Fortnightly, 4 November 2015

Fortnightly, 4 November 2015

November 4, 2015





1.1  Aryeh Deri Resigns Ministry to Allow Gas Deal Progress
1.2  Colorado Signs R&D Deal with Israel


2.1  Aquarius Spectrum Receives $2.2 million Investment from Hutchison Water
2.2  Israeli E-Gifting Solutions Company Jifiti Raises $3.3 Million
2.3  Biological Industries Expands to the United States
2.4  Israeli SimilarWeb Raises $25 million during Series E Round
2.5  First ETF Focused on Israeli Global Technology Stocks
2.6  Silicom Completes Acquisition of ADI Engineering


3.1  United Airlines Terminates Kuwait and Bahrain Services
3.2  Penn Medicine & VPS Healthcare Set for Strategic Partnership
3.3  ClearOne Opens Office in Dubai to Support Its Middle East Business
3.4  Saudi Pizza Hut Operator Extends PepsiCo deal until 2025


4.1  Amman Raises Fixed Charge in Water Bill By Almost 100%


5.1  Lebanese Deflationary Pressures Persist by September 2015
5.2  Lebanon Ranked 7th out of 17 in Medical Device Risk Index
5.3  Jordanian National Economy on Track Despite Regional Turmoil
5.4  Iraqi Cabinet Approves 2016 Budget of $91 Billion

♦♦Arabian Gulf

5.5  GCC Healthcare Project Spending Set to Rise $1.45 Billion in 2015
5.6  UAE Inflation Eases During September After Hitting 78 Month High
5.7  UAE Says Open to Introducing Taxes ‘If it Suits Government and People’

♦♦North Africa

5.8  Egypt Replaces Central Bank Governor Hisham Ramez
5.9  Egypt’s Trade Deficit Rises 39% to $4.4 Billion in July
5.10  Egypt Imposes Restrictions to Limit Imports & Protect Local Industry
5.11  Suez Canal Revenues Fall to $448.8 Million in September


6.1  Turkey’s Islamist AK Party Wins Landslide Victory
6.2  Turkish Inflation Hits 6-Month High, Eyes On Central Bank
6.3  Foreign Visitors to Turkey Drop in First Nine Months of 2015
6.4  Greek Banks Cede Control In Recapitalization Plan



7.1  Knesset Approves Bill Mandating Arabic Lessons for First Graders
7.2  Israel Records Wettest-Ever October


7.3  UAE Private Sector to Get 2 Days Off for Martyrs’ Day / National Day
7.4  Former Investment Chief is New Saudi Ambassador to Washington
7.5  Egypt’s Parliamentary Elections Produce 21.7% Turnout in First Round Run-Offs


8.1  Yissum Announces Formation of Agritech Investment Fund
8.2  SmartZyme Receives $4 Million Investment from OrbiMed
8.3  AV Medical Technologies Chameleon Angioplasty Balloon Catheter Gets FDA Clearance
8.4  Galil Medical Announces Agreement to Acquire Perseon Corporation
8.5  Lumenis Acquires Pollogen Strengthening and Expanding its Aesthetic Division


9.1  Dyadic Protects Organizational Secrets and Sensitive Data with New Crypto Suite
9.2  Nano Dimension Introduces AgCite Nanoparticle Inks for Printed Electronics
9.3  MUV Interactive Announces Availability of Wearable Bird


10.1  Unemployment in Israel Falls by 0.1%
10.2  Israel Ranks 6th on List of World’s Healthiest Countries
10.3  Ramat Gan Residents Have Longest Life Expectancy in Israel
10.4  Water Charges in Israel to fall 3%


11.1  ISRAEL: Israel’s Leviathan Gas Challenge and the Consequences of Failure
11.2  ISRAEL: Israel’s Leviathan Gas Challenge and the Consequences of Failure
11.3  JORDAN: A New Chapter in Jordan’s Electoral Saga
11.4  SAUDI ARABIA: Ratings on Saudi Arabia Lowered To A+/A-1; Outlook Remains Negative
11.5  SAUDI ARABIA: Cheap Oil Puts the House of Saud at Risk
11.6  EGYPT: Moody’s Says Economic & Fiscal Conditions are Improving But Weakness Remains
11.7  EGYPT: Egypt’s Industrial Sector Struggles With Growing Chinese Presence
11.8  MOROCCO: Fitch Affirms Morocco at ‘BBB-‘; Outlook Stable
11.9  TURKEY: How the AKP Dominated the Election in Turkey
11.10  CYPRUS: Fitch Upgrades Cyprus to ‘B+’; Outlook Positive


1.1  Aryeh Deri Resigns Ministry to Allow Gas Deal Progress

On 1 November, the Netanyahu government advanced the natural gas industry outline by approving Shas leader Aryeh Deri’s request to step down as economy minister, in a move meant to untangle regulatory obstacles that have been stalling the proposed bid for the past five months.  This move will enable development of the Leviathan gas reserve to proceed.  Deri had refused to exercise his powers to circumvent the anti-trust commissioner, who objected to the arrangement.

Prime Minister Netanyahu will hold the economy portfolio until a new minister is appointed in Deri’s stead.  Netanyahu will also be able to exercise those powers and sign off on the gas plan himself.  As minister of the economy, Netanyahu will also be able to determine the identity of the next anti-trust commissioner.

Deri will remain Minister for Negev and Galilee Development, which the government voted to expand.  The ministry will now be called the Negev, Galilee and Periphery Development Ministry and it will have a budget of $155 million.  Deri will receive responsibility for twelve additional local authorities, and also for 210 socio-economically weak neighborhoods in cities in the center of Israel.

Leviathan, discovered in 2010 roughly 130 kilometers (81 miles) west of the coast of Haifa, holds an estimated 22 trillion cubic feet of natural gas. Tamar, discovered 80 kilometers (50 miles) west of Haifa in 2009, is believed to have reserves of up to 8.4 trillion cubic feet.  The Tanin and Karish gas fields, discovered in 2012 some 120 kilometers (74 miles) northwest of Haifa’s shores, are each believed to hold about 1.3 trillion cubic feet of natural gas.  Texas-based Noble Energy and the Tshuva-owned Delek Group control the Leviathan, Tamar, Tanin and Karish offshore gas fields.  (Various 02.11)

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1.2  Colorado Signs R&D Deal with Israel

The US State of Colorado signed a lucrative trade agreement with Israel in late October.  Colorado had already signed an R&D agreement with Israel in 2010, but the two states decided to renew the agreement following Colorado’s decision to significantly increase budgets earmarked for Coloradoan companies conducting R&D, including grants for local industry.  In a statement, the Israeli Economy Ministry said the aim of the agreement is to establish a mechanism of cooperation with parallel funding for companies from both countries conducting joint research and development projects.

Under the agreement, Israeli companies will team with Coloradoan companies to co-develop and commercialize innovative products. The companies will receive financial support from both states.  In Israel, support will be granted by the Office of the Chief Scientist at the Israeli Ministry of Economy, while in Colorado participants will be supported through a new fund established by the State of Colorado to support the initiative.

The deal is just the latest of many similar agreements with US states, as trade and investment between America and Israel continues to grow.  In 2014, trade deals between the two countries reached just over $38 billion – two billion dollars more than the previous year, when Israel ranked as the US’s 25th largest goods trading partner.  (Israel 28.10)

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2.1  Aquarius Spectrum Receives $2.2 million Investment from Hutchison Water

Netanya’s Aquarius Spectrum announced that Hutchison Water International Holdings Pte. Limited, a member of CK Hutchison Holdings, has invested $2.2m (NIS 8.5m) in the Company.  The new investment is a vote of confidence by Hutchison Water in Aquarius and in its advanced technology and products.  This is the round A investment from Hutchison Water in Aquarius-Spectrum, after the Company has graduated from the Hutchison-Kinrot Technology Incubator.  This investment is further evidence of the solid support Hutchison Water gives to Hutchison-Kinrot portfolio of technology companies.

In November 2012, Hutchison Water acquired the Hutchison Kinrot Incubator that had been founded in 1993 as part of the Israeli technology incubator program.  The Hutchison-Kinrot incubator operates under the program of the Israeli Office of the Chief Scientist, at the Ministry of Economy.  Hutchison Kinrot supports and cultivates companies in the area of water and cleantech and has portfolio companies that develop advanced technologies in water, treatment, purification, smart network management and more.

Aquarius Spectrum specializes in cloud computing solutions for the monitoring of municipal water distribution networks and the detection of underground leaks from the earliest stages of their development (1.5mm (1/16″) holes).  Leaks of this size generally cannot be identified by other technologies on the market.

Aquarius-Spectrum’s solutions include two product lines based on acoustic sensors and unique software.  The first, AQS-SYS, is a fixed solution for daily pipe monitoring and second, iQuarius, is a lightweight mobile system for leak surveying and pinpointing that connects to a smartphone.  The portable acoustic sensors operate via cellular communication and have a built-in GPS system. This gives millisecond-synchronization of readings across multiple sensors and this in turn allows leak detection by correlation between sensors for every sample taken. Synchronous correlation performed in this way ensures high reliability and accurate location of all leaks from 1.5mm upwards.  (Aquarius Spectrum 26.10)

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2.2  Israeli E-Gifting Solutions Company Jifiti Raises $3.3 Million

Tel Aviv’s e-gifting solutions company Jifiti announced that it has raised a $3.3 million round from existing investors and the Liberty Israel Venture Fund. Jifiti’s existing investors include the Schottenstein Store Corporation, Jesselson Investments, the Simon Property Group and Stephen Milstein, founder of Burlington Coat Factory (acquired by Bain Capital).  Jifiti’s no-integration gifting solutions offer retailers and brands advanced monetization through innovative gifting services in-store and online.  These solutions include a unique ecommerce gift checkout that not only maximizes conversion but generates incremental traffic; a gift market for non-commerce focused sites; and a turn-key gift registry system which is disrupting the gift registry market by allowing any retailer to offer a state-of-the-art gift registry platform with zero integration.

Liberty Israel Venture Fund invests primarily in Israeli technology startup companies.  Evite, a global leader in digital event invitations and a subsidiary of Liberty Interactive Corporation and Jifiti, recently launched a strategic partnership enabling users to send gifts directly from the Evite platform.  Jifiti and Evite’s partnership is positioning Evite as a new leader in digital gifting, in addition to event invitations and event planning tools.  By implementing Jifiti’s gifting technology, Evite users can send e-gifts from leading retailers directly from an event invitation or the Evite Instant Gifts page.  The funds raised in this round will fuel Jifiti’s growth and allow for the expansion of its teams in the US and Israel along with additional partnerships with leading retailers and platforms.  (Various 27.10)

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2.3  Biological Industries Expands to the United States

Biological Industries is expanding its operations into the United States.  The company, which prides itself on over 30 years of cell culture media development expertise, state-of-the-art cGMP facilities, will launch Biological Industries USA (BI-USA) to market and distribute its products in the US.  BI-USA will focus on high-growth, establishing cell culture training programs, and expanding collaborations within the stem cell and conventional cell culture fields.

Kibbutz Beit HaEmek’s Biological Industries (BI) develops, manufactures, and supplies life science products to universities, government research, healthcare institutions, and the biopharmaceutical industry.  For over 30 years, BI has been working alongside some of the world’s leading academic researchers and institutes in the development of cell culture media, stem cell reagents, and molecular biology tools.  (BI 27.10)

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2.4  Israeli SimilarWeb Raises $25 million during Series E Round

Tel Aviv’s SimilarWeb announced 2 November that they have raised $25 million in their latest funding round.  Leading this round was the internet and media group Naspers.  Previous investor Lord David Alliance also took part in the effort that brought SimilarWeb’s total funding to an impressive $65 million.  SimilarWeb’s latest funding comes nearly a year after they closed their Series D with a $15 million gain, which also came from this round’s current investors as noted above.

When SimilarWeb started their operations in 2009, it was with a simple service that found users websites that were similar to the ones that they were already familiar with.  Since then, they have launched their pro version and a variety of products for analyzing other sites on the web.  More recently, they have included features that can gauge user engagement on mobile apps as well.  The company now says that they are monitoring and producing analytical data on over 80 million websites and 3 million mobile apps from over 190 countries around the world.  SimilarWeb’s competitive analysis reports have evolved to become an indispensable tool for any company looking to research their competition and develop a winning strategy.  (SimilarWeb 02.11)

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2.5  First ETF Focused on Israeli Global Technology Stocks

Factor Advisors, a subsidiary of ETF Managers Group, in partnership with ITEQ ETF Partners, an affiliate of BlueStar Global Investors, successfully launched the BlueStar TA-BIGITech Israel Technology ETF, the first exchange traded fund (ETF) to exclusively hold shares of public Israeli and Israel-linked technology companies.  The “Start-Up Nation ETF” provides unique exposure to Israel’s dynamic technology sector.

The ITEQ ETF tracks the TASE-BlueStar Israel Global Technology Index (TA-BIGITech), which is the broadest, deepest and most diversified benchmark for Israel’s global technology companies.  The index is based on BlueStar’s proprietary methodology which includes Israeli companies listed worldwide, active in a broad range of well-established, emerging and disruptive technology sectors.  These sectors include IT Hardware & Software, Cybersecurity, Big Data, Clean & Renewable Energy, Sustainable Agriculture, Defense & Security and Biotechnology.

The TA-BIGITech index includes cutting edge Israeli Global Technology companies such as Amdocs, Checkpoint Software, Mobileye, Elbit Systems and Verint Systems.  The index was launched in 2013 together with the International Securities Exchange ETF Ventures (ISE).  In March 2015, the Tel Aviv Stock Exchange affiliated with the index, and real-time calculation was extended from the Tel Aviv open though New York’s close.  (Factor 03.11)

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2.6  Silicom Completes Acquisition of ADI Engineering

Silicom announced that it has completed its previously-announced acquisition of ADI Engineering, a privately-held, US-based provider of high performance, high-quality, first-to-market Intel-based products targeted at the SDN, NFV, IoT, Cloud Computing and Virtualization trends. Upon closing, Silicom paid ADI’s stockholders $10 million in cash, and will make additional payments in the future subject to the attainment of certain performance milestones.

