Fortnightly, 6 September 2017

Prime Minister Netanyahu announced that his office would soon publish a multiyear infrastructure spending plan worth over $28 billion. Speaking at the start of the weekly cabinet meeting, Netanyahu said the planned projects would include private sector investment. Bank of Israel Governor Flug told the meeting that improving public transport infrastructure would be one area of investment. Flug said the government should set up a special panel to oversee and manage public-private partnership tenders and contracts. (IH 05.09)

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1.2 Knesset Bill Proposes No Forced Retirement at 67

While the Knesset Finance Committee and the Ministry of Finance are still disputing in increase in the retirement age for women, coalition chairman MK David Bittan (Likud) and opposition coordinator submitted a bill that would dramatically change the retirement age situation for both men and women.

According to the bill, employers will no longer be allowed to force their employees into retirement merely because they have reached the legal retirement age of 67, unless a medical examination undergone by the employee with his or her consent finds that the employee is unfit to work. The bill states that upon reaching retirement age, the employee is entitled to ask his employer to move him to another job, while the employer is obligated to make an honest effort to allow the employee to do so. The employee is also entitled to work part time for a lower salary, and will be entitled to a reduced pension accordingly.

The bill seeks to ensure that an employee’s retirement for reasons of age will be solely according to his or her preference, without being subject to considerations of the employer or the legislator. Actually, the National Labor Court already ruled in late 2012 that an employer seeking to terminate a worker’s employment must provide a reason beyond the employee’s reaching pension age, after conducting a hear in the matter and hearing the employee’s wish. It is nevertheless believed that this ruling has not been implemented in most cases.

The Ministry of Finance is staunchly opposed to such a law, which it insists would hurt younger people in the job market. For example, one official said, if university lecturers need not retire, then new positions would not open up for younger lecturers. (Globes 27.08)

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1.3 Bennett Details Plan to Raise English-Speaking Standards in Schools

Israeli Education Minister Bennett (Bayit Yehudi) announced his new plan to dedicate greater efforts in the upcoming school year to teaching English, insisting “a child in the State of Israel must be equipped with spoken English.” Bennett’s announcement marks a shift from a campaign plan, dubbed ‘Give me 5′, which he delineated two years ago aimed at stepping up efforts to improve school children’s grades in mathematics. In order for the plan to yield results, he continued, teachers would also have to improve their command of the English language, along with the ability to teach it. To that end, the Education Ministry is planning to recruit around 1,000 professional English teachers from Israel and from abroad, 500 of whom will be university or college graduates. Three hundred of the new teachers will be English speakers in special programs while 150 will be from abroad and 50 from the Arab sector. In addition, 950 fluent English speaking teaching assistants will be hired from Israel and abroad.

The education minister said that he had set out a clear goal which would result in 70% of students attaining marked improvements in their English examination results, as opposed to the 62% who today achieve high grades. Not content with focusing on success rates, Bennett also added that he sought to reduce the rates of failure from 20% to 15%. (Ynet 30.08.

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1.4 Japanese Investors Granted Unprecedented Rights in Israel

The bilateral investment convention with Japan is arousing objections by Israeli government lawyers. The reason is that it promises Japanese investors protection at the pre-establishment stage, in contrast to similar conventions that Israel has signed. The convention was formulated following Japanese Prime Minister Shinzo Abe’s visit to Israel. Lawyers are arguing that the rights granted to Japanese investors in the convention exceed what has been granted to date and could constitute a precedent for other countries with which Israel has signed investment conventions.

International law experts who examined the convention told Globes that the proposed language of the convention is groundbreaking because the state is undertaking for the first time to expand the protection granted to Japanese investors to the pre-establishment investment stage. The experts explained that if, for example, a Japanese investor competes against an Israeli investor in a tender for building a factory or a railway line, and the state has an interest in protecting the Israeli, it will be unable to do so. The experts also said similar investment conventions with other countries contain a most favored nation (MFN) clause. This clause means that any improvement or benefit granted in another investment convention automatically applies to any convention containing the MFN clause. Another clause likely to cause future difficulties enables Japanese investors to appeal to international arbitration in cases of a dispute between the investor and the state. (Globes 24.08)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 Skoda to Open Israel Auto-Tech Office

The Digilab division of Skoda Auto, a subsidiary of the Volkswagen group, signed a memorandum of understanding for opening an office in Israel in cooperation with Champion Motors, the importer of Volkwagen group brands to Israel. The office will search for advanced smart car technologies and investment opportunities that can be included in the brand’s technological systems. The official purpose of the office is to develop an ongoing dialogue with regional leaders in the IT scene, and with companies and universities. The focus is on work with Israel startups that have achieved a certain degree of maturity. Innovative projects will be spotted in the early stages, and new business models for Skoda Auto can be developed from them.

Champion Motors and its parent company, Allied Investments, have compiled a portfolio of quiet investments in auto startups in recent years, and have served as a connecting factor between the Volkswagen and Audi group and various concerns in the Israel smart car sector.

Skoda’s Digilab smart car division, officially founded as a separate business unit in October last year, functions as an innovation center and incubator for advanced auto technologies and transportation solutions being considered by Skoda for inclusion in its future cars. This measure follows a series of similar measures at various levels of investment in Israel over the past two years in Israel by a series of auto manufacturers, including Daimler, Renault-Nissan, Volvo, Honda, Porsche, etc. (Globes 24.08)

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2.2 Rafael to Benefit From Elbit Win in Croatia Weapons Tender

The Croatian Ministry of Defense has named Israel’s Elbit Systems as the winner in a tender to purchase weapons for the country’s 126 Patria eight-wheel drive armored modular vehicles. Elbit Systems is to supply its UT30MK2 unmanned turrets fitted with a 30mm cannon and a 7.62x51mm gun, as well as Spike-LR missile systems made by Israel’s Rafael. The contract is valued at some $14.9 million.

Croatian MoD sources said that Elbit Systems and Rafael initially presented two separate offers, but eventually decided to submit a single bid with the aim to offer their solutions at the lowest possible price. It is noteworthy that Croatia’s leading defense manufacturer Duro Dakovic submitted an offer whose value was twice that of the Israeli bid. Duro Dakovic and Finland’s Patria cooperated on producing the vehicles for the Croatian Armed Forces. With the planned procurement, Croatia will join other countries from the region whose armed forces use Spike missiles. These include Poland, the Czech Republic, Romania, Slovenia and Lithuania. The weapon systems are scheduled to be delivered in early 2018 when the Croatian Armed Forces are to deploy a land forces unit to Lithuania for a six-month period. (DN 28.08)

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2.3 Foresight Signs a Pilot Agreement with One of China’s Three Largest Car Manufacturers

Foresight Autonomous Holdings has signed another agreement for a pilot project to test its Eyes-On advanced driver assistance system, with one of China’s top three largest car manufacturers. This is the third pilot agreement the company has entered into with leading Chinese car manufacturers in recent months. The objectives of the pilot project are to demonstrate the performance of Foresight’s accident prevention systems, which is based on 3D technology, and to further study the Chinese drivers’ requirements for driver assistance systems, taking into consideration local weather, infrastructure and common driving conduct.

The pilot project will be financed by the manufacturer, except for production, shipping and system installation costs of Foresight’s Eyes-On system. Moreover, the manufacturer will provide the company the resources required for conducting the pilot project. The agreement defines the test procedure, its requirements and the criteria for its success in a quantitative manner. Eyes-On will be tested in controlled and uncontrolled environments, in varying speeds and against both predefined and incidental targets. The parties will consider entering into a future commercial agreement based on the results of the pilot project.

Ness Ziona’s Foresight is a technology company engaged in the design, development and commercialization of Advanced Driver Assistance Systems (ADAS) based on 3D video analysis, advanced algorithms for image processing and artificial intelligence. The company, through its wholly owned subsidiary, develops advanced systems for accident prevention, which are designed to provide real-time information about the vehicle’s surroundings while in motion. The systems are designed to alert drivers to threats that might cause accidents, resulting from traffic violations, driver fatigue or lack of concentration, etc., and to enable highly accurate and reliable threat detection while ensuring the lowest rates of false alerts. (Foresight 28.08)

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2.4 Signet Jewelers to Acquire R2Net to Accelerate its Customer-First OmniChannel Strategy

Signet Jewelers Limited, the world’s largest retailer of diamond jewelry, has agreed to acquire R2Net for $328 million in an all cash transaction. R2Net is the owner of JamesAllen.com, a fast-growing online jewelry retailer, as well as Segoma Imaging Technologies, who provides R2Net machines to enable delivery of next-generation digital shopping experience for jewelry. The acquisition will bring together Signet’s jewelry retail business with R2Net’s world-class innovation capabilities and digital technology to create an enhanced customer shopping experience and accelerate Signet’s execution of its Customer-First OmniChannel strategy while adding a fast-growing millennial online retail brand to Signet’s portfolio. The acquisition represents an important step for Signet towards building scalable digital capabilities for OmniChannel transformation.

The transaction is currently expected to close in Q3/18 subject to customary closing conditions and regulatory approval and will be financed with a term loan provided by JPMorgan Chase Bank, N.A., which is expected to be repaid in full by the end of fiscal 2018. Signet sees significant growth and value creation opportunities from the implementation of R2Net’s technology across its physical and online retail platforms. Signet anticipates the transaction to be accretive in the first full year of operations. Following the acquisition, R2Net brands will largely operate as an independent division of Signet and its current leadership team will remain intact.

Herzliya’s R2Net (conceived as “Rough Diamonds to Internet”), which owns JamesAllen.com, operates a robust e-commerce and supply chain platform that connects the entire span of the diamond industry’s ecosystem, including manufacturers, retailers and consumers. R2Net owns and operates four distinct brands: JamesAllen.com, Segoma, D-Market (Diamond Market) and Brio Animation Studio. R2Net provides highly magnified 360° HD images of diamonds to diamond polishers, and then displays them on its D-Market and JamesAllen.com platforms, allowing retailers, manufacturers and consumers to transact digitally without the high expenses and time delays associated with traditional brick & mortar alternatives. (Signet Jewelers Limited

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2.5 ScaleMP Completes $10 Million Funding Round to Accelerate Growth

ScaleMP completed a $10 million funding round. The investment follows deeper and broader adoption of ScaleMP’s technology by server and storage OEMs. The funds will further accelerate the company’s growth, enhance the company’s products and technology and expand ScaleMP’s support for its OEM partners. The investment was led by Leumi Partners, the investment and merchant banking arm of Leumi Group, Israel’s oldest banking corporation and one of the leading and largest corporations in the country and the region. Following completion of the financing round, Leumi Partners has taken approximately a 5% stake in ScaleMP.

Rosh HaAyin’s ScaleMP is the leader in virtualization for high-end computing, providing increased performance and total cost of ownership (TCO) reduction. The innovative Versatile SMP (vSMP) architecture provides software-defined computing and software-defined memory by aggregating multiple independent systems or high-performance SSDs into single virtual systems. Using software to replace custom hardware and components, ScaleMP offers a new, revolutionary scale-up computing paradigm by delivering industry-standard, high-end symmetric multiprocessing compute and memory environments. (ScaleMP 30.08)

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2.6 Elbit Systems Wins $93 Million Contract for F-5 Upgrade Program for an Asia-Pacific Country

Elbit Systems was awarded an approximately $93 million contract from an Asia-Pacific country to upgrade its F-5 aircraft fleet. The contract will be performed over a three-year period. Under the upgrade contract, Elbit Systems will supply the F-5 with cutting-edge systems, including Head-Up Displays (HUDs), an advanced cockpit, radars, weapon delivery and navigation systems, as well as DASH IV Head Mounted Systems. Elbit Systems is a world leader in fixed-wing aircraft and helicopter upgrade programs, integrating advanced weapons, communications, navigation, electro-optical and EW systems to provide the advanced net-centric capabilities vital for today’s fast-paced missions.

Haifa’s Elbit Systems is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance (‘C4ISR’), unmanned aircraft systems, advanced electro-optics, electro-optic space systems, EW suites, signal intelligence systems, data links and communications systems, radios and cyber-based systems. The Company also focuses on the upgrading of existing platforms, developing new technologies for defense, homeland security and commercial applications and providing a range of support services, including training and simulation systems. (Elbit Systems 29.08)

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2.7 Energean Receives Approval for Development Plan for the Karish & Tanin Gas Fields

Energean Oil & Gas announced that its subsidiary Energean Israel, a 50/50 JV between Energean and Kerogen Capital, has received approval from the Israeli Petroleum Commissioner for its Field Development Plan (FDP) for the development of the Karish and Tanin natural gas fields, offshore Israel. The FDP application was submitted on 20 June 2017. Energean Israel owns 100% of the Karish and Tanin Fields, which combined have 2.7 TCF of natural gas and 41 million barrels of oil equivalent (mmboe) of light hydrocarbon liquids, totaling 531 mmboe of 2C resources. The Karish Main Development envisages drilling three wells, using a Floating Production Storage and Offloading (FPSO) unit that will be located approximately 90 km offshore with a production capacity of 400 mmscf/day.

The next stage in the field development, which envisages first gas production in 2020, is to reach the Final Investment Decision (FID) which is anticipated before the end of 2017. The Company has appointed Morgan Stanley as Project Finance Advisor for the $1.3-1.5 billion investment required for the Karish development.

Energean is a leading independent E&P company focused on the Eastern Mediterranean region, where it holds nine E&P licenses, encompassing offshore Israel, Greece, the Adriatic and onshore North Africa. It is the only oil and gas producer in Greece with a 35-year track record of operating offshore and onshore assets in environmentally sensitive areas and employs 480 oil and gas professionals. Through its subsidiary Energean Israel, the group has resources of 531million barrels of oil equivalent (2C) in the Karish and Tanin Fields as well as 41 million barrels (2P) in the Prinos License, offshore North-Eastern Greece. (Energean 30.08)

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2.8 Magna Makes Strategic Investment in Solid-state LiDAR Developer Innoviz Technologies

Aurora, Ontario’s Magna has recently made a strategic investment to expand its existing collaboration with Innoviz Technologies. Magna started collaborating with Innoviz in December 2016. Magna has been steadily expanding its overall suite of sensor technologies and features that enable Level 3/4/5 autonomous driving capabilities.

Innoviz’s solid-state LiDAR can provide high-definition, 3D, real-time images of the vehicle’s surroundings regardless of changing light and weather conditions. It can be easily integrated into any vehicle at significantly reduced cost compared to commercially available LiDAR technologies with comparable performance.

Magna is a leading global automotive supplier with 327 manufacturing operations and 100 product development, engineering and sales centers in 29 countries. They have complete vehicle engineering and contract manufacturing expertise, as well as product capabilities which include body, chassis, exterior, seating, powertrain, active driver assistance, vision, closure and roof systems.

Kfar Saba’s Innoviz develops cutting-edge LiDAR remote sensing solutions to enable the mass commercialization of autonomous vehicles. The company’s LiDAR products, InnovizOne and InnovizPro, offer solid-state design that uses Proprietary technology to deliver superior performance at the cost and size required for mass market adoption. (Magna International 29.08)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 King Hamad University Hospital Selects ARxIUM’s RIVA IV Compounding System

Winnipeg, Manitoba’s ARxIUM, an industry-leading developer of pharmacy automation and workflow solutions, announced King Hamad University Hospital (KHUH) in Bahrain purchased a RIVA system for its hospital pharmacy. As the only fully automated IV compounding system on the market today, RIVA prepares syringes and IV bags in an aseptic ISO Class 5 environment and significantly increases safety and pharmacy workflow.

KHUH selected RIVA because it has safely and accurately produced nearly seven million IV doses worldwide. The hospital also chose the system due to its comprehensive recordkeeping and reporting capabilities and seamless integration into existing digital networks. RIVA’s proven cost effectiveness was another deciding factor, as it lowers the cost-per-dose of medications by allowing the hospital pharmacy to insource the production of IV medications and process batch doses.

Based in Winnipeg, Manitoba and Buffalo Grove, Illinois, ARxIUM delivers best-in-class technology and unparalleled expertise to help pharmacies of all sizes improve safety, productivity and efficiency. The company provides scalable, comprehensive solutions for every segment of the pharmacy market. (ARxIUM 03.09)

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3.2 Blaze Fast-Fire’d Pizza Plans Arabian Gulf Expansion after Alshaya Deal

Blaze Fast-Fire’d Pizza, the US-based fast-casual pizza chain, has announced an exclusive development agreement with Kuwait-based MH Alshaya Co to expand across the Middle East and Northern Africa. The agreement provides for the development of 100 restaurants in 11 countries, including the UAE, Kuwait, Saudi Arabia, Lebanon, Egypt, and Morocco, with the first five restaurants scheduled to open in Kuwait and the UAE in 2018. The partnership with Alshaya marks the first expansion of Blaze Pizza outside of North America and represents the largest development deal in the brand’s history.

The build-your-own pizza chain recently opened its milestone 200th restaurant and has agreements in place to open more than 400 additional locations across the US, Canada, the Middle East and Northern Africa. The agreement with Alshaya includes the development of both traditional and delivery-only formats. (AB 30.08)

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3.3 Lootah Holding Signs JV with Delaware’s Batta Technologies

The UAE’s Lootah Holding has signed a joint venture with Delaware’s Batta Technologies to establish a new entity, Lootah Batta Water and Environment. The joint venture will result in providing sustainable solutions and advanced products that will reinforce the UAE’s position as a leader in environmental management and sustainability.

Lootah Batta Water and Environment will provide comprehensive solutions in various water and environmental areas, including; water and waste water management, as well as a wide portfolio of filters for onsite and mobile contaminated water treatment, proprietary microfiltration, ultrafiltration, and advanced sewage treatment plants. Based on a study conducted by Lootah Batta Water and Environment, only 34% of treated wastewater is sold, recycled or used for irrigation, which gives the company a real opportunity in the market. Also, residents and businesses in the UAE consume 550 liters of water per capita, while the average international water consumption is 170 – 300 liters per day. The implementation of sustainable management solutions can lower the costs associated with high volumes of hazardous and trade wastewater that are generated by ports, marinas, facility managers and industries.

