TABLE OF CONTENTS:
1.1 Lapid Insists Taxes Won't Be Raised
1.2 Bank of Israel Governor Says Cost of War Just 0.5% of GDP
1.3 Jerusalem Approves 'Economic Iron Dome' for Southern Israel
1.4 Israel Broadcasting Authority to Close in 2015
1.5 New Tax Incentives to Spur Investment in Early-Stage Startups
2.1 Mobileye Closes $1 Billion Initial Public Offering
2.2 Perion Announces New 3 Year Agreement with Bing
2.3 Orbotech Announces Closing of the Acquisition of SPTS Technologies
2.4 Trellas Invests over $30 Million in Vidmind Group
5.7 Egypt Plans to Dig New $4 Billion Suez Canal
5.8 Egypt's Urban Inflation Hits Highest Monthly Increase in 6 Years
5.9 Egypt's Trade Deficit Falls for Ninth Consecutive Month
5.10 Egypt’s Exports Register $1.4 Billion in July
5.11 World Bank $500 Million Egypt Loan for Home Gas Delivery
5.12 Egypt Internet Users Reach 44.5 Million in May
5.13 Algeria Adopts Friday-Saturday Weekend
5.14 Morocco’s Internet Population Hits 7.8 Million at End June 2014
6.1 Unionization in Turkey Dragging Below 10%
6.2 Turkish Auto Sales Drop 23.5% in 7 Months
6.3 Turkey Increases Gas Import By Over 10% in First Half
6.4 Female Labor Participation Low, Wide Wage Gap Remains
6.5 Greek Deflation Slows In July, Trend Intact
11.1 LEBANON: Delays in Offshore Gas Licensing Hurt Lebanon’s Prospects
11.2 LEBANON: Securing Lebanon, Widening Divides
11.3 JORDAN: Moody's Says Reduced Growth Prospects Impair Creditworthiness
11.4 JORDAN: Arabian Gulf Support Bolsters Jordan’s Recovery
11.5 TUNISIA: Parties Sign Pact for Fair Elections
11.6 TURKEY: Political Risk Still High Following Erdogan Win
11.7 TURKEY: Strong Start for Turkey in 2014
11.8 GREECE: Moody's Upgrades Greece by Two Points from 'Caa3' to 'Caa1'
1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
On 7 August, Minister of Finance Lapid promised again not to raise taxes in the 2015 budget, despite Operation Protective Edge. He said the economy was strong enough to cope with the economic effects of the fighting over the past month. "We can contain the costs of the operation in the 2014 budget," Lapid declared at a press conference. "We're an economically strong country and unexpected expenses are taken into account. We won't raise taxes. The economy needs growth engines right now, not handicap weights. There's no reason to raise taxes at this time." According to Lapid, direct property damage from the Operation Protective Edge amounts to NIS 50 million, and indirect damage totals NIS 750 million. He asserted that the government compensation fund "is ready to absorb these costs." (Globes 07.08)
Operation Protective Edge will only have a moderate effect on the Israeli economy, according to Bank of Israel Governor Karnit Flug, at a potential loss of about 0.5% of GDP, or $1.4 billion. The figure was initially mentioned during a 28 July meeting at the central bank, but the minutes of that meeting were only published on 11 August. Still, Governor Flug said a reliable appraisal of the total financial cost of the fighting was unlikely right now, and that it was still too early to estimate the effect of the operation on the 2015 budget. The review also touched on Finance Minister Lapid's decision to absorb the cost of the operation into the 2014 budget, rather than raising taxes. Gov. Flug indicated that it was the government's responsibility to decide, but that it was important not to raise deficit targets. (IH 12.08)
The government on 10 August approved a financial aid package to rehabilitate the southern communities most affected by Hamas rocket fire during Operation Protective Edge. The plan, formulated by Prime Minister Netanyahu, Finance Minister Lapid, Economy & Trade Minister Bennett, Housing & Construction Minister Ariel and Negev & Galilee Development Minister Shalom, will see the immediate transfer of $6.6 million in auxiliary funding to the Gaza vicinity communities and an additional $3.9 million to the southern city of Sderot.
As part of the multi-year plan, the full costs of which are estimated at $120.5 million, the government will fund the restoration and construction of public parks, sports centers and public and cultural institutions in southern Israel, as well as invest in the fortification of existing daycare centers, public building and infrastructure.
As part of the project, the Prime Minister's Office Director-General will head a special inter-ministerial committee to coordinate government efforts. The committee will present the government, within 21 days, a full outline of the plan and the budget demands it entails. Apart from the immediate relief funds, the government has also approved a series of additional steps to help rehabilitate the area. The second multi-year plan is scheduled to be presented to the government within three months. (IH 11.08)
The Knesset on 29 July voted in favor of the bill to overhaul public broadcasting in Israel and replace the Israel Broadcasting Authority with a new government body. Forty-five MKs voted in favor of the bill, 11 MKs voted against it and one MK abstained. The new Public Broadcasting Law, promoted by Communications Minister Erdan (Likud) and backed by Finance Minister Lapid (Yesh Atid), retires the Israel Broadcasting Authority Law of 1965 and entails reforms. The legislation met fierce opposition from IBA employees, as it spells the dismissal of many of them. As part of the reforms, the Israel Broadcasting Authority, which includes Channel 1 and Israel Radio, will be closed in March 2015, and the annual TV fee Israelis pay the IBA will be canceled. The IBA's Educational Television channel will also be taken off the air. Some 1,700 of the IBA's employees will be dismissed and those who are eligible will be offered early retirement. According to an agreement reached with Histadrut labor federation, 190 employees will be reassigned to the new broadcasting organization, which will try to absorb an additional 35% of IBA employees into its ranks. (Various 29.07)
The Israeli Ministries of Economy and Finance are jointly advancing legislative reform designed to encourage investment in early-stage Israeli start-up companies. The reform, slated for review by a governmental task-force, aims to help transform seed-stage startup ventures into commercially viable companies by offering tax breaks to investors who support them in their initial stages of their development. Israel is highly regarded for its entrepreneurial innovation, and the legislation aims to capitalize on its attractiveness to international investors by offering incentives that ultimately stimulate continued economic growth.
2: ISRAEL MARKET & BUSINESS NEWS
Mobileye closed its IPO of 40,927,350 ordinary shares priced at $25.00 per share. Mobileye offered 8,325,000 ordinary shares and the selling shareholders offered 32,602,350 ordinary shares, which includes 5,338,350 ordinary shares that the underwriters acquired pursuant to exercise of their over-allotment option. The aggregate gross proceeds of the offering were $1.023 billion. Mobileye's ordinary shares are listed on the New York Stock Exchange under the symbol "MBLY." Mobileye expects to use the estimated $193.7 million of net proceeds to it from the offering, after expenses, for general corporate purposes and to purchase EyeQ chip inventory. Goldman, Sachs & Co. and Morgan Stanley & Co. LLC acted as lead book-running managers for the offering.
Jerusalem’s Mobileye (http://www.mobileye.com) is the global leader in the design and development of software and related technologies for camera-based Advanced Driver Assistance Systems. Their technology keeps passengers safer on the roads, reduces the risks of traffic accidents, saves lives and has the potential to revolutionize the driving experience by enabling autonomous driving. Their proprietary software algorithms and EyeQ® chips perform detailed interpretations of the visual field in order to anticipate possible collisions with other vehicles, pedestrians, cyclists, animals, debris and other obstacles. (Mobileye 06.08)
Perion Network signed a 3 year agreement with Bing, extending its existing partnership, starting 1 January 2015 through 31 December 2017. Upon mutual agreement, the agreement may be renewed for 2018 as well. The agreement includes desktop and tablet distribution with limited exclusivity in the United States as well as mobile distribution. In parallel, and in conjunction with the fact that revenues from Google are no longer material to Perion, the Company decided to exercise its right to opt-out of its ClientConnect agreement with Google as of August 31, 2014. The Company continues to work with Google through its original Perion agreement which expires in June 2015. In addition to Bing and Google, the Company also has search distribution partnerships with Ask.com and Yahoo.
