Fortnightly, 4 May 2016

Fortnightly, 4 May 2016

May 4, 2016


4 May 2016
26 Nisan 5776
27 Rajab 1437




1.1  Israel Tax Authority Targets Non-Residents
1.2  One Million Shekel Aid Package Awarded to Holocaust Survivors


2.1  On-Line Bra Fitting Company Brayola Raises $2.5 Million
2.2  Preempt Security Closes $8 Million in Series A Funding
2.3  Kuang-Chi to Launch $300-Million Global Fund & Incubator in Israel
2.4  Renewed Drilling Finds Oil near Dead Sea
2.5  SintecMedia Management & Francisco Partners Acquire SintecMedia
2.6  Zooz Closes $24 Million Investment Round


3.1  Middle East Remittances Said to Exceed $120 Billion in 2015
3.2  USAID Awards Tetra Tech $28 Million Contract for Jordanian Water Management
3.3  Thrill Park Coming to Dubai Parks and Resorts
3.4  First All-Women Business & Technology Park in Saudi Arabia Inaugurated
3.5  Turkish Airlines Expands Fleet with 26 New Boeing Aircraft


4.1  UAE’s Masdar set to Complete Rural Morocco Solar Project in Second Quarter


5.1  Lebanon’s Trade Deficit Widened to $3.99 Billion in First Quarter
5.2  Deflation in Lebanon Dropped to 3.57% in First Quarter

♦♦Arabian Gulf

5.3  Bahrain Says Dependence on Oil Revenues Slashed in 2015
5.4  Bahrain Launches New Tourism Identity
5.5  Qatar to Let Domestic Fuel Prices Fluctuate in Subsidy Reform
5.6  UAE’s Non-Oil Foreign Trade Totals $424.7 Billion in 2015
5.7  Dubai Sees 5% Rise in Tourists to 4.1 Million in First Quarter
5.8  Dubai Launches $270 Million ‘Future Fund’ to Shape Growth
5.9  Switzerland is First to Officially Sign Up for Dubai Expo 2020
5.10  Oman Presents New 20-Year Tourism Plan
5.11  Saudi Prince Unveils Sweeping Reform Plan for Economy

♦♦North Africa

5.12  Israeli Industrialist Delegation Visits Egypt for First Time in 10 Years
5.13  UAE Allocates $4 Billion to Egypt to Support Cash Reserves
5.14  Egypt Builds Mega Project Named After Abu Dhabi Crown Prince
5.15  China Wants to Sign a Free Trade Agreement with Morocco
5.16  Kuwait Grants $ 250 Million in Financial Assistance to Morocco


6.1  Turkish Exports Fall by 2.8% in April
6.2  Turkey’s Tourism Revenue Drops 16.5% in First Quarter
6.3  Turkey Gives Permission to Bank of China to Set Up Business
6.4  Higher Greek Taxes Expected to Bring in €1.35 Billion of €1.8 Billion Shortfall



7.1  Yom HaShoah – Holocaust Martyrs’ & Heroes’ Remembrance Day 2016
7.2  Israel Commemorates Those Who Fell in Service to the Nation
7.3  Israel’s Independence Day – 68 Years After Sovereignty was Regained


7.4  Morocco’s Economic Council Calls for Decriminalization of Sex Outside Marriage
7.5  Oscar Wilde & the Oscars Cause Confusion in Turkish Parliament Commission Debate


8.1  AV Medical Completes Study with Angioplasty Balloon Catheter Chameleon
8.2  Biocancell Therapeutics Raises $6 Million
8.3  Corsens Medical Files 510(k) Pre-Marketing Notification with FDA for Cardiac Monitor
8.4  Can-Fite Presents Data on CF602 for the Treatment of Erectile Dysfunction


9.1  Israelis Take Second Place in Prestigious High School Robotics Contest
9.2  Arecont Vision Technology Partner Program Expands Wirelessly with Siklu
9.3  Enter Selects Mellanox Open Composable Networks to Power European Cloud
9.4  Eutelsat Selects Gilat to Power Satellite Broadband Services in Western Russia
9.5  Elbit Systems to Supply Mobile Tactical Software Defined Radio Systems
9.6  Argus and Check Point Selected as Finalist for 2016 TU-Automotive Award
9.7  Two Sapiens P&C Customers Receive Celent Model Insurer Awards
9.8  LightCyber Wins Cybersecurity Excellence Award
9.9  CallVU Presents New Mobile Digital Engagement Platform for Financial Institutes


10.1  March Hotel Figures Show Israel’s Slow Tourism Recovery


11.1  MENA: Cheap Oil Means a New Reality for Middle East, North Africa Region
11.2  ISRAEL: Fitch Revises Israel’s Outlook to Positive; Affirms at ‘A’
11.3  JORDAN: Outlook on Jordan Revised To Negative; ‘BB-/B’ Ratings Affirmed
11.4  SAUDI ARABIA: Saudi Arabia’s Challenging Plan to Shift From Oil
11.5  LIBYA: Libyan Government, Parliament Enter Into Standoff
11.6  MOROCCO: Fitch Affirms Morocco at ‘BBB-‘; Outlook Stable
11.7  CYPRUS: Fitch Affirms Cyprus at ‘B+’; Outlook Positive


1.1  Israel Tax Authority Targets Non-Residents

The Israel Tax Authority has been working continually and intensively on a legislative program designed to give it more tools and powers in the war on unreported income and wealth.  In this context, the Tax Authority seeks to expand the obligation to file tax returns, in order to make taxpayers’ affairs more transparent so that it can decide whether they are paying tax as required or are hiding income from the state.  To this end, the obligation to file returns has been widened concerning a matter that may appear technical, but that in fact will have a dramatic effect on many people: Israeli businesspeople that relocate overseas for an extended period and foreign citizens living in Israel unknown to the Tax Authority.

The legislative amendment concerns the physical presence test that determines whether or not a person is resident in Israel for tax purposes.  Under the Income Tax Ordinance, an Israeli resident is liable to income tax on their worldwide income, whereas a foreign resident is liable only on income produced in Israel.  Residence is determined according to the test of a person’s “center of life”, whereby their connection to Israel is examined according to criteria such as possessing a home and vehicle in Israel, having family in the country, economic connections, etc.  There is an additional test for determining residence, which is the physical presence test, whereby a person who is present in Israel for more than 183 days a year is assumed to be an Israeli resident.  This assumption is rebuttable and in many cases people who spend more than 183 days a year in Israel do not report on their income to the Israel tax authority, relying on the other tests of residence and on expert opinions, which overturn the physical presence assumption.  In such cases, there may be no reporting to the Tax Authority at all.

Under the new amendment, a person who claims not to be a resident of Israel but who falls within the physical presence assumption, being in Israel for more than 183 days in a year, will be obliged to file a report detailing the facts on which the non-residency claim is based, with supporting documentation.  This is in addition to a report on the person’s income in Israel.

The Israel tax Authority thus seeks to expose various kinds of tax planning on the part of Israelis who relocate overseas for a period, or who constantly travel overseas, and receive expert opinions that they are not liable to tax in Israel.  The reporting required by the proposed amendment will mean disputes with the Tax Authority, which in some cases will argue that the person concerned is an Israeli resident for tax purposes and will require a report on all their overseas income.  This will lead to many more civil cases vis-à-vis the Tax Authority, as well as exposure of taxpayers to criminal proceedings for tax evasion.  (Globes 25.04)

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1.2  One Million Shekel Aid Package Awarded to Holocaust Survivors

The Knesset Finance Committee awarded one million shekels ($264,782) to Holocaust survivors on 3 May, just before Holocaust Remembrance Day.  The funds, which were from a 2015 budget surplus, were transferred after Committee members withdrew their opposition to a request from MK Elazar Stern (Yesh Atid), who chairs the Lobby for Holocaust survivors.  A study published earlier said 45,000 Holocaust survivors live in poverty and 60% are worried about their finances – a fact compounded by Bituach Leumi (National Insurance Institute) benefits not reaching the cost of living.  It was also reported that thousands of survivors have never received those benefits at all.  (Arutz7 03.05)

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2.1  On-Line Bra Fitting Company Brayola Raises $2.5 Million

Brayola announced the close of a $2.5 million Series A round. Investors include Haim Dabah of HDS Capital and FirstTime Capital’s Jonathan Benartzi.  The company is also unveiling its own marketplace, leveraging inventory from brand partners to help women not only find the right bra, but take action on that item directly from the Brayola website.  Brayola’s premise is simple to understand and difficult to execute. Women upload a picture of their breasts wearing their favorite bra.  Then, users collectively vote on these pictures (that don’t show faces) on whether or not these bras fit the wearer.  At the end of the poll, a “bra expert” steps in and makes the final call.  As it turns out, most women are wearing bras that don’t fit properly and don’t know what the “right” fit even looks like.  The polling is meant to help these women better understand how a bra should fit.  Beyond the polling, Brayola also lets users upload their favorite bra (make, model, and size) and Brayola generates suggestions for other bras they might like.

Tel Aviv’s Brayola is the first & only marketplace for women’s intimate apparel, partnering with top brands & indie designers, using technology, data & community to provide a personalized way to shop for lingerie online for each and every woman. We solve a real pain point for women in a $3.2 billion intimate apparel industry.  (TechCrunch 22.04)

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2.2  Preempt Security Closes $8 Million in Series A Funding

Preempt Security announced $8 million in Series A funding.  General Catalyst Partners led the round with participation from well-known security leaders and innovators, including Mickey Boodaei and Rakesh Loonkar, the founders of Trusteer, and Paul Sagan, the former CEO of Akamai Technologies.  The financing will be used to expand marketing and sales efforts, and accelerate product development. Additionally, the company appointed Heather Howland as vice president of marketing.

Ramat Gan’s Preempt Security was founded in 2014 by global security and networking experts.  The team has deep roots in security with a large component of the team from Unit 8200, the elite intelligence unit of the Israeli Defense Forces.  In addition, members of the team were instrumental in defining the first commercial Intrusion Prevention System, which led to the creation of the Unified Threat Management segment of gateway security products.  The Preempt team leverages its experience to build industry first technology to help enterprises combat malicious breaches and insider threats.  (Preempt 21.04)

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2.3  Kuang-Chi to Launch $300-Million Global Fund & Incubator in Israel

Kuang-Chi, a Shenzhen-based technology conglomerate, is launching an international innovation fund based in Israel to invest in companies worldwide.  The “Kuang-Chi GCI Fund & Incubator” will be the first Chinese fund of its kind, combining investment in early to mid-stage Israeli and global companies with incubation by Kuang-Chi.  The newly established fund has an initial mandate of $50 million which is planned to grow to $300 million within the next three years.  GCI refers to the Global Community of Innovation initiated by Kuang-Chi.  It brings together innovators from all over the world and turns science fiction and human dreams into reality by delivering “the future” to the world.  Kuang-Chi will make its full corporate resources, from sales and marketing to technology collaboration and joint development, available to the companies in which it invests.

Kuang-Chi will also announce investments in local Israeli technology companies that are joining GCI, led by a sizable investment in a leading Israeli technology company.  Kuang-Chi’s longtime partner in Israel, Indigo Global, will represent and manage the GCI Fund & Incubator’s activity.

A senior Kuang-Chi delegation will visit Israel in early May to formally announce the fund and to meet with high-level government officials and industry leaders.  The talks will end with a launch event at the offices of leading Israeli law firm ERM Law.  (Kuang-Chi 01.05)

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2.4  Renewed Drilling Finds Oil near Dead Sea

The Hatrurim oil and gas exploration license in the Dead Sea area contains an oil reservoir worth NIS 1.2 billion, according to a resources report published by the companies holding the license on 1 May.  The report from Dunmore Consulting states that the best estimate is that the reservoir contains 7 million barrels of oil, while the high estimate is 11 million barrels.  The estimates are given with 100% geological certainty of oil being found, since oil has already been produced from the reservoir, in the Halamish drilling.

The Hatrurim license is spread over 94 km2 in the Dead Sea area.  In 1995, Delek Group carried out an initial drilling in the license, to a depth of two kilometers, and found oil.  This was the last drilling by Delek Group and Avner Oil and Gas on land, before their offshore gas discoveries.  It was decided at the time not to produce oil from the reservoir because of the low oil price then prevailing.

Last October, the Petroleum Commissioner in the Ministry of National Infrastructures, Energy and Water Resources approved the application from the Israel Opportunity Energy Resources gas and oil exploration partnership to receive 25% of the Hatrurim license.  The application was submitted together with Zerah Oil And Gas Explorations (28.75%), Gulliver Energy (28.75%), Cyprus Opportunity (5%), Ashtrom Properties (10%), and a company controlled by geologist Dr. Eliyahu Rosenberg, founder of the Avner partnership, who will hold 2.5% of the license.  This is the first time that a company listed in Cyprus has entered oil and gas exploration activity in Israel.  (Globes 01.05)

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2.5  SintecMedia Management & Francisco Partners Acquire SintecMedia

SintecMedia announced that SintecMedia’s management team and Francisco Partners, a global technology-focused private equity firm, have acquired SintecMedia from its existing shareholders, including Riverwood Capital.  SintecMedia, which manages the business of multi-platform TV, is a business software partner for over 150 of the world’s top TV and media companies.  Its products manage multi-platform ad sales, traffic, billing, programming and rights, processing over $33 billion in advertising revenue from leading brands and agencies around the globe.  Financial details of the deal are not being made public.