BATTA Environmental Associates is a leading provider of Environmental Consulting, Engineering, Industrial Hygiene, Health/Safety and Geotechnical services. BATTA Environmental Associates was founded in 1982 in Newark, Delaware. The agreement with Lootah was initially facilitated by Delaware’s Middle East Regional Office. (Khaleej Times 29.08)

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3.4 Mediclinic Middle East Selects InterSystems to Support a Culture of Excellence

Cambridge, Massachusetts’ InterSystems, a global leader in health information technology, has announced that Mediclinic Middle East (MCME), one of the largest private healthcare groups in the UAE, is implementing InterSystems TrakCare, a unified healthcare information system. The solution will provide all MCME hospitals and clinics in the UAE with an online, secure, electronic medical record (EMR). This will give the group’s care providers the clinical and administrative information they require about each patient at any given time.

TrakCare will support the MCME medical staff in their decision-making, while creating more opportunities to offer patients an enhanced experience and seamless care journey. TrakCare will also help clinicians and administrators to manage costs and maintain efficiencies by streamlining care processes, eliminating duplicate tests, expediting billing, and maximizing the use of resources. TrakCare’s advanced interoperability will enable MCME to align with the UAE Health authorities’ plans for a Health Information Exchange (HIE). The HIE platform will connect public and private systems, so patient records may be easily accessible across the Emirate by authorized individuals.

Mediclinic Middle East is part of Mediclinic International, a private hospital group founded in 1983 that today has three operating platforms: in Southern Africa (South Africa and Namibia); Switzerland and the United Arab Emirates. In 2016, Mediclinic Middle East, whose primary customer base is in Dubai, merged with Al Noor Hospitals Group, whose primary customer base is in Abu Dhabi. The combined Group operates six hospitals and more than 20 clinics with over 700 inpatient beds across the UAE. (InterSystems 29.08)

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3.5 McDonald’s UAE Boss Says Adding Healthy Food to Menu Doesn’t Work

The biggest challenge for McDonald’s UAE is “making people buy more salads,” according to its managing director and partner Rafic Fakih. Fakih said there is little demand from UAE customers for healthy options at the fast food chain, which is most popular for its burgers. However, the low demand has not stopped the US brand, operated by Emirates Fast Food in the UAE, from making healthier changes to its products.

Last year, McDonald’s reduced the fat content in its classic mayonnaise and decreased its calorie count by 50%. It also started cooking its fried food using a blend of sunflower and canola oil that has 80% less saturated fat. In the UAE, McDonald’s cooking oil goes to a factory in Jebel Ali where it is reproduced to become diesel, but from a vegetable source, not from petrol, which makes it sustainable. So far, it has covered up to 7m km since 2011 with its oil. (AE 28.08)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 New Kayak Unit to Help Protect Maritime Nature Reserves

The Israel Nature and Parks Authority has trained its rangers in the use of kayaks to patrol and enforce environmental protection in the country’s maritime nature reserves. As part of its initiative to improve its maritime oversight, the INPA has procured several kayaks. Kayaks have obvious and significant advantages in that they are quiet, nonpolluting, more economical and essentially more ecological. In addition, they are also good for coming into contact with fisherman and divers in far safer manner.

The INPA emphasized that the public is forbidden from using motorized boats at the country’s maritime reserves, and that although their use is permitted for supervision and enforcement purposes, the organization was still searching for effective solutions befitting more ecological needs and challenges. It should be noted that the kayak program is still in the pilot phase, and will be expanded in accordance with its success. (Various 30.08)

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4.2 New Jordanian E-Service for Supervising Transport & Treatment of Hazardous Waste

Jordan’s Ministry of Environment has launched a new service, under which the request for official supervision of the transport of hazardous waste became electronic. The new service is part of the electronic services engineering project, which aims at accelerating the submission and processing of government services and application. The ministry will start receiving applications via its website for supervising the transport and treatment of hazardous waste and materials. The service is available for the private and public sector institutions. The ministry has implemented the project in cooperation with the ministries of public sector development and communication and information technology, which is funded by the German International Cooperation Agency. In addition, the ministry is also finalizing procedures for launching its hotline. (JT 27.0-8)

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4.3 Saudi Arabia Seeks Bids for First Major Wind Power Project

Saudi Arabia on 29 August said it is seeking bids to build the first utility-scale wind power project in the Arabian Gulf kingdom. The Renewable Energy Project Development Office (REPDO) of Saudi Arabia’s Ministry of Energy, Industry and Mineral Resources said released the request for proposals (RFP). The RFP for 400MW of wind power in Dumat Al Jandal in Saudi Arabia’s Al Jouf region is now available for qualified bidders on the NREP’s dedicated eProcurement portal. The project is part of round one of the National Renewable Energy Program (NREP), which targets 9.5GW of renewable energy by 2023. REPDO said it has qualified 25 companies for the 400MW Dumat Al Jandal wind project. Bidding for the project is set to close in January 2018. Technical criteria for round one NREP projects include a 30% local content requirement. Round one of the NREP also comprises 300MW of Solar PV in Sakaka, Al Jouf region, for which the bid opening will take place on 3 October and winning bids will be announced on 27 November. (AB 29.08)

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5: ARAB STATE DEVELOPMENTS

5.1 Lebanon’s Fiscal Deficit Narrowed to $162 Million as of February 2017

Lebanon’s fiscal deficit narrowed from $727M as of February 2017 to $162M during the same period this year. This was attributed to the 18.89% yearly decrease government expenditures and the 5.64% annual rise in fiscal revenues. During the same period, the total primary balance displayed a surplus of $331M at February 2017 compared to a deficit of $245M at February 2016. Total government revenues stood at $1.85B at February 2017, compared to a lower level of $1.47B at February 2016. Tax revenues, constituting the largest share of total public revenues, increased by a yearly 8.12% to $1.26B. In details, VAT revenues (grasping a 35.56% share of tax receipts) rose by 8.35% y-o-y to $451M, while custom revenues (12.23% of tax receipts) dropped by a marginal 0.56% to $121M, over the same period. As for telecom revenues (15.31% of total government revenues), they witnessed an incline of 1.56% y-o-y to $265M. As for expenditures, total government expenditures reached to $2B during the first 2 months of the year. Regarding transfers to Electricite du Liban, they doubled annually to reach $205M, mainly due to rise in average oil prices. Moreover, interest payments on government’s debt went up 1.65% to $469M, due to the 8.14% rise in interest payments on domestic debt to $353M, which offset the 14.21% decline in the interest payments on foreign debt to $115M. (BLOM 29.08)

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5.2 Jordan’s Debt Ratio to GDP Slightly Down as of July 31

The internal and external public debt dropped down to 94.1% of the GDP by the end of July compared to 95.1% in the same period of 2016. According to the Finance Ministry, the total sum of the debt amounted to JD26.550 billion, compared with JD26.092 billion during the same period last year. The ministry noted that JD7.6 billion of the debt is owed by the National Electricity Company, adding the rate is expected to remain the same until the end of 2017. The state-owned company has incurred losses after the so-called Arab Spring and subsequent terror attacks on gas pipelines disrupted the flow of the relatively cheap Egyptian gas. The ministry added that the general budget’s deficit before external grants until the end of July reached JD674 million, compared with JD565.5 million in the same period of 2016. As for the domestic revenues, they increased to JD3.966.5 billion, up from JD3.862 last year. (JT 30.08)

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5.3 Jordanian Expenditure on Outbound Travel & Tourism Up by 12.3%

Domestic spending on overseas and outbound travel and tourism activities has increased by 12.3%, during H1/17, according to the Central Bank of Jordan (CBJ)’s bulletin, to JOD496.2 million, compared to JOD442.2 million in H1/16. This includes national expenditures on travelling for the purposes of tourism, education, medical treatment, and a variety of other intents. In June, expenditures on travel and tourism increased to JOD100.2 million, approximately 36.5%, compared to June 2016. During the first six months of the year, 1.38 thousand Jordanians have travelled to overseas destinations, up 6.8% from H1/16’s 1.29 million. In five years, annual domestic spending on travel and tourism in 2016 has increased by nearly 10%, from JOD811.9 million in 2012, to JOD892.9 million. (AlGhad 26.08)

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5.4 Jordan Receives 50,000 Metric Tonnes of US Wheat as Part of USDA Grant

On 28 August, Jordan received 50,000 metric tonnes of wheat, which is the second and final shipment of the “Food Program for Progress” provided by the US Department of Agriculture. With the shipment, the amount of wheat Jordan has received in donation from the US in 2017 stands at 100,000 metric tonnes, with a value of $18 million. Jordanian Minister of Planning and International Cooperation Imad Fakhoury noted that the grant — the 4th since 2012 — was a “recognition” of the comprehensive reform efforts being spearheaded by King Abdullah, of the financial and economic challenges Jordan is facing, and seeks to contribute to alleviating the burden of hosting Syrian refugees in the Kingdom.

Jordan has agreed with the US to use the proceeds from the sale of wheat for the implementation of the project Alshidiya-Alhasa/Amman Phase I in the water sector, which will be a “strategic companion” for the Red Sea-Dead Sea Water Conveyance Project, according to the minister. Fakhoury said that Jordan benefited from two wheat grants worth $36 million in 2011-2012, noting that the Kingdom was granted an exception as the US wheat grants are usually allocated to the poorest countries, of which the Kingdom is not part of. The two grants have contributed to the Kingdom’s strategic wheat stock and to the implementation of the Karak dam project, a strategic project in the Jordan Valley region, according to Fakhoury.

Jordan has also benefitted from another wheat grant in 2015 with a value of $25.1 million, which contributed to implementing several priority development projects that were listed in the public budget in the water and agriculture sectors, in addition to supporting the General Department of Food and Drugs.

The Foreign Agriculture Service affiliated with the US Department of Agriculture has provided four wheat grants to Jordan during the past five years. The grants were in 2011 with a value of $14 million, in 2012 worth $12 million, in 2015 for $25 million and in 2017 with a value of $18 million. (AMMONNEWS 28.08)

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►►Arabian Gulf

5.5 Elimination of VAT on Air Travel, School Fees Comes as Relief for UAE Residents

The UAE will implement 5% VAT on goods and services from January 2018 as part of a GCC-wide agreement. However, there will no value-added tax (VAT) on air travel, tuition fees and doctor’s fees. The President, Sheikh Khalifa bin Zayed Al Nahyan, issued Federal Decree-Law No 8 on value-added tax with one of the lowest rates in the world. However, extracurricular activities such as sports classes, music lessons or school transport will be subject to VAT. The law also confirms that the first supply of residential buildings within three years of their completion is subject to zero rate. It is not only beneficial for prospective buyers of a new home but also good news for the UAE real estate sector. If a property buyer takes a unit directly within three years of completion of the project, the price will be zero-rated. If the buyer wants to sell the property later, he will be exempted from VAT. While crude oil and gas will be zero-rated in the UAE, Saudi Arabia is not expected to do the same. The new VAT legislation also prohibits anyone having business in the UAE not to have more than one tax registration number (TRN).

Air transport of passengers and goods which starts or ends in the state or passes through its territory, including related services, have been categorized as zero-rated under the law. The UAE is home to more than eight million expatriates from over 200 nationalities who fly regularly to their home countries in addition to travelling to other destinations of tourism. (Khaleej Times 29.08)

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5.6 UAE Decides to Increase All Fuel Prices in September

The UAE’s Ministry of Energy has announced an increase in prices of all types of fuel for September. In a tweet, the ministry said the per liter price for Super 98 will be AED2.01, up from AED1.89 in August while the price of Special 95 will be AED1.90 per liter, up from AED1.78 and E Plus-91 will rise to AED1.83, up from AED1.71. The ministry also said that the price of diesel will increase to AED2.00 per liter in September from AED1.88 in August, adding that the new prices came into effect from 1 September.

In July 2015, the UAE’s Ministry of Energy announced removal of subsidy on petrol and diesel prices, with market-linked prices starting from 1 August 2015. The global benchmark is currently trading at around $52 per barrel, whereas US crude West Texas Intermediate at $46.85 per barrel. (AB 29.08)

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5.7 UAE Nuclear Program Edges Toward 2018 Launch

At the Federal Authority for Nuclear Regulation (FANR) in Abu Dhabi, dozens of employees are reviewing the 15,000-page application for the Barakah Nuclear Energy Plant, scheduled to launch next year. The Barakah plant will make the UAE the first Arabian Gulf state to have a peaceful nuclear energy program. By 2020, the UAE Peaceful Nuclear Energy Program will be in full gear, with four nuclear reactors providing nearly 25% of the UAE’s electricity needs, according to the state-run Emirates Nuclear Energy Corporation (ENEC).

The first reactor was initially set to start generating power in 2017, but ENEC recently announced its inauguration would be delayed until 2018 for technical reasons. The federal authority has sent ENEC more than 1,000 questions seeking documented answers since 2015 – and the licensing process is not yet over. ENEC in April reported construction of the plant’s four units had been 80% completed, with reactor one at 95% completion. Operations teams and contingency plans are also in place, according to ENEC, and the company aims to meet the 2018 launch date.

Much of the construction of the $25 billion Barakah plant has been outsourced to the Korea Electric Power Corporation, the largest electric utility in South Korea, which won the project over French multinational group AREVA. UAE ally Saudi Arabia has also said it aims to develop a peaceful nuclear energy program. (AB 28.08)

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5.8 UAE & Ukraine Sign Bilateral Defense Cooperation Agreement

The United Arab Emirates (UAE) and Ukraine signed a bilateral defense cooperation agreement during an official visit to Ukraine by a high-level UAE delegation from 7 – 9 August. The two sides had agreed to explore cooperation in the following areas: the production of precision-guided weapons for the Emirati Army and Navy; the delivery of Antonov transport aircraft to the UAE Air Force; the production of unmanned aerial vehicles (UAV) and anti-UAV systems; and the joint production of electronic warfare (EW) and signals intelligence (SIGINT) equipment. Overseas partnerships serve an essential role in supporting the UAE’s goals for defense industry growth and self-sufficiency in certain areas, especially munitions sourcing and development.

Emirates Defense Industries Company’s (EDIC) subsidiaries Tawazun Dynamics (e.g. Tariq precision-guided bomb kit) and NIMR Automotive (N35 mine-resistant armored protection vehicle) built their respective product lines in collaboration with South Africa’s Denel SOC.

Substantive traction in the UAE would provide UkroBoronProm with a second market in the region that it can collaborate with to bring incomplete and conceptual programs to fruition. UkroBoronProm is working with Saudi Arabia to jointly develop and produce the Antonov An-132D special mission aircraft platform. Ukraine is also seeking to utilize overseas partnerships as a means to drive the modernization of its armed forces and defense industry. Kiev has tasked the Ukrainian defense industry to develop and produce new weapon systems, including (among others) cruise missiles, UAVs and modern artillery.

While traditionally reliant on the U.S. and Western Europe, the UAE has been working to diversify its arms supply channel by engaging new vendors. Its long-term aspirations include partnering with Russia United Aircraft Corporation (UAC) to develop a next-generation fighter aircraft. (Quwa 31.08)

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►►North Africa

5.9 Egypt Promotes Birth Control to Fight Rapid Population Growth

Egypt is pushing to educate people in rural areas on birth control and family planning in a bid to slow a population growth rate that President Abdel Fattah al-Sisi said poses a threat to national development. The country is already the most populous in the Arab world with 93 million citizens and is set to grow to 128 million by 2030 if fertility rates of 4.0 births per thousand women continue, according to government figures. In 2016, Egypt saw the birth of 2.6 million babies, the country’s statistics agency CAPMAS said last month.

Egypt’s health minister last month started Operation Lifeline, a strategy to reduce the birth rate to 2.4 and save the government up to $11.3 billion by 2030. Its target is rural areas where many view large families as a source of economic strength and there is resistance to birth control because of a belief that it is unlawful under Islam to aim to conceive a specific number of children. Egypt’s Al-Azhar university, a 1,000-year-old seat of Islamic learning, endorsed the ministry’s plan and said family planning is not forbidden.

Ousted President Hosni Mubarak and his wife Suzanne set up a population control program decades ago but this is the first time the government says it is motivated by concern that rapid expansion saps the economy.

The health ministry said it would deploy 12,000 family planning advocates to 18 rural provinces but gave no details of how it would attract more women to the program. The ministry runs nearly 6,000 family planning clinics where women receive free check-ups and can buy heavily subsidized contraceptives ranging from condoms at 0.10 Egyptian pounds to copper Intrauterine Devices at 2 Egyptian pounds.

Inflation has surged in Egypt to record highs over the past year after the country floated its currency in November, a move which drove down the value of the pound. That drop created a shortage of medicines in pharmacies across Egypt, as scores of products including contraceptives became unprofitable to produce or import. In line with government plans to reduce reliance on imports, the ministry contracted Acdima International, a subsidiary of the privately owned Arab Company for Drug Industries and Medical Appliances, to source locally produced hormonal contraceptives. The deal saves the government millions of dollars and covers 65% of local demand, Managing Director Tarek Abulela said, adding that the rest is exported throughout the region. (Reuters 30.08)

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5.10 Egypt’s Suez Canal Revenues Hit $477.1 Million in July

Egypt’s revenues from Suez Canal trade increased in July, registering $447.1 million compared to $429 million the same month last year, according to data from the Suez Canal Authority. Receipts also rose from June to July, registering $427 million. In May, receipts recorded $439 million. In July, 1,453 ships passed through the Egyptian waterway compared to 1,384 the month before. The canal, which is the fastest shipping route between Europe and Asia, is one of Egypt’s main sources of foreign currency. (Ahram Online 22.08)

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5.11 Egypt Will Begin Receiving Russian Ka-52 Attack Helicopters by End of Year

In late August, Russian Helicopters had announced that it Egypt will take delivery of its first 15 (of 46) Kamov Ka-52 ‘Alligator’ attack helicopters in 2017. Egypt will be receiving the Ka-52s in batches, with an initial three reported to have already been delivered. All 46 Ka-52s will be delivered by 2019. The first Egyptian aircrew and technical specialists have also completed their respective training in Russia. They had arrived in June 2017 and had undergone a program – of two-and-a-half months – of learning the Ka-52’s ground support equipment and flight control systems (including tests at a firing range). Egypt ordered the 46 Ka-52s in 2015 as part of a multi-billion-dollar defense deal with Russia, which also includes 50 Mikoyan MiG-29M/M2 multi-role fighters from United Aircraft Corporation.

