Fortnightly, November 5th 2014

Fortnightly, November 5th 2014

November 5, 2014





1.1  2015 Budget to Be Presented to Knesset Next Week
1.2  Israeli Food Retailers Must Publish All Prices on Internet 
1.3  Netanyahu Says Government Must Serve the Public


2.1  New Plant for Producing F-35 Aircraft Wings Opened Near Ben Gurion 
2.2  VLX Ventures – Telefonica Cooperation for Tech Development  
2.3  Wix Chosen as One 7 Hottest Middle Eastern Startups   
2.4  India Picks Israel’s Spike Anti-Tank Missile Over US Javelin  


3.1  Gap Expands With First Old Navy Stores in the Middle East
3.2  Round Table Pizza Expands Into Bahrain
3.3  Hard Rock has Qatar in Sights in MENA Expansion Plan
3.4  FitLife Brands Announces Middle East Expansion
3.5  Abu Dhabi to Get First Macy’s Outside US


4.1  Israelis Design First Solar Energy eTree 
4.2  UAE’s Masdar Plans $125 Million Wind Farm in Oman 
4.3  Morocco’s First Solar Thermal Station Expected in 2015 


5.1  Jordanian Unemployment Rate Drops To 11.4% in Third Quarter
5.2  Jordanian Government Bloated & Unhealthy  
5.3  Iraqi Economy to Shrink 2.7% in 2014, First Time Since 2003 

♦♦Arabian Gulf

5.4  Kuwait Inflation Rate Hits 30-Month High in September
5.5  Qatar Government Revenue at Record High, Spending Falls 6.6%
5.6  Abu Dhabi’s Inflation Rate Rises to 3.7% in September
5.7  UAE Named Among Most Improved Business-Friendly Economies
5.8  Oman to Bring New Anti-Bribery and Corruption Laws
5.9  Saudi Businesses Call For 2 Year Ban on Returning Expats
5.10  Nine New Sectors Added To Saudi Nationalization Scheme

♦♦North Africa

5.11  Egypt’s Trade Annual Deficit Drops By 22.5% In July
5.12  IMF Cuts Egypt’s Growth Forecast Citing Tourism Concerns
5.13  Egypt & Saudi Sign $350 Million Oil & Power Financing Deals


6.1  Turkish Inflation Hits 8.96% in October, Slightly Higher Than Forecast 
6.2  Turkey’s Trade Gap Narrows By 8.4% in September 
6.3  Turkey’s Defense Spending Reaches $13.2 Billion 
6.4  Turkey Ranks 55 Out of 189 Countries in Ease of Doing Business 



7.1  Tel Aviv Named One of the World’s Top Culinary Cities


7.2  Torah to be Displayed at Religious Exhibition in Abu Dhabi 
7.3  Tunisian Voters Choose Moderates 


8.1  New Israeli Technology Helps Treat Parkinson’s Disease
8.2  CNoga Medical Raises $12 Million 
8.3  MIGAL Announces First Agro-Biomedical Center 
8.4  Kamada FDA Orphan Drug Designation for Graft versus Host Treatment 
8.5  MediWound Study with NexoBrid to Treat Severe Pediatric Burns 


9.1  Mellanox InfiniBand Enables E-Commerce Cloud Hosting Platform
9.2  WakeUp Post-Lunch Drink Wins CPG Editors’ Choice 
9.3  Stratasys & Worrell Accelerate Medical Device Development with 3D Molds 
9.4  RADWIN Wireless Video Surveillance Solutions Secure Texas Border 
9.5  New Stratasys 3D Printers Deliver Improved Navigation & Performance 


10.1  Israeli Food Prices Racing Ahead of OECD
10.2  Israeli Food Prices Racing Ahead of OECD
10.3  2014 Israeli Offerings in US Set All-Time Record

 11:  IN DEPTH

11.1  ISRAEL: Summary of Israeli High-Tech Company Capital Raising Q3/14
11.2  MIDDLE EAST: Mideast Sees Fragile Recovery Amid Conflicts and Transitions
11.3  Arab Countries’ Energy Shortage Caused By Distribution Problems
11.4  JORDAN: Twenty Years of Israeli-Jordanian Peace: A Brief Assessment
11.5  JORDAN: S&P Affirms Ratings at ‘BB-/B’; Outlook Revised To Stable
11.6  OMAN: Oman’s Uncertain Future
11.7  EGYPT: Improving Economy & Stabilizing Politics Reduce Downside Risks
11.8  EGYPT: Egypt’s Beer Industry Toasts Long History
11.9  TUNISIA: Fitch Affirms Tunisia at ‘BB-‘/BB’; Outlook Negative
11.10  MOROCCO: Fitch Affirms Morocco at ‘BBB-‘/’BBB’; Outlook Stable
11.11  MAURITANIA: Statement on the IMF 2014 Article IV Mission
11.12  TURKEY: Vulnerabilities Weigh On Sovereign& Corporate Credit Profiles
11.13  TURKEY: Turkish Government Ramps Up Privatization
11.14  CYPRUS: Fitch Revises Cyprus’s Outlook to Positive


 1.1  2015 Budget to Be Presented to Knesset Next Week

The 2015 budget bill and the economic arrangements bill will be presented for their first Knesset reading on Monday, 10 November in the Knesset plenum.  The opposition factions are expected to stage a filibuster of only a few hours against the bills.  After the vote, the proposals in the economic arrangements bill will be separated for discussion in the various Knesset committees, depending on the topic for discussion.

Over the coming month, the Knesset committees will discuss the law’s provisions until they are ready for their second and third readings in late December.  In contrast to previous years, as decided by Minister of Finance Yair Lapid, the 2015 economic arrangements bill will be confined to budgetary legislation and four reforms.  While limiting the arrangements bill will avoid criticism of Lapid for sponsoring anti-democratic legislation, in the absence of Finance Ministry restraint, there will be no reserve fund and Knesset members seeking allotments for their pet causes are liable to cause budget gaps.

A week afterwards, the 0% VAT bill will be brought to the Knesset plenum for its second and third readings.  This will be preceded next week by a discussion by the Knesset Finance Committee of all the remaining clauses.  (Globes 04.11)

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 1.2  Israeli Food Retailers Must Publish All Prices on Internet

On 3 November, Minister of Finance Lapid and Minister of the Economy Bennett signed regulations for promoting competition among Israel’s food retailers by obliging every large retailer to publish its prices on the internet.  The regulation applies to 19 retailers in Israel.  They will have to publish on the internet prices for all the food items they sell in their stores.  The aim is to enable consumers to compare prices easily and choose from which supermarket to buy.  Retailers will have to update the published prices hourly.

“With the passage of the Food Law, the Consumer Protection and Fair Trade Authority has begun intensive work to formulate regulations that stipulate the technical specifications and the way in which information will be posted and updated on the retailer’s website,” the Ministry of Finance said in a statement, “The Authority’s work in conjunction with the Ministry of the Economy and the Budgets Division at the Ministry of Finance was carried out in consultation with computing experts, and included extensive discussion with the retailers to which the law will apply. Applications developers were also brought in, in the expectation that they will use the information to develop price comparison applications.”  The aim is to develop a special mobile app that will enable the consumer to enter the list of products he or she wants to buy, and use the app to carry out a price comparison and advise which nearby supermarket is the cheapest.  (Globes 03.11)

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 1.3  Netanyahu Says Government Must Serve the Public

Prime Minister Benjamin Netanyahu said to the Israel Democracy Institute Eli Hurvitz Conference that “the government must serve the public, not the other way around.  We will introduce fundamental reform in the public service.”  Netanyahu is waging war on the inflated public sector and said that service can be streamlined through targeted service, and that the reform must include promoting employees, firing employees who are inefficient and who do not serve the public, and more.  “These things are difficult, but essential,” said the prime minister.  Netanyahu went on to say, “Israel is suffering from a surplus of regulation in many areas.  It is very difficult to operate if there are too many regulators, when everyone tells everyone else what to do and does not necessarily see the financial cost of reforms.  We want to put in place order and norms for public regulation.”  (Globes 03.11)

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 2.1  New Plant for Producing F-35 Aircraft Wings Opened Near Ben Gurion

On 4 November, Israel Aerospace Industries inaugurated a new plant for the manufacture of American fighter pilot wings for F-35 aircraft near Ben Gurion Airport.  As part of the deal, the IDF will receive 19 stealth aircraft at a cost of $2.7 billion, which will be deducted from US aid funds to Israel.   In exchange, every year – starting in 2016 – the new plant is expected to provide about a third of the world’s production of F-35 wings, with about 810 wings per year – a production volume worth roughly $2.5 billion.  (Arutz7 04:11)

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 2.2  VLX Ventures – Telefonica Cooperation for Tech Development

Telefonica, a leading global telecoms company, is partnering with Jerusalem-based technological incubator VLX Ventures (Van Leer Xenia Ventures – to make potential investments in Israeli startups focusing on video, cloud computing, big data, Internet of Things, smart homes, wearable technology and future communications.  Chosen companies will receive investment capital and also the potential to scale their products to some 300 million Telefonica customers around the globe.  The planned collaboration is part of Telefonica’s Open Future program.  The VLX Ventures – Telefonica collaboration provides young Israeli companies with the opportunity, from the early development stages, for professional cooperation with a strategic partner that can invest in their promotion and development, and is a potential giant client for the solutions they are developing.  Telefonica – whose strongest markets are Spain, Europe and Latin America — has had a presence in Israel since 2010 and a team focused primarily on R&D for “future communication” products.  In July 2013, Telefonica joined Israel’s Office of the Chief Scientist (OCS) in an R&D Cooperation Framework in which the OCS provides a one-stop shop to enable new opportunities for collaboration between Telefonica and Israeli startups. (Israel21c 23.10)

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 2.3  Wix Chosen as One 7 Hottest Middle Eastern Startups

Inc. magazine chose Tel Aviv’s Wix ( as one of “7 of the Hottest Middle Eastern Startups You Can Learn From.”  The cloud based website builder is the only Israeli company on the New York publication’s prestigious list.  “Wix’s platform made an often complicated task into a simple and enjoyable activity, which has been the key to their overwhelming success over the years–a lesson any entrepreneur can appreciate,” the magazine writes.  The other six hot Middle Eastern startups cited include Jordan’s BeeLabs and Alhodhud, Dokkan Afkar from Saudi Arabia, Egyptian-based Kngine, Omani-based Genesis International and Lebanon’s Sohati.  “While Silicon Valley remains the go-to hotspot for entrepreneurs from around the world, other corners of the globe are fast catching up and providing just as many interesting and useful products for consumers,” writes the magazine.  “If we can learn anything from these companies, it’s that cultural relevance and solving region-specific problems often trumps the value of an internationally recognized brand name.  If you’re able to provide effective solutions to local problems, your startup is potentially much more likely to become a success.” (Israel21c 23.10)

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 2.4  India Picks Israel’s Spike Anti-Tank Missile Over US Javelin

India has opted to buy Israel’s Spike anti-tank guided missile, an Indian Defense Ministry source said, rejecting a rival U.S. offer of Javelin missiles that Washington had lobbied hard to win.  India will buy at least 8,000 Spike missiles and more than 300 launchers in a deal worth $520 million.  Prime Minister Modi’s five-month-old government wants to clear a backlog of defense orders and boost India’s firepower, amid recent border tensions with China and heavy exchanges of fire with Pakistan across the Kashmiri frontier.  Spike is a man-portable “fire and forget” anti-tank missile that locks on to targets before shooting.  It is produced by Israel’s Rafael Advanced Defense Systems.  It beat out the rival U.S. Javelin weapons system, built by Lockheed Martin Corp. and Raytheon Co.  Earlier in the year, it was reported that U.S. Secretary of State John Kerry lobbied to get India to purchase the American weapon over the Israeli one, as it became evident that the India was leaning towards buying the Israeli missile.  Analysts estimate that India, the world’s largest arms buyer, will invest as much as $250 billion in upgrading its Soviet-era military hardware and close the gap on strategic rival China, which spends three times as much per year on defense.  (IH 23.10)

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 3.1  Gap Expands With First Old Navy Stores in the Middle East

Gap Inc. announced it signed agreements to open Old Navy stores in six Middle Eastern countries with franchisees Fawaz A. Alhokair & Co. and Azadea beginning Spring 2015.  The first markets include U.A.E., Kuwait, Qatar and Saudi Arabia.  Alhokair is one of the top fashion franchise retailers in Saudi Arabia, managing more than 80 brands, including Gap and Banana Republic across multiple markets.  Azadea has a proven track record on successfully delivering seamless brand experiences to customers in the Middle East, Northern Africa, Asia and Europe, including the Gap brand in Lebanon and Cyprus.  The first Old Navy stores will open in Dubai, U.A.E, Kuwait City, Kuwait and Doha, Qatar.  (Gap 23.10) 

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 3.2  Round Table Pizza Expands Into Bahrain

Round Table Pizza announced the signing of an exclusive agreement with Al Mahroos Foods W.L.L. to develop restaurants in the GCC (excluding U.A.E.).  The first restaurant location will be opening in Manama, Bahrain in Q4/14, with additional restaurants expected to open in Bahrain and the wider the region throughout 2015.  A team of management trainees just completed an 8 week training program in California that included the special skills required to make Round Table’s famous pizza and all the components required to provide customers a superior experience.  Al Mahroos Foods is an affiliate of M.H. Al Mahroos BSC, a diversified Bahrain-based business group founded in 1930 with its main business in equipment trading and engineering.  (Round Table Pizza 28.10)

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 3.3  Hard Rock has Qatar in Sights in MENA Expansion Plan

Hard Rock International, which is set to open its first Middle East property in Dubai in 2015, is in talks to open more hotels in the Middle East, including Qatar.  The company revealed it will make its regional debut at Marina 101 – which is set to become the second tallest tower in the UAE – in the third quarter of next year.  Speaking to Hotelier Middle East, Hard Rock president and CEO Dodds said the company was in talks to open hotels in Morocco, Egypt and Qatar.  While Dodds could not reveal more details on the locations for the Egyptian and Moroccan properties, he said the group was looking to announce plans in the next six months.  Dodds also revealed that Hard Rock is also considering markets such as Beirut in Lebanon, Kuwait, and Oman for further expansion in the reason.  The 281-key Hard Rock Hotel Dubai Marina will open in Q3/15, while a second UAE hotel, which was signed for Abu Dhabi, is set to open in 2017.  (AB 28.10)

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 3.4  FitLife Brands Announces Middle East Expansion

Omaha, Nebraska’s FitLife Brands, an international provider of innovative and proprietary nutritional supplements for health conscious consumers, announced the expansion of its presence in the Middle East.  Overall, 16 products were introduced into 18 locations within the UAE, Oman and Bahrain.  In addition, FitLife products will be sold in four locations within Qatar following the appropriate registration and an additional 60 locations will be added in Saudi Arabia within the next six months.  FitLife markets over 50 different dietary supplements to promote sports nutrition, improved performance, weight loss and general health primarily through domestic and international GNC franchise locations.  (FitLife Brands 30.10)

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 3.5  Abu Dhabi to Get First Macy’s Outside US

The first Macy’s – the iconic department store – outside the US will open at Abu Dhabi’s Al Maryah Central in 2018 and alongside the second Bloomingdale’s outlet in the UAE, according to Al Tayer Group, the license holder.  The first Bloomingdale’s, located at The Dubai Mall, will mark its fifth anniversary next February.  Both Macy’s and Bloomingdale’s – which is more upscale in its merchandising mix – are owned by Ohio-headquartered Macy’s Inc. 