Using the new resources and investment from Francisco Partners, SintecMedia will continue to accelerate the expansion and development of its cutting-edge product portfolio including OnBoard, its state-of-the-art programmatic sell-side platform.  The company will continue to deepen relationships with customers and partners that already make the most of their valuable assets through its solutions.

Jerusalem’s SintecMedia is the preferred business software partner for over 150 of the world’s top media brands.  No other software company brings a comparable depth of experience to create truly innovative software that performs across all platforms, revenue models, and business units.  Since 2000, SintecMedia has grown to over 800 employees in 12 offices around the world and processes more than $33 billion in advertising revenue for the best known companies in the industry.  (SintecMedia 27.04)

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2.6  Zooz Closes $24 Million Investment Round

Payment technology provider Zooz announced the closing of $24 million in new funding.  The round was led by Target Global Ventures, and included Fang Fund, iAngels, Kreos Capital and existing investors Blumberg Capital, lool ventures, Rhodium, Claltech (Access Industries’ Israeli tech vehicle), XSeed Capital, CampOne Ventures and angel Eilon Tirosh.  Zooz will use the funding to accelerate its growth, develop new products, open new markets, and increase its presence in existing markets.  Zooz has grown considerably since its last round in July 2014 and has opened offices in London, Berlin and San Francisco.  The new funding will help the company to continue building its global customer base, enhancing and evolving its products which serve some of the world’s leading companies.

In today’s age of global commerce, relying on a single payments provider can lead to high international credit card fees and decline rates.  However, integrating with multiple solutions has always been difficult, expensive and time-consuming.  The Zooz platform overcomes these obstacles by connecting merchants to multiple financial and technological entities and payment methods and Smart Routing each payment to the most appropriate provider for that transaction.  Zooz’s merchant customers also benefit from its Insights offering, which provides intelligent analysis based on customer transactional data.

Ra’anana’s Zooz provides a payments platform designed to help merchants maximize their payments performance. It offers the flexibility to connect with multiple financial institutions, seamlessly integrate acquirers, e-wallets, alternative payment methods, fraud management and other third-party services, and intelligently route transactions through the entire payment process. Zooz consolidates and analyzes all payment data to provide valuable information to merchants, enabling them to personalize customer experiences online and in-store. It is the partner of choice for any business seeking to extend reach, reduce decline rates, increase revenues, maintain strong customer relationships and meet the challenges of the dynamic global market.  (Zooz 03.05)

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3.1  Middle East Remittances Said to Exceed $120 Billion in 2015

The Middle East saw outward remittances of more than $120 billion during 2015, cementing its place as one of the top remittance hubs in the world.  The study by money transfer brand Xpress Money indicated that remittances within the Middle East are rising rapidly, particularly with the Arab nationals transferring money from GCC countries to other Arab countries.  The research showed that not only are Arabs sending money more frequently, but the amounts tend to also be larger.

Of all Arab expatriates across multiple nationalities surveyed, 71% said that they send money back home, with 38% sending money home at least once a month and another 32% sending money at least every 2-3 months.  On average, Arabs are also more likely to send more money home, with figures showing expat Arab remitters based in select GCC countries regularly transferring amounts in the $700-1,000 range.

Xpress Money said that while the $120 billion outward remittance figure for the Middle East includes destinations the world over, including prolific receivers in South/South East Asia, non-GCC Arab countries are rising on the list.  (AB 30.04)

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3.2  USAID Awards Tetra Tech $28 Million Contract for Jordanian Water Management

The U.S. Agency for International Development (USAID) awarded California’s Tetra Tech a $28 million, single-award contract to improve water sector management and governance in Jordan.  Under the five-year project, Tetra Tech will support the Government of Jordan to achieve measurable improvements and greater sustainability of the water sector.  Tetra Tech will provide technical assistance to strengthen the government’s efforts in reform, capacity building, and policy development and implementation.  Tetra Tech will help improve the sustainability of Jordan’s water supply systems, improve water conservation and water governance systems, and protect water resources.  Through targeted technical assistance and capacity building, Tetra Tech will support the implementation of improved utility management practices; especially those related to non-revenue water reduction and improved cost recovery.  Tetra Tech also will develop water demand management programs and behavior change communication strategies aimed at enhancing water conservation.  (Tetra Tech 25.04)

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3.3  Thrill Park Coming to Dubai Parks and Resorts

Texas’ Six Flags Entertainment Corporation, the world’s largest regional theme park company, released initial plans for Six Flags Dubai, which is scheduled to open in late 2019 in the second phase of the Dubai Parks and Resorts development initiative.  Six Flags Dubai will feature record-breaking roller coasters, spectacular shows and interactive attractions synonymous with the Six Flags brand worldwide.  Guests will enter and exit the park through an impressive, state-of-the-art promenade.  The fully air-conditioned area will offer a VIP mezzanine, space for private and catered events, along with an assortment of retail and food locations including a signature bakery and deli.  Guests will have access to three attractions from inside the plaza and the park’s signature roller coaster will encircle the entire promenade.

Six Flags Dubai will be the first dedicated thrill park in the GCC.  The intricately-themed park, designed in partnership with FORREC, will feature 27 rides and attractions, including best-in-class roller coasters, soaring tower rides, thrilling water slides, out-of-this-world virtual reality experiences, and a next generation 4-D interactive dark ride. When the sun sets, the park will come alive with spectacular lights dancing in the nighttime sky.  (Six Flags 03.05)

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3.4  First All-Women Business & Technology Park in Saudi Arabia Inaugurated

Saudi Aramco, Princess Nourah University (PNU) and Wipro Arabia Limited, a subsidiary of Wipro Limited, a leading information technology, consulting and business process services company, inaugurated the Kingdom of Saudi Arabia’s first all women Business & Technology Park.  The project is expected to create nearly 21,000 jobs for Saudi women over a period of ten years.  The Women’s Business Park (WBP) is a result of a joint venture between Princess Nourah University (PNU), the largest women’s university in the world, and Wipro Arabia.  Saudi Aramco is the strategic advisor and anchor of this initiative.  Dedicated to working women, this business park is a first of its kind project aimed at providing knowledge-based employment for women in the Kingdom of Saudi Arabia.

The Women’s Business Park is envisioned to be the largest Engineering Drafting Services, Business Process Services and Information Technology hub in the region for a number of industry sectors including Oil & Gas, Manufacturing, Government, Healthcare, Telecom and Construction.

The idea of the business park was conceived in September 2014 when Saudi Aramco signed a Memorandum of Understanding with PNU.  Wipro joined the partnership because of its experience in managing talent and providing IT services to a multi-industry customer base.  The joint venture will be responsible for developing the park’s facilities and infrastructure as well as training and employing up to 21,000 Saudi women.  The park will be developed in the PNU premises and will include entrepreneur incubators, daycare centers and a one-stop coordination center for government transactions.  (WPU 04.05)

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3.5  Turkish Airlines Expands Fleet with 26 New Boeing Aircraft

Turkey’s national carrier Turkish Airlines is expanding its aircraft fleet.  According to Boeing, 2016 will be a record year for deliveries to Turkish Airlines, with 26 new aircraft entering service: twenty 737-800s and six 777-300ERs.  The 2015 annual passenger report by the Israel Airports Authority shows that despite cool relations between Israel and Turkey, and despite that fact that Turkish vacation spots have been wiped off the Israeli vacationer’s map, the country is still the number two travel destination for Israelis, chiefly for connecting flights to other places.  In 2015, Turkish Airlines recorded 19% growth in the number of its Israeli passengers, putting it in second place after El Al Israel Airlines, which carried nearly five million passengers.  About 823,000 Israelis flew with Turkish Airlines in 2015, most of them continuing to further destinations around the world.

Turkish Airlines’ growing fleet now numbers 311 aircraft.  The company posted a record net profit of $1.69 billion for 2015 on sales turnover of over $10 billion.  (Globes 02.05)

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4.1  UAE’s Masdar set to Complete Rural Morocco Solar Project in Second Quarter

Masdar, Abu Dhabi’s renewable energy company, has announced it has installed 50% of the solar home systems as part of a project to electrify rural Morocco.  The installation of 9,000 out of 17,670 systems across 940 villages comes only a year after the partnership agreement was signed between Masdar and Morocco’s Office National de l’Electricité et de l’Eau Potable (ONEE).   The project is expected to be fully completed by the second half of this year.

All of the 290-watt solar home systems are designed, supplied and installed under a project that is being executed by the Masdar Special Projects team.  Along with other local initiatives, the full installation will result in 99% of rural Morocco having energy access by the end of 2017.  Morocco is considered one of the Middle East and North Africa’s most promising renewable energy market, with the government already committed to securing 42% of nation’s energy from renewable sources by 2020.  (AB 22.04)

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5.1  Lebanon’s Trade Deficit Widened to $3.99 Billion in First Quarter

According to data from the Lebanese customs, Lebanon’s trade deficit reached $3.99B in Q1/16, up by 16% from the $3.43B registered in Q1/15.  Exports dropped by an annual 15% to $634.29M while imports grew by an annual 11% to $4.62B.  Pearls, precious stones and metals accounted for 17.23% of exports, followed closely by 17.16% for prepared foodstuffs, beverages and tobacco and by 14.44% for machinery and electrical instruments.  The value of exports in all of the top classified categories witnessed yearly declines: Exports of pearls, precious stones and metals fell by 9% year-on-year (y-o-y) to $109.31M in Q1/16.  Exports of prepared foodstuffs, beverages and tobacco dropped by 8% y-o-y to $108.82M in Q1/16.  Exports of machinery and electrical instruments fell by 9% y-o-y to $91.60M in Q1/16.  As for imports, the largest value is accounted for by mineral products with 25.9% followed by shares of 10.9% for products of the chemical or allied industries and 9% for machinery and electrical instruments. Imports of mineral products grew substantially from $736.45M in Q1/15 to $1.20B in Q1/16.  Imports of products of the chemical and allied industries rose by an annual 3% to $505.28M Imports of machinery and electrical instruments slid by 10% yearly to $416.19M.  The top import destinations for the first three months of the year were China, the US, Holland, Italy and Germany with respective shares of 11.3%, 8.2%, 7.5%, 7.46% and 5.2%.  The top export destinations for Q1/16 were South Africa, Saudi Arabia, UAE, Syria and Iraq with respective shares of 11.7%, 11.58%, 9.44%, 6.81% and 5.94%.  (CAB 26.04)

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5.2  Deflation in Lebanon Dropped to 3.57% in First Quarter

Lebanon’s consumer prices maintained the downward trend during the first quarter of 2016 as reflected by the Consumer Price Index (CPI) that dropped by 3.57% y-o-y in March 2016.  According to the Central Administration of Statistics (CAS), the depreciation of the euro, the local and global economic slowdown and the great decline in oil prices were the primary reasons behind this deflation.

In terms of CPI’s components, food and non-alcoholic beverages (20.6% of CPI) declined by 1.84% y-o-y in March 2016. Moreover, transportation (13.1% of CPI) and water, electricity, gas & other fuels (11.9% of CPI), witnessed yearly drops of 8.24% and 18.15%, respectively.  The other sub-indices that waned were health (7.8% of CPI) and clothing (5.4% of CPI), posting a 3.06% and 1.90% y-o-y declines, respectively.  Also, communication (4.6% of CPI) posted a 0.31% downtick from Q1/15’s level.  However, the education sub-index, constituting 5.9% of the CPI, augmented annually by 1.49% in March 2016.  Furthermore, restaurants & hotels prices (2.6% of CPI) went up by 3.00% y-o-y in Q1/16. In addition, the actual rent sub-index for households (old and new rent), with a stake of 3.4% of the CPI, increased by an annual 1.93%.  (CAS 22.04)

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►►Arabian Gulf

5.3  Bahrain Says Dependence on Oil Revenues Slashed in 2015

Bahrain’s non-oil growth reached 3.9% in 2015, according to the latest update by the Economic Development Board (EDB), while overall GDP growth for the year was 2.9%.  Despite the broader regional economic challenges, growth remained positive across all the non-oil sectors, with construction (6.4%) and hotels and restaurants (7.3%) leading the way.  The EDB said that the private sector remains a vital factor in the kingdom’s continuing economic growth profile, contributing nearly 3% to the overall growth figure for the year.

The oil sector share of real GDP fell to only 19.7%, demonstrating the success of Bahrain’s economic diversification efforts.  Financial services (16%) and manufacturing (15%) continued to account for sizeable elements of the economy with government services (13%), construction (7%), transport and communications (7%), social and personal services (6%) and real estate and business activities (6%) all prominent.