It is not known how many Ka-52Ks Egypt intends to procure. The Mistral LPD can carry up to 16 medium-to-heavy and attack helicopters in its hangars. However, this does not mean that Egypt will necessarily fit the LPD with solely Ka-52Ks, it may push for a mix of attack, utility and transport helicopters.

The Ka-52 Alligator is a heavyweight attack helicopter designed for anti-armor and close air support (CAS) operations. The twin-engine design is powered by two VK-2500 turboshaft engines (like the Mi-171 and Mi-28NE/UB), enabling to operate in many environments, including mountainous areas. Its design carries several distinctive features, such as a coaxial rotor system (with two top rotor systems) with no tail rotors. Unlike other dedicated attack helicopters, Ka-52 aircrew sit side-by-side instead of in-tandem. (Quwa 30.08)

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5.12 After Morocco, Tunisia Looks to Join ECOWAS

Tunisia is following in the footsteps of Morocco, setting its sights on joining the Economic Community of West African States (ECOWAS). The announcement was made on 22 August by the Tunisian Prime Minister Youssef Chahed. ECOWAS is due to decide on whether to accept Tunisia’s membership during the organization’s conference in Lome, Togo, scheduled for December. During the regional African bloc’s recent conference in Monrovia, Liberia in June, Tunisia was admitted as an observer. It was at this meeting that the organization also gave its approval in principle to Morocco’s request to join ECOWAS.

Morocco’s fairly successful African policy – recently becoming a key trading partner of many nations in the continent – has attracted the attention of other countries in North Africa, for several reasons. Tunisia is probably turning to Africa in search of a solution to the economic hardships it has been suffering since the fall of the regime of Ben Ali in 2011, especially after several terrorist attacks dealt a strong blow to tourism, one of the country’s key economic sectors. Meanwhile, Algeria, which has been at odds with Morocco for decades over the issue of Western Sahara, has sought to compete with the kingdom by organizing a joint Algerian African investment forum. (MWN 28.08)

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5.13 Food Prices in Morocco Drop After Three Consecutive Months of Increases

After three consecutive months of increases, Morocco’s Consumer Price Index (CPI) declined in July by 0.5%, due to decreases by 1% in the product index and by 0.1% of the non-food index. In a briefing note on the CPI report of July, the High Commission for Planning (HCP) explained that the latter had fallen by 0.6% compared to the previous month due to a 1.4% decrease of the food index and 0.1% of the non-food index. The last fall in the Consumer Price Index dates back to March 2017.

The HCP noted in its report that the CPIs recorded during the previous months of June, May, and April were distinguished by respective increases of 0.3, 0.5 and 0.2%. According to the commission, the increase of the CPI in June was the result of the 0.6% increase in the food index and the stagnation of the non-food index, while the May results were due to the 1.3% rise in the food index and the stagnation of the non-food index. As for the results of April, increases were due to the 0.3% increase in the food index and the stagnation of the non-food index.

The HCP observed decreases in food products during the June-July period, mainly prices of vegetables, which were down 4.6%, fish and seafood products by 4.2%, fruits by 3.0% and milk, cheese and eggs prices by 1.1%. HCP noted, on the other hand, a rise of 0.4% in prices of coffee, tea and cocoa and a drop in non-food products prices, mainly those of fuels, which fell by 2.6%. The HCP highlighted increases in food products between May and June 2017, mainly at the level of fish and seafood by 7.8%, vegetables by 2.4%, meats by 1%, and oils and fats by 0.6%. On the other hand, it had observed a 3.5% drop in fruit prices and a 0.6 decrease in coffee, tea and cocoa prices. (HCP 23.08)

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5.14 Moroccan Economy Benefiting from Agricultural Rebound & Rising Exports

Morocco’s economy has seen strong growth throughout the first semester of 2017. Supported by a dynamic agricultural sector, the economy managed to overcome the lethargy of 2016, according to the latest note of the Directorate of Studies and Financial Forecasting (DEPF).

After falling in 2016, agricultural value added rebounded sharply in 2017, particularly in relation to the notable increase in cereal production by 203% compared to the previous season. This performance benefited in particular from the favorable climatic conditions that marked the 2017 season. Barley recorded the largest increase compared to the previous season, with a 366.2% increase year-on-year, followed by durum wheat by 166.2% and soft wheat by 166.1%.

Exports also grew. At the end of July, the agricultural and agri-food sector saw its exports improve by 10.1%. This performance was mainly due to the good sales momentum in agriculture, forestry and hunting by 19.5% and in the food industry by 9.2%. On the industrial side, the production of phosphate derivatives, an important component of the chemical industry, grew by 35.8% at the end of May 2017, compared to a 7.7% increase in 2016,” notes the DEPF. The same applies to the energy sector; the electricity sector recorded an increase in national production of 2% in the first half of the year.

In the construction and building sector, a strong recovery in cement sales was observed in July. The increase is estimated at 42.2%, after the sharp decline in June by 30.6%. In addition, Morocco’s new global businesses have performed well in exports since the beginning of the year. The DEPF also notes a good behavior of the tertiary activities. This is due to the good dynamics of transport, tourism and telecommunications activities. In the telecommunications sector, it was marked at the end of June 2017 by the 1.5% year-over-year increase in the mobile telephone network, following a 3.7% decline a year earlier, consumer interest in post-paid offers. (DEPF 30.08)

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6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1 Turkey’s Foreign Trade Deficit Up by 82.5%

Turkey’s foreign trade deficit increased by 82.5% in July compared with July 2016. The provisional data, produced with the cooperation of the Turkish Statistical Institute and the Ministry of Customs and Trade and made public on 29 August, showed Turkey’s exports were $12.64 million last month with a 28.3% increase and imports were $22 billion dollars with a 46.2% increase compared with July 2016. In July, foreign trade deficit was $8.84 billion with an 82.5% increase compared with July 2016. Seasonally and calendar adjusted exports decreased by 1.6% while imports increased 5.3% compared with previous month. Calendar adjusted exports and imports increased by 16.5% and 25.1%, respectively compared with July 2016. As compared with the same month of the previous year, exports to the EU-28 increased by 18.2% from $5.1 billion to $6 billion. The proportion of the EU countries was 47.4% in July exports while it was 51.4% in July 2016.

In July, the main partner country for exports was Germany with $1.21 billion. The country was followed by UAE with $1.098 billion, the UK with $811 million and Iraq with $773 million. Last month, the top country for Turkey’s imports was China with $2.13 billion. The country was followed by Germany with $1.83 million, Russia with $1.8 billion and the U.S. with $1.38 billion. (TUIK 29.08)

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6.2 Cypriot Growth Consolidated as Second Quarter Growth Seen at 3.6%

Cypriot Finance Minister Georgiades said that the latest preliminary figure of a 3.6% economic growth in the second quarter showed that Cyprus’s recovery is “strong”. “The ninth consecutive growth quarter and the acceleration to over 3.5% confirms that economic growth is consolidated,” the finance minister said in response to a question in a text.

The Cypriot economy expanded in the second quarter at the same rate as in the first quarter’s preliminary estimate, which was later revised downwards to 3.4%. The seasonally adjusted growth in the second quarter was 3.5%. Compared to January to March, economic activity rose in the second quarter 0.9%, Cystat said. The increase in economic output resulted from increased activity in the hospitality sector, in retail and wholesale, construction and manufacturing which offset the decline in the financial sector, it added.

According to the finance ministry’s latest forecast in April, the economy is expected to grow 2.9% this year after it expanded 2.8% the year before and 1.7% in 2015, when it exited a prolonged recession. The average unemployment rate is expected to decline from 13% last year to 11.5% in 2017. Georgiades, appointed in April 2013 to the finance ministry, just days after Cyprus had to agree to the terms of its bailout agreement which included losses for depositors at the two largest banks, said that the current economy growth is not the result of reckless public spending and excessive bank lending.

The increase in flight connectivity has boosted the performance of the tourism sector, which experienced an unprecedented increase in arrivals, after an all-time high in 2016 of almost 3.2 million, said Georgiades adding that investment in the ports create additional opportunities. In the first half of the year, tourist arrivals rose 17% to almost 1.5 million, which was another record. Revenue in January to May rose 22% to €649.2m. Directly or indirectly, tourism accounts for a quarter of the Cypriot economy. The finance minister added that recent tax breaks, which included the gradual abolition of the immovable property tax and the extraordinary levy on salaries, have helped both households and firms alike. (Various 14.08)

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6.3 Cyprus Government Spends the Least on Health in the EU

Cyprus ranked last in government expenditure on health in 2015 and 8th in the EU28 in education-related government expenditure, according to an infographic published by Eurostat. When it came to health, Cyprus’ government spending stood at 2.6% of GDP, last in the EU, and less than half the bloc’s average of 7.2% of its GDP. This translated into €532 per person per year, leaving Cyprus close to last – Latvia clocked in at €468 – in the per capita category, and around only a quarter of the EU average of €2,076 per inhabitant. In 2015, nearly €1,058 billion of general government expenditure was spent by EU member states on health. The figure is equivalent to 7.2% of the EU’s GDP. Health is the second largest item of public expenditure, after social protection at 19.2%.

Cyprus’ government spending on health stood at 2.6%, followed by Latvia at 3.8%, Romania 4.2%, Greece 4.5%, Luxembourg 4.6% and Poland 4.7%. By contrast, in Denmark spending on health stood at 8.6%, France 8.2%, while Austria and the Netherlands both spent 8%. At the opposite end of the scale with Cyprus, spending stood below €600 per inhabitant in Romania at €340, Bulgaria €343, Latvia €468, Poland €520, Cyprus €532 and Hungary €592.

When it came to education, according to the findings, in 2015 over €716 billion of general government expenditure was spent by member states on education. This figure is equivalent to almost 5% of the EU’s GDP. Education is the fourth largest item of public expenditure, after social protection 19.2%, health 7.2% and general public services such as external affairs and public debt transactions, 6.2%.

In 2015, overall, 18 of the 28 member states recorded a ratio of 5% or more. Cyprus stood in eighth place at around 5.8%, following Denmark 7.0%, Sweden 6.5%, Belgium 6.4%, Finland 6.2%, Estonia 6.1%, and Latvia and Portugal both 6.0%. At the lower end were Romania at 3.1%, Ireland 3.7%, Bulgaria and Italy both at 4%, Spain at 4.1%, Germany and Slovakia both at 4.2%, and Greece 4.3%. (CM 29.08)

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6.4 Greece Lagging in FDI Among EU-Med Countries

Greece accounted for just 60, or 0.56%, of 10,660 foreign direct investment (FDI) projects in seven Mediterranean countries between 2011 and 2015, according to a study conducted by EY. According to the research, the USA was the most common source of FDI for Greece. It accounted for 15 projects, followed by Germany with six. The sectors that attracted most FDI were software (eight projects) and professional services (eight projects).

In contrast to Greece, during the period in question, the six other Mediterranean countries, which are also European Union member-states, managed to attract higher levels of investment. Between 2011 and 2015, they attracted 406 billion dollars, with FDI rising by 16% in that time. (29.08)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 School Year Starts for Israel’s 2.3 Million Students

On 1 September, the 2.27 million students in Israel’s public schools and some 180,000 teachers and staff began the 2017/2018 school year. According to Education Minister Naftali Bennett, the Education Ministry is making progress on reducing the number of students per-class. This year, first- to third-grade classrooms will have an average of only 27 children. The Education Ministry has decided that the theme for the year will be the 70th anniversary of Israel’s founding. Students will be taught songs and stories about the nation’s history.

In total, Israel’s school system serves 2,272,000 students. Some 163,000 are starting first grade this year, and 123,500 are going into 12th grade. There are 242,645 students enrolled in special education and 15,000 students categorized as gifted. (IH 03.09)

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7.2 Israel’s Muslim Population Stands at 1.5 Million

Israel’s Muslim population stood at 1.52 million people, some 17.7% of the general population, at the end of 2016; an increase of 36,000 people since 2015, according to data released by the Central Bureau of Statistics ahead of the Muslim Eid al-Adha holiday. Numbering around 320,000 people, Jerusalem has the highest concentration of Muslim residents, making up 36.2% of the city’s population and 21% of the general population.

The total Muslim fertility rate has dropped in recent years, with the average Muslim woman having 3.29 children in 2016, as compared to 4.7 children in 2000. In contrast, the average Jewish woman bears an average of 3.16 children, the average Christian woman has 2.05 children and the average Druze woman has 2.21 children. The local Muslim population is also relatively young: Around 35% of Israel’s Muslims are under the age of 15 and only 3.9% are aged 65 or older. Labor force participation among Muslims of working age stood at 43.2% in 2016, with 63.6% of men and 23.8% of women employed outside of the home. Workforce participation among Muslim women in Israel is as a rule lower than that of women in Israel’s Jewish, Christian and Druze communities. (CBS 31.08)

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*REGIONAL:

7.3 Lebanon Gets First Animal Protection Law to Safeguard Pets & Wildlife

Lebanese President Aoun has signed the country’s first animal welfare bill into law, guaranteeing that domestic and wild animals will be legally protected from abuse. The bill is the culmination of years of lobbying for the protection of animals in the Mediterranean country, the Animals Lebanon NGO said. The law, passed by parliament on August 16, outlines requirements for keeping domestic pets, regulations for zoos and pet shops, and penalties for violations – including jail time and fines. It also outlaws abusing pets or owning wild or endangered animals.

The trade of rare animals is big business in Lebanon, where prized tigers and lions are often locked in cramped cages, forced to perform in circuses and paraded by wealthy individuals as status symbols. But animals more traditionally kept as household pets – including cats, dogs, and rabbits – are also often subject to abuse by unregulated zoos, pet shops, and breeders in the country. Other countries in the Middle East, including Tunisia and Qatar, also have animal welfare legislation, although enforcement continues to present a challenge. (Various 30.08)

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7.4 Some 1.95 Million Jordanian Students Head to Schools

On 4 September, around 1.95 million students, 193,000 of whom are first graders, started school across the Hashemite Kingdom, marking the beginning of the 2017/18 academic year, the Education Ministry announced. More than 105,000 teachers and administrative staff started work on 26 August, while the ministry is still appointing new teachers at schools to fill vacancies after finishing internal (within the same district) and external (to other educational districts) transfers of serving teachers. Meanwhile, the ministry has received keys of 25 new schools in various areas, which were supplied with the necessary furniture, the spokesperson said, adding that the ministry has also built classroom and kindergarten extensions to absorb the increasing number of students.

The ministry also formed teams that paid field visits to directorates and schools to check on their preparations and needs before the beginning of the academic year, he added.

With the beginning of the new academic year, the Public Security Department’s (PSD) Jordan Traffic Institute launched a traffic awareness campaign dubbed “Children’s safety is the responsibility of all”. The campaign aims at raising the awareness of students and teachers on the safe use of roads. The program also includes implementing inspections on busses that transfer students between their homes and schools, to ensure they conform to safety rules and have safety gear on board. (JT 04.09)

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7.5 Over a Million Return to UAE Schools After Holidays

The excitement is building up as more than a million children march back to school on 10 September, with some private schools opening a week earlier after the long summer break in the UAE. Government schools and most private schools reopened on 10 September for the new academic year 2017-18. However, most Asian schools — mainly Indian and Pakistani schools —started on 5 September for their second term, having already started their new academic year in April. Some schools will also host an open day to welcome new students and parents so they can feel more at ease about the main school opening next week. The summer break for students this year started on 23 June and ends on 9 September — almost two weeks longer than last year. (GN 03.09)

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7.6 Moroccan Universities Rank Low Internationally

The Webometric 2017 ranks Moroccan universities at the bottom of academic institutions around the world for “knowledge and learning.” This world-renowned ranking is based on several criteria, including the availability of the online requests for teachers, web pages of institutions, and the valuation of languages. Not one Moroccan universities is among the first thousand of this classification, while a Saudi-Arabian university was ranked at 425th place.

The Cadi Ayyad University occupied the 1,994th place in world ranking and came 42nd within Arab universities. The Mohammed V University in Rabat, considered one of the “best” nationally, was ranked 2,873rd worldwide and 73rd in the Arab world. The Mohammed I University of Oujda occupied the 2,461st place, followed by the Ibnou Zahr University of Agadir in the 3,186th place. Al-Akhawayn University was ranked far below Morocco’s public institutions, classified 3,255th worldwide and 86th in the Arab world, despite the “exorbitant” costs of enrollment and promotion of its “developed” teaching methods. Overall, Morocco was ranked 26th in the African continent.

Five South African universities were ranked among the forefront developed universities in the world, while the absence of Egyptian universities from the global list was surprising. (MWN 11.08)

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7.7 Morocco Will Open Three Higher Education Institutions During 2017/8 Academic Year

Among the promised reforms of higher education for 2017-2018 academic year, Minister of National Education Mohamed Hassad revealed that three higher institutions will open to accommodate increased numbers of students. Hassad announced that the three institutions expected to open their doors this year are the Faculty of Law, Economic and Social Sciences in Tetouan, the School of Technology (EST) in Kenitra, and the School of Technology in Sidi Bennour. Speaking to the members of the Committee on Education, Culture and Communication of the House of Representatives, Hassad also assured that the initiation of the school year will be completed during the first nine days of September at all academic institutions. Part of the higher education reform includes the reinforcement of bed capacities in university campus.