Kfar Saba’s Silicom is an industry-leading provider of high-performance networking and data infrastructure solutions. Designed primarily to increase data center efficiency, Silicom’s solutions dramatically improve the performance and availability of networking appliances and other server-based systems.  Silicom’s products are used by a large and growing base of OEM customers, many of whom are market leaders, as performance-boosting solutions for their offerings in the Cyber Security, Network Monitoring and Analytics, Traffic Management, Application Delivery, WAN Optimization, High Frequency Trading and other mission-critical segments within the fast-growing data center, enterprise networking, virtualization, cloud computing and big data markets.  (Silicom 28.10)

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3.1  United Airlines Terminates Kuwait and Bahrain Services

United Airlines has terminated its direct services to Kuwait and Bahrain, two weeks after a US court banned Kuwait Airways from operating there because it refuses to accept Israeli passport holders.  United Airlines said that the airline would continue to work with the Kuwaiti government.  Some believe United was ordered to terminate the service by the Kuwaiti government in retaliation for the US court ruling.  However, the airline later said that the service is not meeting their financial expectations.  United States Department of Transportation (DoT) ruled on 5 October that Kuwait Airways’ refusal to carry Israeli passengers on its flight between London and New York constituted unlawful discrimination.  The airline contended that Kuwaiti law prohibits it, and Kuwaiti citizens, from entering “into an agreement, personally or indirectly, with entities or persons residing in Israel, or with Israeli citizenship”.  (AB 26.10)

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3.2  Penn Medicine & VPS Healthcare Set for Strategic Partnership

University of Pennsylvania Health System (UPHS), one of the world’s leading healthcare systems is entering into a strategic partnership with Abu Dhabi-based healthcare giant, VPS Healthcare.  The two major healthcare systems entered into a strategic partnership on 3 November.  This partnership is yet another benchmark for VPS as it teams up with Penn Medicine dedicated to enhance patient care, research and education.  As part of their strategic partnership, VPS Healthcare and Penn Medicine will explore the development of collaborative initiatives in establishing and enhancing best-in-class educational conferences, standards in patient care, continuing medical education for physicians, nurses and other allied health professionals.

VPS Healthcare already has programs in place to help address challenges posed by the rising population and lifestyle-related diseases such as diabetes and cardiovascular diseases.  The partnership will advance VPS Healthcare’s support for the UAE Vision 2021 National Agenda and accelerate the UAE’s goals of providing world-class healthcare to its citizens and residents right here at home.  (VPS 02.11)

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3.3  ClearOne Opens Office in Dubai to Support Its Middle East Business

Salt Lake City, Utah’s ClearOne, a global provider of audio and visual communication solutions, opened an office in Dubai, United Arab Emirates to provide enhanced support for its Middle East business.  The office will provide local ClearOne sales & marketing support, with plans for additional services to regional partners and customers.  Engagement with the Gulf Co-operation Council (GCC) countries of Bahrain, Emirates, Kuwait, Oman, Qatar and Saudi Arabia was previously served by ClearOne’s India sales staff.  Now, ClearOne’s partners and customers in the region can benefit from the convenience of common business hours and improved accessibility to sales support and services.  The Middle East is a key growth market for ClearOne. The region continues to benefit from large investments in education, professional services, hospitality and infrastructure, offering a promising long-term outlook.  (ClearOne 03.11)

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3.4  Saudi Pizza Hut Operator Extends PepsiCo deal until 2025

PepsiCo, Mawarid Food Company and MEED Trading Company announced the renewal of their partnership agreement for 10 additional years till 2025.  Under the terms of the partnership, PepsiCo will continue to be the preferred beverage supplier to Mawarid restaurants and Meed convenience stores, including Pizza Hut in Saudi Arabia and Morocco; Taco Bell, Meed Convenience Stores and Meed Express vending operations in Saudi Arabia.

Mawarid Food Company is primarily engaged in the operations of international franchised restaurants.  The Company owns the territorial rights of the Pizza Hut franchisee concept in Saudi Arabia (except Jeddah within a 30 miles radius), Morocco and Tunisia.  The company also owns the territorial rights of Taco Bell concept in Saudi Arabia. It currently operates 175 Pizza Hut outlets and two Taco Bell restaurants in Saudi Arabia.  (21.10)

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4.1  Amman Raises Fixed Charge in Water Bill By Almost 100%

Amman recently decided to raise a fixed charge included in the water bill by nearly 100%.  Under the decision, which went into effect as of 1 October, water bills for the fourth quarter of this year will be issued according to the new rates.  Water subscribers in the Kingdom receive bills on a quarterly basis.

Households consuming between zero to 18 cubic meters per three months, which originally had to pay a fixed charge of JD2.43 in addition to the bill, will now be charged an extra JD2.  Subscribers consuming between 19 cubic meters and 72 cubic meters, who used to pay between JD4.80 and JD5.73, will now have to pay an additional JD4.  The fixed charge in the water bill will go up by JD6 for households that consume over 73 cubic meters, making it JD11.73 after the raise.

The decision was taken on 6 September upon recommendations by the board of directors of the Water Authority of Jordan.  (JT 02.11)

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5.1  Lebanese Deflationary Pressures Persist by September 2015

According to Lebanon’s Central Administration of Statistics (CAS), the consumer price index (CPI) remained on its deflationary trend, dropping from 100.78 in September 2014 to 96.07 (lowest level this year) in September of this year, registering a 4.67% year-on-year (y-o-y) and 3.24% year-to-date (y-t-d) deflation.   This deflationary pressure was mainly attributed to four factors, the first of which is the overall economic slowdown.  The second culprit is the approximate 45% y-o-y tumble in international oil prices by September 2015.  The third factor is the average 15% depreciation of the Euro vs the US dollar, over the same period, considering that the major part of Lebanon’s imports are from Europe.  Finally, the fall in health prices since September 2014, following the Ministry of Health setting quotas on medicine prices, cutting them by up to 30% as of April 2014, has held back prices as well.  To note then, “water, electricity, gas & other fuels”, “transportation” and “health” constitute three of the major weights in the CPI, with a cumulative share of 33%.  In terms of the CPI’s components, “food and non-alcoholic beverages” (20.6% of CPI) decreased by 0.87% y-o-y by September 2015.  Moreover, Transportation (13.1% of CPI) and “water, electricity, gas & other fuels” (11.9% of CPI), witnessed a yearly fall of 12.80% and 21.41%, respectively.  Three more sub-indices that respectively waned were “health” (7.8% of CPI), clothing and footwear (5.4% of CPI), and “communication” (4.6% of CPI), recording a 6.51%, 3.42% and 0.54% y-o-y declines over the same period.  The final sub-index that fell yearly was “recreation, amusement and culture” (2.3% of CPI), which down ticked by 0.23% by September.  However, “education” sub-index, constituting 5.9% of the CPI, augmented by 4.52% y-o-y by September 2015.  In addition, “actual rent” sub-index for households (old and new rent), with a stake of 3.4% in the CPI, and “alcohol beverages & tobacco” (1.6% of CPI) augmented by an annual 10.09% and 5.03%, respectively, over the above mentioned period.  (CAS 21.10)

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5.2  Lebanon Ranked 7th out of 17 in Medical Device Risk Index

In its quarterly Industry Risk/Reward Index for Q4, 2015, in terms of the medical device industry, Business Monitor ranked Lebanon 7th out of 17 in the Middle East and Africa (MEA) region (Saudi Arabia being 1st).  Lebanon’s overall score was 51.4 out of a hundred, above the regional average of 49.9.  In terms of industry rewards, the medical device market in Lebanon placed 13th (39.1 below the 42.2 regional average).  The market is expected to record a modest 2014-2019 compounded annual growth rate (CAGR).  While manufacturing proficiency is limited, the market mainly imports medical devices from China, Europe and the U.S.  Looking at the risk factor involved with the industry, Lebanon is ranked 8th in industry risk (56.7 above the 48.7 regional average) according to the report.

The Ministry of Public Health (MOPH) plays a limited role in regulating healthcare; nonetheless it has adopted a national medical device regulatory strategy and controls the importation of medical devices.  Regarding country rewards, it was placed 2nd (70.01 well above the 57.4 regional average).  Lebanon’s population is considered small, but its population growth is high based on world standards.  With less than 10% of the population 65 years and older, which is high relative to the region, medical device market could prosper in the country.  Finally Lebanon’s score of 54.4 (rank 12th) for country risk was slightly below the regional average of 55.4.  In details, the country has been strongly affected by the spillover from the Syria’s ongoing tribulations, causing economic growth to slow down.  In addition, it might have been ranked higher if not for the political tensions and deadlock that is imprinting the Lebanese current situation.  (BlomInvest 31.10)

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5.3  Jordanian National Economy on Track Despite Regional Turmoil

Jordan’s economy is on track for better growth and the dinar is at its strongest level despite the heavy toll of regional turmoil, Prime Minister Abdullah Ensour said on 31 October.  Speaking at a press conference to announce a package of investment incentives, Ensour noted that the instability surrounding the Kingdom has affected the performance of the national economy, stressing that economic issues are the government’s top priority.

The first toll of regional instability is assumptions by investors that Jordan has an uncertain investment climate, Ensour told reporters.  Due to wars in the region, Jordan’s national carrier — Royal Jordanian — cannot fly north or east.   The Kingdom’s land cargo fleet, which the premier said is one of the biggest in the region, cannot go to Syria, Turkey and Iraq.  Iraq, he noted, used to be Jordan’s biggest importer.  Another example Ensour cited is the fact that over 160,000 jobs in the domestic market are currently occupied by Syrians, resulting in higher unemployment among Jordanians.  Hosting around 1.4 million Syrians has also had a negative impact on the Kingdom’s trade balance as the country has had to import more goods to meet the needs of the rising population, he pointed out.

Reiterating that the economy and the dinar remain strong, the premier said the draft state budget law, that will be released in the coming days, will show that the deficit is under control, revenues are higher and spending is up slightly due to natural growth.  (JT 31.10)

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5.4  Iraqi Cabinet Approves 2016 Budget of $91 Billion

Iraq’s Cabinet has approved a budget of 106 trillion Iraqi dinars ($91 billion) for 2016.  The figures are based on crude oil output of 3.6 million barrels per day at a price of $45 a barrel.  Iraq announced it will run with a deficit of 23 trillion dinars ($20 billion), which will be relieved through loans from local and international lenders.  The budget will now go before parliament for final approval.  (IBN 21.10)

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►►Arabian Gulf

5.5  GCC Healthcare Project Spending Set to Rise $1.45 Billion in 2015

According to the Ventures Middle East Onsite report, around $5.9 billion in contracts were awarded in 2014, but that figure is set to rise to $7.3 billion in 2015, as population growth, higher per capita income, and life expectancy drive demand for healthcare services.  The healthcare industry in Saudi Arabia is projected to remain the largest in the region, and register an annual growth of 9.2% from 2015 to 2020.  Compound annual growth of 7% will see UAE join Qatar in registering the fastest growth as both countries seek to capitalize on an emerging medical tourism industry in the region.  According to the report, the UAE is building more than 20 hospitals to care for the half a million medical tourists that are expected by 2020, with medical revenues to hit $300 million by 2016.  At the same time, the report states that Bahrain, Oman, and Kuwait are also expected to register a significant rise in project completions in 2015.  (AB 31.10)

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5.6  UAE Inflation Eases During September After Hitting 78 Month High

The UAE’s inflation rate eased to 4.3% year-on-year in September, down from the highest rate seen since February 2009 in the previous month, according to the UAE National Bureau of Statistics.  Inflation fell from 4.9% the previous month as transportation price inflation almost halved compared to August.  Housing and utility costs, which account for over 39% of consumer expenses, jumped 8.3% from a year earlier in September. Abu Dhabi, the biggest emirate in the UAE, hiked electricity and water tariffs from 1 January.  Food and soft drink prices, which account for nearly 14% of the basket, gained 2% year-on-year.  Transportation price inflation eased to an annual 5.9% in September from 10.7% in August. The UAE lowered gasoline and diesel prices in September while in August, gasoline prices jumped when the UAE reformed its domestic fuel pricing system, linking prices to global levels.

The latest figures follow a survey published in March in which around half of expats in the UAE are considering leaving the country due to the rising cost of living.  A YouGov study into the saving habits of Emiratis and expats found that while 42% say they have improved their position financially in recent years, 50% of employed expats would consider leaving the UAE due to the high cost of living.  Of the 1,104 respondents, 56% said rent was impacting most on their financial well-being, while 13% said it was education.  (NBS 20.10)

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5.7  UAE Says Open to Introducing Taxes ‘If it Suits Government and People’

The UAE would introduce taxes at some stage “if it suits the government and the people”, the minister of economy has said.  However, Sultan Bin Saeed Al Mansouri told the World Economic Forum (WEF) summit in Abu Dhabi recently that any decision would be thoroughly evaluated by the government first.  Al Mansouri did not provide details of what sort of taxes may be imposed.  However, the UAE has been working with other GCC countries for some years now on plans for a value added tax (VAT).  It has also mooted corporation tax, tax on remittances and some others, to compensate for continued low oil prices which have hit revenues.  Al Mansouri said the ministry has completed several feasibility studies on the impact of taxation in the UAE – the last of which was reportedly completed early this year.  However, with regard VAT, an agreement has yet to be reached between GCC countries on the rate of taxation and possible exemptions.  Discussions are understood to be continuing.  (AB 26.10)

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►►North Africa

5.8  Egypt Replaces Central Bank Governor Hisham Ramez

Egypt has named senior banker Tarek Amer to head the central bank from November, in a move welcomed by traders who expect a new approach that could help ease the country’s currency crisis.  Governor Hisham Ramez, whose term ends on 26 November, has faced increasing criticism for his reluctance to devalue the Egyptian pound, which has come under sustained pressure.  Instead, he has sought to tame a currency black market by imposing a cap on dollar-denominated bank deposits.  That and other measures have angered local businesses starved of foreign currency to pay for imports.

