Fortnightly - September 10, 2014

EDI Fortnightly Report

TOP STORIES

TABLE OF CONTENTS:

 1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1  Israel’s Budget Talks Could Be Delayed Until After Holidays
1.2  Bank of Israel Says Q3 Slowdown the Biggest Since 2009 

 2:  ISRAEL MARKET & BUSINESS NEWS

2.1  Israeli IPO’s World-Beating 73% Surge Leads August Rally 
2.2  Noble Energy to Sell Leviathan Natural Gas to Jordan  
2.3  Pango Completes $6.5 Million Series A Round   
2.4  Albemarle & ICL Polymeric Flame Retardant Manufacturing JV  
2.5  Israel Chemicals to Close Magnesium Plant  
2.6  Aston Martin Launches Israel Sales  

 3:  REGIONAL PRIVATE SECTOR NEWS

3.1  Middle East & Africa Hotel Pipeline Approaches 150,000 Rooms
3.2  Guided Therapeutics Initial $200,000 Investment from Turkey’s ITEM

 4:  CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1  Israel Agreement to Charge NIS 0.30 for Plastic Bags 

 5:  ARAB STATE DEVELOPMENTS

5.1  Lebanon Expects 1.5-2% GDP Growth Despite Syria Crisis
5.2  Jordan’s Economy 4th Freest Regionally, 39th Globally 
5.3  Jordanian Trade Hit by IS Advance 
5.4  Kurdish Oil Export Figures on the Rise
5.5  Iraq Oil Exports Up for July

♦♦Arabian Gulf

5.6  Kuwait Inflation Eases to 2.7% in July
5.7  UAE Rises Seven Places in Global Competitiveness Report
5.8  Oman Ranks 46th in WEF's Global Competitiveness Report
5.9  US Approves $2 Billion Saudi Military Upgrade Deal
5.10  Saudi Arabia Said to Shelve Plan for Shorter Working Week
5.11  Saudi Arabia Could Earn $8.5 Billion from Mecca Pilgrimage

♦♦North Africa

5.12  UAE to Give Egypt $8.7 Billion Worth of Petroleum Products
5.13  Al-Sisi Approves Suez Canal Investment Certificates Law
5.14  Egyptian Exports Reach $1.66 Billion in August
5.15  Egypt has 18th Slowest Broadband in the World
5.16  Number of Tourists to Egypt Fell by 20.5% in June 2014
5.17  Egypt's Illiteracy Rates Increased in 2013
5.18  Morocco Launches Census
5.19  Morocco Says Shale Oil Exploitation Will Start in Five Years

 6:  TURKISH, CYPRIOT & GREEK DEVELOPMENTS

6.1  Turkish August Inflation Above Forecast, Policy Seen Unaffected 
6.2  Turkey's Exports Jump to IS-Controlled Areas of Syria 
6.3  Cypriot Revenue from Tourism Increases by €43.4 Million in June 
6.4  Cyprus’ Inflation Drops by 0.7% in August 

 7:  GENERAL NEWS AND INTEREST

♦♦ISRAEL:

7.1  Rosh Hashanah – the Jewish New Year
7.2  Israeli Children Go Back to School 
7.3  The Beach Boys are Surfin' to Israel 
7.4  Kiss is Coming to Israel 

♦♦REGIONAL:

7.5  Oman's Population Forecast to Grow By 2.4 Million by 2040 
7.6  Women Sidelined as Saudi Arabia Selects All-Male Asian Games Team 
7.7  Turkey's Erdogan Sworn in as President, Consolidates Power 
7.8  Turkey Tightens Internet Controls & Expands Government Control 

 8:  ISRAEL LIFE SCIENCE NEWS

8.1  BioControl Medical Milestone Evaluating CardioFit System in Heart Failure
8.2  Pfizer & Protalix Announce FDA Approval of ELELYSO for Gaucher Disease 
8.3  CartiHeal Granted Four Patents for Cartilage Regeneration 
8.4  BioLineRx Doses for BL-8040’s Stem Cell Mobilization Treatment 
8.5  Teva’s Reslizumab Delivers Significant Reduction in Asthma Exacerbations 
8.6  EndoCross Receives CE Mark Approval for the ENABLER-C 
8.7  Teva Launches Generic Baraclude Tablets, 0.5mg and 1mg, in the US 
8.8  Mazor Robotics Receives China CFDA for Its Renaissance Systems 