Tel Aviv’s Perion (http://www.perion.com) is a global performance-based media and Internet company, providing online publishers and app developers advanced technology and a variety of intelligent, data-driven solutions to monetize their application or content and expand their reach to larger audiences, based on their experience as an app developer. Their leading software monetization platform, Perion Codefuel, empowers digital businesses to optimize installs, analyze data and maximize revenue. (Perion 01.08)
Orbotech announced that it has successfully closed the previously-announced acquisition of SPTS Technologies Group Limited (SPTS), in a strategic move into the high growth areas of Advanced Packaging and micro-electro-mechanical systems (MEMS). Orbotech financed the acquisition, announced in July 2014, using the proceeds of a new $300 million senior secured term loan facility and approximately $90 million cash on hand. The total consideration was $371 million. Yavne’s Orbotech (http://www.orbotech.com) has been at the cutting edge of the electronics industry supply chain, as an innovator of enabling technologies used in the manufacture of the world’s most sophisticated consumer and industrial products, for over 30 years. The Company is a leading provider of yield-enhancing and production solutions, primarily for manufacturers of printed circuit boards, flat panel displays and other electronic components. Today, virtually every electronic device is produced using Orbotech technology. (Orbotech 07.08)
Vidmind has capitalized on the investment of $30 million from Trellas, by going live thru TVzor. TVzor uses the Vidmind cloud-based, hybrid OTT/DTT platform as the foundation for a new primary TV service in Russia. Trellas, one of Russia's largest independent retail groups, is also committed to a follow-on investment to bring Vidmind's OTT cloud platform to the global market. Trellas targets the huge gap between the extensive broadband infrastructure and the relatively small amount of primary TV services (Live TV & VOD) based on OTT in Russia and globally. Vidmind's technology allows a new breed of virtual TV operators to leverage existing broadband infrastructure and free-to air channels to provide a primary TV service with features and capabilities far exceeding those of existing Pay-TV services.
Tel Aviv’s Vidmind’s (http://www.vidmind.com) platform lets service providers, from Telcos through broadcasters and retailers, launch a fully featured next generation TV service, available on TVs, tablets, smartphones and more. The company was founded by video streaming and TV app veterans and is privately held. (Vidmind 06.08)
3: REGIONAL PRIVATE SECTOR NEWS
The expansion of international schools in the Gulf region continues, registering the second fastest growth rate in the world and now has 982 international schools in the region with a million students collectively paying $6 billion in fees. Research conducted by the International School Consultancy Group (ISC), a leader in delivering market intelligence on the global international schools market, shows the UAE ranked first as the country with the highest number of international schools, dominating the region with 439, up from 433 in the first quarter of this year. Saudi Arabia has 195 international schools and Qatar 130, although this is bound to increase as the country’s Supreme Education Council (SEC) has just approved 26 new private schools out of the 90 applications it received. Elsewhere in the region, Kuwait now hosts 80 international schools, teaching close to 90,000 students, while Oman has 58 operational international schools, with a population of nearly 60,000 students.
According to ISC’s report, the fastest growing international school market is currently Asia. The ISC says East Asia, the Gulf and South America will all be the source of new demand in future, as appetite increases for access to world-class quality education. (WAM 12.08)
Jordan’s Ministry of Water and Irrigation announced a water harvesting plan designed to raise rainwater storage in dams by over 25% within five years. Under the plan, new dams will be constructed to raise the overall storage capacity from the current 327 million cubic meters (mcm) to more than 400mcm, Water Minister Hazem Nasser said. The plan entails the construction of new dams and scores of sand dams, desert dams and ponds in the desert to cater for the water needs of local communities and recharge underground aquifers to improve their water quality, according to the minister. In addition, the plan entails raising the walls of the 8.18mcm Waleh Dam and the 1.41mcm Wadi Shuaib Dam. Both dams reach their maximum capacity almost every winter and overflow. Dams are located across the Kingdom, Nasser said, noting that there are 10 major dams, more than 143 large ponds to collect floodwater in the desert and over 25 sand dams. Although expensive to build, dams are vital for the Kingdom to secure its water needs, according to experts.
Jordan, which is considered the world’s fourth water poorest country, suffers an annual water deficit of 500mcm, while per capita share of water does not exceed 150 cubic meters annually, well below the water poverty line of 500 cubic meters per year. According to official figures, 91% of the Kingdom’s total area of 97,000 square kilometers is arid land with an annual average rainfall of 50-200 millimeters (mm), while 2.9% is categorized as semi-arid with an annual average rainfall of 400-580mm. (JT 09.08)
5: ARAB STATE DEVELOPMENTS
Saudi Arabia has granted $1 billion in aid to Lebanese armed forces as they battle Islamist militants who seized a border town in the worst spillover yet from Syria's three-year-old civil war. At least 17 Lebanese soldiers have been killed and 22 are missing in the last five days of violence in and around the town of Arsal. Former Lebanese Prime Minister Saad Al Hariri, who has close links to the Saudi royal family, announced the aid after visiting King Abdullah on 5 August.
Lebanon has been buffeted by violence linked to the Syrian conflict, including rocket attacks, suicide bombings and gun battles. But the assault on Arsal was the first major incursion into Lebanon by Sunni militants who officials have identified as hardliners belonging to the Nusra Front, Al Qaeda's branch in Syria, and Islamic State, which has seized large areas of Iraq and Syria. Lebanon has officially tried to distance itself from Syria's conflict, but the country's powerful Shi'ite movement Hezbollah has sent fighters to aid President Bashar al-Assad, an Alawite. Assad, like Hezbollah, is backed by Shi'ite power Iran. (AB 06.08)
Amman Chamber of Commerce’s (ACC) statistics showed that the trade sector’s contribution to the GDP was 43.5% in 2013. Transportation, telecommunication and storing topped the list at 12%, followed by real estate and construction at 11.9%. Transportation services and insurance came in third place at 10.1%. Wholesale and retail trade stood at 8.1%, while the contribution of restaurants and hotels was 1.4%. Banks provided JD3.9 billion in credit facilities to the general trade sector in 2013, accounting for 20.7% of the overall facilities that reached JD18.9 billion. The data showed that Jordan’s foreign trade volume developed remarkably in 2013, reaching JD21.1 billion, compared to JD6.208 billion in 2003. The general tax on sales gained from the trade and service sector reached JD1.9 billion, 76.5% of the overall general tax on sales revenues in 2013. Sales tax on imported goods reached JD1.025 billion, on services JD436 million and on trade JD476 million. (Petra 09.08)
The rate of youth unemployment in Jordan is one of the highest in the world and there should be policies in place to reduce this “problem”, the Phoenix Centre for Economic and Informatics Studies said. The center said unemployment among Jordanians between the ages of 15 and 19 is 36%, while the rate stands at 30.8% among those aged between 20 and 24 years. The International Labor Organization defines youths as those aged between 15 and 24. The weak economic policies related to employment and education are to blame for the high unemployment rates. Annually, there are 100,000 new job seekers in the Kingdom, while official studies and policies put the figure at between 60,000 to 70,000. The jobs created over the past few years in Jordan were less than the number of new job seekers, according to the center. The figures showed that 50,000 new job opportunities were available in 2012, while the number stood at 55,000 in 2011 and 66,000 a year earlier.