With the central bank selling dollars to defend the pound, Egypt’s foreign exchange reserves have tumbled from $36 billion in 2011 to $16.3 billion in September, enough to cover just over three months of imports.  Amer, a former central bank deputy governor who was also chairman of the National Bank of Egypt (NBE) from 2008-2013, is popular in financial circles.  Unlike Ramez, he is credited with having a collaborative approach to management.  It is not clear yet how Amer might change Egypt’s approach to managing the value of its currency versus the dollar.  Bankers and economists say the central bank’s insistence on maintaining an over-valued pound has created uncertainty, which in turn has discouraged foreign investors.

Egypt’s economy grew about 4.2% last fiscal year and the government forecasts growth of 5% in 2015/16.  It is struggling to return to the growth enjoyed before a 2011 uprising deterred foreign investors and discouraged tourists.  But critics said dollar restrictions had hampered business activity overall and could ultimately hurt growth.  (Various 21.10)

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5.9  Egypt’s Trade Deficit Rises 39% to $4.4 Billion in July

Egypt’s trade deficit increased by 38.8% to LE34.7 billion ($4.4 billion) in July from LE25 billion ($3.1 billion) in the same month last year, official statistics agency CAPMAS reported on 27 October.  The report attributed the rise in trade deficit to a 24.3% increase in imports to LE47.8 billion ($6 billion) in July from LE38.5 billion ($4.8 billion) in the same period a year earlier.  Additionally, exports declined by 2.6% to LE13.1 billion from LE13.5 billion ($1.7 billion).

The Egyptian pound was devaluated by the central bank through regular currency auctions to hit 7.73 for the dollar in July compared to 7.1401 to the dollar in the same month a year earlier.  The fall in the pound value has contributed to a rise in the value of imports.  Egyptian factories have also slowed down production with some plants completely halted on the back of energy shortages as Egypt has become a net importer of oil.  (CAPMAS 27.10)

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5.10  Egypt Imposes Restrictions to Limit Imports & Protect Local Industry

The Egyptian ministerial economic group agreed on a number of restrictions and procedures to limit the huge imports’ bill, and protect the local industry, according to a statement by the cabinet on 2 November.  The procedures and restrictions, according to the government’s statement, included the tightening of control on the customs port in cooperation with Ministries of Defense and Interior, and security bodies.  That is in order to prevent smuggling, and maintain the rights of the public treasury through customs fees and taxes imposed on the imports.  The procedures also included placing reference prices to prevent the phenomenon of counterfeit bills, and the bills that do not represent the actual values of imported commodities, in order to protect the local product.  Reference prices were introduced and circulated in ports, covering more than 300 commodities, most importantly fabrics of all types, readymade garments, and furniture.

Egypt is suffering from a severe lack in the dollar currency, and the continuation of the pound’s decline against foreign currencies, which significantly increased the imports bill, and further burdened the Egyptian pound.  The government seeks to limit non-essential imports, and support Egyptian manufacturers.  Customs revenues achieved EGP 22bn, 106.5% of the targeted revenue, for the first time, in spite of the free trade agreements with a large number of countries, and the exemptions approved by the laws, which amounted to about EGP 8.8bn in total in 2014/2015.

The procedures also included providing the Customs Authority with advanced detectors, which contributes to limiting the number of the smuggled commodities.  This is in addition to cooperation with the Central Bank of Egypt to link the amount of cash obtained by the importer from the banks to the bills he/she submits to the Customs Authority.  (DNE 03.11)

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5.11  Suez Canal Revenues Fall to $448.8 Million in September

 Egypt’s revenues from the Suez Canal fell by $13.3 million in September, according to the Suez Canal Authority.  Revenues from the international waterway dropped to $448.8 million in September, compared to $462.1 million in August, a month which had itself witnessed a drop in revenues.  The Suez Canal is an important source of foreign currency for Egypt, whose foreign currency reserves fell to $16.335 billion at the end of September, barely enough to cover three months of imports.  The decline in August’s revenues was due to a slowdown in the global economy, particularly in China, and lower global consumption of oil.

The September figure also represents a 4.4% drop compared to September 2014, when receipts totaled $469.7 million.  The Suez Canal is the fastest shipping route between Europe and Asia.  President Abdel-Fattah El-Sisi inaugurated a $4 billion expansion of the canal on 6 August.  Egyptian authorities predicted that the expansion would boost annual revenues from the canal from $5.3 billion in 2014 to $13.2 billion in 2023, but experts said this was not in line with global trade growth forecasts.  (Ahram Online 26.10)

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6.1  Turkey’s Islamist AKP Party Wins Landslide Victory

The Islamist Justice and Development Party (AKP) of President Recep Tayyip Erdogan won a crucial victory in Turkey’s re-run general elections on 1 November, winning a majority in the Turkish parliament again after briefly losing it in June for the first time in 13 years.  The summer elections set off a political crisis, with the AKP proving unable to form a coalition with other parties, eventually forcing new elections to be called.  The AKP won over 49% of the vote to secure 315 seats in the 550-member parliament.

With more than 99.5% of votes counted, AKP has secured 49.4%, with the opposition Republican People’s Party (CHP) coming in at a distant second with 25.4%.  The secular-nationalist Nationalist Movement Party (MHP) took 11.9%, while the Kurdish Peoples’ Democratic Party (HDP) once again crossed the 10% threshold by a narrow margin, with 10.7%.

The results give AKP an overall majority, but not enough votes to force a referendum on crucial changes to the Turkish constitution which opponents have argued would cement a virtual autocracy with Erdogan at its head.  The AKP victory – which polls failed to predict – will likely mean a continued crackdown on political dissent, with journalists and opposition activists regularly arrested for political crimes.  (Various 02.11)

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6.2  Turkish Inflation Hits 6-Month High, Eyes On Central Bank

Turkish consumer price index in October rose its highest level in six months, putting pressure on the central bank to tighten policy.  Annual core consumer prices rose 8.9% last month, driven in part by sharp falls in the lira.  The central bank has so far this year steered clear of trying to support the currency by hiking rates, raising persistent market concerns about the institution’s independence.  President Erdogan’s steadfast opposition to higher rates, together with renewed violence in the mainly Kurdish southeast and his crackdown on opposition media, are seen as major factors in this year’s 20% decline in the lira against the dollar.  (Zaman 03.11)

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6.3  Foreign Visitors to Turkey Drop in First Nine Months of 2015

The number of foreigners who visited Turkey between January and September of this year has dropped 1.1% compared to last year, according to official figures.  Last month, the top five most visited provinces were Antalya, Istanbul, Mugla, Edirne and Artvin.  The first three are popular tourist destinations while the latter border Bulgaria, Greece and Georgia.

During the first nine months of 2015, Germans were the most frequent visitors, accounting for 14.83% of all foreign visitors to Turkey within that period.  Russians came in second at 11.02%, in a year where economic conditions have thwarted the normally massive number of Russians who flock to Turkey’s Mediterranean coast.  The number of Russians who came to Turkey last month declined 17.06%, compared to last year.  Though the 1.1% decline may seem marginal, Turkey has experienced considerable growth in its tourism sector, achieving 9.8% growth in visitors in 2013 and 5.5% last year.  The Russian economic crises brought on by sanctions and a drop in global oil prices that weakened the ruble was a major determining factor in the downturn of Turkey’s tourism industry, while the tension and violence that has swept over the country in recent months has also had a major impact.  (Zaman 27.10)

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6.4  Greek Banks Cede Control In Recapitalization Plan

Greek banks will cede significant management control under the government’s rescue plan passed by parliament late on 31 October.  The four major banks — National Bank of Greece, Piraeus, Alpha Bank and Eurobank — that are being recapitalized with €14 billion ($15.4 billion) will each have an official of the Hellenic Financial Stability Fund (HFSF), which is providing most of the funds, on its board.  The fund will also have voting rights based on its shareholding in the banks, like any other shareholder.  The European Central Bank’s Single Supervisory Mechanism had announced the amount, according to the stress tests it had run for the capital needs of Greece’s largest banks, that would be needed for recapitalization.  The sum being provided meets the needs of a worst-case scenario, the ECB said.

Under the terms of the new law, the fund is also to establish a committee for the evaluation of its employees. The committee will have the right to fire employees who do not meet the committee’s criteria.  This is the third recapitalization in many years for the Greek banking system having received €28.6 billion ($31.7 billion) by the HFSF and private shareholders in 2013, and another €8.3 billion ($9.2 billion) from private shareholders following year, according to the Bank of Greece, the country’s central bank.

This year, a combination of capital controls and new austerity measures dictated by the latest bailout agreement since July, along with a load of non-performing loans, have put the Greek banks into a highly vulnerable position.  According to the National Bank of Greece, about half of all outstanding loans at the four banks are non-performing.  According to the bill, the Hellenic Financial Stability Fund will cover the capital gap that isn’t covered by private investors based on a combination of new shares and contingent convertible bonds (Cocos). It is also stated in the bill that every new share will come with full-voting rights.

Legislation concerning the recapitalization of the Greek banks including the participation of the Hellenic Financial Stability Fund (HFSF), the Greek bank bailout fund created in 2010 by European authorities was passed in Greek parliament on the evening of 31 October.  The bill passed with a large majority at the plenary of the House with all parties voting in favor except for far-right Golden Dawn party and the Greek Communist Party.  Now that the legislation is in place, Greek banking authorities must sprint to submit their recapitalization plans to the European Central Bank by 6 November.  This will begin the process of recapitalization, which is due to be completed by the end of the year.  (Various 01.11)

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7.1  Knesset Approves Bill Mandating Arabic Lessons for First Graders

A bill that would make it mandatory for Arabic to be taught in Jewish schools and Hebrew to be taught in Arab schools from the first grade passed its initial reading in the Knesset on 28 October.  The bill was introduced by Zionist Union MK Eyal Ben-Reuven, Meretz MK Issawi Frej, Likud MK Oren Hazan and Joint Arab List MK Hanin Zoabi.  MK Hazan said that he was pleased that MKs from all across the political spectrum understood the bill’s importance.

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7.2  Israel Records Wettest-Ever October

The past month has been the rainiest ever October in Israel since records were begun, the Israel Meteorological Service reported.  As of the afternoon of 29 October, a remarkable 219 mm had been recorded at Kibbutz Shefayim north of Tel Aviv over the past month.  The Sharon region north of Tel Aviv was easily the wettest part of the country, especially over the past week, with 124 mm recorded in Ra’anana and 115 mm in Kfar Shmariyahu.  The monthly average in this region is a mere 35 mm.  Other parts of Israel also recorded handsome rainfalls during October.  Kibbutz Erez in the south near the Gaza border recorded 112 mm and generally the coastal and inland plains had 40-80 mm of rain over the past month.

Exceptional October rainfalls were also recorded in arid parts of the country such as the Jordan Valley (42 mm), southern Dead Sea (37 mm) and Yotvata near Eilat (31 mm). Rainfall was much more modest in October in Jerusalem and the Judean Hills (20-25 mm) and the Galilee mountains (10-25 mm).  The rainfall wreaked major havoc with the country’s infrastructures, especially the electricity grid in the Sharon region, where tens of thousands of households were left without power for long periods, and the roads in the south.  (Globes 30.10)

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7.3  UAE Private Sector to Get 2 Days Off for Martyrs’ Day / National Day

Private sector workers in the UAE will be given a two-day holiday to mark Martyrs’ Day and National Day this coming December.  Saqr Ghobash, the UAE’s Minister of Labour, said that all employees working in the private sector will get a holiday on Wednesday, 2 December and Thursday, 3 December.  It was also reported that all public sector employees, ministry and federal government entities and organizations will be closed from Tuesday, 1 December until Saturday, 5 December.  In August, UAE President Sheikh Khalifa bin Zayed Al Nahyan announced 30 November will be observed as Martyr’s Day in memory of those who have died while serving their country.  UAE rules state that if a public holiday falls between two weekdays it can be moved to the beginning or end of that week.  The Federal Authority for Government Human Resources has confirmed that Martyr’s Day will be moved this year and will be combined with celebrations for UAE National Day on Wednesday, 2 December.  (WAM 02.11)

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7.4  Former Investment Chief is New Saudi Ambassador to Washington

Saudi Arabia’s new ambassador to the United States is Prince Abdullah bin Faisal bin Turki Al Saud, a British-educated former head of the kingdom’s investment authority and of a commission on industrial cities, state media reported on Wednesday.  Although Prince Abdullah is from a side branch of the Al Saud ruling family, rather than being descended from a son of the kingdom’s founder King Abdulaziz, he is a nephew of King Salman through his mother, Louloua bint Abdulaziz.

Born in 1951, Prince Abdullah, known by his initials AFT during his stint as governor of the Saudi Arabian General Investment Authority (SAGIA) from 2000-2004, was a familiar figure among Western businessmen and diplomats.  His tenure at SAGIA coincided with the kingdom’s most ambitious period of economic reforms, during which it negotiated accession to the World Trade Organization and opened swathes of its closeted economy to foreign and private investors.  Previously, he had overseen the development of Saudi Arabia’s two main industrial cities as Secretary General of the Royal Commission for Jubail and Yanbu from 1985.  During his visit to Washington last month, King Salman made strengthening investment ties between the countries a priority.  (Reuters 21.10)

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7.5  Egypt’s Parliamentary Elections Produce 21.7% Turnout in First Round Run-Offs

The first round run-offs of Egypt’s two-stage parliamentary elections produced a 21.7% turnout, the country’s High Elections Committee (HEC) said.  The HEC said that 5.554678 million out of 25.582518 million voters had cast their ballot in the run-offs, which took place on 27 and 28 October.  Among those voters were19,835 foreign based Egyptians in 139 countries.  The turnout in the run-off was less than the 26.69% who voted in the first round earlier this month.