The total value of the non-oil goods exported stood at approximately $17.5 billion in 2015.  The EDB said significant infrastructure investments have continued to progress, with the total value of projects tendered reaching $3.8 billion by the end of March 2016.  (EDB 23.04)

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5.4  Bahrain Launches New Tourism Identity

On 26 April, Bahrain launched its new tourism identity under the slogan of ‘Ours. Yours’ as part of plans to further diversify the national economy away from its dependence on oil.  The new identity was unveiled by the Bahrain Tourism and Exhibitions Authority to the regional market at the Arabian Travel Market in Dubai.  The kingdom plans to revamp its access points for foreign visitors including a modernization program for the Bahrain International Airport which result in increasing its capacity to 14 million visitors annually as well as upgrading port facilities for yachts.  Bahrain’s tourism sector contributed around $700 million – around 3.6% of GDP – in 2015, and is expected to increase to $1 billion by 2020.  The industry currently provides more than 31,500 jobs, accounting for 4% of the total workforce in Bahrain while total investment in the travel and tourism sector last year amounted to $280 million.  (AB 26.04)

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5.5  Qatar to Let Domestic Fuel Prices Fluctuate in Subsidy Reform

Qatar will allow its domestic gasoline and diesel prices to fluctuate in response to changes in global markets as it seeks to reduce waste of fuel and save money for the state budget.  Currently, local fuel prices are fixed at low levels, requiring the government to spend on subsidies to keep them down.  From May, prices will fluctuate monthly.  Future prices will be based on a formula that includes global levels, production and distribution costs within Qatar, and prices elsewhere in the region.  Qatar’s state budget has been strained as low international oil and gas prices have slashed its export revenues, so it has been looking for ways to save money.

In January the government raised domestic prices of gasoline by 30%, but at 1.30 riyals ($0.357) per liter, the price of Super 97 Octane gasoline remained among the lowest in the world, encouraging a preference among drivers for huge sports utility vehicles.  Other Gulf countries have implemented or are considering such a reform as low oil prices pressure their finances; the UAE moved to a similar formula for domestic fuel prices last year. (Reuters 26.04)

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5.6  UAE’s Non-Oil Foreign Trade Totals $424.7 Billion in 2015

The UAE’s non-oil total foreign trade volume reached about AED1.56 trillion ($424.7 billion) in 2015, according to official figures.  Direct trade represented 68% of the total volume valued at AED1.06 trillion while free zone trade totaled AED497 billion, according to the Federal Customs Authority.  Export volumes in 2015 had risen by 17%.  The FCA data indicated that the share of imports of the UAE total foreign trade amounted to AED952.3 billion during 2015.

Native gold and semi-processed gold was the most common imported good during 2015, recording AED96 billion with a share value of 10% of the total imports.  Mobile phones were ranked second followed by vehicles, non-composite diamonds and ornaments, jewelry and precious metals.  Total UAE exports reached AED185.4 billion, with gold the most trading commodity, followed by ornaments and jewelry, cigarettes and ethylene polymers.  (AB 23.04)

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5.7  Dubai Sees 5% Rise in Tourists to 4.1 Million in First Quarter

Dubai welcomed 4.1 million overnight visitors in the first three months of 2016, a 5.1% increase over the same period last year, according to figures released by Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism).  The increase was backed by strong double digit growth from its top two proximity markets, the GCC and India, albeit the GCC continued to be the destination’s leading feeder region, delivering 25% of all overnight visitation to Dubai in Q1/16.  Visitors from Saudi Arabia grew 14% to 476,000 from January to March in 2016, making it the number one source country, followed by strong growth from Oman, which increased by 32% over the same period in 2015 with 322,000 visitors.  Kuwait, which remained in the top 10 with 119,000 visitors, and Qatar, which saw 26% spike in visitor volumes, rounded off the high performing regional traffic with strong contributions.

The subcontinent also remained a key driver of tourism volumes with India growing at 17% in the opening quarter to deliver 467,000 overnight visitors, making it the second largest feeder country, followed by Pakistan within the region, which swelled by 18% over the same period.

Despite challenging global market conditions, and a strong US dollar, visitors from Western Europe continued to be second largest source region with a 23% visitor share overall in the opening quarter of 2016.  This was led by 10% year-on-year quarter growth from the UK, which remained Dubai’s third largest country contributor with 334,000 visitors.  (AB 25.04)

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5.8  Dubai Launches $270 Million ‘Future Fund’ to Shape Growth

As part of a strategy to help shape the future of Dubai, Sheikh Mohammed launched an AED1 billion ($270 million) ‘Future Endowment Fund’ to invest in innovation, and a ‘Future Cities’ program to develop sectors deemed crucial in helping Dubai to become a ‘smart’ city, including energy, transport and infrastructure.  More than 20 separate initiatives will be implemented over the coming years to improve the way Dubai functions as a city, WAM said.  The Dubai Future Foundation, set up in 2015, will be responsible for implementing the strategy by coordinating action by public and private sector bodies.  Since its inception last August, the foundation has forged partnerships with organizations such as UNESCO, the Mohammed bin Rashid Space Centre, the Shenzhen Foundation for International Cooperation and General Electric. It has also established the World Federation of Future Sports.  (WAM 25.04)

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5.9  Switzerland is First to Officially Sign Up for Dubai Expo 2020

Switzerland has become the first country to officially sign up for the Dubai Expo 2020 mega event.  The chairman of the Expo 2020 Dubai Higher Committee, made the announcement after meeting with Maya Tissafi, Switzerland’s Ambassador to the UAE.  The Swiss Federal Council agreed to take part in Expo 2020 at a recent meeting which also agreed a budget for the Swiss Pavilion – which will be built on the Expo site – of $15.5 million.  To be held between October 2020 and April 2021, Expo 2020 Dubai is expected to welcome more than 180 nations and an international audience of 25 million visitors.  UAE officials are expecting the event to create 277,000 jobs, most of which will be in the tourism industry.  (AB 19.04)

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5.10  Oman Presents New 20-Year Tourism Plan

Oman has unveiled a 20-year strategy to double visitor numbers to five million per year by 2040.  The strategy hinges on developing the tourist spots of Musandam, the Hajar Mountains, the Frankincense Trail in Salalah, the city of Muscat and the surrounding deserts and making them “destinations in their own right”, the Oman Ministry of Tourism said.  The development of these clusters would help Oman to attract visitors from one of the world’s fastest growing tourism segments, adventure tourism.  The sultanate wants to grow the contribution of travel and tourism to more than 6% of annual GDP – it is currently estimated to account for around 2.5%.  It plans to employ more than 500,000 people in the sector by 2040, 75% of which are to be Omani nationals in line with the sultanate’s Omanization policy.  (AB 25.04)

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5.11  Saudi Prince Unveils Sweeping Reform Plan for Economy

Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman unveiled ambitious plans aimed at ending the kingdom’s “addiction” to oil and transforming it into a global investment power.  His “Vision 2030” envisaged raising non-oil revenue to 600 billion riyals ($160 billion) by 2020 and 1 trillion riyals ($267 billion) by 2030 from 163.5 billion riyals ($43.6 billion) last year.  But the plan gave few details on how this would be implemented, something that has bedeviled previous reforms.

Part of the plan includes selling shares of Saudi Aramco, to be valued at more than $2 trillion, ahead of the sale of less than 5% of it through an initial public offering (IPO).  The prince added that the kingdom would raise the capital of its public investment fund to 7 trillion riyals ($2 trillion) from 600 billion riyals ($160 billion).  The plans also included changes that would alter the social structure of the ultra-conservative Muslim kingdom by pushing for women to have a bigger economic role and by offering improved status to resident expatriates.

His economic team has already announced efforts to curb wasteful government spending, to diversify revenue streams by introducing sales tax and privatizing state assets, and to make reforms in the education sector.  But ambitious targets, such as raising the private sector share in the economy to 60% from 40%, reducing unemployment to 7.6% from 11% and growing non-oil income to 1 trillion riyals ($267 billion) from 163 billion riyals ($44 billion) were not explained further.

A green card system would also be launched within five years to enable expatriate Arabs and Muslims to live and work long-term in the country, Prince Mohammed said, in a major shift for the insular kingdom.  (AB 26.04)

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►►North Africa

5.12  Israeli Industrialist Delegation Visits Egypt for First Time in 10 Years

A delegation of 38 Israeli captains of industry went to Egypt under the framework of the Qualifying Industrial Zones (QIZ) in late April for the first time in 10 years.  The delegation was sent in an attempt to determine the viability of strengthening Israeli economic cooperation with Egypt.  The industrialists were warmly welcomed by their Egyptian counterparts, who were enthusiastic about the prospect of enlarging the scope of trade between the two countries.  A similar delegation of Egyptian industrialists is expected to visit Israel at the end of 2016.

Very little has been done to develop Israel–Egypt trade and economic relations over the past few years.  Now, however, with renewed political stability in Egypt, the council decided to open once again to encourage the strengthening of ties between the two countries and to strengthen the interpersonal relationships between the two peoples.

Most of the industrialists who took part in the delegation work in textile, chemical, plastic, or packaging production, and were looking into the possibility of expanding exports of different products to Egypt.

Israeli exports to Egypt in 2015 amounted to $113.1 million, compared to $147.1 million in 2014.  Meanwhile, Israeli imports from Egypt were $54.6 million in 2015 and $58.3 million in 2014.  2011 was the last year that trade between the two countries was at full strength, with Israel exporting $236 million worth of goods to Egypt and imports of $178.5 million.  The drastic reduction in trade came about as a result of the Egyptian Revolution.

As well, the Central Bank of Egypt’s recently decided to allow the foreign exchange of shekels.  It’s the first time that the bank has recognized Israeli currency, and even set an exchange rate: 2.19 Egyptian pounds to the shekel.  (Ynet 22.04)

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5.13  UAE Allocates $4 Billion to Egypt to Support Cash Reserves

The United Arabic Emirates has allocated $4 billion to Egypt, half of it in investment and half as a central bank deposit to support cash reserves.  This refers to a previously announced UAE offer to give Egypt $4 billion, which was made at a conference in Sharm El-Sheikh in 2015 along with pledges from other Gulf Arab states.

Egypt has struggled to spur economic growth since its 2011 uprising ushered in political instability that scared off tourists and foreign investors, key sources of foreign currency.  Details of the UAE aid allocation came at the end of a visit of Abu Dhabi’s crown prince, Sheikh Mohammed bin Zayed al-Nahayan, to Egypt.  He said the aid, authorized by UAE President Sheikh Khalifa bin Zayed al-Nahayan, showed the UAE was firm in its support for Egypt.  The funds were aimed at promoting development in Egypt, which has a “pivotal role” in the region.  Earlier this month Egypt and Saudi Arabia signed a pact to set up a $16 billion investment fund.  At the Sharm El-Sheikh conference in March 2015, Kuwait and Saudi Arabia each also offered $4 billion to Egypt.  (WAM 22.04)

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5.14  Egypt Builds Mega Project Named After Abu Dhabi Crown Prince

The foundation stone will be laid next month at a mega project in Egypt which is named after Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces.  Construction of roads and utilities for the Sheikh Mohammed bin Zayed Residential Complex project will be completed within two years.  The residential complex connects Cairo with the new administrative capital project.  The new neighborhood includes financial, business and residential districts, science city, medical global city, and a smart village, in addition to an exhibition center, entertainment and service centers.  It also has several restaurants as well as trails for bicycles and pedestrians.  About 50 Egyptian construction companies with a total of 50,000 engineers, technicians and laborers are working at the mega project.  (AB 23.04)

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5.15  China Wants to Sign a Free Trade Agreement with Morocco

China has proposed a free trade agreement with Morocco.  The state-run press agency of the People’s Republic of China (PRC) said the two countries “are on track to conclude a series of strategic agreements covering the economy, trade and investments in Africa.”  News of the proposal followed less than a week after King Mohammed VI gave a speech at the joint Gulf Cooperation Council (GCC) summit in Riyadh, during which he said Morocco was looking to “diversify” its economic and political relationships by seeking stronger partnerships with major Asian countries, such as China and India.

Morocco’s status as a net oil and gas importer has limited Chinese interest in the North African country in the past, though a 2013 study by U.S. researchers counted 36 Chinese projects in the kingdom between the years 2000 and 2012.  Another factor mitigating bilateral relations could include Morocco’s strong ties to its European neighbors and the United States, most of who view China with suspicion.  Things have changed in recent months, however, as Morocco looks to gain new allies in its territorial dispute with the separatist Polisario Front in the Western Sahara.  Among other developments, the Bank of China opened its first Moroccan branch in Casablanca last month and the Moroccan royal family participated in New Year’s celebrations in Hong Kong this year.  (MWN 25.04)

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5.16  Kuwait Grants $ 250 million Financial Assistance to Morocco

Following King Mohammed VI’s “strategic and security” tour of Gulf countries, Kuwait has accelerated the release of $250 million, the remaining sum of Kuwait’s assistance to Morocco.  The $250 million released by Kuwait for the kingdom is one-fifth of the MAD 1.5 billion promised to Morocco and Jordan.  On 3 May, Kuwait signed off on the payments to Morocco and Jordan just after the Morocco-GCC Summit in Riyadh, which gave birth to strategic partnerships between the Gulf countries and Morocco.  The GCC extended an invitation to Jordan and Morocco to join the alliance during the GCC summit in Riyadh in May 2011.  While Morocco doesn’t belong to the Gulf States or is a wealthy oil producer, the council offered the observer status for its leading role in the region and expertise in the fight against radicalism and the perceived Shia threat in the region.

