Currency IDRs at ‘B’ and the Country Ceiling at ‘BB-‘.

KEY RATING DRIVERS: Tunisia’s ‘B+’ IDRs with Stable Outlook reflect the following key rating drivers:

Tunisia has a high and growing government debt burden and external sector imbalances, relatively high contingent liabilities stemming from weak state-owned enterprises and banks, and limited reform momentum in the context of a fragile social and political context. These factors are balanced with international support that provides external financing and foreign currency liquidity, strong structural features relative to ‘B’ peers including human development and governance, and a clean debt service record.

Episodes of social unrest have intensified, as the combination of high unemployment (at 15.3% in 1Q17), rising inflation and a weakening currency is putting increasing pressure on household purchasing power, despite the government’s attempt to channel more investment to under-developed areas. On 10 May, Tunisia’s president ordered a deployment of the army to protect oil and phosphate production sites, where in some cases protest activity has interrupted production. The move should allow production from these sites to resume. However, there is a risk, and some early evidence, that the government’s firm response may exacerbate tensions.

On the other hand, the government’s strengthened security apparatus has so far proven effective at preventing further incidents since the series of terrorist attacks in 2015 and early 2016 near the Libyan border. While security risks remain elevated, maintaining stability would contribute to a normalization in economic conditions. After GDP growth of 1.1% in 2016, Fitch projects growth of 2.3% in 2017 and 2.5% in 2018, to be driven by private consumption (supported by wage growth), a pickup in tourist inflows and investment (aided by the passing of an investment law in April). Estimates for Q1/17 growth (of 2.1% versus 0.7% a year earlier) are in line with Fitch’s full year forecast.

External imbalances have worsened, with a wider current account deficit in Q1/17 leading to exchange rate pressures. The current account deficit reached 3.1% of GDP in 1Q17 compared with 1.9% in Q1/16. The deterioration was due to a 57.3% increase in the trade deficit compared with the same period in 2016, as the 20.3% growth in imports, caused primarily by the rise in oil prices, outpaced that of exports (7.4%). Borrowing, remittances and FDI inflows were not sufficient to cover the ensuing gap (of around $130 million for Q1/17).

Against this backdrop, depreciation of the TND accelerated in April, triggered by an exchange rate policy miscommunication. In reaction, the central bank adopted a number of measures including raising the key interest rate by 50bp to 4.75% in April and again to 5% in May, and a one-time $100 million market injection to ease liquidity strains. This weaker external finance position has been reflected in reserves, which have declined by around $600 million since the end of 2016, and by over $1 billion since early 2015. Fitch expects reserves to be partly replenished by scheduled foreign funding disbursements in H2/17, but the lower external buffer limits the capacity of authorities to deal with external shocks.

Fitch expects balance of payments pressures to ease in H2/17, in line with the 19% narrowing of the trade deficit in April relative to April 2016. Government proposals to introduce higher tariffs on some non-essential products, as well as the passing of Ramadan (after June), will contribute to the slowdown in import growth from the Q1/17 level. Fitch expects exports growth to be aided by higher GDP growth in Europe, and the projected recovery in tourism, as suggested by a doubling of confirmed bookings this year compared with 2016. Nonetheless, we expect that a structural current account deficit will remain a weakness of Tunisia’s sovereign credit profile for the foreseeable future, with the deficit forecast at 10.5% of GDP in 2017 (from 9.0% in 2016) and 9.7% of GDP in 2018.

Inflation accelerated to 5.0% y-o-y in April from 3.7% in 2016, partly due to the exchange rate depreciation, but also reflecting higher food demand in the run up to Ramadan, higher public sector wages and the energy price increase in Q1/17. Fitch expects inflation to decelerate slightly starting in H2/17, aided by the rate rises, to 5.2% for the year 2017 and 4.9% for 2018.