The second and final stage of the elections in the remaining governorates will take place on 21 – 22 November, with run-offs, if necessary, due on 1 – 2 December.

A total of 273 candidates have secured their seats in the country’s upcoming parliament.  Some 213 independent candidates won in the first round of the elections.  Among the 213 independent candidates there are 108 who are party-affiliated.  All 60 seats for the lists in this round went to the “For the Love of Egypt” list that is being coordinated by former intelligence member Sameh Seif El-Yazal.  The Free Egyptians Party, founded by billionaire businessman Naguib Sawiris following the popular 2011 revolt, has clinched the biggest quota, announcing it has won 41 seats.  Out of the individual candidates who won in the elections’ first stage, five were women and 10 were less than 35 years old.  (Ahram Online 30.10)

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8.1  Yissum Announces Formation of Agritech Investment Fund

Yissum Research Development Company of the Hebrew University of Jerusalem, the technology-transfer company of the Hebrew University, announced the inception of Agrinnovation, an investment fund focused on agricultural inventions.  In addition, Agrinnovation announced the closing of a $4.0 million first round of financing.  The round of investment was led by the Victor Smorgon Group from Australia.  Other investors include Yissum and the Provident Fund of the Employees of the Hebrew University of Jerusalem.  In the upcoming days, a group of Chinese-Israeli investors will also join the fund, which is expected to raise a total of up to $6 million.  The funds raised will be used to advance agritech technologies and the establishment of new agricultural start-ups.

One of the first projects that will be funded by Agrinnovation is an innovative protective coating for extending the shelf-life of fruits and vegetables.  The novel edible biodegradable film is intended for post-harvest shelf extension of fresh produce such as bell peppers, eggplants, tomatoes, apples, nectarines, plums, citruses, cherries as well as stored garlic and onion bulbs.  In addition to reducing spoilage during storage, the novel coating also improves the product’s glossiness, its mechanical handling properties, and retention of volatile flavor compounds.

Another breakthrough technology that will be funded by the fund is for the controlled release of drugs for farm animals.  This technology replaces the need for recurrent injections of drugs such as antibiotics and pain killers with a one-time injection of the active substance for the duration of the treatment.  The prevention of recurring injections eliminates unnecessary pain and discomfort for the animal, while saving time and money for the veterinary surgeon and the farmer.

Yissum Research Development Company of the Hebrew University of Jerusalem was founded in 1964 to protect and commercialize the Hebrew University’s intellectual property.  Products based on Hebrew University technologies that have been commercialized by Yissum currently generate $2 billion in annual sales.  (Yissum 26.10)

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8.2  SmartZyme Receives $4 Million Investment from OrbiMed

SmartZyme announced the closing of a $4 million investment by OrbiMed, a leading healthcare investment firm.  OrbiMed is among the world’s most highly regarded healthcare investors.  The investment by OrbiMed will allow SmartZyme to continue developing new therapeutics using their Provolution protein technology and to improve the administration of existing biologics as they prepare to license their innovative enzyme and device for diabetic blood glucose monitoring.

Herzliya’s OrbiMed is a leading investment firm dedicated exclusively to the healthcare sector, with approximately $15 billion in assets under management. OrbiMed invests across the spectrum of healthcare companies worldwide, from venture capital start-ups to large multinational companies. OrbiMed manages a series of private equity funds, public equity funds, royalty funds and other investment vehicles.  Ness Ziona’s SmartZyme is a privately held biopharmaceutical company focused on its Provolution™ proprietary technological platform for protein design and engineering, in accordance with industry specifications. Founded in November 2013 by Shilo Ben Zeev and David Baram, Ph.D., the company aims to efficiently design and create proteins and potent enzymes with the specific characteristics required for optimal performance.  (SmartZyme 27.10)

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8.3  AV Medical Technologies Chameleon Angioplasty Balloon Catheter Gets FDA Clearance

 AV Medical Technologies has received U.S. FDA clearance for the Chameleon angioplasty balloon catheter.  With its Proximal Injection Port (PIP) technology, Chameleon is the first and only angioplasty balloon catheter that allows for simultaneous balloon inflation and intravascular injection of fluids while maintaining guidewire access.  PIP technology incorporates proprietary catheter construction that allows for targeted fluid delivery with an intuitive, easy to use design.

Herzliya’s A-V Medical Technologies, founded in 2012, is a privately held MedTech company developing solutions to improve visualization during catheter-based interventions, while minimizing procedural steps.  The company was founded by Dr. Michael Tal, interventional radiologist and serial entrepreneur, and is financed by KLP Enterprises, LLC.  (AV Medical Technologies 26.10)

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8.4  Galil Medical Announces Agreement to Acquire Perseon Corporation

Galil Medical announced it has entered into an agreement to acquire 100% of Salt Lake City, Utah’s Perseon Corporation, a publicly-traded company and a leader in the field of microwave ablation, in an all cash transaction valued at $10.6m.  The resulting combined company will be privately owned.  The transaction is contingent upon, among other things, Galil raising approximately $26 million concurrent with the deal’s closing and upon the tender of a majority of Perseon’s outstanding common stock and 65% of Perseon’s publicly-traded warrants.  The resulting combination is expected to generate strong double-digit revenue growth and expanding gross margins, while achieving positive EBITDA in 2017 and positive cash flow by year-end 2018.

Yokneam’s Galil Medical is a global leader in delivering innovative cryoablation solutions.  The company is addressing patient conditions across multiple physician specialties.  Treatment areas and clinical research priorities include conditions affecting bone, kidney, liver, lung and prostate, as well as targeted pain and nerve applications.  (Galil Medical 27.10)

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8.5  Lumenis Acquires Israeli-based Pollogen Strengthening and Expanding its Aesthetic Division

Lumenis announced on 2 November that the company has completed the acquisition of Pollogen.  Pollogen is an Israeli-based medical aesthetic company, a developer and manufacturer of advanced technologies with full-lines of clinically-proven, non-invasive anti-aging facial and body contouring treatment platforms for a spectrum of aesthetic applications.  The product platforms include OxyGeneo, VoluDerm, Hybrid Energy, TriPollar, TriLipo and TriFractional.  Pollogen will strengthen Lumenis’ position in the beauty segment with its advanced solutions with a focus on radio-frequency technology.

Yokneam’s Lumenis is a global leader in the field of minimally-invasive clinical solutions for the Surgical, Ophthalmology and Aesthetic markets, and is a world-renowned expert in developing and commercializing innovative energy-based technologies, including Laser, Intense Pulsed Light (IPL) and Radio-Frequency (RF).  For nearly 50 years, Lumenis’ ground-breaking products have redefined medical treatments and have set numerous technological and clinical gold-standards.  Lumenis has successfully created solutions for previously untreatable conditions, as well as designed advanced technologies that have revolutionized existing treatment methods.  (Lumenis 02.11)

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9.1  Dyadic Protects Organizational Secrets and Sensitive Data with New Crypto Suite

Dyadic Security unveiled its Encryption and Key Protection Suite featuring two complementary new solutions, Distributed Key Protection and Software-Defined Encryption.  Powered by a multi-party computation (MPC)-based engine, Dyadic delivers powerful encryption, authentication and key protection with seamless deployment.  Organizations of all sizes can now easily achieve effective, distributed protection of keys, credentials and data in any IT environment—even in the event of a breach.

Cyber criminals have demonstrated time and again their proficiency at accessing private data by finding and stealing crypto keys. Despite companies applying the strictest encryption and perimeter security to their data, if the keys are not hidden well – the data can, and likely will, be breached.  Dyadic answers this massive, unmet industry need to properly protect the keys with its new software-based solution.

Founded by leading cryptographers and cyber-security industry veterans, Petah Tikva’s Dyadic protects data against hackers with an extremely secure solution for data encryption, key protection and authentication that is easy to use and integrate into existing processes.  The company’s flagship product, Dyadic Distributed Key Protection, based on multi-party computation (MPC), provides uniquely robust data encryption, and ensures reliable data security by randomly splitting encryption keys among multiple servers, ensuring that there is no single point of vulnerability.  Dyadic’s advanced technology protects data from external threats, rogue administrators, privileged credentials theft, zero-day attacks and misuse.  The company is privately funded.  (Dyadic Security 21.10)

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9.2  Nano Dimension Introduces AgCite Nanoparticle Inks for Printed Electronics

Nano Dimension announced its AgCite line of conductive silver nanoparticle inks for inkjet deposition.  AgCite inks are among the most advanced in the market today, delivering exceptionally reliable printability and outstanding electrical properties while offering significant time and cost benefits over traditional processes used to produce functional electronic devices.  Among its attributes, the AgCite family of inks sinters at low temperatures and is suited to a broad range of substrate surfaces, including paper, polymers, glass and a range of coatings, applied using inkjet printing.  Nano Dimension can custom formulate inks for specific printing processes and applications, enhancing adhesion, flexibility and hardness.  The formulation expertise makes AgCite inks applicable for a wide variety of advanced printed electronics applications, including RFID, OLED lighting, circuits, screen bezels, solar, sensors and other applications requiring high conductivity.  Digital inkjet printing with AgCite inks offers a number of advantages over screen printing and other analog options that are traditionally used for printed electronics.

Ness Tziona’s Nano Dimension was founded in 2012 and focuses on the research and development of advanced 3D electronics printing, including a printer for printing PCBs (printed circuit boards), and the development of nanotechnology-based ink products, which are complementary products for 3D printers.  Nano Dimension uses a unique, novel technology which combines three technologies: inkjet, 3D printing and advanced nanotechnology, enabling the use of conductive ink for printing the conductors on PCBs.  (Nano Dimension 21.10)

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9.3  MUV Interactive Announces Availability of Wearable Bird

MUV Interactive announced the launch of Bird.  Bird is an intuitive device worn on the tip of the finger that transforms any surface into a multi-touch interface with 3D interactive capabilities. Bird communicates with the user’s devices, enabling rich interaction with anything from displayed content and smart home appliances to IOT devices and drones.  Bird is the first device to integrate the entire spectrum of interactive methods – including touch, remote touch, gesture control, voice command, mouse functionality and hover – into a single tiny wearable.  This gives users the flexibility to interact with each type of digital content in the most intuitive way, whether they choose to do so from up close or from a distance of up to 100 feet away.  Bird is also the first device to feature multi-user input functionality, allowing up to 10 people to interact with the same content simultaneously.  Home: Bird is an all-in-one-solution for the smart home, allowing users to control display screens, TVs, cellphones, smart appliances, virtual/augmented reality entertainment, IOT gadgets and even drones.

Founded in 2011, MUV Interactive is a Herzliya-based developer of innovative technologies for wearable interfaces.  The company’s first product, BIRD, is a wearable device that transforms any surface into a multi-touch interface with 3D interactive capabilities.  MUV’s multi-disciplinary development team includes industry veterans from Intel, N-trig, Broadcom, Flextronics, Microsoft, IBM, the IDF Intelligence Corp and Technion-Israel Institute of Technology.  (MUV Interactive 27.10)

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10.1  Unemployment in Israel Falls by 0.1%

Israel’s unemployment rate fell from 5.2% in August to 5.1% in September, the Central Bureau of Statistics reported.  The labor force aged 15 and higher totaled 3,866,000, of who 3,668,000 were employed and 198,000 unemployed.  1,939,000 of the employed were men, down from 1,946,000 in August, and 1,729,000 were women, down from 1,730,000.  The percentage of participation in the labor force among those aged 15 and higher fell from 64.5% in August to 64.2% in September.  The participation rate among men aged 15 or higher dipped from 69.6% in August to 69.3% in September, while the rate among women in this age bracket declined from 59.6% in August to 59.2% in September.

The Central Bureau of Statistics also reported that the employment rate (the ratio of employed to the total population) among those aged 15 or higher dropped from 61.1% in August to 60.9% in September.  The employment rate among men aged 15 or higher fell from 66.1% in August to 65.8% in September, while the rate among women aged 15 or higher declined from 56.3% in August to 56.1% in September.  The average unemployment rate among those aged 15 or higher rose from 5.1% in the second quarter to 5.2% in the third quarter.  The rate among men aged 15 or higher was 5.1%, the same as in the preceding quarter, and the rate among women rose from 5.1% in the second quarter to 5.3% in the third quarter.  (CBS 29.10)

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10.2  Israel Ranks 6th on List of World’s Healthiest Countries

Israel is the sixth-healthiest country in the world and is the only Middle Eastern country in the top 10, according to recent world health rankings by media outlet Bloomberg.  The rankings, which compiled data from the United Nations, the World Bank and the World Health Organization, placed Singapore in first place of 145 countries, with a “health grade” of 89.45%.  Italy came in second, followed by Australia, Switzerland and Japan. After Israel came Spain, the Netherlands, Sweden and Germany.

The United Kingdom ranked 21st and the United States 33rd. The U.S. came in after Costa Rica (No. 24), Denmark (26), Cuba (28) and the United Arab Emirates (30). Russia was in 97th place and Iraq in 98th.  The rankings were determined using a points system for positive and negative indicators of health, including life expectancy from birth, smoking rates among young people, and immunization rates.  (Bloomberg 02.11)

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10.3  Ramat Gan Residents Have Longest Life Expectancy in Israel

The average life expectancy in Israel is 80.3 years for men and 84.1 for women, according to a report released on 28 October by the Central Bureau of Statistics.  The figures apply to the year 2014.  The report found that while there was no change in men’s life expectancy from 2013 to 2014, women’s life expectancy rose 0.2 years in that period.

The Israeli cities with the longest and shortest average life expectancies are Ramat Gan and Bat Yam respectively, both adjacent to Tel Aviv.  Ramat Gan residents live an average of 84.3 years, while Bat Yam residents live to an average of 80.5 years.  Life expectancy in the medium-large cities of Rehovot and Rishon LeZion stands at 83.3 years and 83 years, respectively.  The average life expectancy in Petah Tikva, Haifa, Netanya, Bnei Brak, and Jerusalem ranges from 82.1 to 82.7 years.  Residents of southern Israel live shorter lives, with life expectancy in Beersheba, Ashkelon and Ashdod ranging from 81 to 81.1 years.