On an economic level, the Morocco-GCC alliance also aims to ”help Africa benefit from the funding sources of the Gulf and the Moroccan expertise.”  But analysts see this alliance as a predominately political one that creates a “shield” against the aims of Iran in the region following the accords between Iran and the United States on its nuclear program.  The more than $120 billion that Morocco will receive from the Gulf countries over the next 10 year reflects the will of both parties to move forward in their economic partnership while taking advantage of their promising development prospects.  Over the past few years, Morocco has signed collaborative partnerships with most of the GCC countries that cover economic development, counter-terrorism strategies and other points of mutual concern.  (MWN 03.05)

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6.1  Turkish Exports Fall by 2.8% in April

The value of Turkey’s exports dropped by 2.8% in April to $11.4 billion from the same period last year due to a decline in export prices, the Turkish Exporters’ Assembly (TIM) stated on 1 May.  The country’s exports fell by 8.4% to $46.2 billion during the first four months of the year compared to the same period of 2015.  The value of Turkey’s total exports over the last 12 months stood at $139.6 billion, down by 9.6% compared to the previous 12 months.  Exports decreased in April after increasing for two straight months in February and March.

Meanwhile, Turkey’s foreign trade deficit decreased by 16.2 to $4.22 billion in April compared to the same month of 2015, according to temporary data from the Customs and Trade Ministry.  The country’s deficit declined to $16.24 billion, by 19.96% in the first four months of the year compared to the same period of 2015, according to ministry data released on 2 May.

The automotive sector made the highest exports in April with exports worth over $2 billion, an increase of 11.5% compared with April 2015.  Other champion export sectors were the ready-made textiles sector with $1.5 billion of exports, up 13.3% from April last year, followed by the chemical materials and products sector with exports of $1.22 billion, a decrease of 14.6%.   Exports to the EU, Turkey’s main trading partner, increased by 5.1%, while Turkish exports to the Middle East decreased by 14% in April year-on-year.  Exports to the Far East, including China and South Korea, increased by 11.1% in April.  Germany, Italy, the U.S., the U.K. and Iraq were the largest export markets for Turkey in April. Exports to Germany increased by 3.8%, exports to Italy rose 12.7%, and exports to the U.S. rose by 11.9% in April.  Exports to Iraq declined by 27.9% and exports to the U.K. declined by 1.3%.  (AA 02.05)

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6.2  Turkey’s Tourism Revenue Drops 16.5% in First Quarter

Turkey’s tourism revenue decreased by 16.5% in the first quarter of the year compared to the same period of 2015 due to a significant decrease in the number of Russian tourists visiting the country and rising security concerns after a number of suicide attacks.  During the first three months of 2016, tourism revenue decreased to $4.07 billion, according to data that was released by the Turkish Statistical Institute (TUIK) on 29 April.  While 71.3% of the revenue came from foreign visitors, some 28.7% was obtained from citizens who reside abroad, the data showed.  Tourism revenue was $31.5 billion in 2015 with an 8.3% decline compared to the previous year.

The number of foreign arrivals in Turkey declined approximately 13% in March to 1.65 million compared to the same month of 2015, the sharpest drop since October 2006, according to data from the Tourism Ministry.  The number of foreign arrivals to Turkey declined by 10.3% to around 4 million in the first three months of the year compared to the same period of 2015, according to the ministry data.  The number of arrivals from Russia saw a roughly 59% decline in the period in question.

According to official figures, the number of arrivals from Germany declined 17% in March compared to the same month of 2015. Meanwhile, the number of Japanese tourists dropped by 48% in the same period.  (HDN 30.04)

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6.3  Turkey Gives Permission to Bank of China to Set Up Business

Deputy Prime Minister Mehmet Simsek announced in 3 May that Turkey’s banking watchdog has given Bank of China (BOC) permission to launch operations in Turkey.  Noting that the bank first applied to the Banking Regulation and Supervision Agency (BDDK) in January for a Turkish banking license, Simsek said the BDDK decided to give the permission in its meeting on 2 May.  Simsek noted that the headquarters of the lender will be in Istanbul, and the BDDK has expected it to start its operations in the next nine months.  Simsek said the lender would help attract Chinese investments into Turkey and raise financing opportunities for the private sector.  With the BOC entering the Turkish market, the number of Chinese lenders in Turkey will increase to two, as ICBC acquired a majority stake in Turkey’s Tekstilbank.  The BDDK said early April that the lender had completed its application to receive the license in Turkey after submitting the required documents.  (AA 03.05)

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6.4  Higher Greek Taxes Expected to Bring in €1.35 Billion of €1.8 Billion Shortfall

Hikes on taxes on a slew of consumer products and services that will be presented to Parliament for ratification shortly are expected to bring in €1.35 billion of the €1.8 billion shortfall seen in revenues.  According to deal reached by the Greek government and international lenders, the hikes will include raising the top rate of value-added tax from 23% to 24% on many basic commodities, expected to bring €450 million into state coffers.  Raises, however, are not expected on public utilities like water and electricity.  Industries will also have to pay more for unleaded gas, natural gas and butane, as taxes are also raised on various imported products such as coffee, as well as on tobacco.  Pay TV will also become more expensive for consumers, as also may internet or mobile phone services and hotel accommodation.  The unified property tax, of ENFIA, is to be revised so as to place a bigger burden on the owners of multiple or large properties, while raises are also expected on the tax on bank checks, vehicle use and car imports.  The new measures are calculated to bring in €900 million, in addition to the revenues from the higher VAT rate.

Savings, meanwhile, of around €350 million are to be made by preserving the rule of one hiring for every five departures in the civil service and freezing promotions in sectors of the public administration that are in a higher salary bracket.  An additional €100 million will be cut from the defense budget to reach the overall target of €1.8 billion in revenues and savings the government needs to hit to satisfy creditor demands for a primary surplus of 3.5% of GDP in 2018, as outlined in the latest bailout deal.  (eKathimerini 03.05)

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7.1  Yom HaShoah – Holocaust Martyrs’ & Heroes’ Remembrance Day 2016

Israel will mark Holocaust Martyrs’ & Heroes’ Remembrance Day (Yom HaZikaron HaShoah ve-laGvura in Hebrew) beginning on Wednesday evening, 4 May and Thursday, 5 May.  Holocaust Remembrance Day (Yom HaShoah) is a national day of mourning commemorating the six million Jews murdered in the Holocaust.  It is a solemn day, usually beginning at sunset on Hebrew date of 26 Nisan and ending the following evening.  The internationally recognized date comes from the Hebrew calendar and corresponds to the 27th day of Nisan on that calendar.  It marks the anniversary of the 1943 Warsaw ghetto uprising.

Places of entertainment are closed and memorial ceremonies are held throughout the country.  The central ceremonies, in the evening and the following morning, are held at Yad Vashem and are broadcast nationally on television.  Marking the start of the day, in the presence of the President and the Prime Minister, dignitaries, survivors, children of survivors and their families, gather together with the general public to take part in the memorial ceremony at Yad Vashem in which six torches, each representing one million of the six million murdered Jews, are lit.  The following morning at 10:00, the ceremony at Yad Vashem begins with the sounding of a siren for two minutes throughout the entire country.  For the duration of the sounding, work is halted, people walking in the streets stop, cars pull off to the side of the road and everybody stands at silent attention in reverence to the victims of the Holocaust.  Afterward, there is a central ceremony at Yad Vashem, while other sites of remembrance in Israel, such as the Ghetto Fighters’ Kibbutz and Kibbutz Yad Mordechai, also host memorial ceremonies, as do schools, military bases, municipalities and places of work.  Throughout the day, both the television and radio broadcast programs about the Holocaust.

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7.2  Israel Commemorates Those Who Fell in Service to the Nation

Israel’s Memorial Day for Fallen Soldiers and Victims of Terrorism which will begin at sundown on 10 May, honors the soldiers who have fallen in the line of duty since 1860 (when modern-day Jews first lived outside of Jerusalem’s Old City walls).  The Memorial Day begins with a minute-long siren sounded at 20:00h, followed immediately by official events.  On the following day, a two-minute siren will be sounded at 11:00 as part of Memorial Day ceremonies across the country.  For the duration of the sounding of both sirens, work is halted, people walking in the streets stop, cars pull off to the side of the road and everybody stands at silent attention in reverence to the fallen soldiers and victims of terrorism.

A small flag and a black ribbon will be laid on the graves of every soldier who died in the line of duty as an expression of respect and sympathy.  More than a million people are expected to visit military cemeteries across the country.  Though a regular work day, activity is usually curtailed and many leave their offices early to prepare for the Independence Day celebrations that follow.  Both Memorial Day and Independence Day are observed one day earlier this year to prevent the desecration of the Sabbath.

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7.3  Israel’s Independence Day – 68 Years After Sovereignty was Regained

Celebrations for the 68th anniversary of Israel’s regaining its independence will begin on Wednesday evening, 11 May throughout the country, continuing throughout Thursday, 12 May.  The official observance starts when the state flag is raised to full mast at a national ceremony on Mount Herzl in Jerusalem.  Israel Independence Day is celebrated annually on 5 Iyar, which corresponds to 14 May 1948, the date the British mandate ended over the Land of Israel.  A religious and national holiday, Yom Atzmaut – Independence Day is a celebration of the renewal of the Jewish state in the Land of Israel, the birthplace of the Jewish people.  In this land, the Jewish people developed its distinctive religion and way of life.  In the Land of Israel, the Jews preserved an unbroken physical presence, for centuries as a sovereign state, at other times under foreign domination.  Throughout their long history, the yearning to return to the Land has been the focus of Jewish life.  With the rebirth of the State of Israel, in 1948, Jewish independence, lost 1,879 years earlier, was restored.

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7.4  Morocco’s Economic Council Calls for Decriminalization of Sex Outside Marriage

On 29 April, the Moroccan Economic, Social and Environmental Council discussed a new report about the conditions facing Moroccan women, drafting controversial recommendations that are likely to stir up debate.  The council, presided by Nizar Baraka, former Minister of Economy, called for the decriminalization of sex outside marriage and raised the issue of equality in inheritance.  The report included recommendations, such as a call for the abolition of Chapters 490 and 491 of the Criminal Code, which the report claims “discourage women from reporting rape cases.”  Under Article 490 of the Moroccan penal code, couples can be imprisoned for having sexual relations outside marriage.  The article states that “unmarried couples will be arrested only if the perpetrators confessed or if they were caught in the act of having intercourse.”  Article 491 of Morocco’s penal code calls for a prison term of one to two years for adultery.

The Council also called for an “objective evaluation, through a quite national debate involving the parties concerned, of the various provisions and forms of application of the family code in controversial issues, in particular provisions relating to women’s right to inheritance, and enlisting the couples’ properties in a marriage contract.”  (MWN 02.05)

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7.5  Oscar Wilde & the Oscars Cause Confusion in Turkish Parliament Commission Debate

Turkish lawmakers had the chance to debate Oscar Wilde during a constitutional commission meeting on 2 May, after several lawmakers did not know who the Irish writer was and had confused the Academy Awards, also known as the Oscars, with him.  The discussion between the Peoples’ Democratic Party (HDP) and the ruling Justice and Development Party (AKP) deputies started when a HDP lawmaker wanted to quote Wilde as an example, but the AKP lawmakers didn’t know who Wilde was.

“Please nobody take it personally, but I want to quote Oscar Wilde,” said HDP deputy Prof. Mithat Sancar, who was received by confusion from AKP deputies.  “Who is he?” asked AKP deputy Zeyid Aslan, to which Sancar replied by saying that Aslan should look up Wilde himself.  “I can’t give you a lecture; we don’t have time but if someone needs it than we can rent a room and do a private session in the parliament,” Sancar said.  After much debate, Sancar recited the quote anyway, relating it to the abandoned peace process over the Kurdish issue.

“I can oppose vulgar power, but I can’t stand vulgar reasoning. There are unjust things in vulgar reasoning.  Vulgar reasoning aims below the belt,” Sancar stated, quoting Wilde.  However, the debate left others still confused, as an AKP deputy later asked Sancar to talk about the award ceremony known as the Oscars.  “It’s Oscar Wilde. He is not an award, he is a guy called ‘Oscar Wilde,’” an HDP deputy explained to the AKP lawmaker.  (HDN 03.05)

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8.1  AV Medical Completes Study with Angioplasty Balloon Catheter Chameleon

AV Medical Technologies announced the culmination of a 30 patient study that evaluated the proprietary design of the Chameleon angioplasty balloon catheter.  The Chameleon demonstrated clear advantages compared to standard balloon designs.  Among these are reduced catheter exchanges and maintaining guidewire access during contrast injection through the catheter.  In addition, the Chameleon design allows hands free reflux angiography, simplifying visualization of the entire AV graft circuit.  The Chameleon balloon offers unique advantages over standard balloon catheters provided by their proprietary SuperVision feature.

SuperVision is a proximal injection technology enabling simultaneous catheter based interventions and contrast fluid injection for imaging in one device, eliminating multiple exchanges and maintaining guidewire access.  This proprietary technology enhances performance by achieving superior targeted imaging and a smoother and more efficient procedure.

AV Medical Technologies is dedicated to the development of advanced and efficient solutions in catheter-based interventions.  The company is now focusing on its flagship catheter, the Chameleon, targeted for dialysis patients undergoing routine angioplasty procedures.  (AV Medical Technologies 21.04)

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8.2  Biocancell Therapeutics Raises $6 Million

Biocancell Therapeutics announced a $6 million financing round from US investors (apparently life sciences funds) for a third of its shares after the allocation.  The company plans to enlarge its private placement to $15 – 20 million and to raise an additional $6 million through an issue of rights on the TASE, led by Clal Biotechnology Industries, which holds a 82.6% stake in Biocancell.  The private placement will take place at a 22% premium on the current Biocancell market cap of NIS 39 million.  Following the announcement, the Biocancell share jumped 11%.  The company also intends to register for trading on the NASDAQ stock exchange and raise tens of millions of dollars there.  Biocancell has two drugs based on the common ideal of combining a diphtheria toxin with a component that becomes attached to a receptor in cancer cells significantly more frequently than it becomes attached to a receptor in healthy cells.  Once the component attaches itself to a cancer cell, it releases the toxin, thereby killing the cell.