 9:  ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1  Israeli TTO Inventions Jump by 20%
9.2  City of Scranton Expands Pango Citywide with Italian Festival 
9.3  Magal Launches Revolutionary New Perimeter Robot 
9.4  TowerJazz & Triune Systems Neo-Iso Products Ramping to Mass Production 
9.5  OriginGPS’ Smallest GPS Module with Integrated Antenna 
9.6  DSIT Receives Another Order for its Underwater Security System 
9.7  Apply to Launch Smartphone Keypad App 
9.8  Tehuti’s 10GbE Solutions Transform Network Connectivity 

 10:  ISRAEL ECONOMIC STATISTICS

10.1  Tax Revenues Soar Despite Gaza Operation
10.2  Ya'alon Says Gaza War Cost Military $2.5 Billion
10.3  Israel’s New Car Deliveries Firm Despite Gaza Conflict
10.4  Israel State 2014 Royalties on Natural Resources Reach NIS 705 Million

 11:  IN DEPTH

11.1  JORDAN: Jordan's Energy Decision - Go With Israel
11.2  JORDAN: Preventing ISIS Inroads in Jordan
11.3  UAE: Expanding Sour Gas Production in Abu Dhabi
11.4  SAUDI ARABIA: Fitch Affirms Saudi Arabia at 'AA'; Outlook Stable
11.5  EGYPT: Questions Remain on Egypt’s Suez Canal Project
11.6  LIBYA: Sinking Into Chaos
11.7  TUNISIA: IMF Completes the Fourth Review Under the Stand-By Arrangement
11.8  TUNISIA: Tunisia’s Economy Threatened as Libya Unravels
11.9  MOROCCO: Moody's Changes Outlook to Stable From Negative
11.10  MOROCCO: Poised To Adopt Islamic Finance Legislation
11.11  TURKEY: Turkey's EU Accession Remains in Limbo

1:  ISRAEL GOVERNMENT ACTIONS & STATEMENTS

 1.1  Israel’s Budget Talks Could Be Delayed Until After Holidays

The Netanyahu government’s approval of 2015's budget is already 6 weeks past the regular time for its approval and the upcoming Thursday cabinet meeting to discuss the 2015 state budget will not be held as scheduled.  The meeting is being postponed for the second time, and as of now it is not clear when it will be held.  In the coming weeks Netanyahu will be required to rule on the issue and cabinet discussions on the matter will probably be postponed until after the holidays.  Netanyahu will be in New York between Rosh Hashanah and Yom Kippur to address the UN General Assembly and discussions will only resume after that.

The reason for the postponement is disagreement between Prime Minister Benjamin Netanyahu, Minister of Finance Lapid, Minister of Defense Ya'alon and Governor of the Bank of Israel Flug about the level of the budget deficit and the defense budget supplement, reflecting major differences in budget perspectives.  Netanyahu, who must decide the matter soon, has already made clear a number of times in public statements that he supports an increase in the defense budget and Flug has clearly stated her position on the deficit.  Prime Minister Netanyahu will have the final word.  (Globes 07.09)

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 1.2  Bank of Israel Says Q3 Slowdown the Biggest Since 2009

The economic slowdown for the third quarter of 2014 (July-September) resulting from Operation Protective Edge is the most significant one Israel has seen since 2009, according to a survey of businesses and large companies just published by the Bank of Israel.  The survey was conducted among 100 companies and business entities from various business fields, including industry, tourism, trade, construction and real estate.

According to the data, the entire business sector is undergoing a "net growth rate" that dates from the second quarter of the year, prior to the Gaza operation.  For the first time, more companies in more sectors are reporting decreased activity than are reporting stable or increased activity.  The survey's findings do not include Operation Protective Edge's ramifications on the tourism industry.

The situation in construction and real estate is a primary cause of concern.  Construction continues slowly and the number of new housing starts is down.  Moreover, not only are home prices not dropping, they are on the rise.  The construction sector is also suffering a series of handicaps such as high land prices, a drop in housing inventory, and slowing demand for apartments as a result of the government's 0% VAT plan.  (BoI 07.09)

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2:  ISRAEL MARKET & BUSINESS NEWS

 2.1  Israeli IPO’s World-Beating 73% Surge Leads August Rally

Mobileye, the technology company that went public a month ago, led gains among U.S.-listed Israeli stocks in August as investors shrugged off concern that the seven-week Gaza operation would weaken the economy.  Mobileye has surged 73% to $43.22 since listing in New York on 31 July, the biggest rally among all companies globally that raised $500 million or more in the past three months.  Caesarstone Sdot-Yam, the maker of quartz counter-tops, climbed 20% in August, the second-best performance on the Bloomberg Israel-U.S. Equity Index, which rose 4.8%.