Meanwhile, a statement issued by the Department of Statistics (DoS) said 1.4 million Jordanians were between the ages of 15 and 24 in 2013, constituting 21.6% of the country’s population. The economic contribution of youths in Jordan is 16.1%, which is considered a low rate according to DoS. The statement attributed the low contribution to the fact that most of the youths are still pursuing their education. (Petra 11.08)
Due to climactic conditions and land use restrictions, 90% of the Gulf’s current food demands are met with imports – an over-reliance which will see the value of GCC food imports reach $53.1 billion by 2020 according to the Economist Intelligence Unit (EIU). Contrastingly, regional imports far exceed demand and the GCC’s position as a major logistics hub for the global food industry is aided by significant re-export trade.
Food-specific logistics remain a core component of a UAE logistics industry anticipated to reach AED99 billion in 2015, while Dubai Multi Commodities Centre (DMCC) figures show the UAE currently re-exports nearly 50% of its imported food products to other GCC countries, Russia, India, Pakistan and East Africa. One of the world’s biggest re-exporters of goods such as coffee, tea, sugar and rice, the UAE was responsible for approximately 90% of global rice re-exports in 2010. With regional food demand set to grow – the World Bank projects the Middle East and North Africa (MENA) region’s food market could exceed $1 trillion by 2030. (BI-ME 05.08)
Dubai’s consumer-price index (CPI) climbed 3.41% in July from the same period a year earlier and 0.46% from June, according to data by the Dubai Statistic Center. Alcoholic beverages and tobacco posted the highest year-on-year price increase in July, up 6.34%, followed by housing and utility, which account for almost 44% of consumer expenses, with 5.8%. Consumer prices of education and food and non-alcoholic beverages were up 4.87% and 2.75%, respectively. Additionally, consumer prices rose for furnishings, household equipment and routine household maintenance by 3.33% year-on-year in July, restaurants and hotels by 3.14%, health by 2.52%, miscellaneous goods and services by 1.79%, transport by 1.89% and communication by 2.46%. However, prices fell for clothing and footwear (3.08%) and recreation and culture (0.77%). The annual inflation rate in Dubai rose to 2.74% in the first six months of the year from 1.6% during the same period last year. (Gulf News 12.08)
The head of the transportation committee at the Makkah Chamber of Commerce and Industry said this year's Umrah season has provided a $1.6 billion boost to the local economy. This figure includes accommodation, transport and food services. The average Umrah visitor spends about $270 and Umrah pilgrims visiting Makkah spent at total of more than $1.6 billion, which allowed for a very profitable Umrah season. The five-star hotels in Makkah central area reported 100% occupancy rates, while accommodation around the central area had an average 60% occupancy rate. (Saudi Gazette 06.08)
Egypt plans to build a new Suez Canal alongside the existing 145-year-old historic waterway in a multi-billion dollar project aimed at expanding trade along the fastest shipping route between Europe and Asia. The Suez Canal earns Egypt about $5 billion a year in revenues, a vital source of hard currency for a country that has suffered a slump in tourism and foreign investment since its 2011 uprising. The new channel, part of a larger project to expand Suez port and shipping facilities, aims to raise Egypt's international profile and establish it as a major trade hub.
The total estimated cost of drilling the new channel would be about $4 billion and be completed in five years, though Egypt will strive to finish it within a more ambitious three-year deadline. The original canal, which links the Mediterranean and Red Seas, took 10 years of intense and generally poorly-paid work by Egyptians, who according to the Canal Authority, were drafted at the rate of 20,000 every 10 months from "the peasantry".
Egyptian President Adel Fattah Al Sisi said the armed forces would be in charge of the new project for security reasons. Up to 20 Egyptian firms could be involved in the project but would work under military supervision, he said. (Reuters 05.08)
Egypt's urban inflation rose by 3.1% in July, representing the highest monthly increase since May 2008 due to price hikes of strategic commodities, announced CAPMAS on 10 August. The governmental body attributed the rise to hikes in the cost of transportation (up 11%), reflecting an increase in fuel prices that went into effect in early July. The government raised petrol prices in an attempt to trim the budget deficit in the fiscal year 2014/15, with the price of lowest-value octane 80 fuel rising 78% and the cost of diesel rising 64%. Octane 80 increased by LE0.7 to LE1.6 per liter, octane 92 rose by LE0.75 to LE2.6 per liter and diesel rose to LE1.8 per liter.
Accordingly, vegetables also witnessed a price rise of 7.4%, fruit prices rose 3% and prices of dairy products and eggs upped 4.6%. High electricity prices – up by 28% – have also contributed to inflation's upward movement, CAPMAS added. The electricity ministry announced higher tariffs in July for households with a rise per kilowatt/hour varying from LE0.02 to LE0.07 for different consumption segments. (Ahram 10.08)
Egypt's trade balance deficit reached LE10.56 billion ($1.5 billion) in April 2014, state-run statistical body CAPMAS reported. The figure represents a 51.9% drop compared to the same month in 2013, when the deficit stood at LE21.94 billion ($3.1 billion). The value of Egypt's exports in April 2014 also declined 12.1% from the previous year, recording LE16.56 billion ($2.3 billion). Among the main products to suffer a drop in exports, according to CAPMAS, were petroleum products, oranges and ready-made clothes. On the other hand, the value of imports also shrank by 33.5% to reach LE27.12 billion ($3.8 billion), compared to LE40.79 billion ($5.7 billion) in April of the previous year. Imports included wheat, iron, petroleum products and corn. (Ahram 07.08)
Egyptian exports during July 2014 totaled $1.4b (EGP 10.06b), an official report issued by the Ministry of Industry and Foreign Trade, adding that the total exports from the beginning of January until the end of July recorded $13.334b, over EGP 93b. The report stated that year-to-date exports represented a 0.6% increase compared to the same period last year. The report indicated that, until the end of July 2014, aside from the exports of furniture, medical industries, leather and agricultural products, all fields experienced a gap between the target level of exports and the achieved. As for the July target, all exportation fields and sectors witnessed the same gap except ready made goods and agricultural products.
Imports until the end of May valued around $4.152. The top importing countries to Egypt were China, the United States, Germany and Italy. As for exports, Saudi Arabia was the leading recipient of Egyptian exports during the first five months of 2014 with exports reaching EGP 6.384b. Italy was the second, followed by Turkey and the US in third and fourth place, respectively. (DNE 09.08)
The World Bank has agreed to grant Egypt a $500m loan to finance a mega-project delivering natural gas to homes across the country, Prime Minister Ibrahim Mehleb announced on 5 August. Egypt will have a grace period of up to 8 years on the loans, while payments on the loan will be made over a 28 year period. The announcement came during Mehleb’s meeting with the World Bank in Washington DC, addressing continuous cooperation between Egypt and the World Bank. The meeting was also to find ways to support the efforts of the World Bank, particularly in the context of economic and social development. Access to natural gas will be given to 1.5m Egyptian homes in 11 governorates, including Sohag, Qena and Aswan in Upper Egypt. The aim of the program is to deliver natural gas as a substitute for butane, which is imported.