Without fiscal consolidation to reduce foreign financing needs, Fitch expects strains on external balances to continue. The agency estimates Tunisia’s fiscal external funding needs to be equivalent to 7% of GDP in 2017. In addition to the €850 million Eurobond issued in February and the $1 billion Qatari guaranteed bond issued in April, Tunisia is relying on multilateral funding to cover the remaining gap. While concessional financing from multilateral and bilateral lenders, representing around 53% of funding sources for this year, remains a key supporting factor for the rating, financing risks related to future disbursement delays cannot be ruled out, in Fitch’s opinion. Such delays would leave Tunisia reliant on less predictable or more expensive market financing.

The lack of progress in containing wage growth was among the reasons for a postponed IMF disbursement (of about $320 million) following the first review of the program agreed in May 2016. A subsequent review was completed in Q1/17 (and disbursement is now expected in June), but the implementation of unpopular reform measures is complicated by the delicate social context and ahead of municipal elections. The agency is projecting a general government deficit of around 6.5% of GDP in 2017 (incorporating a 5.6% of GDP central government deficit and projected social security and local government balances) and 6.2% in 2018.

With 67.5% of gross general government debt (GGGD) denominated in foreign currency as of March 2017, increased reliance on foreign funding has rendered public debt vulnerable to exchange-rate fluctuations. Applying the depreciation of the dinar to date from the beginning of 2017 (of about 12% versus the euro and 5% versus the dollar) adds over $1 billion to Fitch’s 2017 foreign debt stock projection. At the same time, the agency’s higher GDP deflator forecast has partially offset the rise in terms of GGGD-to-GDP, with Fitch forecasting GGGD-to-GDP to reach 68.5% this year, and to top 70% by 2018.

The rapid rise in net external debt, from 20.8% of GDP in 2010 to 46% in 2016, at more than double the ‘B’ median and forecast by Fitch to surpass 55% by 2018, further increases Tunisia’s vulnerability to external shocks.

Rating Sensitivities

The Outlook is Stable, which means Fitch does not expect developments with a high likelihood of leading to a rating change. However, the main factors that could lead to negative rating action are:

– Political destabilization of the country, for example from social unrest or major terrorist attacks, with adverse impact on the nascent economic recovery.

– Continued weakening in external finances, such as a widening of the current account deficit and renewed pressure on international reserves leading to a marked increase in net external debt-to-GDP.

– Worsening of the fiscal deficit or a materialization of contingent liabilities, for example from the weak state-owned banks, leading to an increase in government debt/GDP.

The main factors that may individual or collectively lead to positive rating action are:

– Improved growth prospects, for example related to structural improvements in the business environment and/or the security situation.

– Reduction in budget deficits consistent with lowering the debt-to-GDP ratio in the medium term.

– A structural improvement in Tunisia’s current account deficit, leading to reduced external financing needs and stronger international liquidity buffers.

Key Assumptions

Fitch assumes that Brent crude will average $52.5/b in 2017 and $55/b in 2018.

Fitch assumes that concessional lending from multilateral and bilateral lenders, which constituted 62.5% of external government debt as of March 2017, will remain in place over the medium term. (Fitch 26.05)

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11.7 TURKEY: How Lucrative is Turkey’s Defense Industry?

Fehim Tastekin posted in Al-Monitor on 19 May that among the most grandiose ambitions of Turkey’s Justice and Development Party (AKP) government is making giant strides in national defense, diminishing dependence on foreign sources and eventually becoming an exporter of defense products. Concurrently, the government is making a point of emphasizing “defense and weapons” in its diplomacy.

A permanent agenda item of Erdogan’s foreign travels is military cooperation and finding markets for Turkey’s defense industry products, but it’s sometimes difficult to tell how much of the achievement touted in this area is real. With abundant embellished reports of inventions and major successes in production of armored vehicles, missiles, helicopters and drones, the ground is prepared for President Erdogan’s foreign travels.

Ismail Demir, who was appointed undersecretary of the defense industry in 2014, has accompanied Erdogan on 17 of his foreign trips. According to state-owned media Anatolian Agency, Turkey has signed agreements for defense industry cooperation with the countries of Benin, Chad, Congo, Mali, Senegal, Gabon, Romania, Gambia, Somali and Indonesia, and memoranda of understanding with Britain, Kuwait, United Arab Emirates, Chile and Ukraine. Turkey also has signed more-concrete military cooperation agreements with Niger, Nigeria, Djibouti, Ivory Coast, Montenegro, Qatar and Sweden. Ankara also agreed to a framework accord with British defense giant BAE Systems for Turkish national combat aircraft. Recently, Turkey was awarded Pakistan’s submarine modernization project.