While signs have emerged that the Gaza fighting is starting to curb output at some Israeli businesses, hurt tourism and cut into consumer spending, investors have shown little concern, instead bidding up stocks in line with gains being posted in the U.S. and other major global markets.  The performance of Mobileye and Caesarstone, which has more than tripled since its 2012 listing, could help bolster demand for more Israeli initial public offerings.

Mobileye’s $1 billion IPO was the biggest in the U.S. by an Israeli company on record, part of a rush of deals last month.  Six Israeli companies have gone public in the U.S. this year and eight more have offerings pending.  (Various 31.08)

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 2.2  Noble Energy to Sell Leviathan Natural Gas to Jordan

Noble Energy announced the execution of a non-binding Letter of Intent (LOI) to supply natural gas from the Leviathan field, offshore Israel, to the National Electric Power Company (NEPCO) of Jordan.  Under terms of the LOI, Noble Energy and the Leviathan partners will supply a base gross quantity of 1.6 trillion cubic feet (Tcf) of natural gas from the Leviathan field over a 15-year term.  Sales volumes under the agreement are anticipated to begin at a rate of 300 million cubic feet per day.  Delivery of natural gas is expected to occur at a border location between Israel and Jordan, following the completion of related pipeline infrastructure.  The price for the natural gas is based primarily on a linkage to Brent oil prices and is dependent on negotiations of a binding agreement.  A final gas purchase and sales agreement is expected to be completed in 2014 and will be subject, among other conditions, to the receipt of regulatory approvals in Israel and Jordan. 

This deal significantly changes the economic strategic relations between Israel and Jordan and makes Israel an energy producer and exporter that can use its position to achieve strategic aims.  Discussions over Israeli gas exports have gone on in Israel for the past few years and ultimately it was decided that Israel can export 40% of its offshore natural gas reserves.  (Noble Energy 03.09)

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 2.3  Pango Completes $6.5 Million Series A Round

Pango Mobile Parking completed their $6.5 million series A round.  World e-commerce and online payments innovator, D.H. Rondor International, joins the company as the latest investor.  Pango is on the move globally in the United States, Brazil and Europe.  The company recently launched in Curitiba, Brazil which is a city with over 10,000 parking spaces.  The company expects to be live in other large Brazilian cities in the coming months.  In the United States, Pango is launching new cities in, Pennsylvania, New York, and Texas.  The company is significantly expanding the sales, marketing, and engineering teams to support the United States business.  Pango is evaluating opening a new office in Boston and already hired talent from the region.

Kadima’s Pango (http://www.myPango.com) is available in over 53 cities today around the world and used by more than more than 1 million active accounts.   Considered the company that invented the science behind the first pay-by-phone parking app, Pango was awarded a US Patent in 1997.  Pango is one of the only companies in the world to provide on street, gated, valet, event, and fleet-based parking services through an app.  (Pango 03.09)

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 2.4  Albemarle & ICL Polymeric Flame Retardant Manufacturing JV

Baton Rouge, Louisiana’s Albemarle Corporation and ICL announced that they have agreed to establish a manufacturing joint venture for the production of ICL's FR-122P polymeric flame retardant and Albemarle's GreenCrest polymeric flame retardant.  These flame retardants are designed to replace hexabromocyclododecane (HBCD).  HBCD has been the leading flame retardant used in expanded (EPS) and extruded (XPS) polystyrene foam applications, but is being phased out in the European Union (EU), Japan and other countries.

The joint venture and its partners will own and operate a 2,400 MT per year Netherlands plant, which is currently operating, and a 10,000 MT per year Israel plant, which is scheduled to come on line in the 4th quarter of 2014.  Both plants are located at ICL sites as previously announced by ICL.  The joint venture will enable additional capacity to be brought to the market to meet the growth needed for the EU and the rest of the world following the phase out of HBCD from these markets.  The transaction is subject to certain closing conditions, including regulatory approvals, and is expected to close in 2015.  ICL IP's investment in its polymeric flame retardant production capacities followed extensive testing and evaluation processes conducted by potential customers during the past several years.  ICL began to commercially produce and market its FR-122P polymeric flame retardant product in 2013.