Overall, based on data from 2013, Israel ranked seventh-highest among OECD member nations, with a national average life expectancy of 82.1 years.  Average life expectancy in Israel is shorter by 1.3 years than the longest-living ranked nation, Japan, but higher by 1.6 years than the average in OECD countries.  The gap in life expectancy between men and women in Israel is one of the lowest in the world.  The average life expectancy gap in OECD nations is currently 5.3 years, and Iceland is the only country that has a narrower gender gap in average life expectancy.  The Netherlands, Sweden, New Zealand, and the U.K. all boast life expectancy gender gaps similar to that of Israel.  (Various 30.10)

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10.4  Water Charges in Israel to fall 3%

Water charges will fall by 3% in Israel from 1 January, the Water Authority Council announced.  Charges have been cut by a cumulative 20% in the past three years.  The current cut is thanks to a 16% fall in the price of electricity in Israel in the past year.  Electricity is the main cost in water desalination, which produces much of the water consumed in Israel.  The Water Authority says that the cut can also be attributed to greater efficiency at the water corporations, which have replaced and renovated old infrastructure, leading to lower water losses through seepage.  The Authority also states proudly that the cut in charges comes despite a substantial expected rise in payments for desalinated water.  (Globes 25.10)

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11.1  ISRAEL:  Israel’s Leviathan Gas Challenge and the Consequences of Failure

Simon Henderson posted on 27 October in the Washington Institute that after months of bureaucratic foul-ups, Israel may be close to approving a new regulatory framework to develop its offshore natural gas resources, but another political fumble could have dire economic repercussions.

In the coming weeks, Israeli prime minister Binyamin Netanyahu will reportedly seek to win support for regulatory changes intended to break a political logjam that has cast a shadow over the country’s good news story of the past few years: its discovery of major offshore natural gas reserves.  If the changes, known as the “framework,” are approved, Israel could entice a surge in foreign investment that would make its per capita economic ranking comparable to that of Germany or Britain.  At present, Minister of the Economy Aryeh Deri is refusing to use his powers to allow the decision to be made on national security grounds, but he has offered to resign to allow the deal to proceed.

Gas from the Tamar field, located deep under the Mediterranean Sea fifty miles west of Haifa, currently generates about 60% of Israel’s electricity.  An even larger field further out to sea, Leviathan, has yet to be developed but could help Israel become a regional gas exporter. Jordan and Egypt are prospective customers, and Turkey could become one in the future — all of these options have been actively encouraged by low-key but persistent U.S. diplomacy.  Yet the development of Leviathan and further expansion of Tamar were put on hold in February by the principal license holder, Noble Energy of Texas, after the Israeli antitrust commissioner backed out of a deal under which Noble and its Israeli partner, Delek, would sell off their interests in smaller undeveloped fields to avoid being labeled monopolists.

Speaking in Washington recently, Israeli energy minister Yuval Steinitz said that concluding the new framework agreement was his first priority, but he also noted that he was working hard to convince more foreign companies to invest in Israel’s offshore exclusive economic zone (EEZ).  According to him, the Israeli government believes it is highly probable that several more gas fields of the size of Leviathan and Tamar are yet to be discovered, and that oil might be found in deeper layers under the seabed as well.  Determining whether this is true will depend on encouraging foreign companies with the necessary technology to come and look — an expensive proposition because each exploratory hole takes three months to drill and costs at least $100 million.  After its bruising experience thus far, Noble Energy may not be interested in further expanding its operation, even if it agreed there were more gas to be discovered.  Notably, an Italian company discovered a new gas field in Egypt’s nearby EEZ in August, with initial indications that it is even larger than Leviathan.

Steinitz also pointed out that Israel’s energy security is poor because of its dependence on just one producing field (Tamar) and that the country needs the enormous revenues inherent in starting production at Leviathan.  After securing the framework agreement, he hopes to bring $20 billion of additional foreign investment to Israel and counter the recent economic slowdown, noting, “For the last two years, Israel has experienced just 2.5% annual growth, when three years ago it was between 4 and 5%.”  Per capita growth, a more crucial measure, was running at 0.6% when it needed to be 2%, he said.

The almost one year delay in Israel’s gas development has coincided with the collapse in world oil prices and parallel weakening in natural gas prices.  Over the past twelve months, the price of Noble’s stock has fallen from nearly $60 a share to around $36, causing the company to review its investment portfolio around the world.  Noble claims it is committed to its investment in Israel, but if the framework agreement cannot be concluded, the company has reportedly considered commercial arbitration to recover its billions invested so far and anticipated profits from Leviathan.  Its Eastern Mediterranean operation is conducted through a Cyprus-registered company, and Israel and Cyprus have an arbitration accord. Industry insiders estimate that Noble could be awarded as much as $16 billion if a judgment is issued in its favor.

Such an outcome would have devastating consequences for Israel’s attractiveness to foreign investment, the development of its gas resources, and its economic growth.  While quickly resolving the new framework is clearly important to Steinitz and, reportedly, Netanyahu, the narrowness of the government’s Knesset majority makes the decision vulnerable to even small political objections.  Steinitz discussed the issue with U.S. energy secretary Ernest Moniz during his trip as part of a wider energy dialogue, so Washington should be well prepared to intercede discreetly and productively if further Israeli political hurdles arise.  While security problems are dominating the Israeli political agenda at present, the country’s near-term economic prospects will be in jeopardy unless all parties strive for an early positive decision on the gas framework.

Simon Henderson is the Baker Fellow and director of the Gulf and Energy Policy Program at The Washington Institute.  (TWI 27.10)

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11.2  JORDAN:  Hashemite Kingdom of Jordan ‘BB-/B’ Ratings Affirmed; Outlook Stable

Rating Action

On 23 October 2015, Standard & Poor’s Ratings Services affirmed its long- and short-term foreign and local currency sovereign credit ratings on the Hashemite Kingdom of Jordan at ‘BB-/B’.  The outlook is stable.


Significant regional instability related to the ongoing conflict in Syria and Iraq continues to affect Jordan’s key credit metrics, and we expect economic growth to be 3% in 2015.  Despite these pressures, Jordan has made progress on consolidating its public finances and the low oil price environment should support its fiscal and external performance going forward.

Since our last review, on 24 April 2015, significant disruption to key export routes has hampered Jordan’s transportation sector and consequently weighed on growth.  The number of tourists arriving in the country has also slumped over the first half of 2015 (Royal Jordanian, the national carrier, registered a 14% decline in passengers over January-August, compared with the same period in 2014).  These factors are offset by the effect of lower oil prices, which appear to be feeding through into lower production costs. Jordan’s mining and manufacturing sectors have posted positive contributions.

However, the largest contributor to growth has been an uptick in finance and insurance services activity, which can also be seen in increased credit growth.  That said, much of the increase in credit has been to public sector entities and includes loans to National Electric Power Company (NEPCO).  If oil prices remain low, we anticipate that this will support growth over the next few years.  In addition, Jordan has recently signed agreements with Chinese companies worth $7 billion (mainly based on infrastructure projects, such as the construction of new power stations and expanding the national railway network) which should also support growth.  Finally, we expect domestic demand and public infrastructure investment on the back of bilateral and multilateral grants to contribute to growth.

Regional turmoil will continue to have negative spillover effects on Jordan’s economy, suppressing important growth factors such as investment, tourism, and trade.  Jordan will likely remain highly dependent on bilateral and multilateral lenders and donors.  Although Gulf Cooperation Council (GCC) grants have been forthcoming and stable over the past two years, the size and timing of such grants remains unpredictable.  Given regional pressures, as well as domestic growth bottlenecks such as a structurally weak labor market, a challenging business environment, and high unemployment, we do not expect growth to reach pre-2010 levels over the next few years.  Our forecast assumes relative stability in the political environment, with neither a major change in the political system nor a significant deterioration in security.

We expect that the government’s 10-year economic agenda, Vision 2025, will frame future reform, with its aim to support sustainable long-term economic growth and focus on job creation.  Linked to this, the government has announced that a national census will be conducted over the next few months, with results expected in February 2016.  We view this as an important step in the management of an economy related to a population that has undergone massive change in a very short space of time; current population estimates in the region of 6.8 million could increase to close to 10 million.  This would cause GDP per capita to fall to close to $4,000 from just below $5,500.

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.  That said, 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 of refugees 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.

Against this backdrop, Jordan has managed to make progress on consolidating its fiscal position, excluding foreign grants and transfers to the loss-making NEPCO.  Over the first half of 2015, subsidies on oil and food accounted for under 3% of current expenditures, down from 14% in 2012.  By contrast, the narrower 2014 deficit of 5% of GDP, down from 8% of GDP in 2013, was driven by a large increase in foreign grants, which accounted for 17% of fiscal revenue.

We expect the government will continue to make progress on fiscal consolidation, including electricity price increases.  Jordan has increased tariffs each year since 2013 to reduce the losses at state-owned electricity utility NEPCO.  The government plans to keep nominal spending flat, in particular wages and pensions.  However, in the current political environment we do not expect to see a strong push to make politically sensitive structural reforms such as reducing the large public sector or implementing labor market reforms.  We anticipate that the government will seek to preserve internal political and social stability.  That said, we do expect the government to work closely with the International Monetary Fund (IMF).  The previous stand-by arrangement expired in August 2015, but the government could make further fiscal amendments as part of a potential follow-on program (yet to be decided).

We also expect fiscal deficits to narrow further over the medium term due to reduced transfers to NEPCO.  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.

The government does not expect to service NEPCO’s debts in 2015; we understand that NEPCO has resumed government-guaranteed borrowing from commercial banks.  However, we believe that this contingent liability could easily crystallize, as it has recently, and 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.

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 ratings strength.

We expect Jordan’s external balances to improve moderately in the next few years, supported by an improved trade balance and foreign currency inflows from public sector borrowing, grants, remittances and a potential increase in investment.  This improvement has supported foreign currency reserves and improved confidence in the local currency, as shown by a relatively steady reduction in dollarization (dollarization of deposits reduced to 20% as of end-February 2015, from a peak of 30% in 2012; since February, dollarization has been static) and stronger confidence in the currency peg.  Meanwhile, the exchange rate peg to the U.S. dollar supports price stability.  However, the peg also limits the central bank’s room for policy maneuver.

We estimate that the current account balance will narrow only modestly in 2015, to 5.4% of GDP from 6.8%, even though lower oil prices have allowed the trade balance to improve.  Jordan’s mineral fuel bill makes up about 30% of its total imports.  The effect of lower oil prices on the trade balance is being offset by lower exports to Iraq, which account for just under 20% of total exports; a weaker services surplus; and lower official transfers.  We believe  workers’ remittances will remain stable.

Although 80%-90% of the Jordanian diaspora is concentrated in the Gulf states, we see limited risk that remittances will decrease because workers are employed across diverse industries.  We also expect remittances to remain stable because public spending in GCC countries, and overall growth, will continue despite lower oil prices.  In the short term, we do not believe that lower oil prices will have a significant impact on foreign currency inflows from the GCC in the form of tourism receipts, investment, remittances, or grants.  That said, we believe that this risk would become more pronounced in the medium term were oil prices to be below our current assumptions.

Gross external financing needs peaked at 120% of current account receipts (CARs) and usable reserves in 2013, and we expect the ratio will decline only slowly.  External shocks over 2011-2013, and the reserve drawdown in 2012, have pushed up external debt levels.  Although 53% of gross external debt belongs to the public sector, a significant portion (36%) relates to the banking sector, in the form of nonresident deposits.  We understand that a substantial portion of these deposits sit within Arab Bank, Jordan’s largest bank; we do not expect the ongoing litigation against Arab Bank to result in a payment sufficient to weaken either the bank or Jordan’s balance of payments.  Our Banking Industry Country Risk Assessment (BICRA) assessment on Jordan is ‘7’.


The stable outlook reflects our expectation that Jordan’s fiscal and external balances will continue to gradually improve.  This is predicated on external and official funding remaining supportive; energy sector developments, including a lower energy import bill; and energy diversification efforts remaining on schedule.  The outlook also reflects our expectation that government policy–for example, policy regarding fiscal reform–remains on track.

Successful implementation of key political and structural economic reforms supporting more sustainable economic growth and further easing fiscal and external vulnerabilities–for example, due to a significant improvement in the regional security environment–could lead us to consider a positive rating action.

We could consider lowering the ratings if external and fiscal balances were to diverge significantly from our expectations, if external and official funding were less forthcoming, or if financing needs widened beyond the scope of available external assistance.  (Standard & Poor’s 23.10)

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11.3  JORDAN:  A New Chapter in Jordan’s Electoral Saga

Kirk H. Sowell wrote on 22 October in Sada that Jordan’s parliament is currently considering amending the government’s 2012 election law, and the Legal Committee is holding public hearings with political parties and other interested groups.  For every election cycle, Jordan has had to draft a new election law bill.  These are accompanied by a public debate, followed by declarations from parties as to whether they will take part in the upcoming elections or boycott them.  The last election, which took place on 23 January 2013, was the second in a row boycotted by the Islamic Action Front (IAF), Jordan’s main opposition party and Muslim Brotherhood’s political wing.

The resulting parliament was so lacking in initiative that when King Abdullah II magnanimously allowed it to nominate the prime minister, a constitutional prerogative of the monarch.  The new factions groped around aimlessly for a couple of weeks before nominating the incumbent prime minister, Abdullah Ensour, whom the king had appointed the previous fall.  The 2012 election law that produced this parliament retained Jordan’s one vote system, which has consistently weakened political parties in favor of tribal candidates, but included 25 seats to be elected on a proportional basis nationwide.  But after they won seats, MPs began changing parties, which have spent the past two and a half years merging, splitting, or forming into new coalitions without producing either a functioning majority or credible opposition.