The Abu Dhabi presence was confirmed following an agreement signed by Al Tayer Group with Gulf Related, the developer of the $1 billion Al Maryah Central, which will create 2.3 million square feet of new retail capacity in Abu Dhabi.  Macy’s and Bloomingdale’s will have anchor roles when they open and are to take up floor levels apiece. (Al Maryah Central will have a linkage to The Galleria, now established as the pre-eminent retail and leisure destination in Abu Dhabi.)  Apart from Macy’s and Bloomingdale’s, Al Tayer Group also operates the UK’s Harvey Nichols store at Mall of the Emirates.  (Gulf News 28.10)

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 4.1  Israelis Design First Solar Energy eTree

The eTree is the brainchild of artist Yoav Ben-Dov who was commissioned to construct the urban tree habitat by the Israeli solar energy company Sologic.  The eTree is a solar-powered urban habitat that is constructed from metal pipes and topped with solar panels.  Besides producing energy from the sun to power the unit’s USB charging ports, the solar panels atop the eTree provide shade during the day and illumination at night for all those who pause for a relaxing moment under its branches.  The eTree also offers a cool water drinking fountain, free WiFi, electrical outlets, sitting benches and a computer monitor that allows the visitor to communicate with visitors at other eTrees. 

According to Binyamina’s Sologic (, the environmentally friendly eTree oasis will be installed in urban areas, parks, universities and hiking trials to provide today’s connected generation with on-the-go access.  The eTree will operate automatically and won’t require much maintenance, making it a shining example of the kind of sustainable urban niches.  In addition, the eTree will come in two stylistic models: the Citrus, which is about 11 feet wide and will cold drinking water in schools and parks and a more advanced model, the Acacia, about 15 feet wide, which will function as a small power station.  eTree is a beautiful, environmentally-friendly mental and mobile charging zone that could be a ‘hot’ new hangout spot in the not-so-distant future.  (NoCamels 24.10)

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 4.2  UAE’s Masdar Plans $125 Million Wind Farm in Oman

Masdar, Abu Dhabi’s renewable energy company, has signed a joint development agreement with Oman’s Rural Areas Electricity Company (RAECO) to build the first large-scale wind farm in the GCC.  The $125 million, 50-MW wind farm in Oman will be constructed in the country’s Dhofar Governorate.  The project is estimated to generate enough clean electricity to power 16,000 homes and mitigate 110,000 tonnes of CO2 per year.  The project will consist of up to 25 wind turbines, and construction is slated to begin in Q1/15.  The first-of-its-kind wind project reflects the increasing trend by GCC nations to invest in renewables as a means to diversify the energy mix and address long-term resource security.  Investments in solar, wind and peaceful nuclear energy are expected to reach $100 billion over the next five years.

The Dhofar wind-power project supports Oman’s broader strategy to meet the country’s growing energy demand, which is rising due to population and economic growth.  Upon completion, wind energy will represent 7% of total installed power generation capacity in the Dhofar region.  In the Middle East, Masdar is also working to deliver the 117 MW Tafila onshore wind farm in Jordan.  (AB 25.10)

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 4.3  Morocco’s First Solar Thermal Station Expected in 2015

The first thermal solar power station in Morocco, which is a part of a development project costing €7b, will be launched in 2015.  The chairman of the Moroccan Agency of Solar Energy said progress made by the workshop Basin of Ouarzazate will allow the station, ‘Nour 1’ to enter into action next year.  Nour 1 is the first thermal station, which is powered by solar energy and costs more than €600m.  It will generate 160 MW of power.  The task of its building went to the company Consortium, which is primarily supported by shareholders in Saudi Arabia. 

Morocco plans to build five stations to generate electricity from solar energy.  The first one will be Ouarzazate station at the gates of the desert, which is estimated to generate 500 megawatts and is foreseen to be one of the biggest such programs in the world.  The second phase of the implementation of the stations “Noor 2” and “Nour 3” will start in the beginning of 2015.  (MWN 25.10)

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 5.1  Jordanian Unemployment Rate Drops To 11.4% in Third Quarter

Unemployment in Jordan stood at 11.4% in Q3/14, reaching 9.2% among men and 22% among women.  The overall rate in the third quarter decreased by 0.6% compared with Q2/14, according to a statement released by the Department of Statistics (DoS).  In Q3/13, unemployment registered a record high of 14%, according to DoS.  The drop was attributed to employment policies in the public and private sectors which contributed to providing more job opportunities for Jordanians.

DoS data showed that the unemployment rate among university degree holders reached 17.9%, while 57.7% of jobless individuals have a secondary school certificate or higher.  Unemployed men who hold a bachelor’s degree or higher constituted 25.1%, compared to 85.6% among women.  Around 61.4% of employed Jordanian men are between the ages of 20 and 39, while 72.1% of employed Jordanian women are within the same age group.  (JT 01.11)

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 5.2  Jordanian Government Bloated & Unhealthy

Jordanian Prime Minister Ensour on 1 November described the size of the public sector as unhealthy, since it represents around 42% of the economy – internationally it is only around 15%.  The size of the budget of the government and independent public agencies is around JD10 billion, while the Kingdom’s GDP is around JD30 billion, which means that government spending, excluding some agencies and public-owned companies, is nearly one-third of the economy.  (JT 01.11)

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 5.3  Iraqi Economy to Shrink 2.7% in 2014, First Time Since 2003

Iraq’s economy is likely to shrink 2.7% this year, the first contraction since the US-led liberation in 2003, after Islamic State militants occupied swathes of the major oil exporter, the International Monetary Fund (IMF) said.  The current economic downturn comes after a 4.2% of the GDP growth in 2013, which was the weakest rate since 2007.  It still pales in comparison with a 41.4% output plunge in 2003 when the US-led coalition invaded the country to topple dictator Saddam Hussein.  The conflict has halted the expansion of Iraq’s oil production, which is expected to decline slightly to 2.9 million barrels per day (mbpd), while exports of 2.4 mbpd should remain close to last year’s level, the IMF said.

However, growth should pick up again to a modest 1.5% in 2015 mainly driven by a rise in oil output, the IMF expects, although it cut its longer-term crude output projection to 4.4 mbpd in 2019 from 5.6 mbpd seen in May.

According to the IMF, the government’s budget was coming under pressure from rising security spending and relieving the humanitarian crisis.  The fund estimates a budget break-even oil price of $111.2 per barrel in 2014, up from $106.1 last year.  Brent crude oil fell towards $85 a barrel on Monday amid abundant supply and global economic growth concerns.  However, the IMF expects higher oil output of 3 mbpd in 2015 versus 2.9 million in 2014, and forecasts a fiscal gap of just 0.6% of GDP in 2015.  (IMF 27.10)

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♦♦Arabian Gulf

 5.4  Kuwait Inflation Rate Hits 30-Month High in September

Kuwait’s inflation rate rose to 3.2% year-on-year in September, its highest level since April 2012, according to Kuwait’s Central Statistical Bureau.  Prices of food and beverages, which account for over 18% of the consumer price data basket, rose 2.7% on an annual basis and 0.8% from the previous month.  Housing costs, which account for nearly 29% of consumer expenses, rose 4.4% on an annual basis and 0.8% from the previous month.  (CSB 27.10)

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 5.5  Qatar Government Revenue at Record High, Spending Falls 6.6%

Qatar’s government spending fell 6.6% from a year ago to $10.7 billion in the first quarter of the current fiscal year, while revenue soared to a record high, central bank data has showed.  The central bank did not give a reason for the drop in spending, but work on some large infrastructure projects in the country has been slowed or divided into phases to reduce the risk of waste or overcapacity.  The budget surplus in April-June was QR79.0 billion, compared with a deficit of QR24.4 billion a year earlier, the data showed.  The surplus was equivalent to 41.7% of gross domestic product.  Revenue surged to QR117.8 billion in the first quarter, nearly the same amount as the state collected in the whole first half of last year, from a mere QR17.1 billion a year ago.  The revenue increase seemed at least partly due to the fact that state energy giant Qatar Petroleum started transferring its entire financial surplus to the government in 2013.  (AB 31.10)

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 5.6  Abu Dhabi’s Inflation Rate Rises to 3.7% in September

Abu Dhabi’s inflation rate edged up to 3.7% year-on-year in September, according to latest figures released by the emirate’s Statistics Centre.  Housing and utility costs, which account for almost 38% of consumer expenses, rose 5.4% year-on-year during the month.  In June, the statistics office said Abu Dhabi’s economy expanded an inflation-adjusted 5.2% in 2013, a much slower rate than the government had previously estimated but still higher than 4.8% in 2012.  Abu Dhabi accounts for about two-thirds of the roughly $400 billion UAE economy and almost all of its crude oil exports.  In neighboring Dubai, the inflation rate rose to its highest level since May 2009 in September, driven by housing and utility costs.  Inflation rose to 4.2% year-on-year with housing and utility costs, which account for almost 44% of consumer expenses, rising 6.5% year-on-year, the fastest increase since 2008, and 0.4% month-on-month in September.  (AB 31.10)

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 5.7  UAE Named Among Most Improved Business-Friendly Economies

The UAE has been named one of the top 10 economies in the world for improving the business environment for local companies.  The World Bank’s Doing Business 2015 report said the UAE had enhanced the administrative efficiency of its land registry, improved access to credit information, and strengthened minority investor protections during the past year.  Globally, the report ranked the UAE 22nd, up three places on last year’s list, making it the highest placed country in the Middle East for doing business, beating Saudi Arabia (49), Qatar (50), Bahrain (53), Oman (66) and Kuwait (86) out of a total of 189 economies covered. 

The World Bank Group report found that amid unrest in the Middle East and North Africa, local entrepreneurs faced challenging circumstances in the past year.  It said that 11 economies in the Middle East and North Africa reformed in at least one area tracked by the report in 2013/14.  (AB 31.10)

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 5.8  Oman to Bring New Anti-Bribery and Corruption Laws

Oman is to introduce tougher powers to clamp down on bribery and corruption after it signed up to the UN Convention against Corruption.  The Sultanate has seen a number of high-profile corruption trials in recent years – including one which saw the founder of the country’s biggest publicly-listed construction company, Galfar, sentenced to three years in jail – a decision he has appealed.  One major effect of the new legislation will be to make corruption and bribery in the workplace a corporate offence.  Under current legislation it is only a personal offence.  For companies to minimize risk of falling foul of the new legislation they need to ensure that they are complying with the following categories: proportionate procedures; top-level commitment; risk assessment; due diligence; communication and training; monitoring and review; and reporting.  (AB 26.10)

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 5.9  Saudi Businesses Call For 2 Year Ban on Returning Expats

A group of leading businessmen has recommended to Saudi authorities that expats who leave the kingdom on an exit visa are not allowed to return for two years.  The Council of Saudi Chambers (CSC) labor market committee approved the proposal in a bid to encourage local businesses to hire Saudis.  The recommendation is a follow-up on a previous Cabinet resolution issued in 1975 and updated in 1977, which imposes a three-year ban on expat workers who left the Kingdom in violation of their contracts.  Saudi Arabia has one of the strictest expat employment regimes.  Thousands of foreign workers are detained each year for allegedly violating their visas, while about 1 million are said to have left the kingdom during a 7-month amnesty last year.  (AB 02.11)

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 5.10  Nine New Sectors Added To Saudi Nationalization Scheme

Saudi authorities have added nine jobs to the nationalization scheme, setting quotas for the employment of citizens in those sectors.  Disability centers, strategic partnership institutes, health colleges, female services, children’s hospitality centers, female cosmetic centers, female sewing centers, construction firms involved in projects at the Two Holy Mosques, gas stations and the pilgrims’ transportation sector, will now have to meet the nationalization quotas or risk various penalties including fines and a ban on hiring expatriates.  There are now 58 employment areas subject to the kingdom’s Nitaqat system, which aims to reduce unemployment among locals and reduce the country’s reliance on foreign workers.  (AB 02.11)

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♦♦North Africa  

 5.11  Egypt’s Trade Annual Deficit Drops By 22.5% In July

Egypt’s trade balance deficit registered EGP 19.46b in July 2014, decreasing by 22.5% compared to the EGP 25.11b recorded during the same month last year, according to a report of the Central Agency for Public Mobilization and Statistics (CAPMAS).  The report attributed the deficit’s decline to the 18.8% drop in imports and the 12.7% decrease in exports.  In July, Egyptian exports totaled EGP 13.05b, compared to EGP 14.94b during the same month last year.  The plummet in exports was due to the decrease in the values of some commodities such as petroleum products, crude oil, ready-made clothes and fertilizers.  The value of Egyptian imports reached EGP 32.51b, compared to EGP 40.05b during the same month the previous year.  CAPMAS said that this was “due to the decrease the value of some commodities such as petroleum products, primary forms of iron or steel, corn, primary forms plastics”.  (CAPMAS 02.11)

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 5.12  IMF Cuts Egypt’s Growth Forecast Citing Tourism Concerns

The IMF cut its growth forecast for the Egyptian economy on the back of security concerns affecting vital tourism revenues.  The economy is expected to grow 3.5% in the fiscal year starting July 2014, the IMF said in its October 2014 Middle East and Central Asia Economic Outlook report, down from 4.1% predicted last April.  Growth for the fiscal year ending 30 June 2014 was 2.2%.  The IMF partially attributed its forecast cuts to security issues “keeping tourism a way from Egypt and hampering Egyptian gas exports” that offset the recovery sensed in the country’s manufacturing activity and foreign direct investment (FDI) flow.

Structural issues, such as electricity supply disruptions, further weakening of private investment confidence in the Egyptian economy, are also to blame the international lender said.  The past two consecutive governments in Egypt have been trying to revive an economy battered by political instability and violence since a popular uprising forced president Hosni Mubarak to step down in 2011.

The IMF expects the budget deficit to reach 12.2% in 2013/14, down from the 14.1% high recorded in 2012/13.  IMF expectations remain, however, higher than governmental forecast of nearly 11% deficit.  The organization expects an additional cut to the budget deficit to 11.5% in 2014/15.  The country’s socioeconomic indicators do not look promising with the inflation rate set to rise significantly to 10.9% in 2014 before jumping to 13.4% the coming year.

The IMF however does not paint a dark picture of the Egyptian economy.  The international institution points to what it sees as positive fiscal and economic reform including subsidies cuts and increased public investments in infrastructure and other areas that could enhance job creation.  Downwards revision of Egyptian economic growth comes amidst sliding growth forecasts for the region in general from 3.2% to 2.7% in 2014 and from 4.5 to 3.9% in 2015.  (IMF 27.10)

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 5.13  Egypt & Saudi Sign $350 Million Oil & Power Financing Deals

Egypt signed $350 million worth of financing agreements with Saudi Arabia aimed at upgrading its power grid and securing imports of petroleum products as it seeks to end its worst energy crisis in decades.  Power cuts have become common in Egypt as the cash-strapped government struggles to supply enough gas to its power stations let alone upgrade a grid suffering from decades of neglect.  The energy crunch has become a political hot potato in the Arab world’s most populous country, which has turned from a gas exporter into a net importer in recent years as it diverts gas once destined for export to meet burgeoning domestic demand.

Lines at petrol stations and a shortage of gas were among the main public grievances against former President Mohamed Morsi of the Muslim Brotherhood.  But oil-producing Gulf allies have come to Egypt’s aid since the army, prompted by mass protests, ousted Morsi last year.