Over 75% of homes in Egypt currently depend on gas cylinder distribution for their energy needs. This system of distribution is problematic, however, due to the frequent unavailability of cylinders which are also difficult to carry due to their heavy weight. They are also sometimes distributed through informal markets. By the end of the project, the number of homes in Egypt connected to the natural gas grid will be approximately 8.2m, a 40% increase from the current amount of 5.8m. (DNE 07.08)
The number of internet users in Egypt reached 44.5 million in June 2014, up 33.82% from a year ago, based on the latest data from the Ministry of Communications and Information Technology. Monthly internet users increased 5.2% in May 2014, bringing the total percentage of internet users in Egypt to 52.35% of the population. The number of mobile phone subscribers increased by 7.6% to 101.76 million in May 2014 from May 2013, when they had reached 94.57 million. The number of land-line subscribers, however, dropped 24.04% to 6.58 million in May 2014, compared to 8.66 million in the same month a year earlier. Land-line subscriptions dropped by a record 50% from 2008, when Egypt had 13.75 million fixed lines. (EI 08.08)
The Algerian cabinet on 21 July decided to adopt a mixed Friday-Saturday weekend, replacing the more traditional Thursday and Friday break. The new weekend system will go into effect on 14 August. More details will be announced soon, a government statement said. Algeria's old Thursday-Friday weekend was introduced in 1976 by President Boumediene. Given that most of the country's business partners in Europe, America and Asia use a Saturday-Sunday weekend, Algeria effectively had only three days a week to do business. The country's economy has felt the impact, experts noted. A study by the International Finance Corporation, part of the World Bank, showed that the old weekend system cost Algeria between $500 million and $700 million annually. In order to improve profits, a number of companies in Algeria already moved over to the international weekend. (Magharebia 22.07)
Morocco is now home to over 7.8 million Internet users, with almost 6.87 million accessing the Web to watch or download video content via their smartphones. According to the latest stats from the National Telecommunications Regulatory Agency (ANRT), the overall number of Web users climbed 59% year-on-year to 7.8 million at the end of June 2014, that is a penetration rate of 23.5%. The rapid growth in smartphone owners fuelled the use of mobile internet, whose subscribers increased by 65.86% year-on-year to 6.87 million subscribers. At the end of June 2014, the number of mobile phone subscribers grew to 43.3 million subscribers, which is a penetration rate of 130.5% compared to 121.7% at the end of June 2013. (MAP 05.08)
6: TURKISH, CYPRIOT & GREEK DEVELOPMENTS
Union membership in Turkey remains below 10%, falling far behind European Union and OECD averages, according to the Labor Ministry. According to statistics, only 1.189 million of 12.28 million workers are union members, constituting just 9.6% of all workers. The remarkable difference between Turkey and the EU and Organization for Economic Co-operation and Development (OECD) averages has once again highlighted the woeful nature of labor rights in Turkey. Despite a considerable uptick over last year’s level, which was around 8.6%, the rate is still far below the unionization rate average in the EU, 23%, and in the OECD, 17%, according to the latest available data. Meanwhile, the ministry figures also revealed that unionization rates among public servants were around 70%, with 1.6 million of 2.271 million officials being members of unions. (AA 06.08)
Turkish automotive sales fell by 23.5% year-on-year in the first seven months of the year to 346,768 vehicles, the Automotive Distributors Association (ODD) said. Auto sales also dropped 16.3% year-on-year to 59,907 vehicles in July. The association has not changed its annual sales forecast of 650,000-700,000 vehicles. Automaker Renault saw the highest drop in sales last month, as it sold around 2,000 less vehicles than it had in July of 2013. Volkswagen and Opel both sold around 1,500-1,600 less cars year-on-year last month. Light commercial vehicle sales decreased by 29.5% during the first seven months of this year. During the same period of 2013, 105,521 light commercial vehicles were sold in Turkey, which decreased to 74,393 this year. Diesel automobiles accounted for 62% of vehicles sold in the first seven months of this year. Vehicles under 1,600cc decreased by 20.81% in sales, while those between 1,600-2,000cc decreased by 39.88%, and vehicles above 2,000cc declined by 3.04%. (Zaman 05.08)
Turkish state-run pipeline company Botas imported 21.33 billion cubic meters (bcm) of gas from various sources in January-June 2014 compared to 19.1 bcm in the same period of 2013. Turkey imports gas from Azerbaijan, which is supplied via the South Caucasus Pipeline (Baku-Tbilisi-Erzurum). Botas imported a total of 38.42 bcm of gas from various sources in 2013 compared to 43.09 bcm in 2012. Moreover, some 312 million cubic meters (mcm) of gas accounted for Botas' export operations in January-June compared to 295 mcm in the same period of last year. The company said that some 20.52 bcm of gas was sold in the Turkish domestic market in January-June compared to 19.02 bcm in January-June 2013. Last year, this figure was over 37.96 bcm, compared to 41.44 bcm in 2012. (Cihan 07.08)
While women's participation in the workforce has increased in Turkey in recent years, there is still a considerable wage gap, according to a report released last month by Oxfam International. According to the report, titled “The G20 and Gender Equality,” Turkey was the second-lowest G-20 country along with India (coming in just above Saudi Arabia) in terms of women's participation in the labor force, although the country has made gains since 2005 and promoted advancement in female labor participation. In spite of the various strides that Turkey has made in narrowing the gender gap, it remains wide, perhaps most notably indicated by wage disparity. In 2011 and 2012, women in Turkey on average only earned 60% as much as men. Income inequality is a general problem in the G-20, as women only earned between 57 and 76.3% as much as men.
The report said that more than half of women in Turkey work without social benefits or job protections, and that women's participation in the agricultural sector is twice as high in the eastern part of the country. Notably, Turkey is among the countries in the G-20 that offer women 90 or more days paid maternity leave. The US, on the other hand, does not have such a mandate for any period of maternity leave. According to the report, the most important step Turkey needs to take to increase gender equality is additional legal measures to “ensure that women can enjoy the rights provided by the changes in the constitution, civil code, labor law and penal code for equal pay for equal work.” (Cihan/Today's Zaman 11.08)
Greek consumer prices fell 0.7% in July, with the annual pace of deflation decelerating from a 1.1% fall in June, data from the country's statistics service showed. Greece's EU-harmonized deflation rate also slowed down to -0.8% in July from -1.5% in June, coming in below a -1.3% rate expected by economists in a Reuters poll. In November, deflation in Greece hit its fastest pace since monthly records began in 1960, registering a 2.9% year-on-year decline. Eurozone inflation fell to just 0.4% in July, its lowest level since the depth of the financial crisis nearly five years ago, highlighting deflation risks on the European Central Bank's radar. (Reuters 06.08)
7: GENERAL NEWS AND INTEREST
Lebanon's leading Sunni politician Saad Hariri returned from self-imposed exile on 8 August on a trip to bolster the country's army as it battles jihadists in the latest spillover from Syria's war. The former prime minister arrived after announcing earlier that Saudi Arabia, one of his chief allies, had pledged $1 billion to shore up the army and security forces against jihadists. Hariri's visit, his first since 2011, comes after open conflict between the army and jihadists on the border with Syria killed 17 troops and left 19 kidnapped. His arrival underscored the seriousness of the clashes in the Arsal region in eastern Lebanon on the Syrian border.
Hariri, 44, has voiced unconditional support for Lebanon's army in the fight against jihadists in Arsal, calling it a "red line". But some of his constituents accuse the army of allowing Hezbollah free rein to fight in Syria and failing to protect Sunnis. Hariri's father, Lebanon's former prime minister Rafiq Hariri, was assassinated in a 2005 attack that his supporters blame on the Syrian regime and its Lebanese ally Hezbollah. (AFP 08.08)
Libya's new parliament agreed on 12 August that the next president would be elected by a popular vote as lawmakers sought to overcome a confrontation between two armed factions. Western partners hope the new parliament will open space for negotiations between rival militias and their political backers and return Libya to stability after a month of clashes that turned Tripoli and Benghazi into battlefields. The House of Representatives voted overwhelmingly for the new president to be directly elected by the Libyan people as it seeks to put the country back on track towards democracy, three years after Muammar Gaddafi's fall in an uprising. No date has been set for the election, but Libya is caught in its worst violence since the civil war ousted Gaddafi, with armed factions clashing in the capital Tripoli with rockets, artillery and mortars.
On one side are former rebels from the western town of Zintan, and their anti-Islamist Qaaqaa and al-Sawaiq militias, including some ex-Gaddafi forces. Against them are more Islamist-leaning brigades allied to the town of Misrata who are closer to the Islamist political factions. (Reuters 12.08)
Prime Minister Erdogan won Turkey's first direct presidential election on 10 August, striking a conciliatory tone toward critics who fear he is bent on a power grab as he embarks on another five years at the country's helm. Erdogan expressed gratitude to all voters, both for and against him, and devoted a large part of his speech to what he calls the "New Turkey." He has previously made it clear that he would push for a reshape of the country's political system, including moving from the current parliamentary system to a strong presidential model.