The product for bladder cancer has successfully passed a Phase IIb trial, and is now being prepared for a Phase III trials.  Two Phase III trials for two different types of bladder cancer will actually be conducted, depending on the next financing round.

Jerusalem‘s Biocancell Therapeutics is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel therapies to treat cancer-related diseases.  Its most advanced product candidate, BC-819, is under development as a treatment for non-muscle-invasive bladder cancer (NMIBC).  BC-819 will enter two Phase III confirmatory studies in the first half of 2016.  BioCancell is also developing a second generation drug, BC-821 for the systemic treatment of advanced malignant neoplasms.  (Various 02.05)

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8.3  Corsens Medical Files 510(k) Pre-Marketing Notification with FDA for Cardiac Monitor

Corsens Medical successfully completed filing of a Pre-Marketing Notification (510(k)) with the US FDA for its Corsens Cardiac Monitor1,2.  The company is seeking the following indications statement for the Corsens Cardiac Monitor: “CORSENS records vibrational waveforms produced by the heart contractions and transmitted to the chest wall.  CORSENS may be used as a tool to measure the timing of part of the events in the cardiac cycle.”  The Corsens Cardiac Monitor is designed to detect cardiac contractility parameters via a series of acoustic, accelerometers and cardiac rhythm non-invasive sensors arrayed on the patient’s chest.

Corsens Medical, founded in October, 2013, is a development stage medical device company based in Tel Aviv. Their Corsens Cardiac Monitor is intended to participate in the global cardiac monitoring and cardiac rhythm management devices market which is expected to reach $12.5B by the end of 2020 growing at a CAGR of around 13.2% from 2014 to 20206.  (Corsens Medical 02.05)

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8.4  Can-Fite Presents Data on CF602 for the Treatment of Erectile Dysfunction

Can-Fite BioPharma will present data at the American Urology Association’s Annual Meeting (AUA 2016), which will take place in San Diego, California on May 6-10, 2016.  The presentation is entitled, “CF602 Improves Erectile Dysfunction in Diabetic Rats.”  Can-Fite plans to file an Investigational New Drug (IND) application with the U.S. FDA for CF602 in the fourth quarter of 2016 and plans to initiate a Phase I trial following IND approval.

Petah Tikva’s Can-Fite BioPharma is an advanced clinical stage drug development Company with a platform technology that is designed to address multi-billion dollar markets in the treatment of cancer, inflammatory disease and sexual dysfunction.  The Company’s CF101 drug candidate is scheduled to enter Phase III trials in 2016 for two indications, rheumatoid arthritis and psoriasis.  Can-Fite’s liver cancer drug CF102 is in Phase II trials for patients with liver cancer and is slated to enter Phase II for the treatment of non-alcoholic steatohepatitis (NASH).  (Can-Fite BioPharma 02.05)

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9.1  Israelis Take Second Place in Prestigious High School Robotics Contest

An Israeli high school team from Binyamina, near Haifa, came in second at the prestigious FIRST Robotics Competition in St. Louis, Missouri, held on 27-30 April.  The final match was a showdown between the Orbit team of students from Binyamina’s Rothschild-HaShomron High School, and an American team.  Although it ended in a 2:2 draw, the defending American champion won due to a technicality.  FIRST, which stands for For Inspiration and Recognition of Science and Technology, brings together students from around the world for a sports-like tournament in which they pit their robots against one another in completing set tasks.  The competition aims to turn students into the next generation of trailblazers, honing their technological and engineering skills and encouraging innovation, bolstering self-confidence, and improving communications skills and leadership qualities.  Six Israeli teams participated in the competition although only two — the Binyamina team and BumbleB from Kfar Yona — managed to advance to the final stage.  (IH 02.05)

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9.2  Arecont Vision Technology Partner Program Expands Wirelessly with Siklu

Los Angeles’ Arecont Vision, the industry leader in IP-based megapixel camera technology, announced that Siklu, a leading Israeli manufacturer of gigabit throughput wireless products, has joined the Arecont Vision Technology Partner Program.  Siklu products are available in the Arecont Vision MegaLab as part of the agreement to enable pre-installation integration and new product testing.  The Siklu gigabit throughput E-band (70/80 Ghz) and V-band (60 Ghz) radios are the market’s most cost-effective solutions for short-range wireless point-to-point links.  They are based on more than 30 patents, and include the first SiGe E-band chip and other unique achievements.  Siklu has sold thousands of radios worldwide to service providers, mobile operators, wireless security network operators, and enterprises.  With 30% market share, Siklu firmly leads the millimeter wave radio market.  Top operators have tested their radios rigorously, and they are now deployed in all climates, working smoothly even through monsoons and hurricanes.

Petah Tikva’s Siklu has been committed to reducing the cost of high capacity wireless backhaul solutions since 2008.  The company’s success centers on an innovative silicon-based design of the E-band radio system and components that has resulted in systems priced as low as 20% of competition.  The EtherHaul delivers Gigabit speeds over the uncongested millimetric wave spectrum and is ideal for a wide range of urban and metropolitan Ethernet wireless backhaul applications.  (Arecont Vision 25.04)

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9.3  Enter Selects Mellanox Open Composable Networks to Power European Cloud

Mellanox Technologies announced that Enter, creator of Enter Cloud Suite (ECS), Europe’s first multi-regional OpenStack-based cloud, has selected Mellanox Open Composable Networks (OCN) as the Ethernet network fabric for its Infrastructure-as-a-Service cloud offering.  Enter will deploy Mellanox Spectrum SN2700 switches with Cumulus Linux from Cumulus Networks, along with Mellanox ConnectX-4 Lx NICs and LinkX cables on its ECS.  Enter has seen substantial performance, efficiency and flexibility gains that stem from Mellanox OCN’s open design, ready integration with OpenStack and Cumulus Linux, and advanced offload and acceleration capabilities such as SR-IOV, RDMA, and VXLAN Offload.

Enter has been a Mellanox customer using end-to-end 10/40Gb/s Ethernet solutions including SwitchX-2 SX1710 and SX1410 Open Ethernet switches, ConnectX-3 Pro NICs and Mellanox’s LinkX cables in production.  As they build out their OpenStack cloud, they are increasingly adopting open software and expecting the open design concept will evolve in networking for Enter to enable a truly open platform, unleash innovation in cloud infrastructure, and stay clear of vendor lock-in.  The Mellanox Open Composable Networks platform and its partnership with Cumulus Networks have realized Enter’s vision and principles for their open cloud design.

Yokneam’s Mellanox Technologies is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage.  Mellanox interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance capability.  Mellanox offers a choice of fast interconnect products: adapters, switches, software, cables and silicon that accelerate application runtime and maximize business results for a wide range of markets including high-performance computing, enterprise data centers, Web 2.0, cloud, storage, telecom and financial services.  (Mellanox 24.04)

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9.4  Eutelsat Selects Gilat to Power Satellite Broadband Services in Western Russia

Eutelsat Communications, one of the world’s leading satellite operators, announced its selection of Gilat Satellite Networks to power a new range of broadband services in Western Russia.  Eutelsat has selected Gilat’s SkyEdge II-c hub with X-Architecture and SkyEdge II-c small user terminals to deliver broadband services using the new Express AMU1/EUTELSAT 36C satellite.  The hub will be installed at the Dubna satellite center operated by RSCC, near Moscow.  The satellite’s High Throughput payload comprises 18 Ka-band beams delivering continuous coverage of Western Russia, from the Arctic coastline to the Caspian Sea.

Petah Tikva’s Gilat Satellite Networks is a leading provider of products and services for satellite-based broadband communications.  Gilat develops and markets a wide range of high-performance satellite ground segment equipment and VSATs, with an increasing focus on the consumer and Ka-band market.  In addition, Gilat enables mobile SOTM (Satellite-on-the-Move) solutions providing low-profile antennas, next generation solid-state power amplifiers and modems.  Gilat also provides managed network and satellite-based services for rural telephony and internet access via its subsidiaries in Peru and Colombia.  (Gilat 21.04)

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9.5  Elbit Systems to Supply Mobile Tactical Software Defined Radio Systems

Elbit Systems was awarded an approximately $20 million contract from a Western European country for the supply of tactical mobile radios, from the new and advanced E-LynX Software Defined Radios (SDR) family.  The contract will be performed over a three-year period.  The E-LynX radio solution offers reliable voice, data and video services simultaneously, along with integrated blue force tracking capabilities, both in narrow and wide band waveforms.  Based on unique combat proven Mobile Ad- Hoc Networking (MANET) capabilities, the E-LynX solution is designed to serve as the mobile networking backbone for modern Battle Management Systems (BMS) and soldier systems.

Haifa’s Elbit Systems is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world.  The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance (C4ISR), unmanned aircraft systems, advanced electro-optics, electro-optic space systems, EW suites, signal intelligence systems, data links and communications systems, radios and cyber-based systems.  (Elbit Systems 26.04)

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9.6  Argus and Check Point Selected as Finalist for 2016 TU-Automotive Award

Argus Cyber Security and Check Point Software Technologies announced that their integrated solution, Argus Intrusion Detection and Prevention System (IDPS) with Check Point Car Capsule, has been selected by TU-Automotive as a finalist for the Best 2016 Automotive Cyber Security Product/Service Award.  TU-Automotive is the undisputed home of the connected car.  The finalists were selected by a panel of high-level experts after evaluating over four hundred nominations based on innovation, industry engagement, user experience and market update.  The finalists had a great impact over the last year and are setting the pace for the future of the automotive industry.  This is the second consecutive year that Argus has been selected as a finalist by TU-Automotive.

The partnership and joint offering between Argus and Check Point prevents cyber-attacks on connected cars through a holistic solution that helps automakers stay one step ahead of cyber threats.  The joint solution provides multi-layers of security against attacks by securing both in-vehicle and out-of-vehicle communication.  By enabling real-time alerts, detection and prevention, an automaker or fleet manager can significantly reduce the risk associated with cyber-attacks on connected vehicles.  The joint solution is readily available today and has already been demonstrated to prospective customers. It enables situational awareness on an intuitive dashboard, over-the-air (OTA) updates and operational threat intelligence.

Tel Aviv’s Argus is the global leader in automotive cyber security. Argus’ comprehensive and proven solution suite protects connected cars and commercial vehicles against cyber-attacks.  With decades of experience in both cyber security and the automotive industry, Argus offers innovative security methods and proven computer networking know-how with a deep understanding of automotive best practices.  Customers include car manufacturers, their Tier 1 suppliers and aftermarket connectivity providers.  (Argus 26.04)

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9.7  Two Sapiens P&C Customers Receive Celent Model Insurer Awards

Sapiens International Corporation announced that its property and casualty clients, DirectAsia and L&T General Insurance Company (L&T Insurance), were both recognized at Celent Model Insurer Asia Summit 2016 event with “Model Insurer” awards.  Celent, a leading research and advisory firm, annually recognizes excellence in insurance technology in Asia through its Model Insurer awards. Winners are chosen based on IT programs that epitomize best practices for insurance technology projects.

DirectAsia, a motor insurance specialist, was recognized in the “legacy and ecosystem transformation” category.  The company created a common DirectAsia layer and specific local configurations across countries – Singapore, Thailand and Hong Kong – and transformed its customer-facing portals into responsive and platform-agnostic applications.  Receiving the award in the “digital and omni-channel technologies” category, L&T Insurance – a health, motor and home insurance provider based in India – was chosen for its single, web-based portal that is integrated with L&T’s core policy administration system, Sapiens IDIT.

Holon’s Sapiens International Corporation is a leading global provider of software solutions for the insurance industry, with a growing presence in the financial services sector.  Sapiens offers core, end-to-end solutions to the global general insurance, property and casualty, life, pension and annuities, reinsurance and retirement markets, as well as business decision management software.  (Sapiens 25.04)

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9.8  LightCyber Wins Cybersecurity Excellence Award

LightCyber has earned the 2016 Cybersecurity Excellence Award as the best solution in the Intrusion Detection & Prevention awards category.  The award recognizes that the ability to find an active attacker on a network is paramount to curtail a data breach and other even more damaging consequences.  The LightCyber Magna platform was selected as the winner based on the content of its nomination as well as the votes from the Information Security Community and comments LightCyber received from customers and partners.

Magna uses behavioral profiling to learn what is normal on the network and endpoints, and thereby detect anomalous attacker behaviors that are by-necessity required to perpetrate a successful breach or conduct malevolent goals, including command and control, reconnaissance, lateral movement and data exfiltration.  These behaviors can be identified early to reduce attacker dwell time and curtail the activity.  At the same time, Magna can identify harmful activity from insiders – rogue or unaware employees or contractors – that is either intentionally malicious or unknowingly dangerous.  Magna presents a small number of actionable alerts with supporting contextual and investigative details to greatly enhance the efficiency of a security operations team in its detection and remediation operations.