Two loan agreements worth a total of about $100 million will be invested in two electricity stations that are expected to boost the capacity of the national grid.  A further $250 million in assistance will come in the form of petroleum products.  Saudi Arabia sent Egypt $3 billion worth of refined oil products between April and September of this year, according to an Egyptian oil official, while the total value of Saudi oil aid since July 2013 amounted to about $5 billion.  Egypt has also turned to the UAE for oil products, signing deal in September that commits it to purchasing about 65% of its needs from its Gulf ally in the next year.  Egypt introduced deep cuts to energy subsidies in July, which have resulted in price rises of more than 70%, as it seeks to curb public spending and fuel waste.  (AB 01.11)

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 6.1  Turkish Inflation Hits 8.96% In October, Slightly Higher Than Forecast

Turkey’s inflation rate reached 8.96% in October, slightly exceeding the 8.90% predicted by economists, according to figures released by the Turkish Statistics Institute (TurkStat).  Inflation in August had hit 9.54%, nearly doubling the government’s expectations.  That figure retreated to 8.86 in September before climbing slightly last month.  The highest monthly increase observed was in the prices for clothing and footwear, as average prices for products in that group rose just under 10% in October. Food and non-alcoholic beverage costs rose 2.65%.  On an annual basis, hotel, cafe and restaurant prices shot up 14.34%, while food and non-alcoholic beverages rose in cost by 12.56%.  Healthcare expenditures rose 9.91% and miscellaneous goods and services went up 9.14%, while clothing and footwear prices went up 8.83% year-on-year.  Out of 432 product groups surveyed, the average prices of 302 groups increased, while 68 decreased and 62 witnessed no change.  (TurkStat 03.11)

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 6.2  Turkey’s Trade Gap Narrows By 8.4% in September

Turkey’s foreign trade deficit fell by 8.4% in September compared to the same month of the previous year to reach $6.93 billion, a report released by the Turkish Statistics Institute (TurkStat).  The figure was $7.65 billion in September of last year.  According to the data, Turkish exports increased by 4.6% and reached $13.66 billion year-on-year in September, while imports registered a slight decrease (0.2%) to reach $20.59 billion in the same period.  The export-import coverage ratio rose to 66.4% in September from 63.3% last September.  The data also revealed that seasonally and calendar adjusted exports had increased by 4.8%, while imports in September fell by 1% compared to the previous month.  Considering the annual change in trade figures with calendar and seasonally adjusted data, exports increased by 1.4% in September and imports fell by 4.1% in the same period.

There was also an increase in exports to European Union countries as a proportion of all of Turkey’s export partners.  September’s exports to the EU rose to 43.9% from 42.9% last September. EU-bound Turkish exports increased by 7.1% from $5.6 billion to $6.2 billion year-on-year.  Turkstat also found that Turkey’s leading export partner in September was Germany with $1.3 billion in exports, the UK with $921 million, Iraq with $911 million and the US with $602 million.  Turkey’s biggest purchases abroad meanwhile were from China at $2.3 billion, Russia at $2.25 billion, Germany at $1.86 billion and the US at $1.7 billion.  (TurkStat 31.10)

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 6.3  Turkey’s Defense Spending Reaches $13.2 Billion

Turkey’s defense spending stood at $13.2 billion this year, Defense Minister Ismet Yilmaz said on 2 November in parliament.  Turkey spent some 1.71% of its gross domestic product (GDP) on defense in 2014, a drop from the 3.5% of its GDP spent on defense in 2002, Yilmaz said, adding that the 2014 defense budget accounted for 3.7% of the overall state budget.  Around half of the country’s defense budget goes on personnel spending, such as salaries, benefits and pension payments to retired Turkish Army personnel, he added.  Turkey’s military expenditure per capita in 2013 was $213.  Turkey’s defense exports stood at $1.4 billion in 2014, while its imports were $1.3 billion.  Turkey is currently negotiating a $3.5 billion deal for a long-range air and anti-missile defense system, including local production, with suppliers from China and Europe.  Ankara plans to spend around $70 billion on military equipment by 2023.  (AA 03.11)

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 6.4  Turkey Ranks 55 Out of 189 Countries In Ease of Doing Business

Turkey was ranked 55 out of the 189 countries surveyed for the World Bank’s latest annual Ease of Doing Business report, dropping four spots from last year.  This drop was caused by the increase in the minimum capital requirements in Turkey.  Turkey originally ranked 69 in the report last year, but it rose to 51 after the World Bank made changes to its calculation method.  The report stated that Turkey had made starting a business more difficult by increasing notary and company registration fees.  It also added that Turkey had made doing business harder by increasing companies’ social security costs.  On the other hand, the World Bank praised Turkey for making the enforcing of contracts easier by introducing an electronic filing system for court users.  (HDN 30.10)

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 7.1  Tel Aviv Named One of the World’s Top Culinary Cities

Tel Aviv-Jaffa has now been declared an international culinary capital in Saveur Magazine’s annual rankings of the best food destinations around the world.  The prestigious American food and lifestyle magazine rated Tel Aviv “Outstanding” along with Florence, Italy and Lyon, France in the category of Best Culinary Destination, Small International, which refers to cities with a population of under 800,000.  It also rated Tel Aviv “Outstanding” in the category for Best Markets and Shops, International, where it appeared alongside culinary powerhouses Paris and Barcelona.  Tel Aviv-Jaffa is home to 4,536 eating establishments and three open fresh-food markets.  Tel Aviv’s new status as an international food paradise comes on the heels of the city being named one of the world’s top start-up cities of the 21st century by Newsweek; the main Europe-area tech hub (The Wall Street Journal); the “capital of Mediterranean cool” (The New York Times); one of the world’s 10 best party cities (Lonely Planet) and the best gay tourist destination in the world (Gaycities).  (IH 28.10)

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 7.2  Torah to be Displayed at Religious Exhibition in Abu Dhabi

The Louvre Abu Dhabi museum is set to include a Jewish Torah as part of an exhibition on religious symbolism, which will also include an ancient Hindu statue, a Buddha and works of art from African Animism, sources have confirmed.  The museum, which is set to open in December 2015, will cost over $630 million to build and covers an area of 64,000 square meters.  Designed by French architect Jean Nouvel and built on Saadiyat Island, it will have feature a 6,000 square meter space dedicated to permanent installations and 2,000 square meters set aside for temporary exhibitions.

The Torah, which is a religious manuscript, was discovered in Yemen and will be part of 300 works of art, including masterpieces by Leonardo da Vinci and Vincent van Gogh, to be displayed from next year.  The pieces will be on loan from French museums and will be on display for up to two years.  A source in Abu Dhabi confirmed to Arabian Business the Torah, Hindu statue, Buddha and Animism will be among the collection and will be part of an exhibition looking at light in religious symbolism.  (AB 26.10)

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 7.3  Tunisian Voters Choose Moderates

With Tunisia’s parliamentary poll concluded, the country is set for the next stage in its democratic transition.  Nidaa Tounes topped Tunisia’s parliamentary election, followed by Islamist party Ennahda, the Free Patriotic Union (UPL) and the Popular Front finished fourth, officials confirmed on 30 October.

 Tunisia’s Ennahda party, the first Islamist movement to secure power after the 2011 “Arab Spring” revolts, conceded defeat on 27 October in elections that were set to make its main secular rival the strongest force in parliament. 

But a senior official at Ennahda, which ruled in a coalition until it was forced to make way for a caretaker government during a political crisis at the start of this year, acknowledged defeat by the secular Nidaa Tounes party.  Preliminary tallies showed the secular party had won 80 seats in the 217-member assembly, ahead of 67 secured by Ennahda.  One of the most secular Arab countries, Tunisia has been hailed as an example of political compromise after overcoming a crisis between the secular and Islamist movements and approving a new constitution this year that allowed the elections. 

Ennahda, which espouses a pragmatic form of political Islam, won Tunisia’s first free election in 2011 after Ben Ali fled protests against corruption and repression, and went into exile in Saudi Arabia.  The party formed a coalition government with two secular partners but had to stand aside in the crisis that erupted over the murder of two opposition leaders by Islamist militants.  During campaigning Ennahda cast itself as a party that learned from its mistakes, but Nidaa Tounes appeared to have capitalized on criticism that it had mismanaged the economy and had been lax in tackling hardline Islamists.

Even with an advantage over Ennahda, Nidaa Tounes will need to form a coalition with other parties to reach a majority in the parliament and form a new government.  Ennahda may still be part of any cabinet. Before the elections, the party had called for a unity government to help Tunisia though the last stages of its transition and deal with tough austerity measures to revive economic growth.  Led by Beji Caid Essebsi, a former parliament speaker under Ben Ali, Nidaa Tounes emerged in 2012 as a political force by rallying opposition to the first Ennahda-led government when Islamists won around 40% of seats in the first assembly.  Nidaa Tounes drew from Ben Ali officials, smaller parties, and even union leaders to form an anti-Islamist front. 

All eyes are focused now on the new government to come – sometime after a new president is elected on 23 November.  (Reuters 27.10)

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 8.1  New Israeli Technology Helps Treat Parkinson’s Disease

New research dealing with the monitoring and treatment of patients with Parkinson’s disease using wearable technology and advanced data analysis was presented at a conference at Ariel University in Samaria by Dr. Shahar Cohen from Intel.  Intel’s applied research for this project was done in collaboration with the Michael J. Fox Foundation for Parkinson’s Research, the largest private funder of Parkinson’s research in the world.  The wearable technological device is something like a watch that patients wear on their wrist.  This device allows for symptoms to be continuously monitored and recorded, making up to 300 observations per second on every patient, thereby providing a more accurate picture of the effects of the disease.  With the new technology, this device can record such things as pulse, slowness of movement, tremors and sleep quality.  Constant monitoring also alleviates the burden of both doctors and patients, since until now data could only be collected for brief periods during visits to doctor’s offices.  

According to developers, one of the key advantages, in addition to the large amounts of data that can be recorded, is that the information is totally objective. Doctors previously were forced to rely on their patients’ reports, which make for very subjective data and can cause strain in the doctor/patient relationship.  There are also huge variances in the way people suffer Parkinson’s disease.  The fact that the symptoms vary so greatly made it difficult for doctors to monitor alone.  Researchers and developers hope that access to new and large amounts of data will significantly aid research and care for patients with Parkinson’s disease – with the objective of soon identifying a cure.  Clinical trials have been carried out in both Israel and the United States. A large amount of data has been collected and further experiments are planned soon.  (Arutz7 23.10)

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 8.2  CNoga Medical Raises $12 Million

Or Akiva’s CNoga Medical (, which develops non-invasive diagnoses of diabetes, among other things, has completed a $12.5 million financing round from Chinese investment fund GoCapital.  Cnoga has developed a device that uses the patient’s skin color to diagnose high blood pressure without using air blowing, and to measure the blood sugar level without puncturing the skin.  The blood pressure product has marketing approval in the US and Europe, while the diabetes diagnosis product has marketing approval so far only in Europe.  In 2007, Cnoga signed a cooperation agreement with Texas Instruments for development of a device for non-invasive measurement of blood sugar and other measures, such as hemoglobin, blood pressure, etc.  The Israel-US Binational Industrial Research and Development (BIRD) Foundation mediated the agreement. The company is now developing the next generation of its products to fit in with the trend towards wearable computers.  (Globes 27.10)

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 8.3  MIGAL Announces First Agro-Biomedical Center

MIGAL Galilee Research Institute (, an applied research organization and technology accelerator specializing in the fields of agro-technology, metabolic engineering, clinical nutrition, nutrition sciences, biotechnology, food technology, environmental and computer sciences – announced the establishment of the first specialized Agro-Biomedical hub.  The Agro-Biomedical center encompasses the entire development chain from the bench to the growers.  The center shall serve as a hub for applied researchers, clinicians, entrepreneurs, startups, growers and consumer companies specializes in functional foods, food supplements, nutraceuticals, novel botanical therapeutics and related agrotech technologies. Research at the center is focused on Natural Products and Metabolic Engineering.  The center is located in one of the world’s most developed agro regions. Supported by strong national initiative a new technology incubator of a national scope is going to be established beside the center.

The newly established center of excellence will become a home for Research-Entrepreneurs who wish to enjoy both worlds.  Leading excellent research and taking part in building an industry.  MIGAL encourages leading researchers to become involved in high quality translational research and the opportunity to join R&D efforts based on their work.  The center also serves as an accelerator – promoting the early development of novel Agro-Biomedical technologies.  Together with its industry partners the MIGAL accelerator will support the development of a leading Agro-Biomedical industry in the Galilee.  (MIGAL 29.10)

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 8.4  Kamada FDA Orphan Drug Designation for Graft versus Host Treatment

Kamada announced that the U.S. FDA Office of Orphan Products Development has granted orphan drug designation for Glassia, the Company’s proprietary human Alpha-1 Antitrypsin (AAT), to treat Graft-versus-host-disease (GVHD).  Orphan drug designation carries multiple benefits, including the availability of grant money, certain tax credits and seven years of market exclusivity, as well as the possibility of an expedited regulatory process.  Currently, Glassia is being used in a Phase 1/2 clinical study that is being conducted by the Fred Hutchinson Cancer Research Center in Seattle, Washington in cooperation with Baxter International and Kamada.  The Phase 1/2 study is evaluating 24 GVHD patients with inadequate response to steroid treatment following allogeneic bone-marrow stem cell transplant.  The patients are enrolled into 4 dose cohorts, in which they receive up to 8 doses of Glassia. Interim data from this study is expected by the end of this year.

Graft-versus-host-disease is a common complication following an allogeneic tissue transplant. It is commonly associated with stem cell transplant, but the term also applies to other forms of tissue graft. Immune cells (white blood cells) in the tissue (the graft) recognize the recipient (the host) as “foreign”. The transplanted immune cells then attack the host’s body cells.

Ness Ziona’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 proteins.  (Kamada 29.10)

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 8.5  MediWound Study with NexoBrid to Treat Severe Pediatric Burns

MediWound has commenced a European post-marketing (Phase 3) Pediatric Investigation Plan (PIP) study to evaluate the efficacy and safety of NexoBrid as a treatment for severe burns in children.  MediWound is conducting this study as part of the European legislation concerning the development and authorization of medicines for use in children in Europe.

Yavne’s MediWound ( is a fully integrated biopharmaceutical company focused on developing, manufacturing and commercializing novel therapeutics based on its patented proteolytic enzyme technology to address unmet needs in the fields of severe burns, chronic and other hard-to-heal wounds.  MediWound’s first innovative biopharmaceutical product, NexoBrid, received marketing authorization from the European Medicines Agency for removal of dead or damaged tissue, known as eschar, in adults with deep partial and full-thickness thermal burns and was launched in Europe.  NexoBrid represents a new paradigm in burn care management, and clinical trials have demonstrated, with statistical significance, its ability to non-surgically and rapidly remove the eschar earlier and, without harming viable tissues.  (MediWound 03.11)

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 9.1  Mellanox InfiniBand Enables E-Commerce Cloud Hosting Platform

Mellanox Technologies announced its FDR 56Gb/s InfiniBand adapters have been selected by Anchor, an Australian web hosting provider, to enhance customer experience with e-commerce by improving page load times and maximizing uptime for Australian online retailers.  Anchor’s new high-performance managed cloud platform leverages Mellanox end-to-end FDR 56Gb/s InfiniBand solutions, including ConnectX-3 adapters, SwitchX2 switch systems and LinkX cables, and OpenStack software for heavy, online-transaction-processing (OLTP) workloads commonly seen with content management systems (CMS) and online retail applications.  Anchor specializes in providing managed hosting services for Magento e-commerce customers in both Australia and the USA.  The new OpenStack cloud has been architected around Mellanox’s FDR 56Gb/s InfiniBand solutions from the ground up, ensuring that customers continue to have the best possible experience when shopping online.