The former interior minister and current Minister of Education promised that his ministry will put up 6,140 additional beds by this September, while four new university campuses will open their doors to students in the cities of Nador, Safi, Agadir and Meknes. Four academic restaurants will also open in the cities of El Jadida, Settat, Safi and Nador, with a capacity of 4,000 meals served daily, said the official, adding that 15 medical centers and three newly-rehabilitated centers will see the light of day starting in the 2017-2018 school year. The vocational training sector will also see reforms as 29 new establishments, of which 22 are part of the Office for Professional Training and Promotion (OFPPT) will be inaugurated for the 2017-2018 school year. Vocational training institutions will also increase their capacity with the establishment of three new boarding schools, particularly for trainees from rural or disadvantaged areas. (MWN 03.09)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Israeli Team Develops Method to Monitor Tumors Without Radiation

Doctors at the Hadassah Medical Center in Jerusalem have developed a new method to monitor tumors without injecting patients with radioactive substances or exposing them to ionizing radiation. The method, reported in a study in the Nature Communications journal, was developed by the director of the Center for Hyperpolarized MRI Molecular, Dr. Rachel Katz-Brull, and her team at the Hebrew University of Jerusalem.

Dr., Katz-Brull was able to show that using magnetic resonance imaging, the nucleus of a phosphorous atom can alert doctors to suspicious acidity levels in the body and hence to the existence of a possible tumor. The researchers used a special technique that allowed them to identify the nucleus more easily and more quickly, enabling it to appear to “shine” 10,000 times more brightly than normal. The groundbreaking method makes it possible to avoid a biopsy or other invasive procedures to measure a tissue’s acidity levels and also to determine whether a tumor is malignant or benign without having the patients undergo unnecessary radiation or be exposed to radioactive materials.

The metabolic markers in the new method can also indicate whether drug treatment given to the patient is effective in a matter of days rather than after three months, as is the case today. Researchers cautioned that it will take about two years before the method can be used on patients. (No Camels 24.08)

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8.2 Kedrion & Kamada Receive FDA Approval of KEDRAB for Prophylaxis Against Rabies Infection

Fort Lee, NJ’s Kedrion Biopharma and Kamada announced that KEDRAB [rabies immune globulin (Human)] has received U.S. FDA approval for passive, transient post-exposure prophylaxis of rabies infection, when given immediately after contact with a rabid or possibly rabid animal. KEDRAB should be administered concurrently with a full course of rabies vaccine. KEDRAB will launch in the U.S. in early 2018. Prior to FDA approval of KEDRAB, U.S. healthcare professionals had only two human rabies immune globulin (HRIG) therapy options from which to choose to prevent the onset of rabies in someone who may have been exposed to the deadly virus. KEDRAB, a human plasma-derived immunoglobulin, is entering a rabies market that has experienced inconsistent supply in recent years.

Kamada has been selling the HRIG product since 2006 in numerous territories outside of the U.S. under the brand name KamRAB. Kamada has sold more than 1.4 million vials of KamRAB to date, demonstrating significant clinical experience with the product. Under the clinical development and marketing agreement between Kedrion Biopharma and Kamada, upon receipt of FDA marketing approval, Kamada holds the license for KEDRAB, and Kedrion Biopharma has exclusive rights to commercialize the product in the U.S.

Rehovot’s Kamada is focused on plasma-derived protein therapeutics for orphan indications, and has a commercial product portfolio and a robust late-stage product pipeline. The Company uses its proprietary platform technology and know-how for the extraction and purification of proteins from human plasma to produce Alpha-1 Antitrypsin (AAT) in a highly-purified, liquid form, as well as other plasma-derived Immune globulins. AAT is a protein derived from human plasma with known and newly-discovered therapeutic roles given its immunomodulatory, anti-inflammatory, tissue-protective and antimicrobial properties. Kamada also leverages its expertise and presence in the plasma-derived protein therapeutics market by distributing more than 10 complementary products in Israel that are manufactured by third parties. (Kedrion Biopharma 25.08)

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8.3 Regentis Biomaterials Receives European CE Mark Approval for GelrinC

Regentis Biomaterials has received European CE mark approval for its GelrinC biodegradable implant. The approval covers GelrinC manufactured using denatured human fibrinogen and expands upon the existing CE mark for a version containing denatured bovine-sourced fibrinogen. This latest approval enables Regentis to begin accessing new global markets, and helping more patients suffering from damaged articular knee cartilage.

GelrinC is designed to quickly and easily treat articular knee cartilage defects, both chondral and osteochondral. With a minimally invasive procedure, surgeons apply GelrinC into lesions as a liquid allowing it to fill any size and shape of defect. After a short exposure to ultra-violet light, GelrinC is converted into a solid implant which gradually degrades in a controlled manner. Over time, the implant is replaced with newly formed cartilage tissue that is similar to native cartilage, and fits within the surrounding cartilage and underlying bone. GelrinC is an investigational device and not available for sale in the U.S.

With offices in Or Akiva and the U.S., Regentis Biomaterials is a privately held company focused on developing and commercializing proprietary hydrogels for tissue regeneration. The company’s core technology platform is based on a series of hydrogels utilizing both polyethylene glycol diacrylate and denatured fibrinogen that combines the stability and versatility of a synthetic material with the bio-functionality of a natural substance. This technology serves as the foundation for future clinical indications in osteoarthritis. The company’s flagship product, GelrinC, is designed for the treatment of articular cartilage lesions. (Regentis Biomaterials 28.08)

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8.4 Medtronic to Make a $40 Million Third Tranche Investment in Mazor

Mazor Robotics has entered the next phase of its strategic partnership with Medtronic earlier than planned and their existing agreements have been amended accordingly. The agreements provide for the conversion of the commercial relationship between the parties, with Medtronic assuming exclusive worldwide distribution of the Mazor X system, and Medtronic making a $40 million third tranche investment in Mazor. These developments are a result of the early achievement of certain sales and marketing milestones by both companies, as well as higher than expected global market acceptance and demand for the Mazor X system. Medtronic and Mazor originally entered into a strategic agreement in May 2016.

Mazor will continue to manufacture and recognize revenues for Mazor X system sales, disposable kits and service fees all of which will be sold at contractual pricing agreed with Medtronic. The contracted pricing is at a lower rate than Mazor realized through its direct sales channel. In addition, Mazor will be entitled to certain synergy fees associated with the use of Medtronic implants in Mazor Robotics’ installed base. Moving from direct sales to a strategic distribution model is expected to immediately reduce Mazor’s annual operating expenses by approximately $13 million. Trailing 12-month operating expenses for Mazor totaled $52.7 million.

Mazor will continue to independently develop and market globally the Renaissance Surgical Guidance System, which was first launched in 2011. Efforts for Renaissance will be focused on certain market segments for which the Renaissance provides significant customer added value.

Caesarea’s Mazor Robotics believes in healing through innovation by developing and introducing revolutionary technologies and products aimed at redefining the gold standard of quality care. Mazor Robotics Guidance System enables surgeons to conduct spine and brain procedures in an accurate and secure manner. (Mazor 30.08)

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8.5 New Incubator to Develop Products for the Elderly

The Matav Association, Israel’s leading non-profit nursing care organization, and Tel Aviv’s Tech for Good, which supports investments making a social impact (investments that provide both a financial return and social value), have announced their cooperation in setting up an incubator for startups developing products and services for senior citizens. In the framework of the incubator, the entrepreneurs will receive consultancy from Matav’s social workers about the real needs and barriers to be expected in marketing products for senior citizens, and will be able to carry out pilots with Matav’s assistance. The entrepreneurs will also receive business consultancy services from a Tech for Good team, and a work space will be allocated to them in the buildings of Yoel Hassin, founder of an impact fund.

The joint venture is being launched now and the partners expect to receive 60-70 separate offers of services and products. Founded in 1958, Matav employs thousands of volunteers in nursing, meeting and easing loneliness, operating day clubs, etc. The incubator will focus on solutions that will make it possible to extend the time that a senior citizens spends at home. (Globes 03.09)

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8.6 Teva Announces FDA Approval of AUSTEDO Tablets for Tardive Dyskinesia in Adults

Teva Pharmaceutical Industries announced that the U.S. FDA has approved AUSTEDO (deutetrabenazine) tablets for the treatment of tardive dyskinesia in adults. AUSTEDO was previously approved for the treatment of chorea associated with Huntington’s disease in April 2017. The approval was based on results from two Phase III randomized, double-blind, placebo-controlled, parallel group studies assessing the efficacy and safety of AUSTEDO in reducing the severity of abnormal involuntary movements associated with tardive dyskinesia (AIM-TD and ARM-TD).

Teva Pharmaceutical Industries is a leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solutions used by approximately 200 million patients every day. Headquartered in Israel, Teva is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,800 molecules to produce a wide range of generic products in nearly every therapeutic area. In specialty medicines, Teva has the world-leading treatment for multiple sclerosis as well as late-stage development programs for other disorders of the central nervous system, including movement disorders, migraine, pain and neurodegenerative conditions, as well as a broad portfolio of respiratory products. (Teva 03.09)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 Orbotech Unimicron Deal for Automotive, Renewable Energy & Industrial Manufacturing

Orbotech announced a multi-million-dollar agreement with Unimicron Germany for the purchase of Orbotech’s direct imaging (DI), automated optical inspection (AOI) and automated optical shaping (AOS) PCB production solutions. Unimicron Germany is in the process of rebuilding its inner layer fab as a fully automated Industry 4.0, state-of-the-art facility, and upgrading its Outerlayer and Solder Mask capacity and capabilities. Unimicron Germany specializes in high-end, high-reliability manufacturing for automotive electronics, renewable energy and industrial markets. The site is expected to be fully functional in the first half of 2018.

Among the Orbotech solutions Unimicron Germany has ordered are the latest members of the Nuvogo family for direct imaging, Orbotech Diamond 8 for high throughput solder mask direct imaging, Fusion 22 AOI with 2D metrology in process quality control (IPQC), Precise 800 AOS system for 3D shaping of any layer HDI and complex multi-layer boards and Orbotech Smart Factory for Industry 4.0-compliant, integrated PCB production.

Yavne’s Orbotech is a leading global supplier of yield-enhancing and process-enabling solutions for the manufacture of electronics products. Orbotech provides cutting-edge solutions for use in the manufacture of printed circuit boards (PCBs), flat panel displays (FPDs) and semiconductor devices (SDs), designed to enable the production of innovative, next-generation electronic products and improve the cost effectiveness of existing and future electronics production processes. Orbotech’s core business lies in enabling electronic device manufacturers to inspect and understand PCBs and FPDs and to verify their quality (‘reading’); pattern the desired electronic circuitry on the relevant substrate and perform three dimensional shaping of metalized circuits on multiple surfaces (‘writing’); and utilize advanced vacuum deposition and etching processes in SD and semiconductor manufacturing (‘connecting’). (Orbotech 28.08)

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9.2 Budget Direct Insurance Singapore Goes Live With Sapiens’ General Insurance Software Suite

Sapiens International Corporation announced Budget Direct Insurance, an insurance business in Singapore owned by Auto & General Southeast Asia, has successfully gone live with Sapiens IDIT. As a relatively new player in Singapore, a competitive market, Auto & General Southeast Asia found Sapiens IDIT best suited for the needs of Budget Direct Insurance Singapore after an extensive search.

Sapiens IDIT’s breadth of functionality has enabled Auto & General Southeast Asia to significantly reduce the number of third-party systems it requires, increasing business agility and efficiency. The PAS has provided Budget Direct Insurance with the flexibility to quickly release new, tailored products to market. Since implementing Sapiens IDIT, ‘Motorcycle’ was released as a new offering, alongside launch products ‘Car’ and ‘Travel’. Sapiens IDIT was implemented in less than a year, ahead of schedule.

Holon’s Sapiens International Corporation is a leading global provider of software solutions for the insurance industry, with a growing presence in the financial services sector. Sapiens offers core, end-to-end solutions to the global general insurance, property and casualty, life, pension and annuities, reinsurance and retirement markets, as well as business decision management software. (Sapiens 28.08)

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9.3 ABI Research Names CellMining as Mobile Network Hot Tech Innovator

CellMining has been named as a “Mobile Network Hot Tech Innovator” by ABI Research in its latest market report, entitled “Radio Access Network and Core Network Hot Tech Innovators 3Q 2017”. The report singled out 15 innovative companies, among them CellMining, which it believes are at the forefront of driving innovation in mobile network infrastructure.

ABI Research recognized CellMining’s contribution to driving innovation in mobile networks. The CellMining solution is breaking new ground in two trends, by using Big Data analytics to correlate real-time customer experience against network Key Quality Indicators (KQI) and using this analysis to generate actionable insights, driving SON, and enabling the route towards the ideal Connected Car experience.

Caesarea’s CellMining provides Mobile Network Operators with a unique toolset for optimizing user experience and network performance based on real-time metrics of subscriber data. The company’s ground-breaking Subscriber Network Analytics technology monitors subscriber experience data, identifies usage patterns, and reconstructs entire call and communication flows for individuals and business customer groups. CellMining has pioneered the integration of SON (Self-Optimizing Networks) with CEM (Customer Experience Management), to provide mobile operators with a world-class solution to optimize their networks for subscriber experience excellence. (CellMining 29.08)

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9.4 Stratoscale Receives VMworld 2017 Gold Award for Revolutionary Cloud Infrastructure Solution

Stratoscale has been awarded the VMworld 2017 Best of Show Gold Award in the “Virtualization and Cloud Infrastructure” category for its software-only solution, Stratoscale Symphony. The prestigious list from TechTarget’s SearchServerVirtualization.com recognizes the year’s best enterprise solutions based on innovation, value, performance, reliability and ease of use. The award highlights Stratoscale’s mission to provide an effective solution for managing today’s data center transition into a true hybrid cloud, unifying the off-prem and on-prem environments.

Stratoscale Symphony sets the company apart by transforming any hardware into directly consumable cloud capacity, coupled with an advanced AWS-compatible cloud services that enables enterprises to run cloud-native applications on-prem and leverage DevOps and other cloud best practices. Symphony enables IT organizations to align with an AWS first strategy via a single pane of glass, decoupled from any hardware vendor constraints. This approach enables enterprises to fulfill demand for self-service, ease-of-use, and significantly shorten time-to-value.

Herzliya’s Stratoscale is the cloud infrastructure company, providing comprehensive cloud infrastructure software solutions for service providers, enterprise IT and development teams. The company’s comprehensive cloud data center software, Stratoscale Symphony, can be deployed in minutes on commodity x86 servers, providing an Amazon Web Services (AWS) experience with the ability to augment aging VMware infrastructure. (Stratoscale 30.08)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel’s Exports Up 6% During First Half of 2017

Israeli exports have grown by a reported 6% in the first six months of 2017 exceeding $50 billion, a report by the Israel Export and International Cooperation Institute has found. The report said that the exports of goods, including diamonds, grew 4% to $29 billion in the period between January and June, a rise the IEI attributed to growth in industrial exports.

Data showed that overall exports of services rose by 8% in the first six months of the year and amounted to $21 billion. The IEI attributed the rise to the rapid growth in exports of computer and software services, which rose 12% to $6.8 billion, and the exports of tourist services, which grew by 16% and reached $3.2 billion in the January-June period. The data further showed agricultural exports came to $765 million in the first half of 2017, marking a 6.5% rise from the corresponding period last year.

Diamond exports in the period between January and June dipped by 3% to $4 billion, the IEI found. Data further showed that industrial exports, including drugs, chemicals, refined oil products and electronic components, climbed 5%.

Exports of chemicals and refined oil products reached $4.3 billion, a 12% rise from the corresponding period on 2016; drug exports rose 10% to $3.7 billion, and the export of electronic components dropped 20% compared to the first half of 2016. (IEI 03.09)

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10.2 Tel Aviv Enhances Status as International R&D Center

Tel Aviv has doubled the number of International R&D centers in the city over the past 5 years from 35 R&D centers in 2012 to 73 centers today, or 20% of all R&D centers in Israel. This is according to a recent report by Tel Aviv Global based on data from an IVC Research conducted in preparation for the DLD Tel Aviv Innovation Festival (3-7 September). These 73 international R&D centers provide over 6,200 jobs, introduce new capital and knowledge to the city’s well developed tech ecosystem and further boost Tel Aviv’s global standing.

The International credit card giant, Visa just recently decided to establish a fintech R&D center in Tel Aviv, joining Renault, Bosch, MasterCard, Google, Facebook, Amazon, Coca Cola, Microsoft, AOL, Samsung, Siemens, Paypal, Deutsche Telekom, Citibank, Intel, Yahoo, Barclays, IBM, Apple and other multinational companies. The Tel Aviv ecosystem is considered a leader in the nurturing of entrepreneurial spirit and is home to numerous startups, collaborative workspaces and accelerator programs creating an attractive environment for international venture capital firms and R&D centers.

The report also surveyed the growth of the city’s high-tech sector. Tel Aviv is home to 2,000 high-tech companies comprising about 25% of the high tech companies in Israel. These tech companies influence the local workforce, as 10% of jobs in the city are in the high-tech sector. The report also identified a shift in the Tel Aviv startup ecosystem. The rate of seed-stage companies has fallen and the rate of R&D-stage companies has risen, in line with the overall trend in Israel. This shift in the composition of startups reflects a maturation of startups in the city and their progression from idea stage to a process of R&D. (Globes 05.09)

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11: IN DEPTH

11.1 ISRAEL: Israel’s Foreign Trade in Goods, by Country – July 2017

The Central Bureau of Statistics announced that in July 2017, imports of goods (gross, excluding diamonds) were worth NIS19.5 billion. Some 43% were imports from the EU countries, 27% from the Asian countries, 12% from the USA and 18% from Other Countries.