Ramat Gan’s LightCyber is a leading provider of Behavioral Attack Detection solutions that provide accurate and efficient security visibility into attacks that have slipped through the cracks of traditional security controls.  The LightCyber Magna platform is the first security product to integrate user, network and endpoint context to provide security visibility into a range of attack activity.  (LightCyber 25.04)

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9.9  CallVU Presents New Mobile Digital Engagement Platform for Financial Institutes

CallVU will showcase its flexible multichannel suite which addresses customers’ transformation to digital at Finovate Spring 2016, 10-11 May in San Jose, California.  CallVU’s platform enables financial enterprises to improve digital engagement beyond the regular web and mobile users, and offers all callers a rich media customer journey.  Financial institutions can improve service availability, ensure that a higher percentage of customers benefit from their digital content investment, reduce call volumes and enhance customer experience.  CallVU was chosen by the event organizers to make a special presentation on how to revolutionize the customer journey.  CallVU will demonstrate how banks, credit card and insurance companies can offer better customer experience, engagement and revenues, while utilizing new and existing web and mobile assets and reducing overall costs.

Tel Aviv’s CallVU has developed an innovative Mobile Digital Engagement platform, which combines rich digital and interactive media with the voice channel. CallVU delivers a highly engaging and collaborative customer experience and creates a new customer service channel for smartphone users.  (CallVU 03.05)

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10.1  March Hotel Figures Show Israel’s Slow Tourism Recovery

Tourism to Israel has not fully recovered from the precipitous drop that followed the 2014 summer war with Hamas, according to new figures by the Central Bureau of Statistics.  In the first three months of 2016, hotels sold roughly 705,000 nights to tourists, which represents only a 5% increase over the same period in 2015 (674,000), but still about 29% lower than 2014’s 993,000.  Hotel occupancy rates, which fell from 63% in March, 2014 to 55% in March, 2015, rebounded to 58% nationwide last month.  The most dramatic drops from 2014 were in Jerusalem (72% to 49%) and Nazareth (58% to 36%). In Tel Aviv, the effect was far less pronounced, with rates dropping from 73% to 67%.

Part of the reason that the tourism numbers were more dramatic than the occupancy rates is that internal Israeli tourism helped fill the gap.  Internally, Israelis bought 917,000 hotel nights in the first three months of 2016, up 28% from the equivalent period in 2014.  Though hotel operators have raised concerns that they would lose business to online person-to-person room rental apps, such as Air BB, the overall tourism numbers seem to reflect the same trends as the hotel stays.

According to a Central Bureau of Statistics report from earlier this month, overall tourism fell from 705,300 in the first three months of 2014, to 593,300 in the same period last year (a 16% drop), and only recovered to 596,500 this year (a 0.5% increase).  On possible explanation for the tourism decline is the continued violence in the region.  (CBS 03.05)

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11.1  MENA:  Cheap Oil Means a New Reality for Middle East, North Africa Region

-Intense conflicts and low oil prices continue to weigh on the region’s economic prospects
-Oil exporters should focus on fiscal reforms and diversifying away from oil
-Higher growth expected in oil importers, but unemployment remains high

Growth in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region remains subdued owing to persistently low oil prices and deepening regional conflicts, said the IMF in its latest regional assessment.

The IMF’s Regional Economic Outlook Update for the Middle East and Central Asia, released on 25 April, projects that growth this year will be about 3%.  Although slightly higher than in 2015 (see table), the modest pick-up largely reflects increased oil production in Iraq and post-sanctions Iran.

Growth in most other oil exporters, however, is projected to slow further this year as they tighten public spending in response to lower oil prices.  The latest report has downgraded 2016’s growth projections in almost all MENAP oil exporters relative to the projections made last October.

Economic recovery among MENAP oil importers, meanwhile, remains fragile and uneven. Growth is projected to slow to 3.5% in 2016 because of adverse spillovers from slowing growth in oil-exporting neighbors and intensifying regional conflicts.

“Therefore, it is crucial that all countries step up their efforts to design and implement reforms to boost economic prospects, create jobs, and improve inclusiveness of growth, before they run out of time,” IMF Middle East and Central Asia Department Director Masood Ahmed said at the report’s launch in Dubai.


The cost of conflicts

Conflicts – particularly in Iraq, Libya, Syria and Yemen – continue to intensify, resulting in massive numbers of displaced people and severe economic damage.  Since October 2015, more than 600,000 people have fled Syria alone, bringing the total number of Syrian refugees to almost five million.  The mounting costs of conflicts have put enormous pressure on government budgets and infrastructure, driving up inflation and diverting resources away from much-needed social spending, the report mentioned.  The conflicts are also having repercussions in neighboring countries, who are hosting large numbers of refugees, and tackling disruptions in trade and tourism, worsening security, and decreasing levels of investor confidence.

Ahmed emphasized that the international community needs to scale up and better coordinate its support to help refugees and stabilize the affected countries. “There are large financing needs, with host countries requiring additional financing on affordable terms to fund crisis-related projects,” he said.

Lost revenues for oil exporters

The second factor shaping the region’s outlook is the continued slump in oil prices. The oil-exporting countries enjoyed large fiscal and external surpluses and rapid economic growth in recent years because of booming oil prices.  Since mid-2014, however, the persistent decline in oil prices has turned surpluses into deficits, slowing growth and raising concerns about unemployment.

“The fall in oil prices has led to large export revenue losses: a staggering $390 billion last year and the expectation of a further $140 billion this year,” Ahmed told reporters.

Many countries have taken significant steps to consolidate their budget positions, focusing mostly on capital expenditure cuts, but also on substantial energy price reforms.

However, for Algeria and the Gulf Cooperation Council (GCC), fiscal deficits are still expected to average 12¾% of GDP in 2016, and remain at 7% over the medium term.  The deficit for other oil exporters in the region – those generally less reliant on oil revenue – is projected to be 7¾% of GDP in 2016 (see Chart 1).


Despite the concerted efforts to rein in deficits, “further and substantial deficit-reduction measures will be needed over a number of years to ensure that fiscal positions are sustainable and oil wealth is shared equitably with future generations,” Ahmed said. In many countries, there is room to cut public spending further, widen ongoing energy pricing reforms, and raise new revenues by designing broad-based tax systems, including value-added taxes.  The GCC countries are already planning to introduce such taxes in the coming years.

The report suggests that countries need to reduce their dependence on oil and accelerate reforms to manage the new reality of low oil prices.  Policymakers are encouraged to implement reforms to promote economic diversification and non-oil sector growth, such as reducing the public-private sector wage gap, and better aligning education and skills with the needs of the market.

“An equally important priority is to ensure that the private sector can create enough jobs for a young and growing population, a process that will require deep structural reforms to improve medium-term growth prospects,” Ahmed said.

Uneven and fragile growth for oil importers

The region’s oil importers saw a pickup in growth from 3% in 2011-14, to 3¾% in 2015.  Growth is expected to remain around that level in 2016-17, based on the report’s assessment.  Lower oil prices and improved confidence levels, owing to progress from recent reforms, have supported this recovery.  However, security disruptions and adverse spillovers from regional conflicts and, more recently, lower remittances, trade, and financial assistance arising from the slowdown in the GCC, strain the outlook.

The effects of energy subsidy reforms, coupled with low oil prices, have helped to reduce government deficits to about 6½% of GDP in 2016 from a 2013 peak of 9½%.  The report recommends additional fiscal consolidation measures—designed in a growth-friendly way—to put public debt on a sustainable path and preserve macroeconomic stability (see Chart 2).  For some countries, greater exchange rate flexibility would support fiscal consolidation by helping them to absorb the impact of external shocks, and improve external positions by strengthening competitiveness.


Despite this mild economic recovery, “medium-term growth prospects of the oil-importing countries are still insufficient to address their long-standing problem of high unemployment,” Ahmed said. The region’s unemployment rate remains high at 10%, with youth unemployment reaching a staggering 25%.

In the report, the IMF encourages policymakers in these countries to step up structural reforms that strengthen the quality of education, improve the functioning of labor and financial markets, and increase trade openness to help boost economic growth and create jobs.  (IMF 25.04)

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11.2  ISRAEL:  Fitch Revises Israel’s Outlook to Positive; Affirms at ‘A’

On 21 April 2016, Fitch Ratings revised its Outlook on Israel’s Long-term foreign currency Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at ‘A’.  Fitch has also affirmed the Long-term local currency IDR at ‘A+’, with a Stable Outlook.  The issue ratings on Israel’s senior unsecured foreign- and local-currency bonds are affirmed at ‘A’ and ‘A+’ respectively.  The Country Ceiling is affirmed at ‘AA-‘ and the Short-term foreign-currency IDR at ‘F1’.

Key Rating Drivers

The revision of the Outlook on the Long-term foreign currency IDR reflects the following key rating drivers:

Israel’s external finances continued to strengthen in 2015.  The current account surplus expanded to 4.6% of GDP and the Bank of Israel’s (BoI) stock of foreign reserves climbed to $90.6b (10.9 months of current account payments).  Israel’s net external creditor position improved to 43% of GDP in 2015 from 35.4% in 2014 and on a longer horizon from 27.4% in 2008 when Fitch last upgraded Israel’s IDRs.  The net external creditor position is double the ‘A’ median and slightly above the ‘AA’ median.  While the overall recent performance of exports of goods and services has been weak, Fitch expects the current account surplus to continue in 2016-17.

There has been a concerted improvement over a number of years in reducing the government debt to GDP ratio.  This has been a policy priority for successive Israeli administrations, leading to a decline in the ratio to 64.9% at end-2015 from 74.6% at end-2007 and 95.2% at end-2003.  Nevertheless, it remains above the peer median of 44.6%.

Israel’s IDRs and the Stable Outlook on the local currency IDR also reflect the following key rating drivers:

Fitch forecasts the central budget deficit to widen to 2.9% of GDP (equivalent to around 3.5% on international standard general government definition), from 2.1% in 2015, which was the smallest since 2008.  The low deficit in 2015 narrowed on the back of robust revenue growth and because spending was constrained in the absence of a budget until mid-November.  The 2016 budget target is above that specified in the prior fiscal rule and represents a loosening of fiscal policy.  Fitch’s budget deficit projections imply the government debt-to-GDP ratio will broadly stabilize in 2016-17.

Although government debt-to-GDP remains above the peer median, Israel benefits from high financing flexibility.  It has deep and liquid local markets, good access to international capital markets, an active diaspora bond program and US government guarantees in the event of market disruption.  The structure of debt is also favorable.  Foreign currency debt-to-GDP, for example, has fallen to 8.7% in 2015 from 14% in 2008.  The low level of foreign currency debt helps to explain why the Outlook on the local currency IDR has not been revised to Positive, as the agency envisages an equalization of the foreign and local currency IDRs in the event that the former is upgraded.

Israel’s ratings continue to be constrained by political and security risks, but its credit profile has shown resilience to periodic conflict and political shocks over an extended timeframe.  Frequent yet uncoordinated attacks by young Palestinians have continued with varying intensity since September 2015.  Although these do not currently amount to a third intifada, the attacks reflect the lack of progress towards peace between Israel and the Palestinians.  The prospects for a realistic peace process remain bleak.

Although Israel’s borders are currently relatively quiet, conflicts with military groups in surrounding countries and territories flare up intermittently and can be damaging to economic activity.  The ongoing war in Syria poses risks to Israel and to other neighboring countries that could impact Israel, although direct spillover has so far been negligible.  The implementation of the nuclear deal between Iran and world powers will remain a concern for Israel.

Domestic politics can be turbulent, with coalition governments often not lasting their full term.  No party in the coalition currently seems to have an incentive for the government to fall and precipitate new elections, but the coalition remains vulnerable given its one-seat majority.  The next test for the government will be the 2017-18 budget process later this year.

Production at the Tamar gas field since 2013 has obviated the need for gas imports, thus benefiting the external finances.  However, the development of the larger Leviathan field remains uncertain, following the Supreme Court’s decision in April 2016 not to approve the proposed gas framework.  The project was not factored into Fitch forecasts, so delays do not affect our external and fiscal projections.  If Leviathan does go ahead Israel could become a gas exporter in the medium term.

GDP growth has slowed in recent years.  In 2012-15 annual growth averaged 2.8%, compared with 4.5% in 2004-11.  The explanation for this relates to a number of factors, including slower growth in the working-age population, less productive additions to the labor force, sluggish world trade and competitiveness challenges.  In response, the government is seeking to enact a number of structural reforms to improve efficiencies in some markets and the business environment overall as well as boosting labor market participation.

Inflation was negative in 2015 due to lower commodity prices, domestic currency strength and measures to stimulate greater competition.  Fitch expects robust domestic demand and the dropping out of one-off factors to push inflation into the lower end of the BoI’s 1% – 3% target range in 2017.

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

Rating Sensitivities

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

-Sustained strength of the external balance sheet.
-Improvements in the business environment that support investment and growth.
-Further progress in reducing the government debt-to-GDP ratio.
-A sustained easing in political and security risks.

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

-A sustained deterioration of the government debt-to-GDP ratio.
-A serious worsening of political and security risks.
-A worsening of Israel’s external finances, for example due to a loss of export competitiveness.

Key Assumptions

Current regional conflicts and tensions are assumed to continue, but their impact on Israel is not expected to worsen materially.  Fitch does not expect a military conflict between Israel and Iran.