The next parliamentary election needs to be held by October 2016, with the exact date yet to be set by parliament—unless its term is extended by the king, which he may do for up to two years.  In preparation, the government completed a new election law bill at the beginning of September.  Prepublication leaks indicated that it would abolish the one vote system for good in favor of a more proportional system.  This led to premature celebration from political parties, including guarded support from the Islamic opposition.  But the mood turned quickly once Ensour produced the bill on 31 August.

Key provisions in the draft law include Article 8, which provides that, “The kingdom will be divided into electoral districts which are to include 130 parliamentary seats, according to a special bylaw to be issued for this purpose.”  Article 9 further provides that “Candidacies for parliamentary seats assigned to electoral districts will be filled through proportional, open lists.”  This means that a party or bloc must provide a list of candidates for each district and the number of names listed can be no greater than the total number of seats available.  Crucially, Article 9 continues, “The voter is to cast a vote for one of the lists first, and then vote for a number of candidates on that list.”  Then once votes are tallied, Article 47 stipulates that the number of seats a party or bloc list gets is proportional to its vote total and that candidates winning more votes are elected from that list.

The draft legislation also contains other provisions of note: voters who are Christian, Circassian or Chechnyan are free to vote in any province where there is a minority seat reserved for them, and candidates for these seats are allowed to run individually or on lists.  Articles 8 and 9 set a women’s quota of one seat per province, like the previous law also stipulated.  This means at least 15 out of 130 members of the next parliament will be women, if not more.  Because the total number of seats have decreased, women are likely to have a larger proportion of seats than before.  The last election produced 19 women MPs out of 150: 15 from the quota, and four won competitively.

The positive welcome for the new election law ended as soon as the bill was made public.  The most prominent criticism was that it eliminated the 25 nationwide proportional seats, seen by parties as a modest move toward fair representation.  The new introduction of proportional allocation of seats at the provincial level could be more favorable to parties than the previous law, which was structured to facilitate the election of local tribal candidates.  Yet by removing the national-level proportional seats, from the point of view of the parties, the government has negated the parties’ modest advantage in the district elections.

The bill also does not allocate seats by province; the current draft provides that seats will be allocated by a bylaw at a later date, presumably after the election law has already been passed.  Previous elections have always over-allocated seats to rural areas in which tribesmen, who are the monarchy’s base, predominate.  The three additional badia districts (“countryside” or desert areas in the north, center, and south) will also add to the East Banker total.

But none of the political parties, including the IAF, have any substantial support in rural areas.  In the debate over the 2012 law, much was made over the increase in seats allocated to Amman and Zarqa, the two major urban areas, which contain large Palestinian populations that do not favor the tribesmen.  But have parties done poorly in rural areas because the one vote system has corralled voters into supporting a local tribal candidate, or have tribal candidates consistently won because the parties have done such a poor job spreading their message among the population?  Aside from the Islamists, whose support is disproportionately Palestinian, the only other opposition consists of leftist parties, who won only a handful of seats in 2013.  In addition to their strident secularism and support for the widely detested Assad regime in Syria, these groups have no plausible program, advocating an expanded state role even though the current state budget is universally known to be unsupportable without foreign aid.  Factions with weight in parliament, most notably the National Union Party, are loyalist parties whose makeup and program are not much different than that of any group of tribal candidates.

A third, more technical criticism, is that the new electoral structure will mainly bring about competition within lists, because after voting for a list voters are asked to vote within it.  This could result in a different form of tribal electoral competition, as voters select list candidates who were endorsed by an informal “tribal primary” before election day.

Mustapha al-Shanikat, an MP from the small Democratic Left party, expressed the political opposition’s mixed views on the new law in an interview in his parliament office.  Describing it as “a kind of progress, but one which will not achieve much,” Shanikat admitted that the parties were weak and needed to build themselves up over time.  He emphasized the need to have a law that tries to overcome tribalism, saying that having an open list system was harmful and that “due to the nature of our society, the election would be based more on political programs if parties chose the candidates.”  Yet Shanikat also emphasized that “there are positives to Jordan’s political system: we have stability, no one is calling for revolution. We need incremental change.”  The question is whether the next elections will even bring gradual change, or just hold things in place in a different way.

Kirk H. Sowell is a political risk analyst based in Amman, Jordan.  (Sada 22.10)

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11.4  SAUDI ARABIA:  Ratings on Saudi Arabia Lowered To A+/A-1; Outlook Remains Negative

On 30 Oct. 30, 2015, Standard & Poor’s Ratings Services lowered its unsolicited long- and short-term foreign- and local-currency sovereign credit ratings on the Kingdom of Saudi Arabia to ‘A+/A-1’ from ‘AA-/A-1+’.  The outlook remains negative.

At the same time, we revised our transfer and convertibility (T&C) assessment on Saudi Arabia to ‘AA-‘ from ‘AA’.

Standard & Poor’s has converted its sovereign credit ratings on Saudi Arabia to “unsolicited” following Saudi Arabia’s decision to terminate its rating agreement.  Under our policies, we may elect to assign an unsolicited rating where we believe there is sufficient market interest, which is the case for Saudi Arabia, a G20 country.

We also believe that we have access to sufficient public information of reliable quality to support our analysis and ongoing surveillance.  For similar reasons, we rate a small number of other sovereign issuers in Europe, the Middle East and Africa on an unsolicited basis.  We identify such ratings as “unsolicited”, in line with EU regulatory requirements.


A pronounced negative swing in Saudi Arabia’s fiscal balance has prompted our downgrade.  The kingdom has run fiscal surpluses–at times substantial–over the 10 years to 2013 (averaging 13% of GDP).  However, the sheer size of the shift in 2015 to a deficit of 16% of GDP from a deficit of 1.5% of GDP in 2014 and a surplus of 7% of GDP in 2013, combined with a high reliance on hydrocarbon revenues (80% of total government revenues) and inflexible current expenditures, point to vulnerabilities in Saudi Arabia’s public finances, in our view.  Based on our forecast that the Brent oil price will average $63/per barrel (bbl) in 2015-2018 (versus $49/bbl today) and nominal GDP will expand accordingly, we expect Saudi Arabia’s government revenues will run at 30% of GDP during the same period, sharply lower than the 40% posted in 2014.  Given our view of the government’s social and defense spending priorities and taking into account public statements that the government will postpone some investment not currently under way and our expectation that the government will more tightly control spending on goods and services, we project that general government deficits will decline to 10% of GDP in 2016, 8% of GDP, in 2017, and 5% of GDP in 2018.  We acknowledge both upside and downside risks to these forecasts. Upside risk principally stems from oil prices.  Downside risks principally reside in the scale of the fiscal consolidation and the broader impact it will likely have on the economy.

Although on a flow basis the kingdom’s fiscal profile has weakened, on a stock basis it remains strong. Net general government assets (that is, the excess of liquid fiscal financial assets over government debt) peaked at 123% of GDP in 2015, partly due to the estimated 11% decline in nominal GDP.  We forecast that the government’s net asset position will decrease to 79% of GDP in 2018.  Consequently, Saudi Arabia is entering into a period of adverse terms of trade from a strong position.

Over the next three years, we expect Saudi Arabia will finance its deficits, combining drawing down of fiscal assets and issuing debt.  For the purposes of calculating the annual change in government debt (which is our preferred fiscal metric because in most cases it is more comprehensive than the reported headline deficit), we have assumed an even split between asset draw-downs and debt issuance, implying an average 6% of GDP increase in nominal gross general government debt a year.  Such a split would also imply that the kingdom would report gross financial fiscal assets of 101% of GDP by 2018 versus 122% at year-end 2014.  According to our assumptions, these fiscal assets include the central government’s deposits and reserves on the liabilities side of the balance sheet of the Saudi Arabian Monetary Agency (SAMA, the central bank), government institutions’ deposits, and an estimate of investment income. We also include an estimate of government pension funds’ liquid assets.

We expect the government’s fiscal consolidation plan will have several aspects, including postponing some capital spending projects, increasing non-oil revenues, and controlling current expenditures.  In our view, Saudi Arabia’s historically large public investment program provides the authorities with fiscal flexibility to react to the weaker terms of trade and concomitant fall in government revenues.

We also expect that electricity, water, and fuel subsidies could be reformed.  With increased tariffs, we would expect to see stronger profitability at government-related entities, in turn resulting in higher dividends for the government.

On the revenue side, we understand the government is discussing the imposition of taxes on undeveloped plots of land in urban areas to encourage their development.  The government may also look at imposing value-added tax (VAT).  However, we think this is likely to be a medium-term project, in line with discussions already under way with other members of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) customs union.

Saudi Arabia’s external accounts mirror, in many ways, its fiscal accounts.  Like the fiscal accounts, they shift based on prices of hydrocarbons, which account for about 80% of exports.  After 16 years of current account surpluses, we forecast that the kingdom will post a current account deficit of about 6% of GDP this year and in 2016, before returning to broad balance in 2017.  Similar to its fiscal position, Saudi Arabia maintains strong external buffers.  We expect Saudi Arabia’s net liquid external assets, net of external debt, will average about 235% of current account receipts (CARs) over 2015-2018.  Classifying all the reserve assets of SAMA as usable reserves, the kingdom’s gross external financing needs are only slightly above one-third of the sum of usable reserves and CARs over 2015-2018, suggesting strong external liquidity.

We estimate GDP per capita at $21,000 in 2015.  We estimate that trend growth in real per capita GDP, which we measure using 10-year weighted-average growth, will amount to about 1% during 2009-2018, which is on the low side compared with peers that have similar GDP per capita.  Saudi Arabia derives about 40% of its GDP from the hydrocarbons sector.

King Salman acceded to the throne in January 2015.  He is the sixth son of King Abdulaziz Al-Saud, who established the kingdom in 1932.  In April, King Salman named his nephew, interior minister Mohammed bin Nayef as crown prince, first in line to the throne.  The king also named his son, Mohammed bin Salman, the defense minister, to the position of deputy crown prince and thus second in line to the throne.

We analyze Saudi Arabia as an absolute monarchy in which decision-making resides with the king and the ruling family.  In our view, reconciling intra-family issues around succession could make the kingdom’s policy decisions more challenging and difficult to predict.  Two new councils, the Council for Political and Security Affairs and the Council for Economic and Development Affairs, have been created to form government policy more efficiently.  Power is devolved to the crown prince and deputy crown prince, who respectively head these two bodies.  The king approves the decisions of the councils. Broader institutional checks and balances are still at early stages of development.

Given the Saudi riyal’s peg to the U.S. dollar, we view monetary policy flexibility as limited.  The long-standing currency peg helps to anchor the population’s inflation expectations, but binds Saudi Arabia’s monetary policy to that of the U.S. Federal Reserve.  Notwithstanding the limited monetary flexibility, we regard the Saudi financial system as strong.  We classify the banking sector of Saudi Arabia in group ‘2’ under our Banking Industry Country Risk Assessment methodology, with ‘1’ being the strongest ranking and ’10’ the weakest.


The negative outlook reflects the challenge of reversing the marked deterioration in Saudi Arabia’s fiscal balance.  We could lower the ratings within the next two years if Saudi Arabia did not achieve a sizable and sustained reduction in the general government deficit, or its liquid fiscal financial assets fell below 100% of GDP.  The ratings could also come under pressure if domestic or regional events compromised political and economic stability.

We could revise the outlook to stable if the combination of policy choices by the Saudi authorities and external economic conditions reduced the government’s financing needs, preserving the government’s strong net asset position.  (S&P 30.10)

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11.5  SAUDI ARABIA:  Cheap Oil Puts the House of Saud at Risk

Saudi Arabia spends money like there’s no tomorrow.  A new report from the International Monetary Fund suggests that there might not be a tomorrow for the House of Saud.  Without massive spending cuts, the Kingdom will exhaust its monetary reserves in five years at current oil prices, the IMF reckons.  Saudi Arabia is a rich country full of poor people, and the House of Saud has bought a lot of legitimacy by subsidizing its subjects.  The dynasty might not survive the sort of austerity measures that the IMF insists are necessary to keep the Kingdom from running out of reserves by 2020. Egypt, now dependent on Saudi subsidies, also is at risk.

Gaming the fall of the House of Saud has been a fool’s pastime for years.  As William Quandt wrote in Foreign Affairs twenty years ago, “There is a cottage industry forming to predict the impending fall of the House of Saud.”  Countless experts claimed to see handwriting on the royal palace wall, but to no avail.  Thus far the wily Saudis managed to co-opt, buy off or butcher the competition.  This time is different.  As IHS-Janes analyst Meda al Rowas observed last July, Saudi Arabia’s clerical establishment is one of the most important stabilizing mechanisms in the kingdom.  Salafist Wahhabi ideology requires obedience to the confirmed ruler, which in Saudi Arabia’s case, is the king, but only so long as he enforces Islam.”

This time may be different. All of the monarchy’s survival tools require a great deal of money, and the challenge to the self-styled guardians of Islamic purity from the battlefields around the kingdom gains credibility as Islam sinks deeper into chaos and crisis.

As IHS-Janes analyst Meda al Rowas observed last July, Saudi Arabia’s clerical establishment is one of the most important stabilizing mechanisms in the kingdom.  Salafist Wahhabi ideology requires obedience to the confirmed ruler, which in Saudi Arabia’s case, is the king, but only so long as he enforces Islam.”  The Saudi royal house allied with Egypt’s military against the Muslim Brotherhood, a form of Islamism more attractive to young Saudis excluded from power and privilege by the monarchy, and ISIS is now pressing its claim to lead Islam against the sclerotic House of Saud, a risk noted by numerous Western analysts.  In November 2014 ISIS chief Abu Bakr al-Baghdadi called on Muslims to rebel against the Saudi monarchy.  ISIS staged suicide bombings against the country’s Shia minority earlier this year to assert its authority against the government-allied clerical establishment, and a devastating attack against a Shia mosque in Kuwait last June.