The three-term prime minister's message of unity was in stark contrast to his mostly bitter, divisive election campaign. Erdogan, 60, has dominated Turkish politics for more than a decade. Revered by many as a man of the people who ushered in a period of economic prosperity, he is reviled by others as an increasingly autocratic leader trying to impose his religious and conservative views on a country with strong secular traditions. His critics have accused him of running a heavily lopsided, unfair campaign, using the assets available to him through his office as prime minister to dominate media exposure and travel across the country. His office has rejected these claims. Erdogan's core supporters, religious conservatives, see his victory as the crowning achievement of his drive to reshape Turkey and break the hold of the secular elite. Erdogan will be inaugurated on 28 August. (IH 11.08)
8: ISRAEL LIFE SCIENCE NEWS
Kadimastem signed a collaboration agreement with Merck to carry out drug screening in the neurodegenerative diseases space for multiple sclerosis (MS), and potential other neurodegenerative diseases. Kadimastem will utilize its unique platform for Merck Serono, the biopharmaceutical division of Merck, for the screening of new compounds as potential new therapeutics. Kadimastem has developed a technology to differentiate stem cells into oligodendrocytes, cells required in the brain to produce myelin, the insulation for the neural wiring. In MS, oligodendrocytes are destroyed by the immune system. Kadimastem is also equipped to generate stem cell-derived astrocytes. Astrocytes are neural supporting cells shown to be involved in neurodegenerative diseases. Within the collaboration, Kadimastem will screen compounds in proprietary assays based on these myelin-producing cells and differentiated nerve supporting cells, with the aim of identifying compounds with potential efficacy in MS, and potential effect in other neurodegenerative diseases.
Ness Ziona’s Kadimastem (http://www.kadimastem.com) uses human stem cells that are differentiated to create medical solutions for diabetes and degenerative diseases of the nervous system and for drug screening. The company’s technological platform enables the differentiation of stem cells into a range of functional human cells, including neuron-supporting cells in the brain as well as pancreatic cells that secrete insulin – beta cells. (Kadimastem 04.08)
9: ISRAEL PRODUCT & TECHNOLOGY NEWS
Herzliya’s Tiltan Games (http://tiltangames.com) announced a new educational initiative for parents and schools, available on both iOS and Android. It's a versatile educational program for preschool, pre-K and kindergarten, including over 30 topics and games at launch. Adaptive practice and test modules adjust to each child skill level, providing a personalized growth experience, aligned with common core state standards. Designed according to leading pre-school programs and advised by educational experts, My Dino companion takes a unique and fun approach to bringing new concepts to young kids. Using a funny dinosaur avatar and engaging activities, the app allows kids to experience new subjects and advance at their own pace.
Targeted to meet both parents and teachers' needs, My Dino Companion can handle unlimited amount of kids profiles, tracking each kid sessions and progress. Tiltan Games further expects to provide meaningful progress reports within the next update. Natural user interface as well as professional narration, graphics and music ensures kids an immersive, unimpeded experience without constant supervision. (Tiltan 07.08)
Jinni received notification from the National Academy of Television Arts & Sciences that the company will receive the prestigious 66th annual Emmy for the Technology & Engineering category. The award is for the company’s contribution to Personalized Recommendation Engines for Video Discovery and will be presented at the Bellagio hotel in Las Vegas on January 8, 2015 during the annual CES exhibition. The award recognizes that Jinni’s innovation and vision has materially affected the way subscribers view television and has set the standard for technological excellence in the industry. Jinni’s personalized linear and VOD discovery service reaches over 50 Million subscribers in four continents and was adopted by leading Pay TV and OTT providers including AT&T U-verse, Xfinity, Xbox, VUDU and Telus, across STB, web, mobile, game consoles and smart TV platforms. Jinni is the first and only truly personalized taste-and-mood based video discovery engine for linear TV and VOD. The unique approach has been proven to increase consumption, engagement and retention, differentiating Pay TV and OTT video providers from the competition by offering a unique discovery experience.
Jinni (http://www.jinni.com) is the distinguished holder of the Emmy for best Technology & Engineering. With offices in New York and Tel Aviv, Jinni is the world’s leader of smart video discovery guide platforms. Using content genetics and nuanced understanding of user tastes, complemented by collaborative filtering techniques, the Jinni engine brings a uniquely intuitive personalized experience that increases content consumption and consumer satisfaction. (Jinni 12.08)
10: ISRAEL ECONOMIC STATISTICS
Operation Protective Edge's overall financial toll on the Israeli economy was estimated at over 15 billion shekels ($4.3 billion). Defense officials have pegged the overall military expenditure at NIS 8 billion ($2.3 billion), saying the IDF will revise its 2015 budget demands accordingly. Preliminary assessments by the Finance Ministry said that the Israeli economy had lost 0.5% in projected GDP growth, estimated at NIS 4.5 billion ($1.3 billion), during the month-long Gaza campaign. The Tax Authority estimates that over NIS 50 million ($14.6 million) worth of property damage has been caused by rocket fire, and further predicted a drop of NIS 1.5 billion ($438 million) in tax revenues in 2014 because of the operation.
The state is expected to pay NIS 1 billion ($29 million) in restitution to southern communities affected by Operation Protective Edge. The Tourism Ministry has yet to publish the projected losses to the Israeli tourism industry, which has been severely crippled by the Gaza campaign, but industry insiders pegged the losses at hundreds of millions of shekels. The government will seek to avoid raising taxes, but the issue will have to be explored in depth when the government debates the 2015 budget. (IH 06.08)
July recorded the lowest number of tourist entries to Israel since Operation Pillar of Defense; according to the Central Bureau of Statistics, there was a 21% drop in tourist entries in July and 26% drop in day visitors to Israel compared with July 2013. As expected, Operation Protective Edge led to a significant drop in tourist travel to and from Israel. In July, 218,000 travelers visited Israel in total (day-visitors and tourists) - the lowest number since January 2013, just after Operation Pillar of Defense.
July 2014 saw a significant drop in tourists to 194,000, 21% less than July 2013. The number of day-visitors dropped 50% compared with last year, to just 24,000. The data further indicate that on 22-25 July, the days on which foreign carriers suspended flights to Israel, another low was recorded: only 2,300 tourist entries per-day came through Ben Gurion airport.
However, an analysis of the data from January through July shows that the overall upward trend is maintained: during this period 1.9 million tourists entered Israel, 13% more than in the corresponding period of 2013. (Globes 11.08)
The first half of 2014 saw a spike in the number of Israeli IPOs on the Nasdaq Exchange, with six companies facilitating initial public offerings totaling $590 million. Projections expect 2014 to break a seven-year record for Israeli NASDAQ IPOs, with 9 additional Israeli biomed companies poised to make IPOs later this year. The largest IPO in Israeli history was further registered in July, with road safety technology play, Mobileye raising over $1 billion. Israel remains a major foreign player on the NASDAQ, second only to China in the number of companies traded.
After a six-month surge in car deliveries, compared with last year, deliveries to Israel slumped 14% to 18,466 in July, compared with 21,000 in the corresponding month last year. The drop is due to fewer orders by vehicle leasing companies, following the damage suffered by tourism, the economic paralysis in missile-battered southern Israel, and poorer logistics capability on the part of vehicle importers, a large number of which are concentrated around Ashdod and the Re'em Junction in the south. The cumulative 2014 figures are still positive: 153,977 vehicles were delivered in January-July, up 15.4%. At the same time, the auto industry believes that most of the effect of Operation Protective Edge will be felt in the figures for August.