Renewed conflict with Hamas in Gaza is possible, despite a serious degradation of the latter’s military capacity.  The tolerance of the rating and Outlook depends on the economic and fiscal implications of any conflict.  Fitch does not assume any breakthrough in the peace process with the Palestinians or a pro-longed serious deterioration in domestic security conditions.  (Fitch 21.04)

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11.3  JORDAN:  Outlook on Jordan Revised To Negative; ‘BB-/B’ Ratings Affirmed

On April 22, 2016, Standard & Poor’s Ratings Services revised its outlook on the long-term rating on the Hashemite Kingdom of Jordan to negative from stable.  At the same time, we affirmed the long- and short-term foreign and local currency sovereign credit ratings at ‘BB-/B’.


Jordan continues to face enormous pressures stemming from ongoing regional conflicts.  We have revised downward our economic growth projections, and now expect wider current account deficits.  Excluding lower government transfers to NEPCO, the national electricity provider, underlying fiscal performance has also deteriorated.  According to 2015 census data, Jordan’s population has increased by about 45% since 2011, which is exerting huge expenditure pressures on government finances and has contributed to the high stock of government debt.  Furthermore, we now expect slower regional growth, relating to lower oil prices, which in turn could slow financial flows into Jordan through lower foreign direct investment (FDI), remittances, and other transfers, therefore putting further upside pressure on debt.  In our opinion, the government’s ability to respond to further shocks absent external support has become more tenuous.  We continue to expect that external support for Jordan will remain strong, helping to offset these pressures.

Despite this deterioration, Jordan has managed to preserve relative macroeconomic stability through a period of intense pressure and numerous external shocks.  Although slower than we previously expected, growth in 2015 was 2.4%, reflecting continued expansion in the finance, insurance, transport and communication sectors.  The main contributor to slower growth was the closure of a major border with Iraq midway through 2015, to which Jordan exports 16% of total goods.  However, political instability has continued to dent confidence and thereby reduce investment, despite the announcement of some major infrastructure investments in the energy sector.  We expect that slower growth in regional oil-producing countries will likely reduce external demand and investment in Jordan, thereby lowering future growth expectations, despite an anticipated acceleration in 2016.  From a domestic political perspective, we expect that tensions could rise in the run-up to elections at the end of 2016 or early 2017, particularly in light of continued high unemployment and strains posed by a vast surge in Jordan’s migrant population.  Still, we expect broad policy continuity, in line with continued external support.

As anticipated, Jordan’s population increased significantly to 9.5 million in 2015 from an estimated 6.7 million in 2011, according to the 2015 census, which has reduced GDP per capita to just over $4,000 in 2016 (compared with our previous estimate of $5,400) and also reduces our measure of real GDP per capita trend growth.

According to the UNHCR, the UN refugee agency, about 630,000 Syrian refugees have registered in Jordan, of whom more than 100,000 are living in the large Zaatari refugee camp.  Nevertheless, most estimates suggest that there is a much larger refugee population in Jordan generally, including a more recent flow of refugees from Iraq and Libya.  This influx has weighed on public resources, particularly in terms of security, medical, and education costs.  Although refugees can provide a boost to consumption, recent cuts to aid flows, including from the World Food Program, could start to weigh more heavily on Jordan’s public finances, particularly if conditions in camps deteriorate.

On a headline basis, Jordan’s fiscal performance showed an improvement over 2015, mainly because of lower transfers to NEPCO as lower oil prices kicked in and new LNG feedstock came online.  However, if the impact of NEPCO is removed, then the 2015 fiscal deficit widened by over 1% of GDP in 2015 (to an estimated 3.5% of GDP), mainly reflecting lower-than-anticipated grants (from 17% of total revenue in 2014 to 13% in 2015).  Tax revenues also fell short of expectations in line with lower growth and, conversely, lower oil-related tax receipts, given the reduction in prices.  Expenditures reduced slightly, through a mix of capital expenditures and goods and services.  However, expenditure pressures remain large and we do not expect that they will abate.

This restricts any scope for a reduction in imbalances over the forecast period aside from a further reduction in transfers to NEPCO (which has also benefitted from increasing electricity tariffs) and an increase in grants, which we expect to be augmented by $700 million per year for the next three years following an agreement under the Jordan Compact.  Further substantial adjustments to underlying fiscal imbalances will likely be agreed upon in a new International Monetary Fund (IMF) program, which we expect will be announced over the next few months.  We view the signature and implementation of related program criteria as pivotal for creditworthiness, given the large stock of government debt and associated servicing costs, and Jordan’s vulnerability to further shocks.

Before 2011, NEPCO imported about 400 million cubic meters a year of relatively cheap gas from Egypt and operated with small profits.  Since the disruptions to supply that began in 2011, it has been running annual deficits of around 5% of GDP.  Imports of Egyptian gas averaged only around 100 million cubic meters per year over 2012-2013, due to lower output and disruptions.  Supplies from Egypt were further disrupted in 2014 and averaged only 30 million cubic meters. NEPCO borrowed to fund its purchase of costlier diesel fuel supplies over 2012-2013, with a sovereign guarantee.  The government also subsidized the difference between NEPCO’s buying and selling price. In mid-2013, the government began directly paying NEPCO’s debt-servicing costs.

We include NEPCO’s debt as part of the general government debt stock, which we estimate will peak at close to 80% of GDP in 2016.  At the central government level, however, gross debt is now estimated at 93% of GDP, the difference between the two explained by the social security sector’s holdings of government paper.  On a net basis, we estimate general government debt at approximately 63% of GDP in 2016.  We view this level of debt as a constraint to the implementation of supportive policy reform and vulnerability in the event of additional shocks.

Jordan’s external imbalance widened over 2015 despite a substantial price reduction in fuel imports.  This is in part due to the closure of a key trade channel with Iraq, which offset these gains, in addition to a reduction in grants.  We expect the latter will increase in 2016, but that unsupportive regional growth will mean a similar current account deficit over the forecast period 2016-2019.  The main financing items remain foreign direct investment (FDI) and debt, although we see risks to the former in light of lower growth in the Gulf Cooperation Council (GCC). We note that high positive errors and omissions could well represent unreported FDI.

External financing needs remain high (above 100% of CARs) and include a high proportion of short-term debt related to financial institutions that contain a high proportion of nonresident deposits.  While these have continued to increase, and we understand that they mainly relate to the Jordanian diaspora, we view a reversal as a potential risk.  We also note that remittance flows could decline as a result of weaker growth in the Gulf, therefore exerting further pressure.

Previous reductions in dollarization have stopped.  Meanwhile, the exchange rate peg to the U.S. dollar supports price stability, although it also limits the central bank’s room for policy maneuver.  Deflation over 2015 mainly relates to lower fuel prices.

We expect international support for Jordan to remain strong.  Regional instability has affected Syria and Iraq, and is increasingly affecting Lebanon.  This has made Jordan one of the most stable countries in the region.  We believe that maintaining this relative stability is an important foreign policy objective for the U.S. and the GCC, as seen in the level of grants from the U.S. and the $5 billion GCC Fund intended for project financing, as well as the U.S. guarantee of U.S.-dollar Eurobonds issued over 2013-2015.  We view these commitments as an important rating strength.


The negative outlook reflects our view that lower growth prospects over 2016 to 2019 may hamper Jordan’s efforts to reduce structural fiscal imbalances, thereby further increasing reliance on foreign support.

We could consider lowering the ratings if fiscal balances diverge significantly from our expectations, growth is lower than we currently expect, external and official funding becomes less forthcoming, or financing needs widen beyond the scope of available external assistance.  We also consider that upcoming elections could pose a risk to relative domestic political stability, which could compound the above issues.

We could revise the outlook to stable if Jordan can successfully implement key political and structural economic reforms that support more sustainable economic growth and further ease fiscal and external vulnerabilities, for example, through the anticipated IMF program.  We could also consider revising the outlook to stable should there be a significant improvement in the regional security environment, which could reduce the threat of further shocks.  (S&P 22.04)

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11.4  SAUDI ARABIA:  Saudi Arabia’s Challenging Plan to Shift From Oil

Simon Henderson wrote on 25 April in the Washington Institute that the success of Riyadh’s new economic policy will partly depend on changes in social and political attitudes, as well as greater transparency on legal and other issues.

In 1984, a British ambassador departing Saudi Arabia at the end of his tour wrote a “valedictory telegram” defining the kingdom in terms of three “I’s” — Islam, insularity and incompetence.  Unsurprisingly, the telegram was promptly leaked.  Islam is certainly still the country’s dominant feature, but the internet and social media mean that at least the younger generation is well aware of what is going on in the wider world, even if the population remains generally conservative and insular.  As for incompetence, it is now less well hidden — most recently, the minister of water and electricity was fired on 23 April for poor performance.

Against this backdrop, Riyadh announced a new economic plan on 25 April called “Vision 2030.”  Promptly approved by the Council of Ministers, the plan is the brainchild of Deputy Crown Prince Muhammad bin Salman (aka MbS), the thirty-year-old royal who is increasingly seen as representing the aspirations of the emerging generation.  His campaign to implement Vision 2030 will be helped by the fact that he is regarded as the most powerful person in the kingdom – a consequence of being the favorite son of the ailing King Salman, even though his older cousin, Crown Prince Muhammad bin Nayef, is theoretically above him.

The main challenges, arguably, will be legal.  Tantalizingly, MbS wants to attract foreign investment in the national oil company, Saudi Aramco, and build up the world’s largest sovereign wealth fund, valued at up to $3 trillion.  But the business success of neighboring states such as Abu Dhabi, Dubai and Qatar is grounded in providing foreign investors with a system for resolving commercial disputes based on common law and foreign arbitration, rather than the Islamic law that dominates life in the kingdom.

Two political challenges loom as well.  First, a key beneficiary of Vision 2030 will be the Saudi business and technocratic class, which thirsts for commercial opportunities.  But the royal family has to balance the business elite’s influence against the power of the ulama, the clerical body that grants vital religious legitimacy to the House of Saud.  Second, within the royal family, which traditionally works on consensus, MbS is believed to have less than total support.  Some princes regard him as impetuous and inexperienced, and many are likely concerned that they will lose their privilege of securing favorable terms on business deals – a traditional way for royals to accrue wealth, but also a source of resentment among non-royals.

Economically, the plan seems contradictory in relying on partial privatization of Saudi Aramco to fund a shift away from oil dependency.  The kingdom has more than 15% of the world’s proven oil reserves, second only to Venezuela, which has much higher production costs.  As much as 70% of the Saudi economy is currently linked to oil.

To attract foreign investors, the kingdom will also need to be much more transparent about the information it releases.  Official statistics are often limited and sometimes unbelievable.  For example, government data indicates that two-thirds of the country’s 30 million residents are Saudi and one-third expatriate, but some experts believe the proportion is exactly the reverse, undermining the validity of Riyadh’s stated plans for housing and educational needs.

Fundamentally, Vision 2030 represents an opening up of Saudi Arabia – not only to foreign investment, but also to world opinion, much of which regards the kingdom’s ban on women driving, its public beheadings, its state-mandated floggings and other practices as reprehensible.  Some of the potential investors Riyadh seems to covet most, particularly in the West, might be deterred by this problematic human rights record.  These concerns also formed part of the conversation that President Obama had with King Salman, MbS and other senior princes during his visit to the kingdom recently, yet the royals countered by noting that such punishments are Islamic.  The disagreement is a reminder that Saudi Arabia, home to Mecca and Medina, still sees itself as the leader of the Muslim world.

Vision 2030 represents a Saudi plan for economic leadership in a world where oil is no longer dominant.  If it succeeds, it will also bring about much broader changes within the kingdom.

Simon Henderson is the Baker Fellow and director of the Gulf and Energy Policy Program at The Washington Institute.  (TWI 25.04)

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11.5  LIBYA:  Libyan Government, Parliament Enter Into Standoff

Mustafa Fetouri posted in Al-Monitor on 29 April that many Libya experts expected the arrival of Libya’s Government of National Accord (GNA) in Tripoli to trigger violence between militias supporting it and those opposing it, but nothing serious has yet occurred.  The government, brokered by the United Nations and headed by Fayez al-Sarraj, has installed itself with minimum trouble.  That said, since its establishment on 30 March, the GNA has been confined to temporary headquarters, an old naval base a few kilometers west of the capital, for security reasons.

The GNA is completely dependent on local, supportive militias for protection, such as the Tripoli Revolutionary Brigade (TRB).  It helped to secure its arrival and provides security details for its headquarters. Hashim Bishr, a TRB leader, told Al-Monitor, “[We are] working within the Ministry of Interior, making sure that nothing serious happens and the capital remains safe.”

No single armed group or alliance has moved to establish itself as the dominant force in the capital, where security remains shaky and uncertain in terms of who controls what.  The GNA’s strategy appears to be to gain as much political and bureaucratic support as possible before engaging the militias in the hope of integrating them into the armed and security forces.  The good news is that no militia opposing the GNA has thus far shown any inclination to use force against it

Since its arrival, the GNA has gained the support of numerous municipal councils in western Libya as well as many district councils, the grassroots of political power, at least in the capital.  The most serious political hurdle, however, remains the endorsement, through a vote of confidence, of the internationally recognized House of Representatives (HoR) in Tobruk, as required by the Libyan Political Agreement, signed 17 December, giving birth to the GNA.

The Speaker of the HoR, Agila Saleh, has consistently stressed that the parliament cannot vote on the government unless it presents itself to the deputies in Tobruk, a basic requirement in the democratic process.  The GNA has, however, failed to do so, without explaining why. Its reluctance, it seems, stems from security-related fears and the situation its members might face in eastern Libya.