Yokneam’s Mellanox Technologies ( is a leading supplier of end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage.  Mellanox interconnect solutions increase data center efficiency by providing the highest throughput and lowest latency, delivering data faster to applications and unlocking system performance capability.  (Mellanox 27.10)

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 9.2  WakeUp Post-Lunch Drink Wins CPG Editors’ Choice

The “WakeUp Post-lunch Waker” drink was announced the winner of the SupplySide West CPG Editors’ Choice Awards 2014 in the Energy Drink category.  Unlike other energy drinks, “WakeUp Post-lunch Waker” is a patented, safe and clinically tested beverage formulation with no added caffeine, chemicals or any stimulants that can impact heart rate or blood pressure.  WakeUp drink is not a typical energy drink; rather it opens a revolutionary new product category, scientifically proven to overcome fatigue after lunchtime (known as “Post-Lunch Dip Syndrome”) embedded in everyone’s biological clock.  WakeUp is now actively seeking to partner in the U.S. with leading retail, Internet and MLM nutritional beverage brands.  

Tel Aviv’s Inno-Bev ( is engaged in the development of beverages and nutritional supplements for both Israel and the international markets.  A team of the best producers and professionals apply their expertise to all stages of product development, from initial concept through production and marketing.  (InnoBev 27.10)

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 9.3  Stratasys & Worrell Accelerate Medical Device Development with 3D Molds

Stratasys announced its collaboration with design and product development company, Minneapolis, Minnesota’s Worrell, to accelerate medical device development through the use of 3D printed injection molding.  Since 3D printing injection mold tools for medical devices, the company is producing injection molded prototypes using final production materials in 95% less time and at 70% less cost compared with traditional aluminum molds.  In a bid to promote the significant cost savings of 3D printed injection molds for medical device manufacturers, as well as the huge reductions in product development cycles, Stratasys and Worrell will jointly attend international tradeshows and host a series of workshops to educate the medical industry on the innovative process and its radical impact on manufacturing.

Stratasys (, headquartered in Minneapolis, Minnesota and Rehovot, Israel, is a leading global provider of 3D printing and additive manufacturing solutions.  The company’s patented FDM, PolyJet and WDM 3D Printing technologies produce prototypes and manufactured goods directly from 3D CAD files or other 3D content.  (Stratasys 30.10)

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 9.4  RADWIN Wireless Video Surveillance Solutions Secure Texas Border

RADWIN announced that its RADWIN 5000 Point-to-Multipoint systems were chosen by the local Port Authority in Texas to help secure ports-of-entry into the U.S.  Every year tens of thousands of illegal crossing attempts are made over the border from Mexico to the U.S (e.g. immigration, drugs and human trafficking).  To secure the ports of entry and the surrounding border areas, video cameras were deployed on the international bridge between Mexico and Texas.  RADWIN’s PtMP systems were selected to transmit video from the cameras to the local control center – enabling port authority personnel to detect and respond to unlawful crossings and other security breaches.  Frontera Consulting, a leading system integration firm based in Texas and RADWIN’s partner, was in charge of project design and deployment.

Tel Aviv’s RADWIN ( is a leading provider of wireless Point-to-Point and Point-to-MultiPoint solutions that deliver voice, video and data with unmatched high-capacity for long ranges and are deployed in over 150 countries.  (RADWIN 30.10)

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 9.5  New Stratasys 3D Printers Deliver Improved Navigation & Performance

Stratasys introduced the Fortus 450mc and Fortus 380mc 3D production systems, which provide improved reliability, speed and accessibility.  Using FDM Technology, both 3D production systems are designed to provide high-quality engineering grade parts that can be used to reduce the time to bring a product to market, create jigs and fixtures for manufacturing, as well as produce low volume end-use parts.  The Fortus 450mc can manufacture parts up to 15% faster than its predecessor.  It has a build envelope of 16 in. x 14 in. x 16 in. (406mm x 355mm x 406mm), and it can produce layer resolutions ranging from 0.005 in. to 0.013 in. (0.127mm to 0.330mm).  The Fortus 380mc has the same advanced features as the Fortus 450mc including even temperature distribution in the build chamber and a digital touch screen.  On average, the 3D printer can build parts up to 20% faster with a build envelope of 14 in. x 12 in. x 12 in. (355mm x 305mm x 305mm) with the same layer resolutions as the Fortus 450mc.

Stratasys (, headquartered in Minneapolis, Minnesota and Rehovot, Israel, is a leading global provider of 3D printing and additive manufacturing solutions.  The company’s patented FDM, PolyJet and WDM 3D Printing technologies produce prototypes and manufactured goods directly from 3D CAD files or other 3D content.  (Stratasys 03.11)

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 10.1 Israeli Food Prices Racing Ahead of OECD

The Knesset Research and Information Center has published a report revealing just how much food prices have risen in Israel in the past eight years and how burdensome the cost of living in Israel has become.  The report was prepared at the behest of the Knesset Finance Committee, ahead of a discussion by the committee.  It compares the cost of living in Israel and changes in product prices to figures from the OECD countries.

According to the report, between 2005 and 2015, food prices in Israel shot up 34.1%.  Less than a decade ago, in 2005, food prices in Israel were below the OECD average.  By 2013, they were 10% above it.

Prices were especially high in segments with a concentration of ownership.  Prices of soft drinks, for example, were 56% higher than the OECD average.  In comparison with the EU, the gap was even wider, at 68%.  In dairy products, for which in Israel there is a system of controlled quotas, and price controls on some items, prices are 51% higher than the OECD average, and 59% above prices in the EU.  The only category in which prices are lower in Israel compared with the OECD is fresh produce.  The steepest price rise occurred in 2009, when food prices rose 15.9%, while the average salary rose just 2.3% in real terms that year.

Food is not the only category in which Israelis pay more.  The comparative figures relate to 2011, but there is no reason to suppose that the gaps have narrowed since then.  Telecommunications prices emerge as 29% higher in purchasing power terms than in the OECD, and 31% higher than in the EU.  In the hotel and hospitality industry, the gaps are 26% against the OECD and 21% against the EU.  Transport in Israel is 20% dearer than in the OECD, although slightly cheaper than in the EU.  For clothing, the Israeli consumer pays 9% more than the average in the OECD countries, and 6% more than in the EU.  (Globes 27.10)

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 10.2 Nearly 2/3 of Israelis are Often Overdrawn

No fewer than 63.5% of Israelis are frequently have an overdraft in their bank accounts, according to a Channel 10 survey.  The Bank of Israel is planning to find out why.  One-seventh of Israelis are always overdrawn, the survey found, and another eighth undergo this experience “most of the time.”  Another 36% are “sometimes” in overdraft.  Bank of Israel plans, for the first time, to find out the reasons for this national plague, and to detail its dangers.  Its survey will map out those who are overdrawn according to income level and geographic location.

Four years ago, the national debt owed by households to their banks added up to 106.8 billion shekels.  This has now risen by 18%, to 126 billion shekels. Rising housing prices, as well as more moderate rises in other areas, are clearly a major contributory factor to the overdraft problem.  The problem crosses all demographic lines: salaried employees and small business owners, high- and low-income earners, religious, secular, large families and small, young and old.  The only major sector that does not suffer greatly from overdraft problems are young couples and singles who have not yet taken out a mortgage for a home.  (Arutz7 03.11)

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 10.3 2014 Israeli Offerings in US Set All-Time Record

2014 was not the best year ever in sales of Israeli companies to foreign companies, but it did set a record in offerings by Israeli companies in the US capital market (IPOs and secondary offerings by public companies).  Quite a few Israeli companies this year preferred flotations to being acquired.  This year, there have been 26 offerings, both IPOs and secondary offerings, by Israeli technology and biomedical companies.  These offerings raised an all-time record of $3.6 billion, breaking the previous record of $3.3 billion set in 1999 during the notorious bubble.  For the sake of comparison, Israeli Wall Street offerings totaled only $335 million in 1994, a number that has risen tenfold in the past 20 years, highlighting how Wall Street has become an important financing tool for the companies themselves, while blazing the trail to wealth for quite a few Israeli high-tech and biomedical entrepreneurs.  Some 14 of the 26 Israeli Wall Street offerings in 2014 were IPOs, and 12 were secondary offerings.

Only four of the 14 IPOs were by information technology companies (Varonis Systems, Borderfree, Mobileye and CyberArk Software).  The other 10 were by biomedical or medical equipment companies, a figure that highlights the dominance of the biomedical industry in the primary market this year.

The largest IPO was by Mobileye, which has developed a system that warns drivers of potential traffic accidents.  Mobileye raised $1.02 billion, including an offer for sale. The Mobileye IPO, the largest Israeli issue ever on Wall Street, shows how hot the primary market is this year (as a result of the prolonged boom on the secondary market).  (Globes 02.11)

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 11.1 ISRAEL:  Summary of Israeli High-Tech Company Capital Raising Q3/14

In Q3/14, 170 Israeli high-tech companies attracted $701 million, 6% above the $661 million of Q3/13, but down 24% from the exceptionally high $928 million raised in the previous quarter.  The third quarter amount was 29% above the $545 million average of the last three years.

The average company financing round was $4.12 million, compared to $4.08 million in Q3/13 and $5.33 million in Q2/14.

Koby Simana, CEO of IVC Research Center: We have been asked repeatedly about the effect of Operation Protective Edge on the local high-tech industry and on capital raising in particular.  Examining the data now, we are pleased to note that the Gaza conflict barely impacted high-tech capital raising.  Traditionally, the third quarter tends to be the weakest for capital raising in any given year, but Q3/14 ranked as the third best quarter ever, and one of the top three quarters in the past decade.”

Ninety-eight VC-backed deals in Q3/14 accounted for $476 million or 68% of total capital invested. This was an improvement from 61% in Q2/14, and just short of the 70% of Q3/13.

In the first three quarters of 2014, 504 Israeli high-tech companies raised $2.3 billion, just 1% short of the $2.33 billion raised in all of 2013, and 50% more than the $1.5 billion attracted in the Q1-Q3/13 period.

“We’ve seen an increase of $800 million in capital raising in the first three quarters of 2014 over the same period in 2013,” said IVC’s Simana.  “This increase is mostly explained by an upsurge in the number of large financing rounds above $20 million and the accumulated capital generated by such deals.  Some $868 million was raised in deals above $20 million in the first three quarters, an increase of more than 200% from the $276 million of the corresponding year-earlier period.  Consequently, three quarters of the 2014 increase resulted from capital raised in deals above $20 million.”

 In Q1-Q3/14, 282 VC-backed companies accounted for $1.5 billion, more than that of any 9-month period in the last six years.  This compares with $1.2 billion raised in Q1-Q3/13 and $984 million in Q1-Q3/12.

Israeli VC Fund Investment Activity

In Q3/14, Israeli VC fund activity remained moderate, with $130 million invested in Israeli high-tech companies. The amount was down 14% from $152 million invested in Q2/14, and was 19% below $161 million (the largest amount in three years) invested in Q3/13.

 At the same time, the 19% share of Israeli VC fund investments was low in comparison with the 30% average of the past six years, but it did show a slight improvement from the prior three quarters when the average share was 16%.

In Q3/14, first investments accounted for 43% of total Israeli VC investments, compared to 27% in Q3/13 and 35% in Q2/14. 

In the first three quarters of 2014, Israeli VC funds invested $383 million (17%) in Israeli high-tech companies, down 9% from $421 million (27%) in Q1-Q3/13.  The Israeli VC fund share of 17% was the lowest in a decade and compared with an average of 32% for the January through September period in the past six years.

 Ofer Sela, partner in KPMG Somekh Chaikin’s Technology group commented, “The US capital markets continue to be a major driver of greater venture capital investment, with substantial funds being directed to revenue growth companies.  Financing rounds are being led by foreign investors including corporate VCs from the US and China, which are evaluating investments on strategic as well as financial levels.  Locally based VCs are focusing on early stage companies, playing a major role in defining products and solutions.  This role continues to be a critical one in the local echo system.

Transaction volume in 2014 is a strong indicator of the maturity and global interest in Israel’s technology industry. In order to maintain this trend, we believe that the Israeli Government should intervene in order to allow Israeli institutional investors to participate in the technology industry as limited partners in local venture capital funds.”

Capital Raised by Sector and Stage

In Q3/14, the Internet sector led investments with 40 companies accounting for $213 million or 30% of total capital raised.  This was the second largest amount raised by Internet companies in six years and significantly higher than the $149 million (16%) attracted by 49 companies in Q2/14 and the $181 million (27%) raised by 47 companies in Q3/13.

 In the Q1-Q3/14 period, Internet companies continued to lead capital raising and accounted for $622 million (27%), the largest amount raised by the internet sector in a three-quarter period since 2009.  This compared with $337 million raised in Q1-Q3/13 (when the sector led all investments with a 22% share) and $258 million (19%) in Q1-Q3/12.

In Q3/14, seed companies attracted $60 million or 9% of capital raised, a welcome increase from the 4% and 3% in Q2/14 and Q3/13, respectively.

In the first three quarters of 2014, late stage companies accounted for $954 million or 41% of total capital raised, while seed companies raised $135 million or 6% of capital.

IVC Research Center ( is the leading online provider of data and analyses on Israel’s high-tech, venture capital and private equity industries. Its information is used by all key decision-makers, strategic and financial investors, government agencies and academic and research institutions in Israel.  (IVC 27.10)

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 11.2  MIDDLE EAST:  Mideast Sees Fragile Recovery Amid Conflicts and Transitions

The Middle East and North Africa region continues to experience lackluster growth for the fourth year in a row, the IMF ( said in its latest regional assessment.

The IMF’s Regional Economic Outlook, released on 27 October, projects growth to increase slightly to 2.6% this year (see table).  Growth could pick up in 2015 if security conditions improve.

“Intensifying security problems, including from the deepening conflicts in Iraq and Syria, pose downside risks to the outlook.  The regional economic impact has been limited so far, but an estimated 11 million of displaced persons are already putting pressure on budgets, labor markets, and social cohesion in neighboring countries,” said IMF Middle East Department Director Masood Ahmed who unveiled the report in Dubai.

“The region needs sustained, stronger and more inclusive growth to markedly reduce unemployment—a critical issue facing nearly all countries in the region,” Ahmed added.

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Oil-Exporters Need a New Growth Model

The IMF expects overall growth of the region’s oil exporters to remain subdued at 2.5% this year owing to the deterioration of security conditions, mainly in Iraq and Libya.  Growth could pick up next year, but a possible further deterioration in security conditions in Iraq, Libya, or Yemen, could deepen economic disruptions and derail the projected recovery.

The IMF cautioned that, on current fiscal policies, oil exporters’ fiscal surpluses are set to vanish by 2017 and noted that all countries outside the Gulf Cooperation Council and Bahrain are running fiscal deficits already (see chart 1).  The marked decline in oil prices by 20% over the last two months adds to fiscal risks.

 “If oil prices stay at current lows for a prolonged period, oil exporters on aggregate could move from fiscal surplus to deficit already next year,” Ahmed told reporters.  For countries that have buffers, it will be important to adjust their fiscal positions gradually to limit the drag on economic growth, he added.

Key reasons behind weakening fiscal and external balances are large energy subsidy and wage bills.  These countries need to contain government spending to ensure fiscal sustainability and to bequeath future generations an equitable share of the resource wealth, says the report.

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Oil exporting countries have been relying on a growth model that was dependent on growth of government spending on the back of rising oil prices.  To transition to a more diversified, private sector-driven model, Ahmed said that countries of the Gulf Cooperation Council in particular would benefit from the following reforms:

• Encouraging the efficient production of tradable goods and services rather than activity in non-tradable sectors with low productivity growth;

• Reducing distortions in labor markets that foster the private sector’s reliance on foreign labor; and

• Improving the quality of education so that it better matches private-sector needs.

Priorities in countries outside the Gulf Cooperation Council include improving the business environment, addressing infrastructure bottlenecks, and enhancing private firms’ access to finance, says the IMF.

Oil Importers Need Reforms to Create Jobs

The IMF highlighted some positive trends in the region’s oil importing countries. Exports, tourism, and foreign direct investment are gradually improving in some cases as political uncertainties ease.