Another interesting point: the market share of vehicles manufactured in Turkey (by international manufacturers) jumped 4% to 14.6% of the total Israeli market, an unprecedented figure. Israelis have spent NIS 1 billion, excluding taxes, on Turkish-made vehicles this year. The leading brand in January-July was Hyundai with 20,757 deliveries, down 7%, compared with the corresponding period last year. Toyota was in second place with 17,578 deliveries, up 58%, followed by Kia with 16,051 deliveries, a 26% increase. Mazda was in fourth place with 11,399 deliveries, a 57% increase, followed by Skoda with 8,858 deliveries, up 16.5%. Suzuki had sixth place with 8,587 deliveries, a 55% jump. (Globes 03.08)
11: IN DEPTH
The decision to delay the gas-licensing round for another six months has raised concern in international financial circles that Lebanon will most likely miss a golden chance to tap potential gas wealth in the sea in the near future. The London-based Economist Intelligence Unit said that the delays in the issuance of gas licenses reflected the government’s failure to ratify two decrees that would outline the terms of exploration and production agreements and that would specify the number of blocks to be auctioned. It noted that the ministerial committee in charge of reviewing the draft decrees was not meeting on a regular basis and was struggling to find any kind of consensus.
The EIU cautioned that extended delays would erode confidence in the government’s ability to maintain international oil companies’ interest in the hydrocarbons offering. It said Lebanon would not be able to dictate strong commercial terms to international oil companies if the process is further delayed. It pointed out that major international oil companies had little clarity on contractual terms for exploring and developing the country’s offshore reserves, as well as on the number of blocks that would be auctioned.
It said that the authorities’ initial plan was to auction the 10 blocks together, but it noted that now there was an ongoing debate among the country’s political class as to whether to auction the 10 blocks at once or to offer them gradually. The size of the blocks ranges from 1,259 square kilometers to 2,374 square kilometers. The EIU pointed out that Lebanon was lagging behind other neighboring countries in the Levant Basin in this process, and Israel was already reaching the phase of monetizing its gas reserves.
It added that Lebanon could have started the drilling work by late next year if the government had approved the decrees and if authorities had completed the auction by mid-August of this year. The EIU warned that successive delays meant the economy would not benefit from hydrocarbon proceeds any time soon, especially since there was no certainty that the country was sitting on commercially viable oil and gas deposits. (TDS 12.08)
Heightened tensions in Tripoli are prompting new measures meant to allay Sunni concerns, but these will not work unless the root causes of discontent are addressed.
As part of an almost four-month-old security plan meant to minimize spillover from the nearby Syrian war, Lebanese security forces conducted raids the weekend of 19 July in the northern city of Tripoli, nabbing Hussam al-Sabbagh, a high-profile militia commander, for organizing attacks on the Alawite neighborhood of Jabal Mohsen, where most residents support Bashar al-Assad’s regime. Soon after, about 150 militiamen deployed in the impoverished neighborhood of Bab al-Tabbaneh, a predominately Sunni area that backs the Syrian opposition, and which has long known to be Sabbagh’s headquarters.
Some of these protesters complained that Sabbagh’s arrest was proof that security forces were unfairly targeting Sunni fighters. In response, military and religious leaders met at the house of Salem al-Rafei, the city’s leading Salafi sheikh, who is a vocal supporter of the Syrian opposition and the previous target of a twin car bombing by Syrian agents. While the list of attendees at this meeting remains unknown, the guests purportedly discussed “escalatory measures” to deal with what they perceive to be the unfair treatment of Sunnis at the hands of security forces. Lebanese politicians continue to deny any sectarian motivations behind the security measures, but recognize that they need new initiatives to confront growing Sunni discontent.
Tripoli’s sectarian violence harks back to the Lebanese civil war and has intensified since 2008. The clashes have worsened since the Syrian conflict broke out in 2011 and the government, in turn, implemented a security plan for the city in April. Attacks have since continued, albeit on a smaller scale. In May, a grenade was tossed at an army patrol in Bab al-Tabbaneh, wounding eight soldiers during an ambush. Last month, the army arrested five suspects for an assassination plot against security officials. More recently, on 1 July, a roadside bomb narrowly missed an army patrol in the neighborhood of Bab al-Raml.
By arresting Sabbagh, the Lebanese government has taken a high-level al-Qaeda affiliate off the streets of Tripoli. Sabbagh had been rumored to be the emir of al-Qaeda in Lebanon or, at minimum, an emissary of the group’s Syrian affiliate, Jabhat al-Nusra. After fleeing Lebanon for Australia near the end of the Lebanese civil war, Sabbagh returned to the country in 2004 and came to lead an estimated 300 fighters in Bab al-Tabbaneh. Sabbagh not only orchestrated clashes in Tripoli, but smuggled fighters into Syria and helped to finance car bomb attacks at home. Lebanese authorities’ attempt to maintain the delicate status quo in Tripoli explains their prior tolerance of Sabbagh. However, with his arrest, the same authorities are now willing to risk further straining the relationship between the state and poor Sunni communities in the name of security.
Prime Minister Tammam Salam, whose government implemented the security plan for Tripoli and another for the Bekaa Valley, was quick to address the allegations of discrimination after Sabbagh’s arrest. “We refuse any imbalance in the implementation of the security plan and the instructions given to [the] security apparatus stress respect for the state in all areas and upholding the rule of law above all, without discrimination or exclusion,” he said to a delegation of religious figures. Salam called on them to help mitigate any backlash in their community, so as not to provoke a new round of clashes in Tripoli.
Yet Salam’s comments have done little to delegitimize the narrative of Sunni discrimination. The following week, on 21 July, the Muslim Scholars Committee led a sit-in outside Tripoli’s Al-Siddiq Mosque, adjacent to the Government Serail, in protest of Sabbagh’s detention and the jailing of other militia commanders without trial. Picketers held banners warning against the unfair prosecution of Sunnis, saying it would lead to confrontation with security forces. Protests have continued a march in Tripoli, again led by the Muslim Scholars Committee, at which a religious leader, Sheikh Hleihel, told the crowd, “Sheikh Hussam al-Sabbagh was, has become, and will remain, the safety valve of Tripoli.” He called for the release of Sunni detainees.
Despite concern among Tripoli’s Sunnis, mainstream Sunni politicians within the Future Movement had agreed with their political opponents to implement the security plan earlier this year. These political leaders have shifted from backing the Syrian opposition to limiting the war’s worst effects in Lebanon. The government’s security plan has allowed Sunni politicians to undercut the rising power of Salafi sheikhs, who are brasher than their moderate counterparts, and to limit the role of militias, one of the most disruptive political forces to the Future Movement. But an increased show of force in Sunni areas will cause resentment. Already, militant groups have used the LAF’s new security plan as a recruitment tool.
Lebanese politicians recognize the extent of Sunni discontent. Justice Minister Ashraf Rifi, a close associate of the Sunni-dominated Future Movement, leads the call for establishing new initiatives, primarily economic ones to tackle unemployment, meant to partially meet protesters’ demands and blunt further blowback. Efforts are now underway to close al-Rihaniyeh military prison, where many militia leaders and Islamists have been held, and transfer detainees to civilian jails. This comes as the Lebanese cabinet scrapped a list of wanted persons that had remained after, and grown since, the Syrian occupation of the country ended in 2005. The move eliminated the files of around 1,000 individuals arrested under the Tripoli security plan and the creation of future lists will purportedly include a review mechanism, giving the judiciary oversight over the process.
The release of many of those with files who have been cleared may defuse some tensions within the Sunni community. But as long as the state remains unable to provide basic social services, economic opportunities, and deal equitably with all parties violating Lebanese security, mainstream Sunni politicians will continue to lack the necessary control and support of their constituency. The LAF, in turn, will increasingly be viewed as a tool for Sunni oppression. With other security plans for the Bekaa Valley and Beirut set to begin next month, resentment is sure to deepen.