Exports of goods (gross, excluding diamonds) totaled NIS 11.8 billion and the trade deficit of goods (excluding diamonds) totaled NIS 7.7 billion. Some 29% of the exports were to the EU countries, 29% to the USA, 20% to the Asian countries and 22% to the Other Countries.

Trade Balance: January – July 2017

The trade deficit of goods (excl. diamonds) with the EU countries was NIS 21.3 billion in January – July 2017 compared with NIS 26.5 billion in January – July 2016.

The trade deficit of goods (excl. diamonds) with the Asian countries totaled NIS 15.5 billion in January – July 2017, compared with NIS 11.4 billion in January – July 2016. The trade deficit of goods (excl. diamonds) with the Other Countries totaled NIS 4.0 billion in January – July 2017 compared with a surplus of NIS 0.2 billion in January – July 2016. In contrast, there was a trade surplus of goods (excl. diamonds) with the USA of NIS 10.0 billion in January – July 2017, an increase of 34.6% compared with the same period in 2016.

Imports of Goods: May – July 2017

The trend data calculated by the Central Bureau of Statistics show that imports of goods (excluding ships, aircrafts, diamonds and fuels) decreased by 0.5% at an annual rate in May – July 2017, following a decrease of 1.9% in February – April 2017.

Trend data indicate that imports (excluding diamonds) from the EU countries increased by 1.2%, at an annual rate, in May – July 2017, following a decrease of 6.9% in February – April 2017. According to trend data, imports (excluding diamonds) from the USA increased by 3.8% at an annual rate in May – July 2017, following a decrease of 10.6% February – April 2017.

Trend data indicate that imports (excluding diamonds) from the Asian Countries increased in the last three months by 3.8% at an annual rate, following an increase of 7.9% in February – April 2017. Imports (excluding diamonds) from India and Vietnam increased significantly over the past seven months compared with the same period in 2016. According to trend data, imports (excluding diamonds) from the Other Countries decreased by 5.1% at an annual rate in the last three months, following a decrease of 7.9% in February – April 2017. In January – July 2017 imports (excluding diamonds) from Australia, Paraguay and Brazil decreased significantly compared with the same period in 2016.

Exports of Goods: May – July 2017

The trend data show that exports of goods (excluding ships, aircrafts and diamonds) decreased by 9.9% at an annual rate in May – July 2017, following a decrease of 1.9% in February – April 2017.

According to trend data, exports (excluding diamonds) to the EU countries decreased by 23.8%, at an annual rate, in May – July 2017 (-2.2% monthly average), following a decrease of 0.6% in February – April 2017. Exports (excluding diamonds) to Ireland and Finland decreased significantly over the past seven months compared with the same period in 2016. Trend data indicate that exports (excluding diamonds) to the USA decreased by 3.2%, at an annual rate in May – July 2017, following a decrease of 4.4% in February – April 2017.

According to trend data, exports (excluding diamonds) to the Asian Countries decreased by 19.0% in the last three months, at an annual rate, following a decrease of 32.4%, in February – April 2017 (-3.2% monthly average). Since the beginning of 2017 exports (excluding diamonds) to Malaysia, Vietnam and India decreased significantly compared with the same period in 2016. According to trend data, exports (excluding diamonds) to the Other Countries decreased by 15.2%, at an annual rate, in May – July 2017, after staying unchanged in the period of February – April 2017. Since the beginning of the year, exports (excluding diamonds) to Nigeria and Chile decreased significantly compared with the same period in 2016. (CBS 23.08)

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11.2 LEBANON: Moody’s Downgrades Lebanon’s Rating to B3, Changes Outlook to Stable From Negative

On 25 August 2017, Moody’s Investors Service downgraded Lebanon’s long-term issuer ratings to B3 from B2 and changed the outlook to stable from negative.

The rating downgrade is based on Moody’s view that a B3 rating appropriately captures Lebanon’s credit risk profile. The ongoing erosion of Lebanon’s very weak government finances will continue to constrain the rating pending further clarity on whether recent and prospective fiscal reforms will be effective given the evolving political environment. While Lebanon’s external liquidity position continues to be strong, and banking liquidity ample, rising external imbalances, coupled with a weak growth outlook increase Lebanon’s vulnerability to external shocks.

The stable outlook reflects the return to a fully functioning government, which will support reform momentum going forward. Lebanon has a strong track record of servicing debt under stressed conditions, and its external buffers have continued to strengthen in recent years, supported by new deposits and the Central Bank’s operations.

Lebanon’s local-currency bond and deposit ceilings are unchanged at Ba2. The foreign currency deposit ceiling is lowered to B3 from B2 and the short term foreign currency deposit ceiling remains at NP. The foreign currency bond ceiling was changed to B1 from Ba3. These ceilings reflect a range of undiversifiable risks to which issuers in any jurisdiction are exposed, including economic, legal and political risks. These ceilings act as a cap on ratings that can be assigned to the foreign and local-currency obligations of entities domiciled in the country.

Lebanon’s senior unsecured Medium Term Note Program is also downgraded to (P)B3 from (P)B2 while its other short term rating is affirmed at (P)NP.

Ratings Rationale

Drivers of the Downgrade to B3: A Further Weakening of Debt Metrics

The principal driver of the downgrade is the rise in the country’s debt burden. Moody’s estimates Lebanon’s 2018 government debt to reach close to 140% of GDP, the third highest among all rated sovereigns. Government debt has risen inexorably since 2011, when it bottomed out at 121% of GDP, reflecting a deterioration in the fiscal balance. Other fiscal and debt metrics, such as annual gross financing needs, interest payments as a share of government revenue and debt to revenue, also illustrate the very high burden. For instance, Moody’s projects government debt will remain close to 700% of government revenues next year.

In Moody’s view, recent fiscal reforms are very unlikely to reduce the deficit in 2017 and 2018. The recent revenue package approved by parliament is credit positive as it demonstrates the emerging consensus among decision-makers, but its purpose is simply to offset the planned upward adjustment in public sector salary scales; further action will be needed to reverse the rising debt trajectory. The absence of an approved budget continues to impede the formulation and implementation of debt-stabilizing reforms. No budget has been in place since 2005, and while the recent agreement on a budget within the cabinet raises the prospect of one now being passed by parliament, its likely impact is unclear and its approval comes too late to halt the erosion in fiscal strength.

External imbalances are wide and rising again. The trade deficit reached $13.6 billion in 2016, or 26.2% of GDP, up from $13.1 billion, or 25.8% of GDP last year. Although Lebanon has benefitted from a decrease in hydrocarbon prices and continued remittances inflows, tourism receipts have not recovered. As a result, the current account deficit reached $8.4 billion, or 18.8% of GDP in 2016, and will remain similarly high in 2017. While the reserves position remains strong, the rising pressure on the authorities to sustain the large foreign currency inflows needed to support the external deficit was illustrated by the recent operations by the Central Bank to raise reserves.

The cost of hosting Syrian refugees, combined with a deterioration in infrastructure and limited donor support have dampened growth to an annual average of 1.6% over the past three years. Even though Moody’s expects growth to pick up to close to 3% this year and next, the legacy of years of underinvestment and political instability leave potential growth well below previously high growth levels. Even if political stability consolidates after the May 2018 elections, the economy will remain vulnerable to external shocks.

Drivers of the Outlook Change to Stable: Political Consensus Supports Medium-Term Reforms and Deposit Inflows

Signs of an emerging political consensus offer the prospect of greater political stability, with supportive implications for both institutional strength and future growth. In October 2016, Lebanon’s parliament voted to elect a president, filling a post that had been vacant since May 2014. This was accompanied by the formation of a cabinet in December 2016, and a new electoral law was approved in June 2017, all of which suggest a lower level of polarization among political parties and an end to the political paralysis that has undermined government effectiveness and resulted in persistent delays in reforms.

The restored political process has allowed the cabinet to start implementing long-delayed reforms. Moody’s expects an acceleration in economic and fiscal reforms, including buttressing the energy sector. Early signs of willingness to enact fiscal reforms offer the prospect of further measures which could support long-term debt sustainability. Renewed political consensus is also likely to attract support from the international donor community.

Lebanon has proven its willingness to pay debt in stressed conditions and maintains adequate reserves. Although the debt position and sustainability metrics compare poorly even with B3 credits, liquidity risks are contained. External buffers have increased and support the exchange rate peg. Excluding gold reserves, Central Bank reserves were close to $40.2 billion as of May 2017, up from $38.9 billion one year earlier. Substantial financial inflows – in particular foreign deposit inflows which continue to supply foreign exchange deposits of commercial banks held with Banque du Liban – more than offset the current account deficit and continue to bolster foreign-exchange reserves.

A loyal depositor base and donor support underpin debt sustainability, and improvements in the political scene have boosted deposit flows. Looking at the recent history of deposit flows to Lebanese banks, deposit inflows have demonstrated remarkable resilience to political shocks. In order to sustain financial stability, Lebanon requires deposit inflows of around $9 billion this year, and it already received $5.5 billion in new deposits in the first half of 2017. In June 2017, year-on-year growth in private sector deposits reached 8.6% from just 4.8% one year earlier.

What Could Move the Rating Up/Down

Moody’s would upgrade Lebanon’s rating if fiscal reforms led to a durable reversal in the debt trajectory, and if a significant improvement in the country’s large external imbalances were to materialize. Conversely, Lebanon’s rating would be adjusted downwards if significant pressure on foreign-exchange reserves materialized, including in the unlikely event of a material fall in deposit inflows, which suggested a heightened risk of a balance of payments crisis and which threatened the banking sector’s ability to continue to finance the government. (Moody’s 25.08)

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11.3 JORDAN: Jordan’s Islamists Win Big in Local Polls Amid Voter Apathy

Osama Al Sharif posted on 23 August in Al-Monitor that an Islamic-led coalition, which had boycotted the previous two elections, scored major gains in Jordan’s recent local elections amid low voter turnout.

In the run-up to municipal and governorate elections on 15 August in Jordan, expectations for nationwide voter turnout were low. In addition to electing members of more than 100 municipalities across the kingdom, voters were asked to select the members of 12 newly formed governorate councils. The aim of the councils is to decentralize government decisions and empower local representatives to plan and approve projects and services at the governorate level. At the end of the day, only 31% of the 4.1 million eligible voters had cast ballots, with the major urban centers of Amman, Zarqa and Irbid experiencing exceptionally low turnout.

The biggest surprise, however, was the unexpected gains made by Islamists. Running under a broad coalition — the National Alliance for Reform — the Islamic Action Front (IAF), the political arm of the Muslim Brotherhood, announced that its candidates had won 76 seats across the kingdom, including the presidency of three municipalities. A prominent IAF figure, Ali Abu al-Sukar, scored a major victory by winning the presidency of the municipal council of Zarqa, Jordan’s second largest city, a largely conservative urban center and a traditional Islamist base.

The Islamist-led coalition also claimed 25 seats in the governorate councils, plus five seats on the coveted Greater Amman Municipality Council. It also announced that 11 women on its lists had won seats. Women voters, said to make up 53% of the voter base, failed to turn out in big numbers, according to the Independent Election Commission (IEC). In Amman, the figure was less than 5%.

The IAF had boycotted previous municipal elections in protest of what it considered to be unfair elections laws. Its breakthrough in the 15 August elections followed years of internal divisions, defections and splits that were thought to have weakened the movement’s base. The same coalition had won 15 out of 130 seats in the September 2016 legislative elections. Ironically, the newly formed Muslim Brotherhood Society (MBS) and other splinter groups were absent from the recent elections, as were most of the kingdom’s political parties.

While most voters in urban centers, especially in affluent West Amman, stayed home, participation was higher in smaller towns and remote governorates. As in previous elections, this year tribal and family affiliations and candidates with cash to spend determined the outcome. While a number of monitors said the elections were free and fair, a nongovernmental elections-monitoring body, Rased, registered more than 500 illegal incidents, including an episode near Amman in which supporters of candidates raided a polling station and destroyed ballot boxes.

In addition to focusing on the strong message that the IAF’s results send, underlining its relevancy and popularity, commentators questioned the continued absence of strong political parties in Jordanian politics and the phenomenon of voter apathy. Writing in Al-Ghad on 15 August, the political commentator Muhammad Abu Rumman blamed the government and so-called political elites for failing to explain the Decentralization Law and its contribution to political reforms to the public.

In addition, Abu Rumman raised the question of why residents of West Amman, who are mostly of Palestinian origin, and other urban areas have become indifferent to legislative and local elections. While failing to provide a definitive answer, he suggests that the problem could be related to the state’s message to its citizens in regard to their rights.

Another columnist, Fahd al-Khitan, picked up on the same problem in a 16 August Al-Ghad article. He suggested that the problems of low voter turnout in West Amman, about 20%, while influenced by the capital’s mayor being appointed rather than elected, and major urban centers suffering from an unfair allocation of electoral districts compared to rural areas should be examined from a historical and political context. He added that there is a need to “analyze the behavior of a huge social bloc whose awareness has been shaped by complex factors resulting in what is now called the ‘problem of citizenship’ and specifically the relationship of Jordanian citizens of Palestinian origin to the state.”

It was a bold assessment of an issue that is seldom discussed in public. Khitan went on to pose the question of whether refusing to participate in elections is basically “an act of protest against the state … where a group of people subconsciously sees itself outside the state and its institutions.”

Discussion of the rights of Jordanians of Palestinian origin, who make up at least half of the population, is typically a taboo subject, avoided by both the regime and the political elite. It is considered an issue tied to the outcome of a final settlement between Israel and the Palestinians, with most local politicians preferring to kick the can down the road rather than discuss the problem and its ramifications on Jordan’s political reality. The issue has been approached by key figures in the past as a major hurdle in accelerating political reforms in the kingdom.

The Decentralization Law passed in 2015 was supposed to represent a major step in political and economic reforms by devolving powers related to planning public services, approving development projects and exercising oversight of provincial councils. The law has failed, however, to trigger public enthusiasm.

Critics charge that it fell short of empowering local representatives, leaving key powers in the hands of appointed governors. In addition to governorate councils, 75% of whose representatives are elected, the government has created 12 executive councils, headed by appointed governors. The latter are responsible for budgeting and for drafting strategic plans, which have to be approved by the governorate council.

Adding to voter apathy, Jordanians have become increasingly frustrated with the recently elected Lower House, which in their view continues to underperform despite last September’s legislative elections being held under a new multi-vote system that replaced the controversial single-vote law in place for more than a decade. Turnout in those elections was also low, at 37%.

The worsening economy, which has been posting modest growth rates for almost a decade amid rising unemployment and poverty rates, is another reason for growing voter apathy.

Osama Al Sharif is a veteran journalist and political commentator based in Amman who specializes in Middle East issues. (Al-Monitor 23.08)

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11.4 JORDAN: Jordan’s Quest for Decentralization

On 24 August, Kirk H. Sowell observed that amid low enthusiasm for local elections intended to decentralize governance in Jordan, Islamists and their tribal allies have gained political ground.

Jordan held its first ever local elections on 15 August, including provincial councils, municipal councils, local councils, mayoralties, and the Amman Secretariat, which governs the capital. The elections were officially labeled “Decentralization Elections,” a purported solution to the centralization of wealth and political power in the capital. Yet the structure of the two laws overseeing this decentralization has generated public skepticism – which was reflected in the low voter turnout, reported at 32% – as to whether these elections will lead to a real devolution of power from the central government. Moreover, this low overall turnout disproportionally boosted Islamists’ fortunes, giving the Muslim Brotherhood a platform from which to criticize the government – which may ultimately have more impact than the intended decentralization.

The legal structure for decentralization was passed in 2015, with two laws – the Decentralization Law, which governs the election and the powers of newly created provincial governments, and the Municipalities Law, which governs both the capital and regular municipalities. Municipal councils and mayors used to be appointed by the cabinet. Officials promoted the new federal structure as a way of giving Jordanians more say in how they are governed by allowing elected local officials to play a role in deciding how capital investment funds are spent on development. The day of the election, Murad al-Shanikat, a professor at Balqa University, explained on a state TV program that local officials would now have “very broad authority, authority defined clearly in terms of planning, growth, and financing.”

In principle, the Decentralization Law seems to provide local officials with a substantial role. Article 3 provides for the formation of an “executive council” in each province, headed by the governor, who is responsible for overseeing the execution of “the public policies of the state,” dealing with emergencies, and protecting public property, for example, and approves deployment of local security forces although he has no direct security control. The executive council has further powers, most importantly preparing a budget for the province and capital investment proposals. The law also forms new provincial councils, 15% of whose members are appointed by the cabinet with the remainder elected, and which has legislative and oversight authorities that provide a check on the executive councils.

Yet the delegation of local authority is narrowly drawn, and three elements of the statute suggest a weaker role than government representatives claim. While these councils can draft proposals for capital spending, control of both security and civilian ministries (such as education and health) remain in Amman. The budgets and proposals are further required to be “within the parameters set by the Ministry of Finance’s Budget Division.” Also, not only is a portion of the council appointed, but the executive council is entirely appointed – the governor, deputy governor, district officials, heads of each ministry’s local executive offices, plus three municipal executive directors appointed by the Ministry of Municipal Affairs. The law also does not give councils authority to raise revenue, such as through taxation or fees, making them dependent on the central government.

The Municipalities Law, which oversees both municipal councils and “local councils” for areas smaller than a municipality, delegates similar limited legislative powers to local authorities as in the Decentralization Law. One key feature is that Article 3, governing the Amman Secretariat, grants the cabinet the right to appoint the mayor (or more literally, “secretary general”) of Amman and 25% of council members, the other 75% of whom are elected. While this law did not detail the distribution of council seats within each province, the cabinet issued a ten-page listing of all local and municipal districts in February 2017.