Tel Aviv’s ICL (http://www.icl-group.com) is a global manufacturer of products based on specialty minerals that fulfill humanity's essential needs primarily in three markets: agriculture, food and engineered materials.  The agricultural products that ICL produces help to feed the world's growing population.  The potash and phosphates that it mines and manufactures are used as ingredients in fertilizers and serve as an essential component in the pharmaceutical and food additives industries.  The food additives that ICL produces enable people to have greater access to more varied and higher quality food. ICL's water treatment products supply clean water to millions of people, as well as to industry around the world.  (Albemarle 29.08)

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 2.5  Israel Chemicals to Close Magnesium Plant

Israel Chemicals’ board of directors has instructed the company's management to prepare to close its magnesium plant by 1 January 2017 because, "as discussions stand with the government on tax and royalties issues, it will not allow continued operations of the plant."  Company management was instructed to ensure continued implementation of orders and commitments, both existing and in the future, so as to prevent disruptions of work in the factory before the date of its closure.

Israel Chemicals stressed that, "the main economic justification for continued operations of the magnesium factory at the Dead Sea stems from the plant's synergy with the company's other installations in S'dom, which supply raw materials to nearby factories.  The net value of the synergy has been lowered as a result of the current heavy tax burden on quarrying production in Israel, and this will become even heavier due to the interim recommendations for legislation contained in the Sheshinski Committee."

As a consequence of these recommendations, Israel Chemicals has already stopped all investment in the magnesium factory.  Magnesium sales in 2013 amounted to $115 million with about $1 million gross profit for the Dead Sea Magnesium factory.  Israel Chemicals board of directors has also instructed the management of Dead Sea Bromide to formulate and implement a streamlining plan to improve profitability due to falling demand for fire retardants, slow global growth, falling prices, the strength of the shekel and proposals to raise government royalties on products.  (Globes 28.08)

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 2.6  Aston Martin Launches Israel Sales

Another ultra-luxury car has entered the Israel auto market, as the Aston Martin sports car brand has officially launched sales locally.  The company reported that several orders had already been placed by Israeli customers for the Vantage, DB9, and Rapide models, and that 16 of the 20 cars expected had already landed in Israel.  The showroom will open this month in Herzliya with a display of the brand's four main models.  The price of the two-seat Vantage model is NIS 910,000.  The open roadster version will cost NIS 990,000, and the V12 version of the car carries a NIS 1.54 million price tag.  A GT four-seat DB9 model will cost from NIS 1.419 million, while a four-door Rapide S model, which competes with the Porsche Panorama, will cost NIS 1.58 million.  (Globes 02.09)

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3:  REGIONAL PRIVATE SECTOR NEWS

 3.1  Middle East & Africa Hotel Pipeline Approaches 150,000 Rooms

A total of 630 hotels, with a combined 147,754 rooms, are under contract in the Middle East/Africa region, according to data from STR Global.  Its Construction Pipeline Report for July includes projects in the in construction, final planning and planning stages but does not include projects in the unconfirmed stage.  The upper upscale segment dominates this pipeline, making up 36.4% of the projects, with 53,794 rooms.  This is followed by the upscale segment (18.6% with 27,431 rooms), the luxury segment (18.5% with 27,264 rooms) and the unaffiliated segment (13.9% with 20,577 rooms).  In terms of the hotels already under construction, 37.3% (25,337 rooms) are in the upper upscale segment, 21.4% (14,559 rooms) are in the luxury segment and 19.8% (13,485 rooms) are in the upscale segment.  STR Global’s data for June had suggested there were 614 hotels under contract, totaling 143,870 rooms.  (AB 31.08)

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 3.2  Guided Therapeutics Initial $200,000 Investment from Turkey’s ITEM