Alexander Corbeil is a Senior Middle East Analyst with The NATO Council of Canada and a regular contributor to Sada. (Sada 31.07)
On 11 August 2014, Moody's Investors Service (http://www.moodys.com) said that Jordan's B1 rating reflects the country's (1) fairly low economic wealth and reduced growth prospects; (2) high and rising debt levels and continued fiscal deficits; and (3) increased political and policy risk deriving from regional turmoil. The rating agency says that although domestic politics have been fairly stable, the government faces continued pressure to maintain social spending, while high energy prices negatively affect the country's fiscal and current account balances. The refugee influx from Syria and past Iraq conflicts have added further strains on the government of Jordan.
The rating agency's report is an update to the markets and does not constitute a rating action.
Jordan's credit challenges lie mostly in its fiscal and external accounts. Moody's estimates that continued fiscal deficits and social spending pressures will push the government debt-to-GDP ratio above 90% in 2014, from 80.2% in 2012, a level that is significantly higher than the peer median. Jordan's external position continues to rely on large and volatile foreign direct investment inflows to finance a large, albeit decreasing, current account deficit. The level of foreign currency reserves remains somewhat low compared with external debt payments, although the $2 billion, 36-month IMF Stand-By Arrangement approved in August 2012, has helped to bolster reserves from $7.9 billion at the end of 2012, to $13.8 billion as of April 2014.
However, Moody's says Jordan's credit support factors include a debt structure that poses low rollover risk, a history of external support in the form of grants and loan guarantees, and a comparatively strong institutional framework. According to the IMF, Jordan maintains one of the best data dissemination practices in the region. (Moody's 11.08)
A combination of aid and investment from its Arab peers and stronger regional trade ties is proving instrumental in helping Jordan draw a line under several years of sluggish growth.
Jordan’s economy has borne the brunt of multiple shocks since 2008, with regional turmoil still weighing on its recovery. However, fears that an exodus of capital from the Amman Stock Exchange (ASE) could present the country with an added challenge have been eased by evidence of increased activity from Arab investors, particularly among Gulf Cooperation Council (GCC) member states. These resources have helped Jordan to narrow its current account deficit by 29% to $3.4b at end-2013) and a modest pick-up in real GDP growth is forecast for 2014 according to a report by Bank Audi published in April.
Data released in June by the exchange showed that while the pace of overall foreign investment in ASE-listed companies slowed in the first five months of 2014 year-on-year (y-o-y), Arab investment bucked the trend. The value of shares sold by non-Jordanian investors reached JD175m ($246m) in the first five months of 2014, while purchases trailed at JD162.5m ($229m), resulting in a net decrease of JD12.5m ($17.6m). In contrast, the ASE witnessed a net increase in foreign investment of JD65.6m ($92.3m) during the same period last year.
Foreign ownership of companies listed on the ASE slipped to 50% from 51.3% over the same period and, with international investors accounting for less than 30% of total trading activity so far this year, the figure could drop further. However, while international foreign holdings in the ASE took a downward turn, Arab investors had increased their share of the capital market to 36.8% at the end of May, up from 33.9% a year earlier. Arab investment also accounted for 69.1% of stock purchases, increasing its dominance of overall foreign ownership on the bourse to 73.6%.
In For the Long Haul
Like many emerging markets, Jordan has witnessed a degree of capital flight in recent months, as the US Federal Reserve begins winding down its quantitative easing program. But Arab funds are also flowing into Jordan via other routes, including bank deposits, equity stakes in unlisted companies and projects, and a continuing $5b investment package first announced by the GCC in late 2011.
Jordan’s ties to the Gulf have also produced significant employment opportunities. According to Bank Audi, 80% of the 500,000 Jordanians who worked abroad in 2013 were based in GCC countries. Total remittances reached $3.65b, up 4.4% on 2012, while strong growth prospects for the Gulf indicate a further increase this year.
Arab nationals play a key role in maintaining Jordan’s tourism industry, accounting for 3m, or 55% of the country’s 5.4m visitors in 2013, according to local media reports. Attracting more visitors from the Gulf has become particularly important, given the significant drop in the number of Europeans travelling to the region. Jordan’s strategy includes a sharper focus on areas such as medical tourism and so-called “Muslim-friendly” vacations, both of which have GCC visitors in mind.
Regional trade links also remain strong. Around a quarter of all Jordanian exports go to Iraq and Saudi Arabia, according to the report, while other GCC markets may well assume more significance, given recent rising turbulence in Iraq. According to the Jordanian government’s Department of Statistics, the GCC countries absorbed 18.2% of the kingdom’s exports in 2013, including 79% of its fruit and vegetables.
A reliance on a particular region for trade, investment and employment has its disadvantages and Jordan may well prefer to be spreading its risk exposure more widely. However, Jordan’s GCC partnership has yielded greater liquidity, more jobs and increased investor confidence, while the long-term investment objectives of the Gulf countries will be instrumental in helping the kingdom weather setbacks. (OBG 05.08)
Tunisia's political parties have signed an agreement to work for open and credible elections later this year. The "pact of honor" was signed by representatives of 23 political parties, including all of the biggest ones. It commits all of the signatories to work for free and fair elections, limit inter-party conflict and preserve the peace. After the protracted and often acrimonious process of agreeing a new constitution and setting the date and order of the elections, most politicians are anxious that the elections themselves are beyond reproach.
The pact is the latest move to ensure a neutral context for the legislative and presidential elections to be held during the final quarter of 2014. The caretaker administration has already taken several steps in this direction. It has replaced many officials, including regional governors, who had been appointed by the former Islamist-led government on the basis of party affiliation and whose neutrality might be in doubt; it has attempted to remove radical imams who, it was feared, might lead voters astray (although more work remains to be done here); and it has dissolved the Leagues for the Protection of the Revolution, militant groups that support Hizb al-Nahda, a moderate Islamist party, and that secularists feared might be used to intimidate voters.
However, efforts to boost the credibility of the elections by registering more voters have had limited success. Only 4.3m (52%) of the 8.3m eligible voters took part in the 2011 elections. The registration of those who were missed in 2011 and those who have since reached the voting age of 18 began on 23 June and was due to end on 22 July. However, only 500,000 people registered, despite an awareness campaign and the efforts of 10,000 volunteers. Disillusionment with Tunisian politics is high because of the failure since the revolution to improve security or boost the economy. To give time to engage some of those still not registered, the voter-registration period has been extended by one week to 29 July. Some parties called for registration to be extended until the eve of the elections, but this was opposed on practical grounds by the Independent Election High Commission.
Impact on the forecast
The pact of honor is a further indication that the safeguards needed to ensure free and fair elections are steadily being put into place, although we continue to expect political tensions, and possibly also political violence, to rise as the elections approach. (EIU 25.07)
On 11 August, Fitch Ratings (http://www.fitchratings.com) said the outright victory of Recep Tayyip Erdogan in the vote 10 August, the first round of Turkey's first popular presidential election, does little to ameliorate the political risk to Turkey's sovereign credit profile, Fitch Ratings says. The outcome avoids a second ballot and confirms Erdogan's personal standing with a large part of the electorate. But political risk will weigh on Turkey's ratings through its potential effects to discourage capital inflows and reduce policy predictability.
The presidential election does not conclude the current political cycle, as parliamentary elections must be held by June 2015. Given the anti-government protests last summer in response to Erdogan's perceived authoritarian tendencies, political tension is likely to remain high as Erdogan seeks to extend the power of the presidency.
Erdogan will assume the presidency after 11 years as Prime Minister, and following a strong result for his Justice and Development Party (AKP) in local elections in March (AKP rules prevent Erdogan from remaining PM). But political continuity does not eliminate political and social unrest, which has been elevated since last year's Gezi park protests and corruption scandal.
These events showed how domestic political and social shocks can damage perceptions of sovereign creditworthiness. Turkey has been remarkably resilient to recent external shocks and banks and corporates continue to enjoy high roll-over rates, but we expect political risk to remain a credit weakness that could lead to a negative rating action if it adversely affects government effectiveness and policy predictability.