In addition, many countries – most notably Egypt, Jordan, Mauritania, Morocco, Pakistan, Sudan and Tunisia – have made progress in containing their energy subsidy bills.  The objective has generally been to re-channel part of the savings to support growth and reduce poverty through better-targeted social safety nets and growth-generating investments in infrastructure, healthcare and education.  Countries are also using part of the savings from subsidy reform to rein in fiscal deficits, says the report.

Nonetheless, the combination of deep-rooted socio-political tensions, structural bottlenecks, as well as spillovers from intensifying regional conflicts, has been holding back growth from reaching the levels needed to reduce the prevailing high rates of unemployment, the IMF says.

Against this backdrop, the IMF expects economic activity in these countries to remain lackluster this year at about 3%, and to pick up to about 4% in 2015. However, this outlook still faces significant risks.  “Spillovers from regional conflicts, setbacks in political transitions, as well as lower-than-expected growth in key trading partners could undermine even the modest recovery that we are expecting for the region,” Ahmed said.


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The report also cautioned that debt-to-GDP ratios are still rising and gross external financing needs for this group of countries are expected to reach $100 billion next year.  The IMF urges many of the oil importing countries to maintain the reform momentum going forward to bring down high unemployment rates (see chart 2).

“For most people in the region, improvements in their living standards are not being felt yet as some reforms take time to bear fruit,” Ahmed told the conference.  Building on the efforts underway would help ensure a sustainable public debt path and promote confidence in the future, which in turn would help boost growth and create job opportunities, he added.

The IMF emphasized that lasting improvements in medium-term growth and job prospects will require deep, multifaceted transformation to spark economic dynamism in the private sector, leading to higher growth potential, more jobs, and less inequity.

“To enable this transformation, policymakers should articulate and implement a bold and credible economic reform agenda that enjoys broad public support. Giving priority to reforms in the business environment, education, and labor market efficiency will be critical to boosting potential growth,” said Ahmed.

The report added that additional financing from the international community, a focus on capacity building, and enhanced trade access would support countries’ reform efforts and allow for more gradual and less painful macroeconomic adjustment. The Fund remains strongly engaged with the region through policy advice, financial support, and technical assistance.  (IMF 27.10)

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 11.3  Arab Countries’ Energy Shortage Caused By Distribution Problems

The Oxford Institute for Energy Studies recently issued a study about energy poverty in the Middle East and North Africa.  The topic seemed somewhat strange, because the countries of the region have about 60% of global oil reserves and about one-third of gas reserves.  The Oxford Institute indicated that an in-depth study revealed a blurry image of a region divided between countries that succeeded in delivering energy to all citizens and others that failed to secure power and fuel supply to a large segment of their citizens.

The study notes that some of the world’s poorest countries in terms of energy are oil and gas exporting countries, such as Egypt and Yemen.  Therefore, the basic problem lies in local energy distribution and not in any shortage of resources.  The study confirms that energy poverty does not stem from a single cause, but rather from interrelated phenomena, including geographical location and the stage of achieved development. To solve the problems of energy poverty, all phenomena must be addressed.

Investment in infrastructure witnessed a huge leap regionally during the 1950s and 1960s.  Gulf countries provided their entire population with electricity and other means of modern energy, while the Levant and North African countries managed to supply electricity to 95% of their population in 2009.  However, this does not mean that the situation in the whole region is good.

In some countries, the government’s electricity grid still does not cover all areas, especially poor neighborhoods.  There are still some 20 million people in the region who live in areas where there is no electricity, including about 1 million Moroccans, 1 million Iranians, 1.4 million Syrians, 4 million Iraqis and 14 million Yemenis.  These people continue to use old forms of fuel (biofuel, which includes burning wood, cattle dung and agricultural waste) for heating and cooking.  Kerosene (the fuel of the poor classes) is also used when available and sold at reasonable prices.

Phenomena of energy poverty differ from one country to another.  However, the level of economic poverty remains the main obstacle to accessing energy.  The rate of electricity consumption in most countries in the Levant and North Africa is estimated at 242 kilowatt-hours per person.

Moreover, there is a discrepancy in electric power supply between urban and rural areas, despite the ability of people in rural areas to pay their electricity bills.  This slackening is either due to poor planning, disregard of the standard of living of a broad category of people or a shortage of investments.  Some information indicates that about 98.5% of urban areas were connected to the electricity grid in 2009, as opposed to 72% of rural areas.  This means that about 28% of people in rural areas have no access to electricity.  Nearly 38% of the region’s population lives in the countryside.

The energy poverty is exacerbating rates of poverty and population growth.  It is estimated that about 15% of the population in both Morocco and Egypt live below the poverty line (i.e., less than $2 per day).  Moreover, 80% of the population in Iran and Tunisia, and more than 40% of the population of Yemen and Djibouti live below the poverty line, too.

The region is experiencing the highest annual population growth rate, reaching 1.8% at the end of the last decade.

One of the chronic problems in the region lies in not providing electricity to rural areas on a regular basis.  The electricity grid does not expand according to consumption rates. It is also plagued by ongoing or seasonal outages.  The countryside is the first to be affected by these power outages.  Meanwhile, in some countries, the countryside is provided with relatively limited local power networks.  Political conflicts, refugee flows and mass migration of people in rural areas to the cities have led to a further glaring lack of electric power and fuel in urban areas, with urban sprawl expanding around cities.

According to a 2001 study on Jordan, the population of shantytowns, including refugee camps, counts millions of Palestinians and Iraqis and constitutes almost half of the urban population.  Most of these people live in complexes that are not connected to the government’s electricity grid.

Given the increasing pressure on the infrastructure as a result of the increasing population and rising standards of living, governmental power companies fail sometimes to meet the demands in urban areas. The main reason behind this is low investment rates.

Yemen is considered the poorest Arab country.  It is also the poorest in energy.  The available electrical energy in 2009 reached about 1,551 megawatts to about 24 million people, while per capita consumption is about 203 kilowatt-hours.  However, power outages have become a chronic condition, even in relatively rich Arab countries.  Lebanon ranks first in terms of power outages, with three to 12 hours a day of power cuts, especially in rural areas outside Beirut.

Lebanese, like Yemenis, have had to rely on private power generators that run on diesel or fuel oil.  This incurs exorbitant additional expenses for citizens (especially those with limited incomes), in addition to the expenses of the state electricity company.

The study concludes that an increasing number of power outages, such as those in Morocco and Yemen, are causing people to rely more and more on generators, especially in the countryside.  Although generators might provide a temporary solution to this problem, they lead to further increases in the power bill for citizens.  The study warns that low investment in the energy sector, as is the case in Lebanon and Yemen, is clear evidence of the energy-poverty phenomena that might plague more of the region’s countries in the future.  (Al-Monitor 26.10)

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 11.4  JORDAN:  Twenty Years of Israeli-Jordanian Peace: A Brief Assessment

The date 26 October marked the 20th anniversary of the Israeli-Jordanian peace treaty.  Prior to the agreement’s signing at Wadi Araba in 1994, the two countries had not fought a war since 1967 and their leaders had been in routine communication since the 1940s.  Yet the treaty was far more than just a formalization of a de facto ceasefire — it fundamentally changed the nature of the Israeli-Jordanian relationship, enhancing security, stability, and U.S. interests in a turbulent region.

For Israel, the treaty was its second with an Arab neighbor and helped secure its long eastern frontier.  Coming so close on the heels of the Oslo agreements with the Palestinians, it also raised the possibility of new relationships with other Arab states.  For Jordan, the agreement facilitated a reorientation away from the pro-Saddam camp, opening up new sources of urgently needed economic and military assistance from the West.  It also cemented the kingdom’s position in the roster of pro-Western Middle Eastern states.  Today, the strategic relationship with Amman is Washington’s closest with an Arab partner.

Economic & Strategic Advances

While the treaty was celebrated by Israeli civilians and politicians alike, it has not been popular with the Jordanian public.  In a 2011 poll, 52% of Jordanians said their government should cancel the agreement.  Of course, some of this sentiment may simply be a cost-free way for ordinary citizens to criticize the palace, confident in the knowledge that peace with Israel is sacrosanct.  Whatever the case, despite the wobbly public support for close bilateral ties, the two countries have made some progress on economic cooperation.

This progress was initially incentivized by Washington via the establishment of Qualifying Industrial Zones.  Created by Congress in 1996, these QIZs allow goods produced in Jordan to enter Israel duty-free as long as they have a certain percentage of Israeli content or value added.  Between 1996 and 2010, when the U.S.-Jordanian Free Trade Agreement went into effect, thirteen QIZs were established, providing tens of thousands of Jordanians with employment.  As early as 2002, QIZ products were accounting for 90% of Jordanian exports to the United States.

Another relatively bright spot has been tourism.  Last year, 218,000 Israelis reportedly visited Jordan, while just over 18,000 Jordanians traveled to Israel.  To accommodate the tourists, twenty-four weekly flights link Ben Gurion, Sde Dov and Queen Alia Airports.

Overall, however, bilateral trade has been exceedingly small.  According to Israel’s Central Bureau of Statistics, imports and exports between the two states totaled just $365 million in 2013.  Notably, the most dramatic development in the economic relationship occurred on 3 September, when Israel signed a “nonbinding letter of intent” to supply Jordan with natural gas from its offshore Leviathan field.  The fifteen-year deal, which requires construction of a new pipeline, is reportedly worth $15 billion.  It follows another agreement announced in February for Israel to supply $500 million worth of gas from the Tamar offshore field to two Jordanian industrial plants near the Dead Sea.

In addition to trade, the peace treaty initiated Israeli-Jordanian cooperation in a range of strategically important realms, including water scarcity.  Apart from a few misunderstandings, the two countries have consistently worked together on water allocation since 1994.  This culminated in the signing of an historic agreement last December stipulating that Israel would provide Jordan’s capital with 8 – 13 billion gallons per year of fresh water from the Sea of Galilee, while Jordan would deliver the same amount of desalinated water pumped from Aqaba to Israel’s Negev desert region.

Less publicized but equally important has been the emergence of an excellent defense and intelligence-sharing relationship.  While little has been reliably published about it, intelligence sources from both countries say that the quality and depth of such cooperation is one of the treaty’s biggest achievements.

Increased U.S. Assistance

Once the treaty was signed, it opened the floodgates of U.S. economic and military assistance to Jordan.  In 1993, Washington provided Amman with just $35 million in economic support; the 2014 figure is $700 million.  Similarly, Jordan received just $9 million in U.S. Foreign Military Financing in 1993, compared to $300 million this year.  Some of the bigger-ticket defense articles Washington has provided over the years include fifty-eight F-16s and a state-of-the-art counterterrorism facility — the King Abdullah Special Operations Training Center (KASOTC) — constructed by the Army Corps of Engineers in 2006-2007.

As U.S. financing increased, so did joint training and intelligence sharing.  On the military front, the Eager Lion multilateral exercises became an annual affair.  According to one former CIA official quoted in 2005 by the Los Angeles Times, the intelligence partnership became so close that the agency had technical personnel “virtually embedded” at Jordan’s General Intelligence Directorate headquarters.

Yet an even more important byproduct for Jordan has been its free-trade agreement with the United States, which has had a significant impact on the kingdom’s historically feeble economy since 2010.  Last year, U.S.-Jordanian trade reached $3.3 billion, a nearly tenfold increase from 1994; it jumped by over 30% between 2009 and 2013 alone.

 Occasional Difficulties

While diplomatic relations between Israel and Jordan have generally been excellent since 1994, the treaty has periodically been tested.  In 1997, a rogue Jordanian soldier killed seven Israeli schoolgirls along the border.  Later that year, Israeli intelligence botched an attempted assassination of Hamas leader Khaled Mashal in Amman.  Relations were again strained during the summer drought of 1999, when bilateral water talks temporarily broke down before a compromise was eventually reached.

The Temple Mount has been another point of ongoing contention.  Jordanian officials have long complained that Israel has not protected Amman’s religious equities in Jerusalem shrines as stipulated by Article 9 of the peace treaty.  In the late 1990s, Israel began allowing the Palestinian Authority to supplant Jordanian religious officials in the city.  More recently, the Israeli Knesset held a debate this February over allowing Jewish prayer on the Temple Mount, prompting Jordan’s prime minister to call for a “review” of the treaty.  In March, after a Jordanian Palestinian judge was killed at an Israeli border crossing, parliamentarians in Amman demanded that the government withdraw its ambassador — an almost routine response to adversity since 1994.


Twenty years on, the Israeli-Jordanian peace agreement is solid.  Yet as with the 1978 Egyptian-Israeli treaty, the widespread “people to people” ties promised by Wadi Araba have not yet come to fruition.  In large part, that is because a significant portion of Jordan’s population continues to oppose normalization of relations with Israel.  This persistent, Islamist-tinged opposition has made it politically difficult for the palace to move forward with a broad range of political and economic initiatives.  In addition to balking at mutually beneficial water sharing proposals, these opponents reject the impending purchase of Israeli gas — a deal that could provide the kingdom with energy security for decades to come.  As with last December’s water deal, the gas deal will eventually be inked, but it will come at a high political cost for the palace.

Some of the anti-Israel sentiment in Jordan is no doubt related to the fact that around 60% of the population is of Palestinian origin.  But even if Israel and the Palestinians reached a settlement of their own, it is unclear whether local attitudes in Jordan would change significantly, since the prevailing negative views of Israel are not the product of the Israeli-Palestinian conflict alone.

Amman’s close working relationship with the United States is not particularly popular in Jordan either, despite Washington’s largess.  In April 2013, eighty-seven Jordanians of tribal origin — a cohort traditionally considered the monarchy’s leading supporters — penned an open letter to King Abdullah declaring that U.S. troops based in the kingdom were “a legitimate target for all honorable Jordanians.”

Yet while the population does not uniformly appreciate the treaty, the palace does, and the king will continue quietly advancing relations with Israel and Washington in the coming years.  “Quietly” is the key — to avoid popular backlash, he will remain loath to advertise ongoing close strategic cooperation with Israel.  In fact, during an October 20 meeting with Jordanian legislators, he tempered his critique of jihadist extremism with an equally powerful salvo against what he called “Zionist extremism.”

Finally, even with all of its accomplishments, the treaty has not been able to achieve a dramatic improvement in Jordan’s economy, which remains the Achilles heel of the kingdom’s stability.  Amman’s alignment with the West and willingness to undertake difficult economic reforms have helped, but the state remains in a virtual economic crisis.  Still, two decades on — at a time when Jordan is hosting more than a million Syrian refugees and continues to struggle against the tide of rising Islamic militancy — it is difficult to imagine the moderate kingdom persevering without the benefits of peace with Israel.

David Schenker is the Aufzien Fellow and director of the Program on Arab Politics at The Washington Institute.  (TWI 23.10)

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 11.5  JORDAN:  S&P Affirms Ratings at ‘BB-/B’; Outlook Revised To Stable

On 31 October, Standard & Poor’s Ratings Services ( revised its outlook on the Hashemite Kingdom of Jordan to stable from negative.  At the same time, S&P affirmed their long- and short-term foreign and local currency sovereign credit ratings on Jordan at ‘BB-/B’.

Rationale:  The outlook revision reflects our view that the deterioration in Jordan’s fiscal and external balances will stabilize, and that these balances will moderately improve over the medium term.  We anticipate ongoing energy diversification and a more favorable oil price environment for Jordan, supported by government reform efforts.

We also forecast that public finances will strengthen as the state-owned power company (NEPCO) moves back toward cost recovery through 2017 and as a result of the government’s fiscal consolidation efforts.  External balances will also narrow.

This trend will be supported by lower energy imports, due predominantly to energy diversification, as well as lower oil prices and high current transfers stemming from official grants and private remittances.