Aside from limitations imposed by formal legal provisions, two additional factors may help explain the lack of popular enthusiasm for the “decentralization elections.” First, local authorities’ powers are based on a delegation of parliamentary powers, which are themselves quite limited. Parliament does not have the power to initiate legislation, which is solely the right of cabinet, and any amendments it makes can be reversed by the senate, which is entirely appointed by the monarch. The 2017 budget, for example, passed into law in precisely the same form as the government presented to parliament. Thus the “powers” delegated to local officials may make them little more than local advisory councils.

In addition, provincial and local councils lack financial independence. That they cannot levy taxes deprives them of the real financial power necessary for political legitimacy. Furthermore, the national budget’s total operating expenses modestly exceeded total government revenues in 2017, meaning the state’s ability to engage in any capital spending at all depends on either foreign aid or foreign-guaranteed loans. Councils in urban areas are even less likely to get funding, as what the government does spend skews heavily toward rural areas to subsidize the monarchy’s tribal base, a factor that further lowered expectations for the councils in urban areas, which saw especially low participation at just 16% in Amman and 20% in Zarqa.

Voter turnout averaged about 31 to 32% across the kingdom, compared to 37% in last year’s national elections. When asked if the election was a “success,” Khalid al-Kalaldeh, head of the Independent Electoral Commission, stressed that it was the first time Jordan had held local elections, and while he wished the turnout had been higher, argued that the lack of major evidence of fraud showed it was a success. The results were roughly a replay of last year’s national elections. Of the few seats won by party lists, Islamists won a modest plurality in a highly divided field, while the strong majority of seats were won by a range of independent tribal candidates. The National Coalition for Reform (NCR), the list backed by the Muslim Brotherhood’s Islamic Action Front and which included allied tribal candidates, claimed wins for 78 of its 154 candidates.

The NCR chose to run only in the areas where it thought it had the best chance of winning, most notably heavily Palestinian urban areas, so this was still only a fraction of the total seats across the country. Twenty-two of the seats in the Amman Secretariat were up for election, and the NCR ran for twelve of them and won five. According to Murad Adaileh, head of the NCR’s election office, it won 41 of 88 contested local council seats and 25 of 48 contested provincial council seats. The NCR also won three of six contested mayoralties, most notably in Zarqa, Jordan’s second-largest city, where prominent Brotherhood leader Ali Abu Sakr was elected mayor—and since the mayor of Amman (the largest city) is appointed, not elected, this gives an Islamist the largest directly elected mandate in the country. Meanwhile, the government-aligned Muslim Center Party, the NCR’s primary rival, claimed 33 seats, including three mayoralties, five seats in the Amman Secretariat, sixteen municipal council seats, and nine in the provincial or local councils.

The strong majority of seats were won by candidates running on personal or tribal appeals, rather than a party platform. Abdelrahim al-Maayaa, head of the Jordan–Turkey Business Council, noted when electoral lists were formed that campaigns were based on “personal interest” rather than programs. As the results came in, Al-Ghad estimated that around 85% of all seats were won by tribal candidates. Since the Islamist lists included allied tribal candidates, this figure overlaps with those above. While official election results identify winners only by name and not by party, no other list is claiming success. In the parliamentary elections on September 20, 2016, the NCR won 11.6% of the vote in the districts in which it competed, so managing this time to win nearly half of the seats it contested suggests a moderate improvement.

Thus while local authorities may not live up to the expectations hyped by government planners, they may give the Islamist opposition a platform from which they can criticize the central government when money fails to come through for their proposed capital investment projects. If money does come through, they can claim credit for subsequent development. Either way, the election is unlikely to be a watershed for how the state functions, but it could give the Muslim Brotherhood the status of unofficial opposition they have long sought.

Kirk H. Sowell is a political risk analyst and long-time observer of Jordanian politics. (24.08)

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11.5 IRAQ: Republic of Iraq Ratings Affirmed at ‘B-/B’; Outlook Stable

On 25 August 2017, S&P Global Ratings affirmed its ‘B-‘ long-term and ‘B’ short-term foreign and local currency sovereign credit ratings on the Republic of Iraq. The outlook is stable.

Outlook

The stable outlook reflects our expectation that fiscal consolidation will continue over the next few years, while economic growth prospects remain subdued because of the consolidation measures and domestic political tensions.

We could lower the rating if the government’s net debt or debt servicing costs were to rise sharply. This could occur if oil revenues were to disappoint, or if the government were to deviate substantially from its fiscal consolidation path.

We could raise the rating if Iraq’s political and security situation improves and its public finances improve substantially.

Rationale

Our ratings on Iraq are constrained by the government’s war against the Islamic State (IS), the early stage of development of its political institutions, as well as the divisions between the Sunni, Shia and Kurdish ethnic and sectarian groups. In addition, our ratings are underpinned by the assumption that Iraq’s oil output remains in areas firmly under the control of the federal government.

Crucially, over 85% of Iraq’s oil fields and oil output are located in the south of the country, close to Basra, the main port for crude exports. These fields are at some distance from the conflict in IS-controlled areas. We assume that the Iraqi government will remain in control of these assets.

The Iraqi government, supported by its international partners, has made great progress in the fight against IS. Mosul, Iraq’s second largest city, was liberated in July 2017. However, the future governance of the Sunni-dominated territories liberated from IS remains a key political and security challenge for the Iraqi government.

Institutional and Economic Profile: A volatile political environment and security risks hamper reform prospects

The Iraqi government, supported by its international partners, has recently retaken Mosul from IS. However, the political situation in the liberated areas and Iraqi Kurdistan remains unresolved.

Fragmented political power impedes critical political or economic reforms.

The fragmentation of political power across different parties and regions makes it difficult to carry out critical political or economic reforms in Iraq. Protestors that believed reform measures announced by Prime Minister Al-Abadi were not implemented, including cuts in the size of government, entered the parliament in Baghdad in 2016. The political paralysis has meant that the government has been unable to deliver reforms, further fueling the already tense and unstable political and security situation in Iraq. Mr. Al-Abadi attempted to reshuffle his cabinet in 2016 but his attempt to appoint more technocrats to ministerial roles was blocked by the parliament. The Iraqi parliament, through a series of no-confidence votes, has impeached key government ministers, namely the ministers of defense, the interior and finance. Iraq faces significant interference from neighboring countries, which represents a major challenge to its political stability, and could potentially be fractured by the Kurdistan Regional Government’s planned referendum on the independence of Iraqi Kurdistan in September 2017.

Iraq also has to contend with widespread corruption, in our view. The country scores among the worst countries in the world on corruption perceptions and governance indicators. This problem is exacerbated by the ethnic-sectarian divide, lack of experience in public administration, and its weak capacity to manage the influx of aid money. We believe that fighting corruption and IS represent Iraq’s major political and security challenges in the near term. Strengthening governance, accountability, and transparency, while repelling IS, could help unlock Iraq’s economic potential, in our view.

Iraq has the world’s fifth-largest proven crude oil reserves and is the second-largest oil exporter in the Organization of the Petroleum Exporting Countries (OPEC). Oil dominates the Iraqi economy, contributing over 50% of GDP, 90% of government revenues and more than 95% of exports. Iraq’s crude oil production has been little affected by the ongoing war against IS, which helped to drive strong real GDP growth of about 5% in 2016, alongside an increase in exports. The deal agreed with OPEC to reduce oil output in November 2016 has now been extended until March 2018. We expect the cuts to output to weigh on growth in 2017. Nevertheless, we expect the OPEC deal to lead to only marginally declining oil production over the course of 2017.

Iraq’s oil production in 2016 was estimated at 4.5 million barrels per day (bpd), compared with 3.5 million bpd in 2015. We expect oil production to remain close to these levels in 2017-2020, as increasing oil output to more than 4.5 million bpd would require significant investment, contrary to the authorities’ fiscal consolidation plans. Nevertheless, we project Iraqi oil exports to reach 3.8 million bpd by 2020, substantially up from 3 million bpd in 2015 and 2.5 million bpd in 2014. In line with the 2017 production cuts, we now expect real GDP growth to contract by 0.5% this year, before rising to 1.5% in 2020 as oil production growth recovers, gradually reflecting the impact of the oil investment cuts since 2015.

The non-oil economy contracted sharply in 2016 because of the disruption of trade between the regions, destruction of infrastructure, reduced access to electricity, the general security situation and political uncertainty. We project non-oil growth will remain below 1% for at least the next two years. Our updated economic projection also points to a weakening trend for real per capita GDP, for which we estimate a 0.5% contraction as a weighted average over 2011-2020. This growth rate is below that peers that have similar GDP per capita. We expect overall GDP growth to remain subdued in 2017-2020 owing to the unstable political and security situation, the effects of fiscal consolidation, and weak non-oil growth.

Flexibility and Performance Profile: Full disbursement of the IMF program, alongside fiscal consolidation, should preserve the level of reserves.

The $5.4 billion International Monetary Fund (IMF) program has been crucial to Iraq’s fiscal situation. We expect the IMF will likely disburse the full amount over the three-year timeline.

We believe that the fiscal consolidation program, supported by the IMF, will help narrow fiscal deficits and preserve the level of foreign reserves.

The internal and external shocks – the sharply lower oil revenues and the IS conflict – that Iraq has faced since 2014 have weakened public finances. Double-digit fiscal deficits since 2015 resulted largely from falling oil revenues, which reduced to 32% of GDP in 2016 from 39% in 2014. Moreover, increased fiscal spending, including high military and humanitarian expenditures, has climbed to 37% of GDP in 2016 from 27% in 2014. We project the general government fiscal deficit at 12.7% of GDP in 2017, down from 13.3% of GDP in 2015 and 13.6% in 2016. We assume the government will continue implementing the fiscal consolidation measures supported by the IMF. We project the fiscal deficit to decrease to 2.6% of GDP in 2020, largely stemming from the improvement in oil revenues and broadening of the tax base. Customs revenues and tax collection are expected to increase as the government regains control of some areas occupied by IS. On the expenditure side, the government will contain non-oil primary spending mostly by reducing the wage bill through natural attrition, controls over pension beneficiaries and continued postponement of lower-priority non-oil investment.

We think that the IMF’s Staff-Monitored Program, approved in December 2015, helped restore some order to public finances and paved the way to the current $5.4 billion IMF financing agreed in July 2016. In December 2016, the IMF disbursed about $618 million following the completion of the first review of Iraq’s reform program. In August 2017, the IMF’s board approved the second disbursement. Despite Iraq’s failure to meet all of the IMF conditions, it has made efforts to reduce public spending, and we expect the $5.4 billion will likely be disbursed in full over the program’s three-year timeline.

The IMF program was crucial to Iraq’s fiscal situation with the sharp drop in oil prices. It unlocked further budget financing from both official and unofficial creditors. The World Bank, for example, agreed to a $1.5 billion loan in December 2016. In addition, the Iraqi government successfully issued a $1 billion international bond with a 100% U.S. government guarantee in January 2017, and managed to issue another $1 billion Eurobond without the U.S. government guarantee in July 2017 – its first independent bond since 2006. Previous attempts to issue an international bond in 2015 and 2016 failed because of the high premium requested by investors. The IMF and the World Bank pledges, and other support from Iraq’s international partners, among other things, have helped reduce the risk premium on Iraqi debt.

Domestic issuance remains the main funding source for the government’s financing requirements in 2017. We expect most of the debt will be taken up by Iraq’s commercial banks, led by the two largest state-owned banks Rafidain Bank and Rasheed Bank. We anticipate that the banks will fund these purchases by incremental deposit growth and by repurchase operations with the Central Bank of Iraq (CBI). We project government net debt will peak at 70% of GDP in 2019. Our estimate of government liquid assets of about 17% of GDP largely comprises government deposits with domestic commercial banks. Iraq’s debt stock has benefited from an 80% haircut that the government negotiated with its Paris Club creditors in 2003-2004.

The liabilities and guarantees of the domestic banks appear high compared with the fair value of their assets, and we view the risk stemming from the financial sector as a moderate contingent liability for the government. In addition, the Iraqi nonfinancial public sector includes a large number of state-owned entities (SOEs), which present a burden for the government budget. The potential fiscal cost of the contingent liabilities of state-owned banks and entities is hard to estimate, however, due to their poor reporting.

As a result of the drop in oil prices, we project the current account to show a deficit of about 2% of GDP in 2017, down from a surplus of 11% of GDP in 2014. We project the deficit to remain at about 2% of GDP in 2017-2020 due to rising export revenues, and will continue to be partly financed by drawings on reserves. Iraq’s foreign exchange reserves have declined from about $66 billion at end-2014 to about $45 billion at end-2016. We estimate reserve coverage of current account payments at more than seven months over 2017-2020.

We forecast external debt, net of public and financial sector external assets, at about 40% of current account receipts (CARs) in 2017 and we estimate gross external financing needs as a percentage of CARs and usable reserves at about 60% over the same period. We note that there are only limited balance of payments and international investment position data available for Iraq, which reduces the visibility of external risks, in our view. We also assess the concentrated nature of Iraq’s exports as exposing the country to significant volatility in terms of trade movements.

The security situation and the drop in oil revenues have led to a sharp deceleration in public spending and low private sector consumption, resulting in subdued inflation. We expect inflation to remain about 2% in 2017-2020. We expect that the CBI will maintain the dinar’s peg to the U.S. dollar, albeit with minor fluctuations, unless financing conditions are more difficult than we currently expect. While the peg has helped control inflation, it limits the CBI’s monetary flexibility, in our view. Gross international reserves have fallen to an estimated 86% of the monetary base at year-end 2016 from 124% in 2013. They are projected to reach 77% at year-end 2017. (S&P 25.08)

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11.6 QATAR: IMF Team Completes a Staff Visit to Qatar

An IMF team Doha from 13 – 20 August to take stock of recent economic developments since December 2016. At the conclusion of the visit, the IMF issued the following statement:

“The Qatari economy and financial markets are adjusting to the shock associated with the 5 June measures imposed following the diplomatic rift with some trading-partner countries. The measures led to a sharp contraction in imports in June (40% year-over-year), with a slight recovery in July. Efforts to diversify sources of imports and external financing and enhance domestic food processing are accelerating. As a result of the authorities’ quick response, some trade has been re-routed and alternative sources of food supply have been established, allaying fears of potential shortages. The initial concern that trade disruptions could impact the implementation of key infrastructure projects has also been mitigated by the availability of an inventory of construction materials and of alternative sources of imports.

“Nevertheless, non-oil growth is projected to moderate to 4.6% in 2017 from 5.6% in 2016, due to the ongoing fiscal consolidation and trade diversion. Over the medium term, non-hydrocarbon GDP growth is expected to reach 4.8%, as structural reforms are implemented. Headline inflation remains subdued (0.8% year-on-year-basis in June) even though transportation (8.9%) and food costs (2%) have edged up and delays caused by rerouting trade have raised operational costs for some businesses. Over the longer term, the diplomatic rift could weaken confidence and reduce investment and growth, both in Qatar and possibly in other GCC countries as well.

“Fiscal consolidation is proceeding, underpinned by current expenditure cuts and an increase in non-oil revenues. The central government deficit is projected to decline to 5.9% in 2017 from 8.8% in 2016. The 2018 budget is expected to continue with gradual fiscal consolidation, focusing on the introduction of key tax policy and administration measures, including the introduction of a VAT and excises during the first half of 2018 and further rationalization of recurrent expenditures. The current account position is projected to improve to a surplus of about 3.9% of GDP in 2017 from a deficit of 7.7% in 2016, on account of contraction in imports and recovery in oil prices.

“Qatar’s banking sector remains sound, with high asset quality and strong capitalization. In the aftermath of the diplomatic rift, banks’ liabilities to non-residents fell sharply. The impact on banks’ balance sheets was mitigated by liquidity injections by the Qatar Central Bank and increased public sector deposits. These reactions reflected effective coordination and collaboration among key government’s agencies. Qatar monetary authorities stand ready to meet any future withdrawal of non-resident deposits.

“Structural reforms are progressing. The Supreme Council for Economic Policies and Investment has approved the second national development strategy, with enhanced focus on economic diversification. On labor and residency reforms, Qatar recently announced a visa-free entry program for 80 nationalities to stimulate tourism, created a new permanent-resident status for foreigners and has approved a new law to protect domestic staff.” (IMF 30.08)

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11.7 QATAR: State of Qatar Ratings Affirmed at ‘AA-/A-1+’; Outlook Negative

On 25 August 2017, S&P Global Ratings affirmed its ‘AA-/A-1+’ long- and short-term foreign and local currency sovereign ratings on the State of Qatar. The outlook is negative. The ratings were removed from CreditWatch with negative implications, where we placed them on June 7, 2017. The transfer and convertibility (T&C) assessment is ‘AA’.

Outlook

The negative outlook reflects our view of the potential consequences of the boycott on Qatar’s economic, fiscal and external metrics, especially if the boycott is tightened or prolonged.

We could lower our ratings on Qatar if the boycott reduces economic wealth levels to an extent that we no longer assess GDP per capita as a sufficient cushion to offset Qatar’s weak trend growth rate. We could lower the ratings if policy predictability in Qatar were to become more uncertain. In order to support its economy and banking system, the Qatari government is liquidating and utilizing part of its fiscal assets. If our estimate of the government’s liquid assets were to fall substantially, we could also lower the ratings.

We could raise the ratings if we saw domestic institutions mature faster than we expected, alongside significant improvements in transparency regarding government assets and external data quality.

Rationale

We affirmed the long- and short-term ratings on Qatar at ‘AA-/A-1+’. This reflects our expectation that the authorities will continue to actively manage the impact of the boycott while preserving Qatar’s core rating strengths, including strong public finances. While we expect that economic growth will slow as a result of the boycott, we still expect the government’s infrastructure plan to underpin economic expansion and to partly offset low confidence and reduced consumption. The government has taken measures to support confidence in Qatar’s banking system, including the repatriation of deposits previously held abroad into the domestic banking system belonging to the sovereign wealth fund Qatar Investment Authority (QIA). We expect further nonresident deposit outflows as they mature, which we expect will continue to happen in an orderly manner, limiting the likelihood that substantial additional support from the government to the banks would be needed. We do not expect the government’s fiscal flow metrics to be materially altered by the boycott. Finally, while we expect external finances to weaken in the short term, higher oil price assumptions from 2019 and an assumption that measures will not escalate further, should underpin an improving picture in the outer years of our forecast through 2020.