Norcross, Georgia’s Guided Therapeutics announced that its Turkish distributor, Ankara’s ITEM Medical Technologies Group, has committed to invest $200,000 in a private placement of Guided Therapeutics’ common stock.  Pursuant to the private placement, the Company will issue ITEM 651,042 shares of common stock priced at $0.3072 per share and a warrant to purchase an additional 325,521 shares.  The Company expects to use the net proceeds from the private placement for efforts to achieve FDA approval for the Guided Therapeutics LuViva Advanced Cervical Scan, to increase manufacturing and international sales of LuViva, to enhance the Company’s intellectual property portfolio, and other related corporate purposes.  Should ITEM’s total investment reach $2 million by the end of 2015, ITEM will receive the right to have a designee appointed to the Company’s board of directors, and nominated by the board for reelection at subsequent annual meetings.  (Guided Therapeutics 08.09)

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4:  CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

 4.1  Israel Agreement to Charge NIS 0.30 for Plastic Bags

Following marathon discussions about the details of the bill for countering the use of plastic bags, understandings were reached on the price for the consumer: Minister of the Economy Bennett and Minister of the Environment Peretz agreed to charge NIS 0.30 on each plastic bag.  The price will drop to NIS 0.20 after two years and NIS 0.10 after four years. Bennett will now withdraw his appeal to the ministerial legislative committee against the bill.  The bill itself requires consumers to pay the price for each bag, while the marketing chains will distribute reusable baskets to the public free of charge for a limited period.  The marketing chains will not be allowed to sell a plastic bag for less than the stipulated amount, some of which will be used to aid plastic bag manufacturers.  It is being claimed in the bag manufacturers' forum that the bill will harm the local plastic bag industry and will not necessarily benefit the environment, as is usually asserted.  Ministry of Environmental Protection figures show that an average Israeli consumes 275 plastic bags a year, and Israel consumes 2.2 billion plastic bags a year.  (Globes 07.09)

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5:  ARAB STATE DEVELOPMENTS

 5.1  Lebanon Expects 1.5-2% GDP Growth Despite Syria Crisis

Lebanon's economy is expected to grow 1.5 to 2% and inflation is not expected to exceed 4% in the year 2014, despite the fall-out from the war in neighboring Syria, the central bank governor said on 1 September.  Lebanon's economy has been hard hit by the war in Syria, which started in 2011 and has repeatedly spilled over into the small Mediterranean country.  "Despite the circumstances that Lebanon is passing through on the political and security levels, we expect the actual growth in the Lebanese economy to be between 1.5 and 2%," central bank governor Riad Salameh said. "The inflation rate will not exceed 4%."  (Reuters 02.09)

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 5.2  Jordan’s Economy 4th Freest Regionally, 39th Globally

Jordan has been ranked 39th globally and 4th regionally on the 2014 Index of Economic Freedom, witnessing a decline in its international standing and maintaining the same level regionally compared to last year’s index.  Jordan’s economic freedom score is 69.2, making its economy the 39th freest in the 2014 Index.  Its score is 1.2 points worse than last year due primarily to deterioration in regulatory efficiency as measured by business freedom, labor freedom and monetary freedom.  In 2013 report, Jordan ranked 33rd globally.  According to the report, Jordan maintained the same ranking among the Arab states after Bahrain, the UAE and Qatar.  It was followed by Oman, Kuwait and Saudi Arabia.  Jordan’s overall score continues to be well above the world and regional averages, the index indicated.

The 2014 report said: “Despite the region’s ongoing political and security challenges, Jordan’s economy has been resilient. The economy has benefited from earlier years’ reform agenda in the areas of privatization and public finance management.”  High levels of trade freedom and investment freedom continue to sustain market openness, keeping the economy relatively competitive, the report indicated, adding that by promoting the transition to a more open and flexible economy, the financial sector has taken steps to meet international standards.  This year’s index, carried out by the Wall Street Journal and The Heritage Foundation, covers 186 countries measuring 10 specific freedoms such as trade, business, investment and property rights freedoms.  (JT 02.09)

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 5.3  Jordanian Trade Hit by IS Advance

Iraq was once the consumer of some 20% of Jordan’s exports, but since the border between the two countries is now all but closed, this trade has dropped off dramatically.  Al Jazeera reported that the number of trucks crossing the border between the two countries has fallen from an average of 500 per day to just 25 per day.  Jordan borders the Iraqi province of al-Anbar, which has been under partial Iraqi government control since December 2013.  The capital of the province, Ramadi, is still in government hands in part due to pro-government tribal fighters known as Sahwa.  Trucks can still make the journey between the two countries, but the crisis has turned a two day journey into a two week trek.  Since Jordan has been partly dependent on Iraqi oil supplies and has economic worries of its own, Jordanian business leaders have stressed the severity of the situation.  (Al Jazeera 25.08)