We note, however, that the ratings on Jordan remain constrained by high government and external debt burdens, which have grown in recent years (partly due to regional shocks and partly to policy choices made in the aftermath of the Arab Spring).  Our expectations for a stabilization of fiscal and external flows do not include a meaningful improvement in the degree of fiscal and external vulnerability in the short term.

Fiscal loosening following the Arab Spring and the assumption of losses incurred by NEPCO (due to disruptions in Egyptian gas supplies and the need to purchase diesel at less favorable terms from other suppliers) lie behind the recent increase in Jordan’s fiscal deficit.

The general government deficit increased to a peak of 8.6% of GDP in 2013, from an average of nearly 4% between 2007 and 2011.  The central government deficit, not including the social security fund, peaked at 11.2% of GDP in 2013, with 5.5% of GDP being government transfers to NEPCO, including the offsetting NEPCO losses and servicing NEPCO’s debt obligations.

We expect the government transfers to NEPCO will push up the central government deficit to around 10% in 2014.  However, the headline deficit figures mask successful underlying consolidation efforts on both the revenue and expenditure sides.  This year, revenues have been supported by higher-than-expected grants and revenue raising measures, predominantly increased fees such as tobacco & alcohol excises and fees on imports.

On the expenditure side, fuel subsidies were liberalized in 2013, and electricity tariffs have been increased annually since 2013.  Public-sector wage increases have been minimal.

However, the supply of relatively cost-effective Egyptian gas has averaged only 30 million cubic meters per day this year (compared with an expected 100 million cubic meters, already a significant reduction from the pre-2011 levels of 400 million cubic meters) resulting in loss-inducing purchases of costlier diesel as a replacement.

We expect that energy-sector developments will ease pressures on NEPCO, and that the government’s fiscal consolidation efforts under its IMF program will bear fruit in the form of lower fiscal deficits.  The government expects to keep nominal expenditures flat, at least in 2015, and will continue to reduce subsidies.  On the revenue side, income tax reform, currently under debate in parliament, would bring an additional 0.7% of GDP in revenue in 2015 if adopted by the end of this year.

Energy-sector developments will likely significantly reduce NEPCO transfers, starting from 2015.  The LNG terminal under construction in Aqaba is due to come online in mid-2015, which, along with lower international oil prices, could ease cost pressures on NEPCO.  Another electricity tariff increase in January 2015 will also support the company’s revenues.  NEPCO is expected to be in cost recovery from 2017, even without Egyptian gas supplies returning to pre-2011 levels.

In our view, the government is unlikely to adopt further deep fiscal reforms in the current constrained geopolitical and domestic political environments, including reforms to taxation (only 3% of the population currently pays income tax) and public-sector wages.  As a result, we estimate that general government debt will reach 78% of GDP in 2014, including direct government debt and NEPCO guarantees.  The rising government debt burden has become a more-pronounced ratings vulnerability, in our opinion.

We expect that Jordan’s external imbalance will improve moderately over the 2014-2017 ratings horizon, supported by foreign currency inflows from grants, remittances, tourism, and a lower fuel import bill, due both to our assumption of lower oil prices and energy diversification efforts already underway.

We estimate that the current account deficit will narrow to 8% of GDP in 2014 from 10% in 2013.  This narrowing is supported by an improved services balance, a moderate improvement in the trade balance due to a stronger export performance and lower prices of food and oil imports, and private transfers.

That said, despite the expected improvements in external flows, the imbalance remains wide. Jordan’s financing needs are the highest, and its external liquidity the lowest, in a decade.  Gross external financing needs peaked at 120% of current account receipts (CARs) and usable reserves in 2013, and we expect the ratio will decline only slowly.

External shocks in 2011-2013, including lower-than-expected grants and weaker terms of trade and the reserve drawdown in 2012, have increased external vulnerabilities.  Under our narrow measure (external debt net of reserves plus financial sector assets [narrow net external debt]), Jordan became a net debtor in 2012, and we expect that net external liabilities will widen to more than 100% of GDP through 2017.  External flows are unlikely to finance Jordan’s external deficit, and, as a result, external debt will continue to increase.

Foreign currency inflows on the back of two U.S.-guaranteed Eurobonds ($2.25 billion), two U.S. dollar-denominated bonds issued locally and $2 billion in grants from the Gulf Cooperation Council (GCC) also allowed the Central Bank of Jordan to build up $17.5 billion in foreign currency reserves as of end-August, from $6.6 billion at end-2012.

We expect that Jordan will remain dependent on bilateral and multilateral lenders to close the external funding gap over the ratings horizon.  The unstable geopolitical environment, which has led to an influx of refugees, is straining public resources and complicating the kingdom’s ability to implement difficult structural reforms (public-sector wage and tax reforms, for instance) that would allow Jordan to graduate from international support and help it to regain unrestricted market access.

That said, we expect international support to remain strong. Regional instability, affecting Syria, Iraq, and increasingly Lebanon, has left Jordan as one of the most stable countries in the region.  We believe that maintaining the relative stability of Jordan is an important foreign policy objective for the U.S. and GCC, as seen in level of grants from U.S. and GCC aid organizations, as well the U.S. guarantee of two U.S.-dollar Eurobonds issued over 2013-2014.  We view these commitments as an important ratings strength.

The $36 billion Jordanian economy is one of the smallest in the region.  GDP per capita is estimated at under $5,500 and we estimate that it will grow by an average of 4% over 2014-2017.  We estimate GDP growth at 3.3% in 2014.

Our calculation of GDP growth per capita does not reflect the influx of refugees.  According to the UN High Commissioner, over 600,000 refugees have registered in Jordan, of which more than 100,000 are living in the large Zaatari refugee camp, although estimates suggest a much larger refugee population in Jordan generally.  We expect the refugee influx to weigh on public resources, particularly security, medical, and education costs.

However, refugees are also providing a boost to consumption, as evidenced by an increase in real estate turnover and construction.

We expect only a moderate increase in GDP growth to 4.5% in 2017, supported by higher public investment, backed by GCC grants and consumption growth.  Despite the implementation of the three-year IMF standby arrangement, and the recent adoption of legislation to improve the business environment, including a new public-private partnership law and a new investment law, we still see limited prospects for difficult and politically sensitive economic reforms in Jordan.

The exchange rate peg to the U.S. dollar supports price stability.  However, the peg also limits the central bank’s room for policy maneuver.

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

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

Successful implementation of key political and structural economic reforms, supporting more sustainable and economic growth and further easing fiscal and external vulnerabilities, could lead us to consider a positive rating action.  (S&P 31.10)

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 11.6  OMAN:  Oman’s Uncertain Future

Even as many Arab states have succumbed to sectarian violence and political tumult, the Sultanate of Oman has stood out as a beacon of tranquility and tolerance. Oman’s stability is largely attributed to the popularity of its leader, Sultan Qaboos bin Said Al Said.

When Qaboos seized power in 1970, Oman was an isolated and impoverished state beset by a Marxist insurgency.  Yet, over the course of his 44-year reign, Qaboos has been credited with using Oman’s oil wealth to transform his nation into a rich country with a vibrant tourism industry and a high standard of living.  Under Qaboos’ stewardship, Oman has also conducted an independent foreign policy that serves a unique role in the region.

However, sustaining such stability after Qaboos’ reign inevitably ends may prove challenging.  Qaboos has no male siblings or children, and he is the world’s only absolute monarch without an officially designated heir to the throne.  Therefore, much uncertainty surrounds Oman’s future.

For years, experts have warned of a potential succession crisis should Qaboos die.  A power vacuum in Muscat could fuel an internecine struggle among members of the royal family, the military, various tribes and the economic elite if no consensus is reached about who will inherit the throne.  As nearly all political authority in Oman rests in Qaboos’ hands, the lack of a strong No. 2 man in Oman’s government fuels speculation that any potential successor will lack the legitimacy to fill Qaboos’ shoes.

Now that Qaboos, 73, has been undergoing “medical tests” in Germany since 10 July, concerns that he may be terminally ill are rising.  Oman’s government claims that the sultan is in “good health,” despite a diplomatic source in Muscat saying that Qaboos has colon cancer.  In August, a Lebanese daily reported that the cancer had spread, leaving Qaboos unable to independently move his body for a span of seven months.  When Qaboos missed the Eid holiday in early October, suspicions were further stoked that the sultan’s health condition was indeed serious.

Qaboos, the GCC and Iran

Under Qaboos’ rule, Oman has frequently aligned with the Gulf Cooperation Council (GCC) on a host of regional issues, ranging from Bahrain to Yemen.  However, Oman’s warm relationship with Iran is truly unique within the council.  Oman, which of all the GCC states is least critical of Tehran, has a cooperative relationship with Iran.  In August 2010, the two governments signed a security pact and have recently developed the Hengham oil field in the Persian Gulf with an estimated value of $450 million.

Over the years, Muscat’s independent approach to dealing with Iran has effectively diminished Riyadh’s leverage over the smaller GCC monarchies and undermined Western efforts to isolate Iran internationally.  It has also ensured Oman’s geopolitical independence from its dominant neighbor Saudi Arabia — a key pillar of Muscat’s foreign policy.

Part of the reason is sectarian.  The majority of Omanis practice Ibadi Islam, a strain of the faith distinct from both the Sunni and Shiite sects.  Many in the sultanate fear Saudi Arabia’s quest for dominance in the council given the Saudi religious establishment’s intolerant views of Ibadis, who are often described as “heretics” by hard-line Wahhabi clerics in the conservative Sunni kingdom.  Whereas Sunni-led GCC states have, to various degrees, backed Sunni militants fighting Shiite governments and non-state actors in Syria’s civil war and beyond, Oman has largely eschewed such a sectarian agenda.

Energy demands also shape Oman’s relationship with Iran.  With substantially less resource wealth than some of its neighbors, Oman’s natural energy resources are expected to deplete before those of other GCC states.  So, nearby Iran — and by extension gas-rich Central Asian states — will likely play an increasingly important role in Oman’s energy landscape.  Iranian President Hassan Rouhani’s first trip to the GCC was to Oman, where the Omani and Iranian governments signed a $1 billion deal to construct a natural gas pipeline to connect Iran’s Hormuzgan province with Sohar, Oman earlier this year.  Iranian gas is expected to begin flowing into Oman by 2017, according to Omani officials.

As the GCC state situated closest to Iran, Muscat has a strong incentive to defuse tensions between Iran, the West and Western GCC allies.  As Oman and Iran jointly share ownership of the Strait of Hormuz — through which one-fifth of global crude oil passes — Oman’s government views the prospects of a military confrontation between the United States and Iran as a major geopolitical and economic risk.

To diminish this risk, Qaboos’ government has sought to position Oman as a diplomatic bridge between Tehran and the Western-GCC alliance.  This was most recently underscored by Qaboos’ mediation of the talks between American and Iranian diplomats that led to the nuclear interim agreement between Iran and the five permanent UN Security Council members and Germany (P5+1) in November 2013.

While some critics in the GCC have accused Qaboos of undermining the Gulf Arab states’ unity against Iran (the primary reason the council was established in 1981), it does not appear that Muscat’s partnership with Tehran has actually undermined Oman’s good standing in the GCC.  To this end, Oman’s security cooperation with the Saudis against extremist forces in Yemen has helped Oman maintain good relations with Riyadh despite Muscat’s outreach to Tehran.

Former US Ambassador to Oman Gary Grappo maintains that Oman’s “cautious but successful diplomatic outreach to Iran” has created a merely “nettlesome internal dynamic” within the GCC, rather than constituting a major source of tension.  Indeed, when Iran and the P5+1 reached the interim nuclear deal in 2013, most GCC states officially welcomed the development.

The Future

Under the leadership of Qaboos, Oman has established itself as a longtime US and UK ally, a member of the GCC in good standing and Iran’s closest partner in a council dominated by its rival.  At the same time, like the other GCC members, Oman has drastically deepened its economic relations with Asian powers, including China, India and Pakistan.

This foreign policy of maintaining friendly ties with virtually all influential actors in the region — and skillfully balancing their conflicting interests against one another — has served Oman’s interests well.  Given that these interests will outlive Qaboos, there is little reason to expect Oman’s next ruler to drastically realign Omani foreign policy — whatever internal tumult may otherwise ensue.

Nonetheless, if a succession crisis fuels instability across Oman, the government will likely have to channel more resources into addressing domestic unrest and rein in its active role on the international stage.  Such circumstances could exacerbate a number of geopolitical risks in the region.  The Saudis in particular are concerned that Oman could become — like Yemen — another haven for extremist forces along their southern border.

Rather than seeking to influence the outcome of Oman’s succession process, most outside actors will have to accept that Oman’s political future will be largely out of their control.  Nonetheless, with such high stakes for Oman’s unique internal stability and international role, much depends on what follows the inevitable end of Qaboos’ reign.  (Al-Monitor 21.10)

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 11.7 EGYPT:  Improving Economy & Stabilizing Politics Reduce Downside Risks

On 27 October, Moody’s Investors Service ( said that Egypt — having experienced the effects of two revolutions in three years — is demonstrating signs of political stabilization and economic improvement, with credit challenges centered on weak government finances.

The government has started the implementation of measures to lower fiscal deficits and contain government debt, while external financial support from Saudi Arabia, the United Arab Emirates, and Kuwait have helped stabilize the country’s international reserves and government funding costs.

Moody’s conclusions were contained in its just-released credit analysis, titled “Egypt, Government of” and which examines the sovereign in four categories: economic strength, which is assessed as “moderate (+)”; institutional strength “low (-)”; fiscal strength “very low (-)”; and susceptibility to event risk “high (+)”.

These represent the four main analytic factors in Moody’s Sovereign Bond Rating Methodology. The analysis constitutes an annual update to investors and is not a rating action. Egypt is rated Caa1 with a stable outlook.

The analysis follows Moody’s decision on 20 October 2014 to change the outlook on Egypt’s government bond rating to stable from negative.  At the same time, Moody’s affirmed the rating at Caa1.

 The outlook change to stable from negative reflects Moody’s expectations of an improving fiscal and economic environment, building on a number of developments over the past year that reduce downside risks to the rating.

In the report, Moody’s notes that the government has launched several fiscal and economic reforms over the past year.  In July, it adjusted administered fuel prices, and unveiled plans to phase out fuel and electricity subsidies over the next five years, and is also working on revenue-enhancing measures, including a shift from the current goods and services tax to a value-added tax system.

Moody’s further notes that although the government’s budget deficit will likely remain above 11% of GDP in fiscal 2015, the authorities plan to reduce the deficit to 8.5% and lower government debt to between 80% and 85% of GDP by fiscal 2015, using a combination of revenue-enhancing measures and rationalization of expenditure.

The largest contribution, over the medium term, will come from the phasing out of fuel and electricity subsidies and stabilization in the public-sector wage bill, which has grown by 22% annually on average since fiscal 2012.

In addition, Moody’s notes that economic growth – in a sign of greater confidence – has started to pick up.  Real GDP grew by 3.7% year-on-year during the fourth quarter of fiscal 2014, up from 2.5% in the previous quarter, while high frequency indicators support the scenario of a sequential pick-up in growth.

The report also notes that the improvement in the domestic political situation has facilitated economic policy formulation.  Key political milestones consist of the constitutional referendum held on 14 – 15 January 2014, and which formed the first step in the roadmap for political reform and led to greater institutional stability.  The referendum was followed by presidential elections in May 2014, with parliamentary elections likely to be held by early 2015.

However, Egypt’s Caa1 government bond rating remains primarily constrained by high fiscal deficits, high government debt, very large fiscal borrowing needs and continued challenges hindering the recovery of economic growth in the post-revolutionary environment. In addition, political event risks still weigh on the rating.  Although security risks have receded, threats from militants based in the Sinai Peninsula remain.