According to government officials, this marathon campaign supported by Erdogan’s personal credibility is based on solid foundations. But what is its scope? The latest effort to add credence to ambitious claims came at the International Defense Industry Fair held on 9 – 13 May in Istanbul. Pro-government media claimed the fair was a sensational success.

Companies displayed an ATAK helicopter, Altay tank, Hurkus and Anka drones, reconnaissance and kamikaze drones (Alpagu, Kargu and Togan), missiles (Kaan, TRG-122, TRG 300 Kaplan, Gokdogan and Bozdogan), air defense systems from Korkut and Hisar, and armored vehicles from HIZIR, Kaplan and Pars. There were two major transactions: submarine sales to Indonesia and an agreement with Pakistan for the sale of four Turkish-made Mil-Gem warships.

Another landmark agreement came in February between Turkish military vehicle manufacturer Otokar and the United Arab Emirates’ Tawazun. In a $661 million agreement, the pair formed a joint venture, Al Jasoor, to make 8×8-wheeled amphibious armored vehicles.

Turkish media get carried away by these promising events. According to economist Gungor Uras, in 2003, only 25% of the needs of the Turkish Armed Forces were met locally; that figure has reached 68%.

Turkey’s investments in the sector now total $3.5 billion, with annual production of $2 billion to $3 billion. The Defense Industry Undersecretariat now supervises 269 projects. Yet Turkey’s military expenditures have been stable for more than 15 years. According to data provided by Stockholm International Peace Research Institute (SIPRI), Turkey’s military expenditures were $15.3 billion in 2002 and $14.9 billion in 2016.

Turkey’s political discourse and media reports are constantly referring to cooperation protocols and agreements. But it is not clear how many of these massive investments are actually realized. There’s a lack of transparency in the defense industry and the Turkish government makes a habit of exaggerating pleasing news. Available export figures are modest compared to sensational ambitions. Most of the media’s promising articles start with, for example, “Defense industry exports are up seven times over 15 years” — but seven times what? How significant is this increase?

During the past 15 years, annual research and development expenditures have climbed from $1.8 billion to $20 billion. According to Prime Minister Binali Yildirim, in 2002, Turkey exported $250 million worth of defense products. Figures from Turkey’s Exporters Assembly show that in 2016, Turkey’s defense and aeronautics sector made foreign sales of $1.68 billion. One-third of those sales in 2016 were to the United States, followed by sales to Germany, Malaysia, Azerbaijan, Britain, UAE, Qatar, Saudi Arabia and Tunisia.

Given the emphasis and efforts made, these figures are not mind-boggling, especially as the AKP Vision Document for 2023 calls for $25 billion of annual defense industry exports. In 2011, annual defense exports were $883.8 million.

There is a long way to go to achieve the 2023 target. But Demir tried to sound optimistic. “We want to reach the $25 billion level in 2023. We are determined. We are not going to change that target, although it seems somewhat ambitious. We will expand the sector and increase international cooperation,” he said.

This vibrancy in the defense industry, although not yet backed up by numbers, indicates Turkey’s goals. The psychological motivation here comes from a government mesmerized by the grandeur of the Ottoman era and that dreams of making Turkey’s army the strongest and increasing Turkey’s global influence. Turkey is not content with its place among weapons-exporting countries. SIPRI says Turkey is the 16th-largest exporter in that sector.

Several other factors encourage Turkey’s focus on this sector. First, Turkey is aware of Iran’s advances in developing its own defense systems and doesn’t want to lag behind. Second, Turkey now believes that it can’t be a regional leader simply by depending on NATO. Moreover, Turkey’s disputes with the West encourage it to become more independent in defense. Of course, Turkey’s increasingly interventionist foreign policy is another element encouraging its national defense industry. (Al-Monitor 19.05)

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Fortnightly, 30 May 2017

Fortnightly, 30 May 2017

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