The royal family has responded to the Islamist threat by styling itself the Sunni champion against Iran. IHS’ al Rowas warns, “King Salman’s attempts to keep the clerical establishment onside, including allowing the adoption of highly charged sectarian language targeting Iran and the Shia more generally, risk backfiring in the three-to-five year outlook, particularly if Saudis believe that the Al-Saud monarchy is failing to curtail expanding Iranian influence.”


In the background to the sectarian war, though, Saudi Arabia’s economic problems present the gravest threat to regime continuity. The 2,000 Saudi princes who control the country subsidize between a quarter and third of the Saudi population. They may no longer be able to buy social peace, according to the IMF.

The chart above shows the oil price at which all the major Middle Eastern producers can balance their government budgets; in the Saudi case, the break-even oil price (yellow columns) is $105. The green dots show the number of years each country has before it runs out of monetary reserves. Iraq is flat broke now. Saudi and Algeria have five years, and Iran has eight.

The IMF wants the Saudis to cut the spending equivalent to more than 20% of non-oil GDP, as shown in the IMF’s chart below.


It’s not clear whether Saudi Arabia can cut spending so deeply and maintain political stability. There is no official data on poverty in Saudi Arabia, but one Saudi newspaper used social service data to estimate that 6 million of the kingdom’s 20 million inhabitants are poor, some desperately so.

After the 2011 “Arab Spring” disturbances, Riyadh increased social spending by $37 billion–or $6,000 for every poor person in the kingdom–in order to preempt the spread of discontent to its own territory.  Saudi Arabia now spends $48.5 billion on defense, according to IHS, and plans to increase the total to $63 billion by 2020.  The monarchy has to match Iran’s coming conventional military buildup after the P5+1 nuclear agreement to maintain credibility.

Saudi Arabia and other Gulf States also keep Egypt afloat.  They pledged $12.5 billion in new aid to Egypt earlier this year, and Egyptian media project the total aid package at more than $20 billion.  Muslim Brotherhood leader Mohammed Morsi was overthrown in July 2013 as Egypt’s economy collapsed, and his successor Gen. Abdel Fattah el-Sisi immediately secured help from the Gulf States.  Egypt’s economy is still deteriorating.  The country’s trade balance has widened steadily since the 2011 overthrow of President Hosni Mubarak.  The largest Arab country imports half its food, and buys nearly $40 billion more than it sells.


If the Gulf State subsidy disappears, Egypt’s economy will fail. Offsetting revenues from tourism have fallen sharply, down 41% from 2012 to 2013 to only $5.9 billion a year.  Half of Egyptians depend on government subsidies, which have ballooned the budget deficit to 12.5% of GDP.

Even under adverse strategic and economic conditions, the House of Saud would have formidable resources.  Its 100,000 man National Guard is mainly a militarized internal police force staffed by tribal personnel loyal to the royal family.  The Saudis and other Gulf monarchies also hire Pakistani mercenaries, who by some estimates comprise a tenth of the 500,000 military and policy employed by the Gulf states.  Under some conditions the large foreign contingent in the Saudi armed forces could become a danger, e.g., in a revolt by some of the kingdom’s 1.5 million Pakistani workers.

The trouble is that the House of Saud has few friends.  It was abandoned by the United States, its principle ally, in the nuclear deal with Iran.  Russia has aligned with Iran in Syria, with Chinese support.  Turkey was never a friend and is closer to the Muslim Brotherhood–still the main opposition to the Saudi monarchy – than it is to the royal family.

In order to keep the favor of the Wahhabi clerical establishment, the monarchy has allowed wealthy Saudis to provide free-lance financing for Islamist causes that Riyadh officially rejects.  A Chinese official told me recently that the one thing China fears in the Middle East is Saudi Arabia, which is funding Wahhabist madrassahs in China’s Muslim-majority Western state of Xinjiang.  On the surface, Saudi-Chinese relations are excellent.  China is Riyadh’s biggest customer for oil, although China for the first time bought more oil from Russia than from Saudi Arabia in 2015.  Russia is taking payment for oil in Chinese currency, while the Saudis demand US dollars.

The trouble is that the central government in Riyadh is either unable to stop individual Saudis from supporting radical groups, or it is so beholden to the Wahhabist clerical establishment that is has to double-deal.  Muslim separatism is an urgent Chinese concern.  Like Russia, China doesn’t see Iran as a threat; Chinese Muslims are Sunni not Shia.  The spread of Islamic fundamentalism from Saudi-funded madrassahs frightens China–it has no natural defenses against foreign religious ideologies on its own soil–and Saudi Arabia is looking more and more like a liability.

The Saudis are learning that money can’t buy strategic preeminence, just at the point where money threatens to become scarce.  The monarchy has made fools of its doomsayers for decades, but it now may have passed its best-used-by-date.

David P. Goldman is a senior fellow at the London Center for Policy Research and the Wax Family Fellow at the Middle East Forum.  (MEF 22.10)

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11.6  EGYPT:  Moody’s Says Economic & Fiscal Conditions are Improving But Weakness Remains

Moody’s Investors Service said on 3 November that reforms have sparked improvements in Egypt’s (B3 stable) public finances and economic conditions, but challenges remain.  The rating agency notes that the challenges include the government’s large financing needs, structural economic issues such as high unemployment and inflation, and elevated political risks.

The rating agency projects real GDP growth of 5.0% for the current fiscal year 2016, up from an expected 4.5% in fiscal 2015.  Egypt’s economic growth over the next 12-18 months will likely be supported by both public and private investment, says Moody’s.  The stronger growth in capital goods imports connected to the expected increase in investment, coupled with weak global demand, will weigh on net exports’ contribution to growth.  “We expect that the economic and fiscal reform momentum in Egypt will help fiscal deficits and government debt levels to gradually reduce, although government financing needs remain relatively large” says Steffen Dyck, a Vice President – Senior Analyst at Moody’s.

Moody’s data shows that while Egypt’s government debt has slightly reduced to 90% of GDP in fiscal 2015, the level remains elevated as a result of persistent fiscal deficits — which averaged 9.5% of GDP between fiscal 2005 and fiscal 2014.  The government targets a slight reduction to 8.9% of GDP in 2016 which Moody’s notes will depend on revenue performance.  “We expect the Suez Canal expansion to make credit-positive contributions to Egypt’s fiscal revenues and balance of payments over the medium-term.  So far the government’s track record of implementing revenue-enhancing measures, such as the introduction of new taxes, is mixed,” says Mr. Dyck.

For instance, the introduction of a value-added tax as replacement for the current sales tax was pushed back several times, but the government aims to implement it before year-end.  The rating agency notes that Egypt’s political risks add to a still-fragile security situation, and have led to the weakening of institutional strength.  (Moody’s 03.11)

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11.7  EGYPT:  Egypt’s Industrial Sector Struggles With Growing Chinese Presence

Chinese goods, especially traditional handicrafts, have invaded the Egyptian market.  In this regard, Atef Yaacoub, head of Egypt’s Consumer Protection Agency, stressed in March 2013 the need to take strict measures to stop the flow of the goods into Egypt.

Khalid Hassan posted in Al-Monitor on 29 October that although the quality of Chinese products might be at times questioned, they were met with large demand because of their low prices, as the number of Chinese companies in Egypt rose from 1,000 in 2010 to 1,198 in 2015.

The market for these products has grown considerably and become a primary factor behind the current economic downturn, leading former Egyptian Minister of Trade and Industry Mounir Fakhry Abdel Nour to decree in April 2015 an import ban on all Chinese imitations of Egypt’s traditional handicrafts in an attempt to curb this invasion of the Egyptian market.

The former minister justified the ban on Chinese goods at a press conference in April, arguing that it aims to preserve the local production.  He said, “This decree is 100% legal, as it comes in application of the 1994 international General Agreement on Tariffs and Trade [GATT], which gives us the right to protect our local goods.”  GATT Article 20 stipulates that any country has the right to take the necessary measures to protect its “national treasures of artistic, historic or archaeological value.”  Therefore, any country is allowed to take preventive measures in the form of customs duty in order to temporarily protect the national industry.

However, the government was unable to implement this decree, as Chinese goods are still scattered in the Egyptian market, particularly in Khan el-Khalili, al-Hussein and el-Ataba, which are the most famous souks in Cairo, where goods with folkloric and traditional features are sold.  Fathi al-Saeed, a merchant who sells Chinese products in Ataba, told Al-Monitor, “I’ve been selling Chinese products for the past four years ever since the local industry collapsed and began to rely on exports.  This is mainly due to the high demand on these goods, as Egyptian consumers turned away from Egyptian-made products, preferring Chinese imports because of their low prices and availability.  Although these consumers are aware of these items’ poor quality, they proved popular among the lower classes.”

He added, “The prices of Egyptian products are relatively high compared to the Chinese ones.  For example, the production cost of a fanous [traditional Ramadan lamp] in Egypt is 35 Egyptian pounds [$4.36], while that of the Chinese alternative stands at no more than 10 [$1.25]….It’s not our fault that the government is failing to meet people’s needs in accordance with their purchasing power. We should also not be blamed if China is able to do so at low prices,” Saeed said.

Not only are Chinese goods found at local shops, but Chinese vendors now visit Egyptians in their houses to sell them their goods, which mainly include clothing, pottery and electronics.

In terms of foreign investment in Egypt, China ranks 24th, with 1,198 Chinese businesses investing a total of $468.5 million in the country, mainly in the industrial and financial services sectors.

Al-Monitor spoke to Hong-Li, a Chinese peddler in Cairo who speaks Arabic fluently. “Egypt enjoys a special status and importance for the Chinese government, because our products are increasingly popular among Egyptians,” he said.  “My job is not limited to passing by Egyptians’ houses to offer my products, as I also talk to them about their needs and clothing desires.  I then take notes and tell the owner of the factory I work with in China to design the product that appeals to the Egyptian taste, at a low price, to distinguish it from other imported goods.  After that, I visit the houses with the product they wanted and sell it at the most convenient price.”

The head of the Egyptian Commercial Service, Muhammad Dawood, said in November 2014 that the total trade of imports and exports between Egypt and China amounted to $10.3 billion in 2013, equivalent to an 8.4% increase from 2012. While Egyptian exports to China reached $1.9 billion, Chinese imports in Egypt totaled $8.4 billion.

On 19 October, the former governor of the Central Bank of Egypt, Hisham Ramez, said in an interview with the Egyptian newspaper El-Watan that the total Chinese exports to Egypt stood at $9.1 billion last year, estimating that the cost of imports and services rose to $80 billion.  According to Ramez, the annual increase of Chinese imports threatens local production.  Ramez also noted that “Egypt has turned into a huge importation hub, while the country should be more productive in order to curb the $38.785 billion deficiency of the commercial balance, an increase of $4.723 billion because of an increase of import costs from the 2013-2014 financial year, when deficiency was at $34.062 billion.”

In an attempt to offer a solution, Minister of Industry and Trade Tareq Qabil said Oct. 18 that the ministry is working on boosting Egyptian exports to China to balance trade between the two.

Banha University economics professor Muhammad Ibrahim told Al-Monitor, “China’s crawling into the Egyptian market is an undeniable sign of the collapse of Egypt’s industrial sector.  Before the government takes such a decision, it first has to promote national production and encourage people to support it.  The imposition of a ban on Chinese-made traditional handicrafts without offering an alternative is not going to serve its purpose.”

He added, “The government focused on banning the import of traditional handicrafts because they are not commodities and therefore can be produced by local industry.  But the government didn’t even provide an alternative product at the same price of the Chinese one, so people accept it and abandon the latter.”

Ibrahim concluded, “The government made a good decision, but the Ministry of Industry has to launch media campaigns aimed at encouraging people to buy local goods and convince them of the dangers facing Egypt with the spread of Chinese goods.  The government must also train young people to produce goods that match the Chinese ones in terms of their prices while meeting people’s needs.  Without these steps, the government’s decision is doomed to fail.”  (Al-Monitor 29.10)

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

On 23 October 2015, Fitch Ratings affirmed Morocco’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB-‘ and ‘BBB’ respectively.  The issue ratings on Morocco’s senior unsecured foreign- and local-currency bonds are also affirmed at ‘BBB-‘ and ‘BBB’ respectively.  The Outlooks on the Long-term IDRs are Stable. The Country Ceiling is affirmed at ‘BBB’ and the Short-term foreign-currency IDR at ‘F3’.

Key Rating Drivers

Morocco’s rating balances weak structural indicators (including development and governance) with macro stability and our projection that gradual consolidation of twin deficits will support public and external debt dynamics.

The IDRs reflect the following key rating drivers:-

  • -We expect real GDP to grow 4.6% in 2015 (2014: 2.4%) due to buoyant agricultural production. Even if non-agricultural growth is likely to remain moderate in 2015 as a result of weak phosphate and tourism activity, manufacturing output prospects are favorable given the country’s focus on the development of new industries.  Inflation and growth performance are in line with ‘BBB’-rated peers and the country performs favorably on stability of growth, inflation and exchange rate compared with peers.
  • -Most public finances indicators are performing in line with ‘BBB’ medians. Although general government debt is higher than peers, at 49.1% of GDP at end-2014, we expect it to have peaked in 2014 and to gradually decline in line with a tightening budget deficit.  Government’s target of a 4.3% of GDP central government deficit in 2015 is credible in light of budget execution figures as of end-July 2015, and achieving the medium term target of 3% of GDP by 2017 (2012: 7.3%) will be facilitated by a more efficient budget process under the new organic budget law.  General government debt composition is favorable, with a moderate share of foreign-currency debt (31.4% at end-2014, in line with peers), reasonable maturity and low cost.
  • -Morocco’s net external debt has risen sharply since 2008, which we forecast at 13% of GDP at end-2015 (2007: -18.5%), higher than the ‘BBB’ median of 8%. However, external risks have receded since 2012, with the current account deficit expected to reach 3.1% of GDP by end-2015 (down from 9.5% of GDP in 2012), due to lower oil imports, but also the development of manufacturing exports (car exports increased 15% in 8M15) and gradual recovery in the EU, Morocco’s main trading partner.  Foreign direct investments (FDIs), at around 2.5% of GDP each year, provide a stable source of funding, which will help stabilize net external debt. We expect the sovereign will remain a net external creditor.
  • -International reserves will cover more than five months of current account payments by end-2015, providing comfortable support to the exchange rate peg. The recently renewed precautionary and liquidity line with the IMF, worth USD5b (equivalent of 5% of 2014 GDP), also provides additional buffer against balance of payment crises.
  • -Morocco’s main rating weakness stems from weak development and governance indicators, which are more in line with ‘BB’ medians. GNI and GDP per capita as well as human development indicators are roughly half of the ‘BBB’ median, while ease of doing business is slightly lower than the median.  Political stability is better than regional peers, leading us to expect smooth legislative elections in 2016.  Risks of financial shocks in the country are moderate as the banking sector is developed and well supervised.