A high-ranking military source speaking on condition of anonymity confirmed to Al-Monitor that Gen. Khalifa Hifter fears that after the GNA gains full authority his official role as chief of staff of the Libyan National Army could be scraped, because many militias and Islamist political leaders in western Libya do not like him.  The mufti of Libya, Sadiq al-Ghariani, has called for jihad against the army led by Hifter, but at the same time, refuses to accept the GNA.  Hifter is unlikely to disappear anytime soon, however, given the popular and political support he enjoys, thanks to his recent gains on the ground in his fight against Islamist groups, particularly in Benghazi.

More than half of HoR deputies have voiced support for the GNA, but they have been unable to assemble a quorum.  A two-thirds majority is needed for a vote of confidence to be legal and binding.  Some people, including UN envoy Martin Kobler, blame Saleh for delaying the vote.  This view is shared by the European Union, which has imposed sanctions, including a travel ban and assets freeze, on Saleh and other politicians — including Nouri Abusahmen, former speaker of the General National Congress (GNC) in Tripoli, along with GNC-affiliated, self-proclaimed prime minister, Khalifa al-Ghweil — for obstructing implementation of the political accord and thus obstructing the GNA from carrying out its duties.  Abusahmen and Ghweil consider the GNA illegal, claiming that it does not represent the wishes of the Libyan people. Both men, however, lack international standing.

Meanwhile, the GNA has so far failed to translate the political support and endorsement of Western and regional powers into action. France, the United Kingdom, Germany, Spain and Italy expressed their support in strong terms when their foreign ministers visited Tripoli and met with GNA members on 16 April.  They also promised financial and military support and made it clear that they would only deal with the GNA, ignoring any other party claiming to be the legitimate government.

Some Western ambassadors, including from France, the United Kingdom and Spain, have visited Tripoli for the first time since the summer of 2014, when war broke out between the GNC, backed by a coalition of Islamists, and Zintan militias, forcing them out of the capital.

Thus, the political and security wrangling continues as the daily lives of Libyans become even more difficult, stemming from the banking system’s lack of liquidity, skyrocketing prices and lack of security.  Cash withdrawals from banks are limited to no more than 500 Libyan dinars (approximately $366), which doesn’t last long for a middle-class family averaging five persons.  The only cheap thing these days is gas and local phone calls.

This setting, with the government in Tripoli being far from safe, to the extent that it is operating from an old naval base, demonstrates how dangerous it is to go to the official government building, less than 10 kilometers (6 miles) away.  The Islamic State (IS) is one of the serious sources of danger.  After taking control of Sirte, IS has imposed horrific punishments on anyone daring to oppose it and has forced thousands to flee their homes, helping create nearly half a million internally displaced Libyans and more than a million emigrants.

Stemming the surge of migrants making the dangerous trip across the Mediterranean to Italy is another complex issue the GNA must attend to satisfy its Western backers.  The number of people making the journey is set to rise given increasingly calm seas and restrictions on the Turkish-Greek route.

The GNA faces a multitude of urgent problems with very little means to solve any of them, thus adding to Libya’s already combustible status as a country ungovernable for the last five years.  (Al-Monitor 29.04)

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11.6  MOROCCO:  Fitch Affirms Morocco at ‘BBB-‘; Outlook Stable

On 22 April 2016, Fitch Ratings affirmed Morocco’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB-‘ and ‘BBB’ respectively.  The Outlooks are Stable. The issue ratings on Morocco’s senior unsecured foreign- and local-currency bonds are also affirmed at ‘BBB-‘ and ‘BBB’ respectively.  The Country Ceiling is affirmed at ‘BBB’ and the Short-term foreign-currency IDR at ‘F3’.

Key Rating Drivers

Morocco’s ratings balance macro stability and neutral public and external finance indicators relative to ‘BBB-‘ rated peers, with weak structural indicators (including development and governance).

The IDRs reflect the following key rating drivers:

External vulnerabilities have receded over the past two years, primarily as a result of the sharp drop in oil prices and, to a lesser extent, the development of new export industries.  The current account deficit narrowed to 1.9% of GDP in 2015, from 5.7% in 2014, and net external debt declined for the first time since 2007, to 24.8% of current account receipts, aligning most external finance indicators with ‘BBB’ medians.  We expect the sovereign to remain a net external creditor.

Risks to external finances from swings in international oil prices and spillover effects of terrorism in the region on tourism receipts will likely remain but Morocco benefits from a number of buffers.  These include strengthened international reserves (which covered more than six months of current account payments at end-2015), rising FDI prospects and a $5b precautionary line from the IMF.  The expected gradual liberalization of the exchange rate would also support the country’s ability to adjust to external shocks.

Fiscal consolidation and reforms implemented since 2013 have gradually helped bring public finance indicators in line with ‘BBB’ medians.  The removal of energy subsidies caused the central government budget deficit to shrink to 4.3% of GDP in 2015 from 5% in 2014 and the government’s fiscal deficit target of 3.5% for 2016 is credible in light of the expected rise in disbursed grants from Gulf Cooperation Council countries.  The full implementation of the Organic Budget Law will help strengthen the budget’s framework, limiting net new borrowing to investment spending.

General government debt remains higher than peers, at an estimated 49.1% of GDP at end-2015 (BBB median: 42.2%), although it stabilized in 2015 after six years of increases (2008: 32.1%) and Fitch expects it to decline from 2016.  Its structure is favorable, with a lower interest rate burden and a smaller share of foreign currency debt than the ‘BBB’ medians.

Real GDP grew 4.5% in 2015, largely due to an exceptionally strong agricultural season.  Fitch expects real GDP growth to fall below 2% in 2016, as a result of falling agricultural output and moderate non-agricultural growth.  Traditional growth engines (including construction, tourism, and textiles) are affected by slow growth in the EU and the impact of regional insecurity on tourism arrivals, while emerging industries, such as cars and aeronautics, continue to play a limited role in the country’s real GDP growth.  Average GDP growth over the past five years is, however, in line with peers, while volatility of inflation and real effective exchange rate is lower than the ‘BBB’ medians.

Political stability is better than regional peers, though below ‘BBB’-rated peers according to the World Bank measure.  We expect legislative elections in October 2016 to run smoothly.  Exposure to financial shocks is also moderate, with a developed and financially sound banking sector.  However, Fitch considers that structural features are weaker than peers with GDP per capita at less than half of the ‘BBB’ category and World Bank governance indicators also substantially lower than the ‘BBB’ median.  The ease of doing business indicator also ranks below peers.

Rating Sensitivities

The Stable Outlook reflects Fitch’s assessment that upside and downside risks to the rating are currently balanced.  The main factors that may, individually or collectively, lead to positive rating action are as follows:

-Continued fiscal consolidation and reduction in the general government debt-to-GDP ratio
-Evidence of a structural improvement in the current account consistent with declining net external debt-to-GDP ratio
-Over the medium term, increase in per capita income level and an improvement in social indicators

The main factors that may, individually or collectively, lead to negative rating action are as follows:

-A widening of current account deficit and an increase in net external debt/GDP
-A widening of the budget deficit and an increase in general government debt
-Weakening of medium-term growth prospects
-Political and social instability affecting macroeconomic performance

Key Assumptions

Fitch assumes that Brent crude prices will average USD35 and USD45 per barrel in 2016 and 2017 respectively.

Fitch assumes that the Eurozone economies will grow 1.5% in 2016 and 1.6% in 2017 in real terms.  (Fitch 22.04)

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11.7  CYPRUS:  Fitch Affirms Cyprus at ‘B+’; Outlook Positive

On 22 April 2016, Fitch Ratings affirmed Cyprus’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘B+’.  The Outlooks are Positive.  The issue ratings on Cyprus’s senior unsecured foreign and local currency bonds have also been affirmed at ‘B+’.  The Country Ceiling is affirmed at ‘BB+’ and the Short-term foreign currency IDR at ‘B’.

Key Rating Drivers

Cyprus is undergoing a major financial sector, fiscal and economic adjustment following the 2013 banking sector crisis and the ensuing EU/IMF bail-out program.  The country’s early exit from the macroeconomic adjustment program in March 2016 reflects a track record of fiscal consolidation, progress in financial sector restructuring and economic recovery.

A number of factors, however, continue to weigh heavily on Cyprus’s credit profile.  At close to 109% of GDP in 2015, gross general government debt (GGGD) is more than twice the ‘B’ median, reducing Cyprus’s fiscal scope to absorb domestic or external shocks.  With assets at 4x GDP, the banking sector’s exceptionally weak asset quality undermines economic stability and growth.  The country’s weak external position implies that further economic rebalancing may be in prospect over the medium term.

Economic recovery is underway. GDP grew 1.6% in 2015, following three years of contraction resulting in a cumulative 11% loss of output until end-2014.  Fitch projects GDP growth of around 2% per year for 2016-17, supported by household consumption benefitting from a decline in unemployment, and a pickup in tourism and investment.

Banks remain fundamentally weak and pose an ongoing risk to the economy and public finances.  The ratio of consolidated sector NPEs (non-performing exposures) to total loans stood at 45% in December 2015, one of the highest of Fitch-rated sovereigns, though down from a peak of over 50% in 2014.  Unreserved problem loans, represented by gross NPEs minus system-wide reserves, stood at €16.9b (97% of GDP) at end-2015, compared with total bank capital of €6.6b.

Major steps have been taken to restructure the banking sector.  The new regulatory framework put in place since 2015 has enhanced the restructuring toolkit and contributed to a rise in restructurings, albeit from a low level.  However, some 30% of restructured loans since January 2014 were in arrears (including of short duration) by end-2015. Progress is ongoing in bank supervision, both through the central bank and the EU Single Resolution Board, in full effect from January 2016.

The economic recovery is also translating into improved sector capitalization and liquidity.  In a sign of increased confidence, the central bank has reduced its dependence on emergency liquidity assistance, to EUR3.4b in February 2016 from over €11b in 2013.  Deposits have been broadly stable since capital flow restrictions were lifted in April 2015.

Fiscal policy management has been strong, with the government continuing to over-achieve fiscal targets.  Cyprus delivered a general government deficit of 0.5% of GDP for 2015, after a deficit of 0.2% in 2014.  Fitch projects budget surpluses of 0.2% and 1% of GDP for 2016 and 2017, respectively, reflecting a neutral fiscal stance that is supported by the economic recovery.  GGGD peaked at 108.9% of GDP in 2015, and is projected by Fitch to decline to below 100% by 2017.  Debt-management operations and cash buffers, which at around 5.5% of GDP fully cover 2016 financing needs, reduce refinancing risks.

At 128% of GDP in 2015, Cyprus’s net external debt (NXD) is the third-highest of Fitch-rated sovereigns, reflecting a highly indebted private sector and the capital-intensive nature of the shipping industry.  The current account position improved in 2015, albeit still a deficit of 3.6% of GDP in 2015.

Progress has been made with structural reforms, including selling the Limassol port and Casino. However, a number of bills are currently awaiting discussion in parliament following the May elections.  The improved economy and exit from the adjustment program could reduce the urgency for reform.

Negotiations for a reunification deal between Greek and Turkish Cypriots are underway.  The likelihood of success and the terms of a potential deal remain uncertain.  A deal would benefit both sides in the long term by boosting the Cypriot economy, giving the Greek side access to Turkey, and the Turkish side greater access to the rest of the world, but would likely entail short-term cost and uncertainties.

Rating Sensitivities

Future developments that may, individually or collectively, lead to an upgrade include:

-Further signs of a stabilization in the banking sector, including a pick-up in loan restructurings
-Further track record of economic recovery and reduction in private sector indebtedness
-Continued fiscal adjustment leading to a decline in the government debt-to-GDP ratio
-Narrowing of the current account deficit and reduction in external indebtedness
-A sustained track record of market access at affordable rates

Future developments that may, individually or collectively, lead to a negative rating action:

-Re-intensification of the banking crisis in Cyprus
-A reversal of fiscal discipline, resulting in a less favorable trajectory in debt-to-GDP
-A return to recession or deflation with adverse consequences for public debt
-A lack of market access, putting pressure on government and banking system liquidity

Key Assumptions

In its debt sensitivity analysis, Fitch assumes a primary surplus averaging around 2% of GDP, trend real GDP growth averaging 1.9%, an average effective interest rate of 3.6% and GDP deflator inflation of 1.3%.  On the basis of these assumptions, the debt-to-GDP ratio would fall steadily to around 85% by 2025.

Debt-reducing operations such as privatization (€1.4b by 2018) are not incorporated in Fitch debt dynamics.  Our projections also do not include the impact on GDP growth of potential gas reserves off the southern shores of Cyprus.

According to ECB rules, which exclude speculative-grade rated borrowers from the ECB scheme unless a bailout-related waiver is in place, Cyprus is no longer eligible for QE support.  Fitch assumes that Cyprus will not need QE support to tap markets, although that could be more challenging in the event of shocks or less favorable market conditions.

Fitch’s base case is for Greece to remain a member of the Eurozone, though it recognizes that a resurfacing of ‘Grexit’ fears is a risk.  Cyprus is exposed to Greece mainly via confidence effects, as its financial ties have been reduced significantly. Banks no longer hold Greek government bonds and are no longer exposed to the Greek private sector.  The subsidiaries of the big four Greek banks in Cyprus have also been ring-fenced.  (Fitch 22.04)

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