Institutional and Economic Profile: Government policies will remain supportive of economic growth

Decision-making is centralized at the level of the emir and the ongoing boycott complicates policy predictability, in our view. However, we expect government policy to remain supportive of economic growth and fiscal metrics to remain strong.

Under our base-case, we assume that the current boycott will continue for an extended period, but will not materially escalate.

We expect that economic growth will slow but the government’s infrastructure plan will continue to support economic activity.

We expect the authorities to continue with key macroeconomic policies of fiscal consolidation and the economic-growth enhancing $200 billion infrastructure development plan for 2014 – 2020. However, with the boycott in place, additional fiscal efforts may be required. Qatari authorities’ policy response to falling oil prices since 2015 has been relatively strong and included reigning in current expenditures, merging line ministries and implementing numerous cost-saving initiatives within its core government-related entities (GREs). In comparison with regional peers, fiscal deficits have been modest as a result and their financing strategy clear.

In response to the boycott, the government is using some of its assets to support the economy and banking system, which has significantly reduced potential banking system volatility. We note that the Qatari banks host a substantial amount of nonresident deposits and interbank exposures. Should these be withdrawn at maturity, as we currently expect, the government may liquidate more of its assets to deposit cash with the banks. State-owned enterprises may also require government financial support if the boycott is extended or prolonged.

In our view, the current tensions weaken the cohesiveness of the Gulf Cooperation Council (GCC) and complicate policy predictability, particularly for Qatar. These changes were reflected in our decision on June 7, 2017, to lower our rating on Qatar from ‘AA’. Qatar has indicated that it will not meet the demands set by the boycotting nations but that it is willing to engage in a dialogue. Currently, we do not expect either Qatar or the boycotting nations to change their stance.

Domestic political and social stability prevails in Qatar, despite what we view as only gradual political modernization and a highly centralized decision-making process. In our view, the country’s public institutions are still relatively undeveloped compared with those of most ‘AA’ category rated sovereigns. Executive power remains in the hands of the emir. In our view, the predictability of future policy responses is tempered by weak political institutions, although in our base case we assume that policy will continue to focus on prudent development of the hydrocarbon sector, alongside further economic diversification. In addition, material data gaps exist and transparency is limited by international standards. In particular, the government neither discloses nor reports the level of its fiscal assets.

Supporting the ratings, Qatar holds the third-largest proven natural gas reserves in the world and is the largest exporter of liquid natural gas (LNG). We expect Qatar’s reserves to provide many decades of production at the current levels. GDP per capita is currently among the highest of rated sovereigns, estimated at $58,000 in 2017. The hydrocarbon sector contributes about 50% of Qatar’s GDP, 75% of government revenues (oil and gas taxes and royalties, plus dividends from Qatar Petroleum), and 85% of exports.

We note that real GDP per capita trend growth is weak, with our 10-year weighted average at -2.5%, mostly reflecting both high population growth (related mainly to the construction sector) which has averaged 8.7% over the past five years, against real GDP growth of 3.8% over the same period. GDP per capita levels have also fallen as a result of our new growth estimates. We have also lowered our growth projections since our last review to account for the disruption caused by the boycott. Our estimate includes static gas production and weakened business activity and confidence as a result of ongoing tensions as well as lower private sector consumption. However, we expect the government’s infrastructure program to support economic growth, in addition to the activities of a new petrochemicals refinery. The government has also implemented measures to help boost growth in the tourism sector, including the introduction of less-onerous visa regulations. Should GDP per capita fall further, we could assess the cushion of currently very high economic wealth levels as insufficient to offset Qatar’s weak trend growth rate.

We do not include the recent lifting of the moratorium on Qatar’s North Field in our projections because the potential related revenues fall outside of our rating horizon through 2020. However, we understand that as a result of the lifting of the moratorium, the government expects Qatar’s gas production to increase by 10% by 2022.

Flexibility and Performance Profile: Wider external imbalance likely, but no material deviation in fiscal performance expected.

We expect a slightly wider external imbalance as a result of the boycott, but trade between the boycotting nations and Qatar is relatively limited.

Outflows of nonresident funding from Qatar’s banks have totaled some $15 billion (9% of GDP) in the first half of 2017, but public sector inflows have totaled $19 billion (12% of GDP) over the same period.

While pressures may emerge, we expect no change to Qatar’s monetary arrangements.

We do not expect a material deviation in fiscal performance and we expect that government assets will remain a core strength.

Qatar’s goods exports to the boycotting nations are relatively limited (10% of total); most of its gas receipts come from Asian customers. Furthermore, the United Arab Emirates accounts for 6% of exports, including gas exports through the Dolphin pipeline, which we do not expect to be affected. Therefore, we expect that the drop in Qatar’s export earnings will be manageable. On the import side, Qatar has found alternative sources of goods that previously arrived from boycotting nations, albeit at higher prices. We expect that these factors together will lead to a widening in the current account deficit.

As we pointed out in our March 2017 update, nonresident deposits had increased substantially over 2016, and acted as a financing line for the government, thereby weakening our external stock metrics. This trend started to reverse from February 2017 and outflows accelerated after the boycott started. We expect the trend of outflows to be substantial and to continue. GCC exposures in Qatari banks total about 20% of total external liabilities (roughly $100 billion). While Qatari banks are well capitalized and can withstand substantial withdrawals, the government has supported banks by repatriating some QIA deposits previously held abroad into the domestic system (part of the total $19 billion inflow, which also comprises repatriated deposits from state-owned enterprises), which we understand is designed to shore up confidence. Nonresident outflows appear to be taking place in an orderly manner. Any escalation of the boycott measures could accelerate this outflow and result in more material support, which would weaken Qatar’s external stock position.

The use of QIA assets also impacts Qatar’s fiscal position by reducing government assets. However, this is offset in our ratios by a lower GDP estimate. We therefore expect Qatar’s strong net asset position to be maintained over the forecast. In line with external flows, the bulk of Qatar’s fiscal receipts are from hydrocarbon sales, and, as such, we see a limited impact on Qatar’s fiscal balance over the forecast period.

We also expect that higher hydrocarbon prices from 2019 will boost fiscal revenues and contribute to a gradual reduction in fiscal deficits. Still, we expect that the fiscal deficit will be about 8% of GDP in 2017 at the central government level, gradually falling to 3% by 2020, and in turn we expect that debt will increase before starting to reduce. We include investment income estimates on government assets in the general government balance and exclude them from the central government balance.

Commensurate with increased debt, interest expenditures account for over 5% of revenues. Providing some upside to these projections is the strong possibility that the delayed gas project – Barzan – could come online over 2017, which could boost Qatar Petroleum’s revenues and ultimately those of the government, in addition to bolstering growth. We expect the financing needs created at the central government level will be met by further debt issuance rather than drawing on assets. To this end, the government has increased its domestic debt issuance substantially over 2017 thus far, as opposed to borrowing directly from banks or through external debt issues. Our base-case revenue and expenditure forecasts reflect broadly flat hydrocarbon production estimates – at 3.5 million barrels of oil equivalent per day – and high capital expenditures, but continued control of current expenditures (which almost halved over 2016).

We believe the fixed exchange rate of the Qatari riyal to the U.S. dollar leads to limited monetary flexibility, and we expect the currency peg to be maintained. Qatar’s real effective exchange rate has appreciated by 14% since early 2014. In our view, this represents a deterioration in international competitiveness of the country’s modest tradeables sector and a dampening of nonhydrocarbon GDP growth, absent any offsetting factors such as improved efficiency or technological capacity. (S&P 25.08)

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11.8 EGYPT: Moscow & Cairo Discuss Boosting Ties

Maxim A. Suchkov posted in Al-Monitor on 27 August 2017 that with Moscow thinking about its post-Syria presence in the Middle East, building stronger ties with Egypt seems to be on the agenda.

On 21 August, Egyptian Foreign Minister Sameh Shoukry visited the Russian capital to meet with his counterpart Sergey Lavrov. Prior to the visit, both parties sent strong and courteous signals of the importance of the encounter. Cairo emphasized that Moscow would be the first stop on Shoukry’s three-day trip, which included Lithuania and Estonia, while Moscow had been saying that Egypt is one of Russia’s leading partners in the Middle East and North Africa and that the two countries have been bound together by years long traditions of friendship, mutually beneficial cooperation and concurrence of approaches to regional and international issues.

After the meeting, Lavrov kicked off a press conference with Shoukry with the same statement on the importance of Egypt as Russia’s top regional partner. Essentially, as Moscow raises its voice on a number of regional issues, having Cairo share its vision is vital for the ultimate success of Russian efforts. In this respect, it’s no wonder Lavrov and Shoukry spent half of the time in the talks discussing Syria, Libya, Yemen and the Qatar crisis. Recently, state-operated RIA Novosti news agency, referencing a source in the Russian Foreign Ministry, reported the ministry was preparing Lavrov’s tour of the Gulf, set for 27 – 30 August, with the goal of placing Russia at the center of mediation efforts in the Qatar crisis. If this is the case, then checking in with Egypt — one of the countries boycotting Qatar — was something Moscow deemed necessary to do before Lavrov’s departure to the region.

Similarly, on the Yemeni track, hours into the Lavrov-Shourky discussions, Russian Deputy Foreign Minister Mikhail Bogdanov hosted Yemen’s newly appointed ambassador to Russia, Ahmed al-Wahishi. The two discussed the ongoing civil war in Yemen and the prospects of settling the conflict, advocating “a comprehensive national dialogue with due regard for the interests of all major political forces.”

In Syria, Egyptians were instrumental in helping the Russians set up de-escalation zones in eastern Ghouta and Homs by providing a platform for several meetings in Cairo. Now Russia is engaging with Egypt to promote the formation of a united Syrian opposition delegation — the next immediate task on Moscow’s Syria to-do list, which is taken very seriously in the Kremlin. According to a news release from the Russian Foreign Ministry, Lavrov declined to dwell on details of the process, only saying, “We are working with other partners too on this, including Saudi Arabia.”

On Libya, where Russia and Egypt are working closely together, Lavrov said Moscow and Cairo had an “identical understanding of the need to prevent the isolation of any Libyan politicians, key figures or tribal leaders from the process, which should lead to restoring Libyan statehood.” Russia continues to insist that participation of “all Libyan political and tribal groups, without exception, is a precondition for progress” in settling the conflict.

Top Russian and Egyptian diplomats discussed the Palestinian-Israeli conflict, but Lavrov made only a short reference to it, saying Russia wants the talks to resume once the “proper conditions” are created “to prevent any unilateral steps.” The restrained reaction of the Russian minister is understandable, since President Vladimir Putin was going to meet Israeli Prime Minister Benjamin Netanyahu in Sochi two days later, with both parties expecting an uneasy conversation over Iran’s increasing role in Syria. Putin and Netanyahu discussed Iran, Syria and other issues on 23 August.

The day after Lavrov’s meeting with Shoukry, Russian Deputy Foreign Minister Sergey Ryabkov met in Moscow with Israeli Ambassador to Russia Gary Koren. What is particularly striking about the encounter is that Ryabkov is primarily running the American track of Russian foreign policy; under ordinary circumstances, Bogdanov would meet with an ambassador from a Middle Eastern country.

The second part of the negotiations between Lavrov and Shoukry focused entirely on bilateral issues. Shoukry passed on a personal message from Egyptian President Abdel Fattah al-Sisi to Putin reiterating Cairo’s commitment to expanding contacts with Russia in “all areas of mutual interest,” including beefing up anti-terrorist cooperation.

The issue of direct flight connections between Russia and Egypt has been clouding progress on the bilateral agenda since the flights were suspended after a bomb exploded on a Russian passenger jet over the Sinai Peninsula on 31 October 2015. The Islamic State (IS) claimed responsibility. Restoring direct flights has been a subject of continual negotiations, including during the visit of Lavrov and Defense Minister Sergei Shoigu to Egypt in May. Egyptian officials believed Moscow had been nitpicking over criteria for resuming flights. An Egyptian source close to the negotiation process told Al-Monitor on the condition of anonymity that many in Cairo thought the real reason behind Russia’s reluctance to restore the flights was Moscow’s desire to give Russia’s own resorts — particularly in Sochi, and now in the Crimean Peninsula — a chance to attract tourists. Ankara expressed a similar opinion when Moscow suspended charter flights for Russian tourists to Turkish resorts following Turkey’s downing of a Russian jet on 24 November 2015.

Another issue of mutual interest discussed during Shoukry’s visit was Egypt’s proposed first nuclear power plant, which Russia’s State Atomic Energy Corp. (Rosatom) is to build at Dabaa. Egypt’s State Council is still running a legal checkup of the contract with Russia, and local environmental groups are raising concerns over potential contamination of the area. The plant’s first power unit was scheduled to begin producing energy in 2024, but this could be delayed as Rosatom says contracts that are “near completion” still need to be signed to start actual construction. Moscow and Cairo have other major projects on the table that the Joint Russian-Egyptian Commission on Trade, Economic and Scientific-Technical Cooperation, convening in September, is supposed to kick-start. One initiative in which Moscow has a particular interest involves setting up an industrial zone along the banks of the Suez Canal that will include Russian companies.

Maxim A. Suchkov is editor of Al-Monitor’s Russia-Mideast coverage and an expert at the Russian International Affairs Council and at the Valdai International Discussion Club. Formerly he was a Fulbright visiting fellow at Georgetown University (2010-11) and New York University (2015). He is the author of the “Essays on Russian Foreign Policy in the Caucasus and the Middle East.” (Al-Monitor 27.08)

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11.9 EGYPT: Free Trade Zone in the Context of Growing Russia-Egypt Ties

Anna Borshchevskaya posted on the TWI on 25 August that the agriculture and military sectors of both countries stand to benefit from an agreement, even if the zone will not be an overall economic success.

Russia and Egypt will hold an intergovernmental commission meeting on trade and economic cooperation in September. Russian foreign minister Sergei Lavrov hopes the meeting will advance bilateral discussion about an industrial trade zone in East Port Said on the Suez Canal and expects negotiations between Egypt and the Russia-led Eurasian Economic Union to begin after one to three months of consultations.

Lavrov’s comments came after a meeting in Moscow on 21 August with his Egyptian counterpart, Sameh Shoukry, which focused on a number of bilateral cooperation issues. These discussions are the latest signal to the West that Russia is expanding its influence in the Middle East.

There is no denying the recent growth of Russia-Egypt ties. Bilateral trade had reached $5.5 billion in 2014, almost double the previous year, according to Russian trade statistics. The two countries held their first joint naval drills in June 2015, and joint military exercises in October 2016. Reportedly, Moscow had deployed special forces to Egypt on the Libyan border in March of this year, which signaled Russia’s growing role in Libya with Egypt’s blessing. Cairo has also come to accept Moscow’s position in Syria, in support of President Bashar al-Assad. Putin certainly won’t criticize Egyptian president Abdel Fattah al-Sisi on human rights.

Military cooperation with Moscow matters to Cairo. U.S. arms deals don’t allow for secondary sales—what Egypt buys has to stay in Egypt. No such strings come with Kremlin arms deals, and in the context of Egyptian crony capitalism, arms deals with Russia can appear more attractive. Some of Moscow’s weapons are better suited for Egypt’s needs than American ones, and from an Egyptian perspective, a Russian MIG-29 is also simply easier to maintain than an American aircraft.

The Kremlin also seeks to increase economic ties with Egypt through trade and energy projects. Here it is bound to encounter greater difficulties. Enter the trade zone. The Russian press is touting its benefits. Earlier this month, one publication said it is “the first major industrial cluster in the far abroad since the Soviet Union times.” Others highlight that the zone will be an important base for Russian investment into African and Middle Eastern markets. Russian Deputy Industry and Trade Minister Georgy Kalamanov said in July of this year, “Africa is currently in the spotlight, it is a serious market worth fighting for.” He urged Russian companies to return to Soviet practices of tapping African markets, as paraphrased by TASS. Few details are available about what markets are involved, but Russia’s Economic Union focuses on energy, weaponry, agriculture, and raw materials; thus, the trade zone will likely focus on these sectors.

If the trade zone eventually does materialize, it is bound to disappoint, at least from an economic perspective. Russia-Egypt talks of a trade zone go back at least six years. They were suspended in 2011 but resumed in March 2014, days after Russian President Vladimir Putin annexed Crimea from Ukraine. The West had quickly responded with sanctions against Putin’s aggression. In retaliation, Putin banned certain Western food products and turned east. Negotiations froze again in late 2015, when a Russian passenger jet exploded that October after it left the Sharm El Sheikh International Airport. ISIS took credit for the attack. But in February 2016, the two countries signed a memorandum of understanding on the industrial trade zone, and talks picked up again, culminating in the most recent discussions.

The Russian economy is showing modest signs of improvement for the first time in years. The World Bank forecasts slightly less than 1.5% growth between 2017 and 2019 for two reasons: rising oil prices and macroeconomic stability. Indeed, as Russia economist Anders Aslund, a senior fellow at the Atlantic Council, told me earlier this month, “Macroeconomic stability [in Russia] is complete. There are no current account problems, inflation is down to 4% and unemployment is at 5%. The problem,” he said, “is that there’s no dynamics. Russia is not engaged in any meaningful reform.” Indeed, crony capitalism dominates Russia. This current situation suggests that the economy won’t be collapsing any time soon, but it also won’t improve significantly. Russia was never particularly good on trade policy anywhere, and absent meaningful reform there is no reason to think it will behave differently with Egypt.