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
  • -Over the medium term, increase in per capita income level and an improvement in social indicators
  • -Continued moderate current account deficits consistent with declining net external debt-to- GDP ratio

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

  • -Rise in current account deficit and net external debt/GDP
  • -A widening of the budget deficit and an increase in general government debt
  • -Decline in medium-term growth prospects
  • -Political and social instability constraining scope for reform

Key Assumptions

Fitch assumes that Brent crude will average $60 and $70 per barrel in 2016 and 2017 respectively, therefore alleviating pressure on the current account deficit.

Fitch assumes that global GDP will grow 2.7% in 2016 and 2017, supporting Morocco’s exports of goods and services.

Fitch assumes that the 2016 legislative elections will proceed smoothly.  (Fitch 23.10)

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11.9  TURKEY:  How the AKP Dominated the Election in Turkey

Turkey’s 1 November snap elections ended with a result that almost no one expected: a crushing, fourth consecutive victory for the Justice and Development Party (AKP), which has now been in power since 2002.  The party won 49.4% of the vote, a major increase over the 40.9% it won in the previous elections, held 7 June.  The AKP has a comfortable majority in the parliament, holding 316 of the 550 seats.  It now has enough power to form a government on its own, avoiding coalition scenarios for the next four years.  The final seat count, however, fell short of giving the AKP the chance to amend the constitution on its own, which requires at least 330 seats.

Mustafa Akyol posted in Al Monitor on 2 November, asking how did the AKP pull off such a major victory, defying the predictions of almost all polling companies and political observers?  He had predicted “some increase in the AKP votes,” but nothing this major.  To understand what happened, one has to look at what changed in Turkey during the past five months, since the previous elections.

The first major change was an upsurge in terrorism, by the Kurdistan Workers Party (PKK) and the Islamic State, and an accompanying sense of diminishing security.  The second change was a decline in the economy, in particular a surge by the US dollar at the expense of the Turkish lira.  Many critics, in the Turkish opposition as well as the Western media, blamed the AKP government and President Recep Tayyip Erdogan for both of these problems.  Many Turks, however, viewed things to the contrary.  To them, these problems had been caused by the absence of a strong AKP government since 7 June.  The 13 stable years Turkey experienced under AKP has helped create a longing for that same stability under yet another strong AKP government.

Meanwhile, two opposition parties faced major problems in the past few months, leading to a significant decline in votes for them.  The problem for the Nationalist Action Party (MHP) was Devlet Bahceli, its leader.  Bahceli disillusioned a large number of MHP voters by bluntly rejecting every coalition option after the June elections and offering nothing more than hawkishness against Kurdish nationalists.  Hence, the MHP turned out to be the biggest loser in the election, having won 16.4% of the vote (80 seats) in June, but only 11.9% (40 seats) in November.  It is safe to assume that almost all of the MHP’s lost votes went to the AKP.

This was helped along by the AKP consciously playing to the MHP’s base, which is already considered the closest to its own.  Both parties, by very broad definitions, are right wing and conservative.  The AKP’s latter-day toughness on Kurdish militants also helped win nationalist hearts and minds.  Moreover, the AKP managed to poach a major MHP figure, Tugrul Turkes, the son of Alparslan Turkes, none other than the founder of the MHP movement.

The other opposition party suffering a setback was the polar opposite of the MHP: the pro-Kurdish Peoples’ Democratic Party (HDP).  In June, the HDP had scored a major victory, safely passing the 10% threshold, winning 13.1% of the votes (80 seats), doubling its traditional mandate.  On 1 November, however, the HDP only managed to attract 10.7% of the vote (61 seats).  Why did it lose so much?

One factor is that some of the votes it had won in June were “borrowed votes” — that is, the votes of people who simply wanted the party to pass the 10% threshold but this time did not vote strategically, assuming that the party would safely pass the threshold.  The even more definitive factor was the failure of the “peace process” between Ankara and the armed and outlawed PKK, which both Turkey and the United States consider a terrorist organization.  The resurgence of the three-decade-old war in July put the HDP in a tough spot, torn between its liberal narrative of peace and its obvious sympathy for the PKK.  As a result, some religious Kurdish voters, who blamed the PKK for the resurgence of violence, returned to the AKP.  The HDP lost more than a million of the votes it had won in June and it appears that almost all of them went to the ruling party.

The AKP also seems to have attracted additional support from the base of smaller Islamist parties, which either shrank (as in the case of the Felicity Party) or did not enter the election to support the AKP (as in the case of the Kurdish Islamist Huda-Par.)  The only party that saw no changes was the main opposition Republican People’s Party (CHP), which won 25.4% of the vote (134 seats).  The CHP seems to have a safe, solid, but static voting block, consisting mainly of urban secularists and unorthodox Alevis.

The election results represent a huge victory for the AKP, and even more so for Erdogan, who was the real mastermind behind the snap elections. His grip on power will be rock solid until 2019.  Of course, this is incredibly blissful for AKP supporters, but what does it mean for opposition circles, which have of late been demonized by the government and its propaganda machine as the enemy within?  Prime Minister Ahmet Davutoglu, in his victory speech, sent a reconciliatory message to them, promising an “end to polarization and tension.”  If he and Erdogan really chose a moderate and reconciliatory path, then they will be achieving a much bigger victory than in the actual elections.

Mustafa Akyol is a columnist for Al-Monitor’s Turkey Pulse, a columnist for the Turkish Hurriyet Daily News, and a monthly contributing opinion writer for The International New York Times.  His articles have also appeared in Foreign Affairs, Newsweek, The Washington Post, The Wall Street Journal and The Guardian. He is the author of Islam Without Extremes: A Muslim Case for Liberty.  (Al-Monitor 02.11)

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11.10  CYPRUS:  Fitch Upgrades Cyprus to ‘B+’; Outlook Positive

On 23 October 2015, Fitch Ratings upgraded Cyprus’s Long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘B+’ from ‘B-‘.  The Outlooks are Positive.  The issue ratings on Cyprus’s senior unsecured foreign and local currency bonds have also been upgraded to ‘B+’ from ‘B-‘.  The Country Ceiling has been raised to ‘BB+’ from ‘BB-‘ and the Short-term foreign currency IDR has been affirmed at ‘B”.

Key Rating Drivers

The upgrade of Cyprus’s IDRs reflects the following key rating drivers and their relative weights:


Cyprus has established a track record of fiscal consolidation and over-performance on its fiscal targets.  In 2014, Cyprus achieved an almost balanced general government position (excluding a one-off €1.5b capital injection to the cooperative banking sector) compared with a deficit of 8.5% of GDP originally projected by Fitch in June 2013, when the agency downgraded Cyprus’s Long-term foreign currency IDR to ‘B-‘.  The positive momentum has carried over to 2015 and the budget has remained in slight surplus as of end-July 2015, with Fitch now projecting a deficit of 1% of GDP for 2015 and surpluses of 0.2% and 1% for 2016 and 2017, respectively.

General government gross debt (GGGD) is now expected by Fitch to peak at less than 108% of GDP this year, before falling to around 100% in 2017.  This compares with a peak of over 130% projected by Fitch in June 2013.  At more than double the ‘B’ median of 43% for 2015, the GGGD ratio is still high and reduces Cyprus’s fiscal scope to absorb domestic or external shocks.  The stock of government guarantees is also sizeable at 17% of GDP, although over half is already included in the reported GGGD stock.

Cyprus is back on track in its IMF-EU program following delays in the fifth and sixth reviews that were pending the implementation of the foreclosure law, finally passed in May 2015.  The seventh review took place in July and enabled the disbursement of €625m in funding.

The foreclosure law, along with a new insolvency framework, lies at the heart of the banking sector efforts to reduce its exceptionally high stock of non-performing exposures (NPEs).  A significant program hurdle was overcome in removing all restrictions on capital flows in April, ending two years of controls.  Deposits have been broadly stable since then, although non-resident deposits (30% of total) declined temporarily in the run-up to the Greek crisis this summer.  While direct financial links between Greek-owned subsidiary banks and Greece have been reduced significantly, the sector remains vulnerable to Greece mainly via investor confidence.


Growth during 2015 turned positive for the first time since Q1/11, leading to an upward revision in Fitch’s forecast for 2015 to growth of 1.5% from a decline of 0.8%.  Fitch estimates a smaller cumulative loss in output since 2013 at 7.5%, compared with 14% projected by Fitch in June 2013.  Growth has been supported by domestic demand, which in turn is buoyed by lower oil prices and an improvement in sentiment.  Tourist arrivals were up 14% yoy in September, despite a decline in arrivals from Russia.  The labor market is improving but remains weak; unemployment was still above 15% in August compared with less than 4% in 2008.

Cyprus’s ‘B+’ IDRs also reflect the following key rating drivers:

There are still significant risks to creditworthiness posed by Cyprus’s continued deep economic and financial adjustment.

The environment for banks remains challenging, in particular with regard to exceptionally weak asset quality.  The stock of consolidated sector NPEs was 47.4% of gross loans in August, the highest of all Fitch-rated sovereigns.  Unreserved problem loans for the sector (i.e. gross NPEs minus system-wide provisions) stood at €18.8b, or 107% of GDP for the same period.

Implementation risks around banking reforms remain high as the process is dependent on the political will to confront debtors, which could wane in the run-up to parliamentary elections in May 2016.  Though evidence is emerging of a pickup in restructuring and NPE stock stabilization, along with improved capitalization and liquidity, any corresponding decline in NPEs will only emerge gradually.  With assets of almost 5x GDP, the banking sector weighs on the overall credit profile of Cyprus by rendering it more vulnerable to external shocks.  Uncertainty in Greece, a global economic downturn, or deterioration in the Russian economy could undermine Cyprus’s adjustment.

At 108% of GDP as of Q1/15, Cyprus’s net external debt (NXD) reflects a highly indebted private sector (external private sector debt was over 350% of GDP in 1Q15).  The NXD figure was revised up by over 60% of GDP following a shift of external statistics compilation to the BPM6 framework in June 2014.  Ship owners are now counted as Cypriot economic units irrespective of the location of their activities, which increases the NXD position owing to the capital-intensive nature of the shipping industry (debt-financed real assets).

The current account deficit has narrowed to 5% of GDP in 2014 from 14% in 2008, and will continue to shrink according to Fitch projections, albeit gradually to around 3.5% by 2017.  Cyprus’s weak external position implies that further economic rebalancing may be in prospect over the medium term.

Debt management operations aimed at improving the debt profile should help ease market access during the post-program period.  Market conditions allowing, Cyprus plans to issue another Eurobond before end-2015 to further lengthen maturities and to increase its cash buffer.  A €860b bond redemption due in November is already covered by the country’s sizeable cash position (close to €2b or 11% of GDP), while maturities are moderate until 2019, with just over €500m of medium- and long-term debt falling due in 2016, €284m in 2017 and €20m in 2018.

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 pickup in loan restructurings
    • A sustained track record of market access at affordable rates
    • Continued adherence to fiscal adjustment targets, leading to a decline in the government debt- to-GDP ratio
    • Further track record of economic recovery and narrowing of the current account deficit.

  • Future developments that may, individually or collectively, lead to a negative rating action:
    • Re-intensification of the banking crisis in Cyprus
    • A weakening in the pace of fiscal consolidation, resulting in a less favorable trajectory in the debt-to-GDP ratio
    • A return to recession or deflation, which would have adverse consequences for public debt dynamics.
    • 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 2% of GDP, trend real GDP growth averaging 1.7%, an average effective interest rate of 3.3% and GDP deflator inflation of 1.5%.  On the basis of these assumptions, the debt-to-GDP ratio would peak at almost 108% in 2015, and edge down to 87% by 2024.

Gross debt-reducing operations in the EU-IMF program such as privatization (€1.4b by 2018) and a mooted asset swap for a government loan held by the Central Bank of Cyprus (up to €1b) are not considered in Fitch’s assessment of Cyprus’s debt dynamics.  Our projections also do not include the impact on growth of future gas reserves off the southern shores of Cyprus, the benefits from which are several years into the future, although now less speculative.

Fitch assumes that there will be no material escalation in developments between Russia and Ukraine that would lead to a significant external shock to the Cypriot economy.  Russians accounts for around 20% of the total tourism market share, and a sizeable share of foreign deposits in banks.

The European Central Bank’s asset purchase program should help underpin inflation expectations, and supports our base case that, in the context of a modest economic recovery, the Eurozone will avoid prolonged deflation.

Fitch’s base case is that Greece will remain a member of the Eurozone, though it recognizes that ‘Grexit’ is a material risk.  Cyprus is among the most vulnerable to a ‘Grexit’ shock.  However, its ties to Greece have been reduced significantly.  Cypriot banks no longer hold any Greek government bonds and are no longer exposed to the Greek private sector, owing to the fire-sale of the Greek operations of Cypriot banks in March 2013.  The subsidiaries of the big four Greek banks in Cyprus have also been ring-fenced.  Fitch considers that Cyprus remains vulnerable to Greece mainly via investor confidence.  (Fitch Ratings 23.10)

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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.