On the positive side, Egypt’s credit profile is supported residual strength in the balance of payments, in particular due to strong remittances in the current account and positive net foreign direct investment, albeit below pre-revolution levels.  The domestic market provides a sizable funding base for the government.  Finally, low levels of foreign currency and external debt reduce vulnerabilities.  (Moody’s 27.10)

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 11.8  EGYPT:  Egypt’s Beer Industry Toasts Long History

“Without a doubt, every group of people needs a distraction.  For example, there’s arak in Turkey and Lebanon.  We wish for beer to become the popular drink in Egypt,” Ismail Hafez, a Muslim Egyptian employee of Pyramid Brewery said to then-Egyptian President Gamal Abdel Nasser in a brief conversation at the inaugural Egyptian Industrial and Agricultural Fair Jan. 3,1960.  Hafez added, “It is my pleasure to inform you that it was the ancient Egyptians who first manufactured beer.”  Hafez was not speaking on behalf of an upstart company, but for one that had flourished in Egypt in various incarnations for more than 70 years.

This company, now called Al-Ahram (Arabic for “pyramid”) Beverage Company, still exists today in Egypt, although its public visibility has diminished.  While the contemporary trend of Islamic religiosity makes it hard to imagine, there was a time when a flashing sign for Stella, the company’s flagship brand, could sit atop a Cairo building.

Despite the Islamic theological arguments against alcohol, beer in majority-Muslim Egypt was an industrial product that tracked the country’s twentieth-century economic and technological development through its production, sale and management.

From its first days, the Egyptian beer industry was a transnational venture.  In 1897, Belgian businessmen, attracted by the British courtship of foreign investment, founded Crown Brewery in Alexandria.  A year later, the same group of entrepreneurs founded Brasserie des Pyramides (Pyramid Brewery) in Cairo.  Both companies very quickly came to rely on Egyptians and long-term expatriates in executive positions and the general workforce.

Although ownership of the companies changed over the years, going from Swiss industrialists in the 1920s to French entrepreneurs in the 1930s, Dutch brewers representing Heineken in the 1940s and finally to the Egyptian government in the 1960s, the Crown and Pyramid breweries dominated the Egyptian beer market.  The firms were linked from their founding, as their owners learned early on that it was easier to work together than to compete against one another, although they were not fully united until the Nasser government nationalized and conglomerated them in 1963.

Despite their close relationship, both firms were ferociously protective of their autonomy.  Until the day they were nationalized, both breweries sold a beer called “Stella” with entirely different recipes — one geared primarily toward the Cairo market, the other to Alexandria.

Stella as a brand came together in the 1950s, when these two major breweries decided to label their beers with the Italian word for “star.”  Although the type of beer, a light lager, had been a feature of the Egyptian beer market since at least the 1920s, Stella did not reach its zenith as the beer of Egypt until after Heineken bought into both companies in 1937.  Stella is still bought and sold in Egypt today, a triumph that testifies to the successful record of the Egyptian beer industry.

Heineken was not a passive investor, but used its resources as a multinational corporation to craft the best Egyptian beer it could.  The company planted Heineken-trained employees throughout the management of the companies and gave control of the brewing operations to a Dutch brewmaster.  It applied cutting-edge technology — including, for example, refrigeration techniques — to every step of the brewing process, which enabled the production of a consistently high-quality and remarkably uniform product.  The imported brewmaster was able to breed a strain of barley perfectly suited for Egypt’s growing conditions, allowing the company to make beer using native barley, rice and water, importing only hops and yeast.

Heineken’s involvement also allowed the Crown and Pyramid breweries to stave off another entrant in the Egyptian beer industry: Nile Brewery, founded in 1951.  Unfortunately for Nile, the two breweries were too established and too well funded to compete with, and the new company ended in bankruptcy and a Pyramid buyout in less than five years.

Under Heineken’s control, the beer industry in Egypt took on a hybrid identity, neither truly Egyptian nor foreign.  While Heineken became ever more involved, Pyramid took on an Arabic name and both the executive level and the production of Pyramid and Crown became even more Egyptian.  Men like Muhammad Ahmad Farghaly and Aziz Abaza, who came to manage Pyramid and Crown, respectively, in the 1930s and 1950s, enabled the companies to flourish during a period of “Egyptianization,” that is, the nationalist policy of increasing native Egyptian representation relative to permanent resident “foreigners.”  This policy of Egyptianization, the result of new laws like the Company Law of 1947, changed the structure of the Egyptian workforce.

Heineken’s control of the company, in its guise as Al-Ahram, proved to be short lived.  In 1963, the Nasser-headed government, as part of its ideology of Arab Socialism, nationalized and conglomerated the Egyptian beer enterprise.  Fortunately for Stella and Egyptian beer drinkers, the government tasked Ismail Omar Foda, the author’s grandfather and a Berkeley-trained microbiologist, to keep up the profitable domestic and foreign markets of the company.  He worked successfully, in often less than ideal conditions, to maintain high product quality and profits until the 1980s.

In the 1980s and late 1990s, Stella hit a nadir, becoming more famous for the detritus found in its bottles than its quality.  However, when enterprising Egyptian Ahmed Zayat privatized the company, he updated work practices and expanded the company’s portfolio to include nonalcoholic beverages.  Heineken, seeing his good work, bought back into Al-Ahram Beverage Company in 2002.

The sustainability of the Egyptian beer industry, like everything else in Egypt’s future, remains in question.  However, its long and profitable history is undeniable and attests to the popular and steady appeal of beer in Egypt since local industrial production of the beverage began in 1897.  (Al-Monitor 30.10)

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 11.9  TUNISIA:  Fitch Affirms Tunisia at ‘BB-‘/BB’; Outlook Negative

On 24 October Fitch Ratings ( affirmed Tunisia’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BB-‘ and ‘BB’ respectively.  The issue ratings on Tunisia’s senior unsecured foreign currency bonds were also affirmed at ‘BB-‘.  The Outlooks on the Long-term IDRs are Negative.  The Country Ceiling was affirmed at ‘BB’ and the Short-term foreign currency IDR at ‘B’.

Key Rating Drivers

Tunisia’s IDRs reflect the following key rating drivers:

-Political risk has receded since the start of 2014, following the adoption of the constitution and the formation of an interim government.  Fitch believes that the legislative and presidential election process, which is about to start, will go smoothly.  The country’s security remains vulnerable, however, particularly as Libya’s fragmentation has destabilized the region and triggered the arrival of Libyans into Tunisia over the past few months.

-Despite strong fiscal stimulus, real GDP growth has been lower than ‘BB-‘/’BB’ peers since the revolution, as the country has suffered from supply shocks (including strikes), weakening FDI and weak external demand in its main export partners (France and Italy).  Based on an estimated 2.1% real GDP growth in 1H14, Fitch has revised down its growth estimate for this year to 2.3% from 2.9%.  We expect gradual recovery in the eurozone and greater political stability to lift growth prospects to 3.2% in 2015.

Inflation remains high by historical standards, at an estimated 5.5% on average in 2014, driven by growing consumption, supply bottlenecks and depreciation of the dinar.  However, overall macroeconomic performance remains broadly in line with peers due to limited volatility of economic growth and inflation.

-We forecast the fiscal deficit to tighten in 2014 for the first time since the revolution to 5.6% of GDP, from 6.6% in 2013, driven by subsidy reforms, continuing weak capital expenditure and revenue measures introduced in the revised budget.  This will push public debt up to an expected 52% of GDP in 2014, higher than peers (39%).  However, Tunisia’s ratings are supported by strong, consistent support from the international community, including the IMF, the World Bank and a number of bilateral creditors (including the US and Japan), which limits financing risks and improves the maturity profile of public debt, albeit with an unfavorable currency profile (we expect 59.3% of public debt to be denominated in foreign currency at end-2014).

-External finances continue to weigh on the ratings: despite in the commencement of fiscal consolidation and lackluster growth, external rebalancing is not yet visible.  The consistently large current account deficit (expected at 8.3% of GDP in 2014), driven by a widening trade deficit, mainly reflecting the energy balance, has mostly been financed by a rise in net external debt, which at an estimated 39.2% for 2014, is on a steep upward trend and increasingly diverging from peers.  External imbalances are also exerting pressures on international reserves, which remain weak at around three months of current account receipts, albeit supported by large official debt disbursements.  However, as the current account deficit is largely financed by long-term, sovereign borrowings from multilateral institutions, exposure to shifts in global liquidity is very low.  Also, increased flexibility of the exchange rate improves the country’s shock-absorption capacity: the dinar has depreciated by 8.8% against the dollar and 0.4% against the euro in the first nine months of the year.

-Tunisia’s highly vulnerable banking sector represents a key structural weakness: the three public banks, which account for one third of total assets and with an average NPL ratio of 21.2%, need urgent recapitalization and deep restructuring.  The authorities have recently introduced a number of measures to improve the banking sector’s governance and strength, but the delay into 2015 of the public banks’ recapitalization (which the government has budgeted at 1.3% of GDP) and of the approval and creation of an asset management company to acquire and manage NPLs of the tourism sector is a serious setback to their restructuring effort.

-Development indicators, including GDP per capita, governance indicators, human development index as well as investment rate, are well within the ‘BB’ rating category. Tunisia has a clean track record of debt repayment.

Rating Sensitivities

Negative: Future developments that may, individually or collectively, result in a downgrade of the rating:

-Renewed political or security instability in the election period or failure to form a coherent and stable government after the elections

-Failure to narrow the budget and current account deficits in the short- to medium-term or rising uncertainty over deficit financing options

-Material recapitalization needs of the banking sector impairing the sovereign balance sheet

The current Outlook is Negative.  Consequently, Fitch’s sensitivity analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to an upgrade.  However, future developments that may, individually or collectively, lead to a revision of the Outlook to Stable include:

– Stabilization in the country’s overall political and security situation

– Greater confidence in the next government’s ability to pursue fiscal consolidation and unwind economic imbalances.  (Fitch 24.10)

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 11.10  MOROCCO:  Fitch Affirms Morocco at ‘BBB-‘/’BBB’; Outlook Stable 

On 24 October Fitch Ratings ( affirmed Morocco’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB-‘ and ‘BBB’ respectively.  The issue ratings on Morocco’s senior unsecured foreign and local currency bonds were also affirmed at ‘BBB-‘ and ‘BBB’ respectively.  The Outlooks on the Long-term IDRs are Stable. The Country Ceiling was affirmed at ‘BBB’ and the Short-term foreign currency IDR at ‘F3’.

Key Rating Drivers

 The ‘BBB-‘/’BBB’ ratings are supported by Morocco’s macro and political stability in a volatile global and regional environment.  GDP growth has been resilient despite low external demand from Europe, Morocco’s key ecnomic partner.  The widening of the country’s budget and current account deficits in 2011 and 2012 has led to a marked increase in government and net external debt to 49.3% and 13% of GDP, respectively, in 2014, from 35% and -5.5% in 2010, reducing policy buffers.  However, Fitch expects the twin deficits to continue to narrow from the 2012 peak, supported by a strong political commitment to reform as illustrated by the gradual removal of budget subsidies on energy prices since 2012.  Structural indicators, however, are weaker than peers.

Morocco’s IDRs also reflect the following key rating drivers:

-Fitch expects the central government deficit will narrow to 5% of GDP in 2014 and 4.5% in 2015 (from 5.2% in 2013 and 7% in 2012), primarily due to lower spending on subsidies and contained current expenditure.  Higher GDP growth and commitment to fiscal discipline should bring further fiscal consolidation by 2016.  Crucially, following the reform on subsidies, the budget outcome is much less dependent on oil price volatility.

-Fitch expects the current account deficit will narrow to 6.7% of GDP in 2014, 5.8% in 2015 and 4.9% in 2016 (from 7.6% in 2013 and 9.7% in 2012), as a result of fiscal tightening, ramping up of new industrial exports and an improved global environment.  Official foreign reserves (FX) are strengthening, totaling $20b in mid-October 2014 (up 14% yoy), primarily reflecting 2014 eurobond issuance and an improved current account.

-Growth of non-agricultural output is set to accelerate to 4% in 2014 (from 2.3% in 2013), driven by the expansion of new industrial sectors, a resilient tourism sector (+8% arrivals over the first seven months of the year) and some recovery in domestic demand.  Fitch expects growth will accelerate to 4.3% in 2015 and 4.8% in 2016, supported by reforms and an improved global environment.  The main risk is a continuing lackluster performance in Europe which accounts for 80% of foreign tourists, 66% of exports, 72% of remittances in Morocco.

-Morocco continues to benefit from strong external official support.  The recent renewal of a two-year IMF precautionary liquidity line (worth $5b or 4.5% of GDP) provides an emergency credit line but the authorities have indicated they have no intention to draw on it.  The IMF program will serve as an anchor for reforms.  Grants from the Gulf Cooperation Council countries worth $5b (5% of GDP) are being disbursed to finance infrastructure projects over 2013-2017.

-Structural indicators are generally weaker than similarly rated peers.  UN Human Development index scores are weak and GDP per capita is lower than the peers’ median.  Governance indicators and the business environment are also weaker than peers’ despite some recent improvement (Ease of Doing Business ranking improved to 87 from 95 in the 2014 survey by the World Bank).

Rating Sensitivities

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


-A substantive narrowing in Morocco’s twin deficits materially reducing the vulnerability of the economy to shocks

-Higher growth trajectory that facilitates an increase in per capita income level and an improvement in social indicators (e.g. youth unemployment, poverty)


-Inability to narrow the fiscal deficit that undermines the government’s debt dynamics

-A weakening economic performance and sharply rising net external debt in the face of external shocks, such as weaker-than-expected eurozone performance

-Social instability constraining the political scope for reform

Key Assumptions

The Stable Outlook anticipates a gradual narrowing of the budget and the current account deficits from the peak of 2012 that will allow public debt to stabilize and a gradual rebuilding of FX reserves.

Fitch assumes continuing reform in a context of social and political stability.

Fitch assumes a gradual economic recovery in the eurozone, to 1.3% in 2015 and 1.5% in 2016 from 0.9% in 2014.  Growth in France and Spain, the two key economic partners, is forecast at respectively 0.8% in 2015 and 1.2% in 2016, up from 0.4% in 2014, and 1.5% for both 2015 and 2016, up from 1.3% in 2014.

Fitch assumes oil prices will decline to $95/barrel by 2016 from $105/barrel in 2014.  (Fitch 24.10)

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 11.11  MAURITANIA: Statement on the IMF 2014 Article IV Mission

A team from the International Monetary Fund (IMF) lead by Mercedes Vera Martin visited Nouakchott from October 20-30 to conduct discussions for the 2014 Article IV consultation.  At the end of the visit, Ms. Vera Martin issued the following statement:

“Mauritania’s economic developments remained favorable, despite deteriorating terms of trade due to a decline in global iron ore prices.  Economic growth is now estimated to reach 6.4% in 2014.  A rebound in fishing activity and sustained activity in the mining sector would more than compensate for weaker performances in the oil and manufacturing sectors.  Inflation has remained contained, with an annual average of 3.5%.  Fiscal performance is expected to remain in line with the 2014 budget, with an overall deficit, excluding grants, of 1.7% of GDP.  The current account deficit is expected to narrow to 19% of GDP and mostly be financed by foreign direct investment.  The international reserve coverage is expected to remain adequate, at about 6 months of imports excluding those associated with oil and mining activities.  Contained inflation and stable external reserves continue to provide buffers against potential shocks to the economy.”