Policy coherence and credibility are already weaker than ratings peers, chiefly because of shortcomings in the monetary policy framework. Erdogan is maintaining pressure on the Central Bank of the Republic of Turkey (CBRT) to cut interest rates further (the CBT has cut by 1.75pp since May). This could undermine the CBRT's tenuous credibility following sharp rate hikes in January (annual consumer price inflation hit 9.32% in July, nearly double the official 5% target). A rapid unwinding of these hikes would make Turkey more vulnerable to a sudden change in investor sentiment towards emerging markets.
Macroeconomic outcomes so far in 2014 have been broadly positive for Turkey's credit profile, with the lira stabilizing and international reserves rebounding. Export growth has been strong, the current account deficit (CAD) has corrected and credit growth has slowed, in both cases more quickly than expected, although the rate of credit growth has increased following the CBRT's recent easing. A resumption of rapid credit growth due to much lower interest rates, accompanied by a renewed deterioration in the CAD, which is still large (we forecast 6.2% of GDP in 2014), and sharply rising external debt would be rating negative.
Geo-political problems in the Middle East are being felt in Turkey's economy, with exports to Iraq falling 46% in July, although increases in exports to the EU and North America offset this. (Fitch 11.08)
Despite having to weather a combination of regional instability, domestic volatility and a hotly contested election season last year, Turkey’s economy began 2014 with a surprisingly strong performance.
First-quarter growth reached 4.3%, far higher than the estimates given by the International Monetary Fund (2.3%) and the World Bank (2.4%). Sound fundamentals look likely to keep Turkey’s growth prospects on track throughout 2014 and into next year, although analysts remain concerned about the impact of external risks, such as high energy prices and regional tension.
Shrugging off shocks
December’s announcement that the US Federal Reserve would begin tapering its purchases of bonds by about $10b each month sent shocks through the world’s emerging markets, including Turkey.
However, while the move triggered declines in the Istanbul Bourse throughout January and February, first-quarter GDP growth rose 1.7% quarter-on-quarter (q-o-q), according to Turkstat, even as private sector investment fell by 1.3%. The Central Bank’s current drive to contain domestic credit and currency fluctuations looks equally unlikely to dampen Turkey’s growth prospects, with the government saying it was confident the country would reach its full-year-growth target for 2014 of 4%.
January saw the Central Bank increase the interest rate by 500 basis points in reaction to global monetary tightening. While the move helped to contain Turkey’s current account deficit and improve risk premium indicators, by June, more favorable conditions led to the bank lowering its main interest rate 25 basis points.
The bank’s governor, Erdem Basci, has hinted that further cuts could be possible. “A measured, moderate and gradual rate cut is being priced in,” he said. “We will do it as long as the Central Bank continues to believe that inflation will decrease. But we will do it with caution, without upsetting the balances, without destabilizing.”
Concerns prompt caution
Despite the positive developments, however, analysts remain cautious about the impact of internal and external risks on Turkey’s economy. The World Bank reduced its annual growth forecast for the country from 3.5% to 2.4% in its Global Economic Prospects report, citing weakening business and consumer confidence among its reasons.
Analysts at Bank of America Merrill Lynch (BoAML), meanwhile, voiced concerns that overly high valuations on Turkey’s capital markets could spark a downturn. Turkey’s benchmark gauge was up 14% between local elections on March 30 and mid-June, outperforming the MSCI Emerging Markets Index by 7.7% and trading at 10.9 times projected annual earnings, according to Bloomberg.
Speaking to the data and media company, BoAML analysts Turker Hamzaoglu and Ali Birdal pointed to Turkey’s vulnerability to high-energy prices and geopolitical tension in the region. A 10% decline in exports to Iraq and a $10 increase in oil prices could add 0.2% and 0.5% to the current account deficit.
Authorities in Turkey budgeted for 2014 on an estimated average Brent oil price of $103.2 per barrel, while energy imports for the year were expected to reach $61b and the current account deficit stood at $55.5b. However, on June 19 the Brent oil price reached $114.59, and political instability in Iraq, Syria and Ukraine could see higher prices squeezing the domestic economy.
Yet strong fundamentals have provided a solid foundation for key sectors of Turkey’s economy. Industrial production rose during the first quarter, with average growth reaching 5.3% year-on-year (y-o-y), up from 4.4% in Q4 2013.
Turkey’s economic resilience has also helped the country garner newfound investor confidence. Lockheed Martin, for example, recently announced plans to manufacture, assemble and repair F-35 fighters at a new plant in Izmir. A factory marking the first phase of the project, which was completed in June at a cost of around $75m, is expected to provide up to 700 jobs.
June also saw the State Oil Company of Azerbaijan (SOCAR) sign loan agreements with Turkey worth approximately $3.29b. Some of the funds will be used to build a new oil refinery, which will produce naphtha and ultra-low sulfur diesel fuel. The plant is expected to be operational by 2018.
The introduction of locally refined products to the market could play a key part in reducing the nation’s current account deficit – widely recognized as the structural problem of Turkey’s economy – as long as supplies of crude remain stable. The current account deficit had edged downwards to 7.4% of GDP in the first quarter of 2014 from 7.9% in the previous quarter, while domestic savings rose from 12.2% to 12.4%.
External shocks are expected to remain a cause for concern in Turkey. However, structural gains should prevent global and regional risks from dragging down full-year growth or evolving into defining features of the country’s economy. (OBG 25.07)
Moody's Investor Services (http://www.moodys.com) raised Greece's sovereign credit rating on 1 August and gave it a stable outlook, saying it believed the government's fiscal position had improved significantly. The positive comments boost expectations that Greece's government may tap bond markets again this year after two sales in April and July following a four-year exclusion since it was bailed out by the European Union and the International Monetary Fund.
"The first factor behind the upgrade of Greece's rating is Moody's strengthened expectation that the general government debt to GDP ratio will start declining in 2015," Moody's said. "The government's progress in fiscal consolidation under its economic adjustment program underscores the improvement in the debt trajectory," it said in a statement raising its rating by two notches from 'Caa3' to 'Caa1'.
Fitch assigns Greece a B credit rating, while S&P rates it B-/B. All three credit ratings are still in junk territory, reflecting a high debt level of about 175% of the country's gross domestic product. Moody's expects Greece's debt to GDP ratio to decline in 2015 after peaking this year at around 179% of GDP. The ratings agency said Greece's short-term debt rating is unaffected and remains "Not Prime."
Greece, which has been bailed out twice by the EU and the IMF with nearly 240 billion euros in rescue loans, is expected to begin negotiating further debt relief in the fall. In September, it will undergo the latest checkup by inspectors from its foreign lenders on whether it is meeting the commitments attached to its bailout before further aid is disbursed.
Moody's said Greece's structural reform drive had "mixed results" to date, but praised the government's efforts on labor market reforms and in liberalizing some areas of the product markets. "These reforms have led to wage and price adjustments, which far outstrip adjustments elsewhere in the euro area periphery," it said.
Greece has enjoyed a turnaround in investor sentiment in recent months as it begins to emerge from a protracted recession. After nearly crashing out of the euro zone in 2012, the country expects to return to economic growth this year following a six-year depression that has shrunk its economy by a quarter.
In April, it raised €3 billion after attracting offers of about €20 billion. That was followed by a second sale in July, when it raised €1.5 billion with the sale of a three-year bond, though less than the €2.5 billion to €3 billion expected.
Still, Moody's warned that a "continuing, high level of political uncertainty" in the country constrained its rating at the Caa level and did not rule out early elections in the first quarter of 2015. "The prospect of early elections, the result of which are highly uncertain, increases the risk of delays in policy implementation at a critical juncture of the economic adjustment program," Moody's said. (Moody’s 06.08)
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