Egypt is facing its own economic problems. Crony capitalism and corruption also dominate, while the military plays a major role in the economy, which means decisions are made not based on efficiency but instead on the opaque wishes of certain military officials. Egypt has massive debts, and the IMF is pressuring Cairo to resolve balance of payment issues. Putting two declining economies together is not going to generate growth. The trade zone likely will not deliver the advertised results and, in the end, will do almost nothing to justify the political and fiscal capital expended in the effort, Egypt expert Robert Rook, director of interdisciplinary studies and a professor of history at Towson University, told me this month.

The Egyptian economy is worth roughly $336 billion, about a quarter of Russia’s $1.3 trillion economy. Yet Egypt’s population is growing. It is slightly under 100 million now, the majority under forty. Demographers predict the country’s population will reach 150 million by 2050. Meanwhile, Russia’s 144 million population is aging and declining, while Russia’s most talented residents are leaving the country. Demographers project Russia’s population will fall to as low as 113 million by 2050. In this context it is difficult to see how Russia or Egypt will provide the necessary infrastructure or create enough jobs to make the trade zone a success.

Beneath the surface, tensions occasionally arise between Moscow and Cairo. Egypt is the largest buyer of Russian wheat, yet several months ago Cairo temporarily boycotted this crop under the pretext of protecting its own crops and citing zero tolerance for the ergot fungus common to wheat. International standards allow for a minute portion of ergot, and Russian wheat is in compliance with these requirements. The real reason most likely has been Cairo’s frustration with Moscow’s policies. For instance, before the downing of the Russian jet in October 2015, Egypt was among the top two most popular destinations for Russian tourists. That tourist flow has been suspended and Cairo is eager for it to return. Moscow insisted that its own security specialists inspect Egyptian airports before flights from Moscow can resume, which insulted Cairo. Moreover, after several inspections, Russian inspectors found Egyptian airports dissatisfactory, much to Cairo’s chagrin, and it seems unlikely that Russian tourists will return to Egypt in the near future, despite much talk to the contrary.

But don’t dismiss the trade zone entirely. Should it materialize, agriculture (mainly wheat) and military sectors still stand to benefit, even if the zone won’t be an overall economic success. Moreover, the zone may bring political benefits to both Moscow and Cairo, especially in the overall context of growing Russia-Egypt ties. For years Moscow has taken advantage of the downturn in U.S.-Egypt relations and stepped in to fill the vacuum. Sisi will continue to seek ways to work with Putin, and send a message to the West that he has other options, even as Putin occasionally slights him. After all, Egypt will still need to buy wheat.

To be sure, there will always be limits to what Moscow can do for Egypt. “Many of the challenges Egypt faces internally require the country to make major shifts in its internal security and economic policies,” Brian Katulis, Middle East expert and senior fellow at the Center for American Progress, told me in an email. Moreover, Russia has no capacity to replace the U.S., and Cairo will continue to see the U.S. as its main strategic partner. But Putin doesn’t need to replace the U.S. to inflict damage to U.S. interests.

Anna Borshchevskaya is the Ira Weiner Fellow at The Washington Institute. (TWI 25.08)

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11.10 EGYPT: Despite Egypt’s Wheat Self-Sufficiency Plan, Imports Increase

Ahmed Fouad posted on 31 August in Al-Monitor that Egypt is importing unprecedented quantities of wheat, despite a recent expansion in cultivated lands and wheat cultivation, raising doubts about the feasibility of the government’s plans to achieve wheat self-sufficiency.

The spokesman of Egypt’s Ministry of Supply, Mamdouh Ramadan, in an attempt to reassure citizens, said on 22 August that “Egypt’s wheat reserves are sufficient to cover the country’s needs until the end of February 2018.” On the same day, Mohammed Suwaid, the media adviser of the Ministry of Supply, said during a talk show on satellite channel ONTVLive, “The reserves are safe and exceed the global limit.”

However, it seems that the officials boasted about the wheat reserves in an attempt to reassure Egyptians, without addressing the price paid to obtain these strategic reserves. Indeed, the Ministry of Supply procured record quantities of imported wheat in July, which by the end of the month reached about 1.245 million tons supplied to Egypt through four tenders.

On 17 August, Ramadan announced that the General Authority for Supply Commodities (GASC) affiliated with the Ministry of Supply signed a contract through a state tender to purchase 355,000 tons of Russian and Ukrainian wheat, bringing the total wheat imports to 1.6 million tons. GASC had launched two state tenders, on 15 and 29 August to import unspecified quantities of wheat from global suppliers in September and October 2017, raising doubts about the achievement of the government’s wheat self-sufficiency plan over the last four years, as outlined by President al-Sisi in May 2013.

In October 2014, the Ministry of Agriculture announced that it aimed to increase the wheat cultivation area by 200,000 acres to reach 3.5 million acres in 2015. This is in addition to the wheat cultivated by the armed forces and the ministry as part of the 1.5 million acres reclamation project launched by Sisi in the city of Farafra on 30 December 2015. The Ministry of Supply started purchasing wheat harvested from this project on 12 April 2017.

Sisi’s wheat self-sufficiency plan is also based on a successful experiment by the National Water Research Center of two wheat planting seasons, in February and September, rather than only one in December. The experiment consists of cooling dry wheat seeds before planting them in the soil, so they can withstand the heat during hot periods, thus enabling two consecutive harvests per year.

However, doubts shroud the self-sufficiency plan, especially as Minister of Supply Ali Meselhy announced during a 29 July press conference a plan by the ministry to import 7 million tons of wheat in 2017-18, despite the increase in the wheat cultivation area and the double planting season. The Egyptian government imported about 5.580 million tons in 2016-17 and about 4.440 million tons in 2015-16.

The head of the Egyptian General Farmers Union, Rushdi Abu al-Wafa, justified the targeted increase of wheat imports because of the drop in domestic wheat to the government in 2017. He told Al-Monitor, “In 2017 domestic wheat supply to the government fell to about 3.4 million tons from 5.2 million tons in 2016. Domestic wheat has not been supplied to the government since some private sector traders are offering higher purchase prices — not to mention the government’s failure to pay the farmers’ dues on the agreed payment dates, which pushed them to refrain from concluding contracts with the government.”

The undersecretary of the Egyptian parliament’s Agriculture Committee, legislator Raef Tamraz, told Al-Monitor, “The Ministry of Supply is showing a delay in pricing wheat supply and concluding the relevant contracts. The ministry should set prices and conclude contracts for the purchase of wheat before planting it, as does the private sector.”

Ramadan said, “A large part of the contracted quantities with the farmers last year did not make it to the state silos. Deals were signed whereby some farmers got money for the wheat they were supposed to supply to the state, but which was sent to the private sector instead.” He added, “This year, the Ministry of Supply is strictly controlling the quantities supplied locally to the state silos. A large part of the quantities said to be supplied last year were not and perhaps this is why the quantities supplied locally dropped.” Ramadan was referring to the wheat corruption scandal that led to the resignation on 25 August 2016 of former Minister of Supply Khalid Hanafi.

A source at the Ministry of Supply told Al-Monitor on condition of anonymity, “The main reason for the importation of larger quantities of wheat is the government’s desire to constitute greater reserves to avoid any shortage crises. The imported quantity will not be used in the fiscal year 2017-18. The state may use these imported quantities in the following year, which will reduce the wheat import bill on the 2018-19 budget.”

Nader Noureddine, a professor of water resources and irrigation at Cairo University’s agriculture faculty, told Al-Monitor, “The two wheat planting seasons experiment entails a loss of millions of tons of wheat because it is not applicable to Egypt. Talking about the success of this experiment is just a media hype. The wheat planting season is in December only. Early planting in September in light of the annual rise in temperatures puts the wheat crop at risk, as this crop will probably not make it until a drop in temperature in December. Also, the crop planted in February will not withstand the heat in May and June.”

He added, “This experiment was successful in some European countries, Canada and the United States since the temperatures in these countries do not reach as high as those in Egypt.”

Egypt’s delay to achieve wheat self-sufficiency since 2013 and its importation of record quantities of wheat could be due to the corruption scandals in previous years, the poor handling of pricing and payment policies with the farmers or the attempts to create media hype about the wheat reserves. However, the expansion of cultivated lands has been praised by the experts, raising hopes that wheat self-sufficiency is attainable, as long as the state overcomes the current obstacles.

Ahmed Fouad is an Egyptian journalist working as newsroom assistant manager for Al-Shorouk. He specializes in coverage of Islamists and analysis of the political situation in Egypt, especially after June 30, 2013. (Al-Monitor 31.08)

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11.11 TUNISIA: Reviving the Tunisian Tourism Industry – Calling on the Force

Silke Wunsch wrote in Qantara on 27 August that Tunisia′s appeal as a holiday destination hit rock bottom a couple of years ago when it became the target of several Islamist attacks. Having rescued a number of Star Wars film sets in south-western Tunisia from sinking into the desert sands, a local tourism agency is now hoping to attract the film series′ considerable fan base.

Luke Skywalker is said to have been raised on a non-arable desert planet, beneath two suns, in a landscape formed by heat, sand and dust.

On the edge of the Sahara, Star Wars director George Lucas found his dream film location and named the film planet after the Tunisian village he discovered there: Tatouine – or Tatooine. More than 40 years ago, the film team set up shop in Tunisia and soon started filming in a variety of locations.

Ong Jmel lies in the southwest of Tunisia. To Star Wars fans, the location is better known as Mos Espa, the galaxy waystation where all the gloomy figures gather. It’s where Luke Skywalker got to know the smuggler Han Solo, with whom he would embark on his adventures. It’s also where Luke’s father, Anakin Skywalker – who later became Darth Vader – was born.

There’s also the small village of Matmata, where Luke Skywalker was raised by his uncle and aunt. The house in the film is actually a hotel which was constructed in such a way as to remain cool in the desert heat – namely, underground.

In the Sidi Driss hotel, tourists can still discover film props and signs of the action, such as switchboards left in the wall. Yellowing posters and photos of the film crew are hung on the wall. Both locations are pilgrimage destinations for Star Wars fans.

Engulfed by the sand

You might think that tourism here would be booming; Star Wars has millions of fans around the world. After all, who wouldn′t relish the prospect of slipping into a Jedi knight costume and setting foot where Luke Skywalker himself once trod?

For many years, that was the case. Then terrorism came to Tunisia and the tourists stayed at home. The town of Mos Espa – a collection of buildings made of wood and papier-mache – were engulfed by the desert sand.

Save Mos Espa, a 2014 initiative by fans, collected donations in excess of $75,000 for the project, a sum handed over to the Tunisian government. Mos Espa was dug out of the sand.

Nevertheless, tourists are still staying away, preferring the sandy beaches in the north of the country to a nearly 500 kilometer drive to catch a glimpse of George Lucas’s desert planet in Tunisia′s arid south.

Asian tourist potential

Loyal fans have not given up, however. Nabil Gasmi of the regional tourism organization CDTOS is continuing work to protect the film set from being forgotten: “We have to. Everyone here in the area profits from the film set and sees it as a part of their inheritance.”

He dreams of turning the region into a tourist magnet – complete with convenience store, museum, film screenings and festivals. The idea is to get as many locals involved as possible, since unemployment, especially among the young, is rife.

In March 2017, the concept was launched at the International Tourism Exchange (ITB) trade fair in Berlin by a delegation of Tunisian tourism managers. They are particularly hoping to attract the interest of tourists from across Asia, as a new wave of adventurous consumers begins travelling the globe in search of the choicest destinations. Indeed, the desert of southern Tunisia could yet prove a goldmine. (Qantara 27.08)

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11.12 TURKEY: Turkish Military Upheaval Continues At Top Levels

Metin Gurcan posted in Al-Monitor on 24 August that the Turkish Defense Ministry stated 22 August that seven generals and admirals of the Turkish military have resigned. The ministry said the resignations were personal initiatives that had nothing to do with a recent round of surprising appointments — and in fact had been received before the 2 August appointments were made — but the popular belief is that these were protests of the growing strength of Gen. Hulusi Akar in the Turkish Armed Forces (TSK).

After Turkey’s Supreme Military Council met on 2 August, noted that the power and influence of Akar, the TSK chief of general staff, had been reinforced and that relations between civilians and the military from now on could better be grasped not from an institutional perspective, but by understanding the personal trust and harmony between Akar and President Erdogan. From now until Akar retires in August 2019, civilian-military relations in Turkey can henceforth be summarized as Erdogan-Akar relations.

Usually, appointments of generals aren’t popular discussion items. But when special forces commander Lt. Gen. Zekai Aksakalli — whose popularity skyrocketed because of his stance against the 15 July failed coup last year — was put into a relatively passive post as commander of the 2nd Army Corps in faraway western Turkey, military appointments became a controversial topic. Just a year ago, Aksakalli had been promoted to lieutenant general, and his star truly shined with his command of Operation Euphrates Shield against the Islamic State in Syria.

The most-asked question of the day was why Aksakalli was placed at such a distance when he is most needed. The most imminent threat from Syria in 2018 that might require Turkey’s intervention on the ground is posed by the Kurdish nationalist Democratic Union Party (PYD). If necessary, Turkey will rely on its special forces and battalion-level combat task forces, along with the Free Syrian Army (FSA) units they have been training. In 2014-2015, Aksakalli commanded urban combat operations on the Sur-Nusaybin front and after 2016 he led cross-border operations at al-Bab. He is recognized as the commander who best knows the region and the threats faced.

There are three factors behind Aksakalli’s new appointment. The first is the tense relations between Akar and Aksakalli. There have been comments that Aksakalli, contrary to what is popularly believed, had not opposed the putschists strongly enough, and his differences of opinion with his superiors while he was commanding Operation Euphrates Shield and his criticism of TSK developments after the coup attempt had become public knowledge. Everyone remembers that in March, Aksakalli — in his deposition about the coup attempt — had said, in what was seen as a dig at Akar: “In the TSK, when you hear of a crisis or an emergency situation, the first thing to do is to issue orders confining troops to barracks. If they had applied this basic rule on July 15, the coup attempt would have been unraveled quickly.”

Several retired senior officers have said that this comment by Aksakalli that directly criticized Akar, his superior, was the beginning of the end.

Adding to Aksakalli’s woes was a damning statement from Lt. Gen. Metin Temel that created doubts about Aksakalli’s supposed “robust stance” against the putschists. Temel, who commands the 2nd Army and is known as the strongest combatant against the attempted coup, said Aksakalli had remained passive during the attempt and went to his own headquarters only the next day, at 11 a.m. July 16.

A number of major problems led to Aksakalli’s rifts with Temel in the field and with Akar at the national headquarters: the deaths of 72 soldiers at al-Bab, the loss of scores of tanks and armored vehicles there, Aksakalli’s ordering special forces to employ armored units — contrary to TSK’s combat doctrine — and consequently, the loss of coordination among ground units.

Much has been said about how Aksakalli blocked putschists from capturing the special forces headquarters by ordering noncommissioned officer Omer Halisdemir to shoot Brig. Semih Terzi, who was leading that attack. Nevertheless, civilian authorities were not pleased by Aksakalli’s absence from his command post that night.

Military sources in Ankara say that the replacing of Aksakalli — who has spent most of his service with special forces and who had been top commander of special forces for the past four years — with Brig. Ahmet Ercan Corbaci, 11 years his junior, reflects the decision of the high command to rejuvenate the special forces.

There are those who believe Aksakalli did himself in by opting to become a media star and refusing to lower his public profile. Retired special forces Col. Coskun Unal, who is now a Turkey analyst for Sidar Global Advisors, said Aksakalli’s appointment to such a passive post is a message to other generals that no officer will be allowed to shine as a public figure, no matter what their record may be. Unal says the recent military promotions and appointments basically scrap TSK’s traditional service lengths, promotions and assignments. Unal believes such ambiguity will consolidate Akar’s control of TSK generals, backed by Erdogan’s green light.

Unal noted that from now on in the TSK there will be a “Gen. Akar factor” and said: “We are talking of a general who grew up under the influence of Islamic intellectuals; who has been close to religious and conservative political circles since his days as a lieutenant; whose 33-year career included only a very short field experience but long and tiring headquarters postings; who lived through one coup, two allegations of coups and one actual coup attempt; and who now has the full support of the government because of his tough attitude toward the [coup organizers]. He now has the task of cleansing the TSK of hidden extremists before he retires in August 2019.”

One question that is not yet answered is how Aksakalli’s surprising removal from the command of special forces will affect operations in Syria. Unal made a critical point: “No doubt the strong ties and harmony Aksakalli and his team had built with the Free Syrian Army will lose momentum. This may also lead to a degrading of FSA’s importance for Ankara.” We now have to wait and see whether Aksakalli’s replacement, Corbaci, will be able to build similarly warm and productive relations with the FSA.

In sum, Aksakalli’s transfer to a placid post far from the action and invisible to public view and the resignations of the seven generals and admirals have fortified the standing of Akar and his close associate, land forces commander Gen. Yasar Guler. These two generals now command a group of obedient young generals who will carry out orders without questioning. Akar’s absolute command and control of the TSK will continue until August 2019, always close to Erdogan.

Whether the tremors in the TSK will continue or calm down depends in part on whether Aksakalli decides to retire, as some predict, or stay in the army. Many of his comrades-in-arms are insisting that he should remain in the army, though his further advancement is highly unlikely.

Metin Gurcan is a columnist for Al-Monitor’s Turkey Pulse. He served in Afghanistan, Kazakhstan, Kyrgyzstan and Iraq as a Turkish military adviser from 2002-2008. Resigned from the military, he is now an Istanbul-based independent security analyst. Gurcan obtained his PhD in May 2016, with a dissertation on changes in the Turkish military over the last decade. He has been published extensively in Turkish and foreign academic journals and his book titled “What Went Wrong in Afghanistan: Understanding Counterinsurgency in Tribalized, Rural, Muslim Environments” was published in August 2016. (Al-Monitor 24.08)

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Fortnightly, 6 September 2017

Fortnightly, 6 September 2017

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