“Despite lower terms of trade, the macroeconomic outlook remains favorable supported by an expansion in mining capacity over the medium term.  Real GDP growth in 2015 is expected at 6%, as higher domestic consumption will partially compensate for the deteriorating external outlook.  Average inflation is projected to increase to about 4.6%.  Official reserves are projected to decline to about 6.3 months of imports at end-2015.  Over the medium term, real GDP growth, averaging about 7%, hinges on strong investment linked to expanding mining capacity and infrastructure projects.  The current account deficit is projected to widen over the coming years due to higher capital imports associated with such expansion and to later narrow when higher mining production comes on stream.  Risks to the growth outlook are titled to the downside due to external developments; as heightened geopolitical risks and slower global activity could negatively affect iron ore global market developments and lead to a worse-than-forecast deterioration in the terms of trade.  Lower iron ore prices could also negatively impact investment plans in Mauritania.”

“The authorities are committed to maintain prudent fiscal policy.  The 2015 budget will contain the overall deficit, excluding grants, to 2.2% of GDP.  A projected shortfall in revenues will be mostly offset by lower current and capital spending while protecting social spending.  A favorable macroeconomic outlook will support fiscal consolidation efforts over the medium term, which will concentrate on: rationalizing current spending while prioritizing capital spending in line with capacity absorption and poverty reduction strategies paper (PRSP) priorities; preserving fiscal sustainability by enhancing institutional capacity and coordination in debt management practices; strengthening fiscal governance by adopting a fiscal framework that accounts for the potential volatility of resource revenues resulting from international price movements.”

“The central bank continues to make progress in strengthening the resilience of the financial sector and plans to strengthen monetary policy formulation and implement reforms in the foreign exchange market to sustain private sector development over the medium term.  An upcoming IMF financial stability assessment will provide recommendations to further strengthen the financial sector, facilitate long-term credit to the private sector and encourage financial deepening and inclusion.”

“The mission welcomed the authorities’ prudent management of macroeconomic policy and their commitment to preserve fiscal sustainability, safeguard financial stability and encourage private sector development.  A more dynamic private sector will be critical to diversify the economy and create jobs.  A comprehensive reform agenda geared at improving the business environment, tackling longstanding structural bottlenecks, promoting comparative advantage in conjunction with the private sector, strengthening governance and protecting the most vulnerable will help promote more inclusive growth while increasing the economic resilience to external shocks.”  (IMF 31.10)

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 11.12  TURKEY:  Vulnerabilities Weigh On Sovereign& Corporate Credit Profiles

External vulnerabilities continue to weigh on the credit profiles of Turkey’s sovereign (rated Baa3/negative), its banking and its corporates, says Moody’s Investors Service ( in a report published on 4 November.

Over the past four years, Turkey’s economic growth has been driven by externally financed domestic demand, and Moody’s new report assesses the impact of this reliance.  The rating agency’s overall conclusion is that Turkey’s exposure to volatility in foreign capital inflows has been compounded by the recent rise in geopolitical risks, the continued domestic policy uncertainties, and the reduction in global liquidity that is likely to stem from the US Federal Reserve’s raising of short-term interest rate targets for its federal funds next year.  According to Moody’s, these challenges are putting pressure on the credit profiles of the Turkish sovereign, its banks and non-financial corporates.

Moody’s new report says that Turkey’s sovereign credit profile is being challenged by a growth environment that is much weaker than it was in 2010-13.  The rating agency also expects the cost of securing foreign capital inflows to increase at a time when the country’s external financing needs are equivalent to 25% of GDP in 2014 – 15.  Although government finances are a credit strength, Moody’s believes that these are also likely to be adversely affected by the slowdown in economic growth and fragile investor confidence.

According to Moody’s, the Turkish banking system’s funding structure exposes it to volatility in the external appetite for Turkish assets, which would weigh on banks’ growth opportunities and hence profitability.  This vulnerability is exacerbated by the banks’ increasing leverage in recent years, with balance sheet growth outpacing internal capital generation, and the higher refinancing risk.  However, Moody’s notes that these risks are mitigated by robust capital cushions.

Moody’s believes that Turkish corporates will be particularly hard hit by lower economic growth, although export-focused companies benefit from a depreciation in the Turkish lira.  Given that most Moody’s-rated Turkish corporates are geographically better diversified than smaller Turkish peers, the credit impact is likely to be more contained.  The rating agency believes that a reduction of capital flows into Turkey would reduce corporates’ access to funding, while both inflationary pressures and geopolitical risks would dampen consumer and investor sentiment.  (Moody’s 04.11)

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 11.13  TURKEY:  Turkish Government Ramps Up Privatization

Scrambling for funds to keep its economy rolling, Turkey’s government plans to sell off major public plants, companies, ports and highways starting next year.  The plan is expected to generate record privatization revenues.

Turkey’s privatization revenues hit an all-time high in 2013, totaling $12.4 billion.  In 2014, the figure currently stands at $10 billion.  The $12.4 billion record will almost certainly be broken next year, for the privatization of Spor Toto and the Horse Racing Authority alone are expected to generate $10 billion, with other major entities also on the list.

Sell-off list

As part of earlier privatizations, the state has completely withdrawn from a number of sectors, including petrochemicals, iron and steel, oil refineries, alcoholic beverages and tobacco and power distribution, while notably decreasing its share in the banking, insurance, telecommunication and air transport sectors.

Which sectors and companies are in line to be offered to Turkish and foreign investors?

In remarks to reporters on 6 October, Finance Minister Mehmet Simsek listed the following facilities, among others: power plants, highways and bridges, several seaports, the Erzurum Winter Olympics venues, 25 sugar factories, the Halk Insurance company, the Halk Pension company, the Gulluk Marina and real estate in many provinces across the country.

Also slated for privatization were Turksat’s cable TV operations, the transmission lines of the gas company BOTAS, 49% of the public stake in the Turkish Electricity Distribution Co., the Haydarpasa Project in Istanbul and the Eti Mine Works sulfuric and boric acid factories.  The Turkish Petroleum Corp., meanwhile, will open to the public.  Work is underway to add more companies in various sectors to the privatization list.

 “The state, the citizen and the private sector will all be winners,” Simsek said, arguing the state would pull out from many sectors for higher efficiency under the private sector….Our objective is to ensure better productivity, more jobs for our people, a competitive environment and higher quality.  We’ve already achieved that with the privatizations in the power-distribution sector, which resulted in lower losses and clandestine usage, larger revenues for the state and higher quality service for the public.  We are now working on a model to ensure similar success in other sectors,” the minister said.

Sell-off plan under fire

The opposition, however, is not convinced.  In remarks to Al-Monitor, Aydin Ayaydin, a senior member of the main opposition Republican People’s Party and a well-known economist, raised doubts over the actual purpose and likely results of the privatization plan.  Ayaydin, who has headed two public banks, said the 25 sugar factories on the list owned large tracts of land and voiced concern that prospective buyers could use the land to build luxury residential buildings and shopping malls before closing down the factories themselves.  This would result in more jobless people and less production, he stressed.

Ayaydin pointed out that a recent plan to hand over the public bank Vakifbank to the Treasury appeared to be the sign of government intentions to sell off the bank as well.  “If major institutions such as Vakifbank are sold off, the privatization revenues in 2015 will go well beyond the $12 billion target,” he said.

For Ayaydin, Ankara’s “hasty” privatization decision is the sign of “financing problems.”  Privatization, however, does not mean selling off public property to finance the budget, he said, adding that in an ideal privatization program, the government would make public companies productive before handing them over to the private sector, which, in turn, would boost their capacity and production through new investment and create new jobs.

“But that’s not the government’s point.  Their only concern is to come up with money for the budget.  They sell off whatever they have, careless about the future. Privatized factories have been shut down and workers laid off.  Buildings have been raised on precious plots.  That’s not privatization, but rent distribution,” Ayaydin grumbled.  “Privatization is supposed to contribute to the economy. But their only concern is to make quick money.  They sell off public property to roll over internal and foreign debt.”

Workers take to the streets

The privatization plan appears bound to stoke further tensions in the government’s already strained ties with the opposition.  Workers, too, have taken action, wary they could end up losing their jobs.

On 15 October, employees of the Eti Mine Works sulfuric and boric acid factories in the northwestern city of Bandirma held a demonstration against the privatization plan, backed by civil society activists.  “No one can enter this factory without walking over our dead bodies,” a trade union leader warned.  The town launched a petition to stop the sell-off.

Ankara hopes for a large-scale privatization, but it seems the sale of the factories will not be an easy task. In 2011, a plan to privatize the Eti boron plants was dropped after strong protests by workers, who appear resolved to do the same again.  (Al-Monitor 23.10)

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 11.14  CYPRUS:  Fitch Revises Cyprus’s Outlook to Positive

On 24 October, Fitch Ratings ( revised Cyprus’s Outlooks to Positive from Stable, while affirming its Long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘B-‘.  The issue ratings on Cyprus’s senior unsecured foreign and local currency bonds have also been affirmed at ‘B-‘.  The Country Ceiling and the Short-term foreign currency IDR have been affirmed at ‘B’.

Key Rating Drivers

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

HIGH:  Developments in public finances continue to materially exceed Fitch’s previous expectations.  The fiscal deficit in 1H14 (prior to any data revisions) was smaller than projected, reflecting a combination of higher tax revenues and lower-than-expected expenditure across most items.  Due in part to a shallower recession than previously forecast, the strong budget execution should help narrow the headline fiscal deficit to 3.3% of GDP in 2014, significantly below the 5% projected by Fitch in April.  National accounts data revisions in October also partly contributed to the lower deficit forecast for 2014.

 This year an additional 2.3% of GDP of new fiscal adjustment measures were implemented by the government on top of the 4.5% of GDP already implemented in 2013.  Nevertheless, it will still be challenging to meet the over-arching objective of a primary budget surplus of 4% of GDP by 2018, though recent outturns provide some encouragement.  The positive carry-over effect of projected FY14 outperformance is reflected in Fitch’s future budget projections. Statistical and methodological changes to national accounts data, including ESA2010, narrowed the fiscal deficit in 2013 to 4.9% of GDP from 5.4%.

The smaller budget deficits also significantly improve public debt dynamics.  The general government debt-to-GDP ratio (GGGD) is now expected to peak a year earlier in 2015 and decline more rapidly than under previous forecasts.  The recent accounting, statistical and methodological changes have also significantly lowered the debt ratio.  For 2013, GGGD has been reduced to 102.2% from the previous 111.5%.  This is significantly below 175% for Greece (B/Stable), its closest peer.  Fitch now expects GGGD for Cyprus to peak at 113% (April forecast: 126%) and fall to 107% (April: 123%) by 2018.

The economy performed better than expected in 1H14 but economic conditions remain challenging with output continuing to decline.  GDP is likely to contract by 3% at most this year, which is less severe than Fitch’s April projection of a 3.9% drop.  The tourism sector and private consumption continue to be more resilient than expected. Households have been spending out of their savings, but there is uncertainty over the sustainability of this trend.

MEDIUM:  The government issued new debt this year, smoothing the maturities of its debt beyond the program period.  At the last review in April, projected redemptions of marketable debt (excluding short-term debt) and loans in 2017 jumped to over €2.5b.  The most recent profile shows a significant improvement with redemptions falling to €1.5b that year, albeit this remains a significant hurdle.  Market conditions permitting, the government could issue debt again to further smooth the post-program maturity profile.  However, Fitch does not expect the government to substitute official funding with market funding for budgetary financing during the program period.

The recent budget over-performance has also improved the cash position and helped ease near-term liquidity risk for the government.  There are no major bond redemptions due until November 2015.

The affirmation of Cyprus’s IDRs at ‘B-‘ also reflects the following key rating drivers:

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

The restructuring of the banking sector is progressing, with some signs of stabilization in bank deposits despite the lifting of all domestic payment restrictions.  However, the environment remains challenging, in particular with regard to poor asset quality.  The stock of non-performing loans (NPLs, as per Central Bank of Cyprus’s new definition) on average reached over 50% of gross loans in August 2014 for banks active in the local market, representing 157% of the country’s GDP.

The quality of assets may deteriorate further in the next quarters, albeit potentially at a slower pace.  Banks have taken steps to enhance their internal arrears and restructuring processes and now face the challenge of limiting any additional credit deterioration and recovering NPLs without affecting their recently restored capital positions.

Public debt, at around 102.2% of GDP in 2013, was more than double the ‘B’ category median of 42% and has yet to peak.  The high debt ratio reduces the fiscal scope to absorb any additional domestic or external shocks.

Risks to program implementation have eased on recent performance but remain elevated.  A significant portion of the consolidation also remains outside the program period, which ends in 1Q16, and medium-term fiscal targets, in particular, are ambitious.

There are signs of positive economic adjustment. Growth in employee compensation has fallen below growth in productivity, leading to an improvement in labor costs.

The current account deficit has narrowed to less than 2% of GDP in 2013 from over 6% in 2012, albeit primarily reflecting a contraction in domestic demand and imports.

Rating Sensitivities

Negative: future developments that may, individually or collectively, lead to a negative rating action include:

–     – Significant slippage from program targets, including an inability to put the program back on track from the current political impasse on the foreclosure law, which threatens the sovereign’s short term liquidity position

–     – A recession that is materially deeper or longer than assumed by Fitch, which would have adverse consequences for public debt dynamics

–     – Re-intensification of the banking crisis in Cyprus, for example, capital flight from banks from the lifting of external capital controls or significant capital needs arising from the ECB Comprehensive Assessment that cannot be met by private sources.

Positive: future developments that may, individually or collectively, lead to a positive rating action include:

– A longer track record of successful implementation of the EU-IMF program including, for example, further outperformance relative to program targets

– Further signs of a stabilization in economic output and the banking sector, including a credible strategy to deal with the large NPL overhang

– Improvements in export performance that help facilitate the rebalancing of the economy

– Lifting of remaining capital controls with no material negative economic consequences. Removal of all capital controls would also lead to an upgrade of the Country Ceiling

Key Assumptions

Fitch expects the recession to last longer than assumed under the EU/IMF program.  The agency expects output to contract by around 0.8% in 2015 and return to growth in 2016, a year earlier than previously thought.  This compares with the Troika program forecast for the economy to grow from 2015.

Fitch assumes the government will closely implement budget consolidation measures. Fitch’s debt dynamics projections assume the government concludes the asset swap of a portion of the outstanding government debt held by the Central Bank of Cyprus Bank (€1b), and generates proceeds from privatization (of at least €1b within the program period and €0.4b outside).  The debt dynamics projections also include the fiscal and financial sector buffers that are built into the program.

Public debt has improved slightly from the previous rating review.  Fitch expects gross general government debt (GGGD) to peak at 113% of GDP in 2015 (compared with over 126% in the previous review) and to gradually decline to 100% by 2020.  The improvement is due to better growth projections and smaller fiscal deficit forecasts in the near term, and changes to national accounts data on accounting, as well as statistical and methodological changes.

Fitch assumes that there will be no material escalation in developments between Russia and Ukraine that would lead to a significant external shock to the Cypriot economy.  Tourism from Russia has been rising and Russians account for a sizeable share of foreign deposits in banks.  Our projections also do not include the impact on growth of potential future gas reserves off the southern shores of Cyprus, the benefits from which are several years into the future, although now less speculative.  A second test drill will be undertaken soon.

Fitch assumes the eurozone will avoid long-lasting deflation, such as that experienced by Japan from the 1990s.  Fitch also assumes the gradual progress in deepening fiscal and financial integration at the eurozone level will continue; key macroeconomic imbalances within the currency union will be slowly unwound; and eurozone governments will tighten fiscal policy over the medium term.

Fitch expects the delay in disbursing the latest IMF tranche over the introduction of new foreclosure legislation to be resolved by early next year.  The 6th program tranche (€433m) was not disbursed in September 2014 due to the bills that were passed by parliament in September being incompatible with the program’s condition that a new and effective foreclosure framework be introduced.  (Fitch 24.10)

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