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 5.4  Kurdish Oil Export Figures on the Rise

The Kurdish Minister of Natural Resources, Ashti Hawrami, announced that the Kurdistan Regional Government (KRG) has sold 7 million barrels of oil on the international market.  He remains confident that the KRG will win the ability to sell oil in the US markets.  Currently, the KRG produces 300,000 barrels of oil per day and it is expected that the figure will reach 500,000 barrels of oil per day by the end of the year.  The KRG has been successful in delivering oil to some international clients.  The most recent success for the KRG was the delivery of oil to Croatia for MOL.  Two tankers, the United Kalavrta and Minerva Joy, remain off US shores until the dispute between Erbil and Baghdad is resolved.  Increased oil production in Kurdistan has also eliminated previous fuel shortages following the June offensive of the Islamic State of Iraq and the Levant (ISIL).  (Rudaw English 21.08)

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 5.5  Iraq Oil Exports Up for July

According to a statement released by the Ministry of Oil, Iraq exported 75.7 million barrels of oil in July.  This figure means that an average of 2.5 million barrels were exported per day and would mark a 5% increase in exports since July 2013.  Iraq earned $7.74 billion worth of revenue from oil sales in July alone.  The oil sold over the past month came from Basra province, as Iraq has not been able to export crude from its northern oil fields because of the advance of the Islamic State.  (AB 26.08)

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♦♦Arabian Gulf

 5.6  Kuwait Inflation Eases to 2.7% in July

The inflation rate eased slightly hitting 2.7% y-o-y in July 2014, holding steady compared to the previous month’s CPI (2.9% y-o-y).  Headline inflation is expected to average around 3% for 2014 as a whole, despite the limited pressures seen in the foodstuffs component, later in the year due to rising international food prices.  Inflation was generally stable across all sub-components in July 2014, with the exception of tobacco and narcotics prices which witnessed a big jump.  During the month, food price inflation remained unchanged m-o-m whilst the y-o-y inflation eased to 2.0% (July 2013: 5.8%).  Food price inflation has been trending slower since May 2013 when the inflation rate was at 6.3%.  Kuwait imports approximately 90% of its food items for domestic consumption, thus the moderate food prices were in line with declining trends in international food prices in the past few months.  There is a good chance that inflation in food prices will begin to pick up once again later this year, especially as international food prices have been seeing inflation accelerate.  Still, any increase is expected to have a modest impact on overall inflation.

In terms of inflation rates across the Gulf Cooperation Council (GCC) member states, Bahrain topped the list, recording an inflation rate of 3.1% over the six-month period.  Kuwait came in second place, posting the second highest inflation rate in the region in H1 of 2.9%, followed by 2.8% in Qatar, 2.7% in Saudi Arabia, 2.2% in the UAE and 1.2% in Oman.  Inflation is projected to remain subdued at an average of about 3% in H2/14 in the GCC, reflecting both the absence of global inflationary pressure, as global food prices continue to be subdued, and the openness of the economies.  (KFH 02.09)

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 5.7  UAE Rises Seven Places in Global Competitiveness Report

The Global Competitiveness Report issued by the World Economic Forum in 2014-2015 sees the UAE advance seven places in the overall competitiveness of its economy within just one year, becoming the 12th most competitive nation globally, ahead of countries such as Denmark, Canada and South Korea.  The UAE leads globally in a number of indicators: First globally in quality of roads and absence of organized crime; first globally for having the lowest rate of inflation; second globally for government procurement of advanced technology; second globally for effectiveness of government spending, and impact of taxes on investment and the lack of trade barriers; it also ranks second in the aviation sector.  The UAE also came in third place globally on indicators such as citizens’ confidence in government and leadership, the absence of government bureaucracy, the quality of ports, efficiency of customs procedures, attracting technology through foreign direct investment (FDI).  Significantly, for the knowledge economy, the UAE ranked third globally for attracting professional talent.  Overall, the UAE improved its performance in 78 indicators out of 114. for the quality of its infrastructure.

In Efficiency Enhancers which evaluates the efficiency and effectiveness of higher education systems, labor market, financial market and technological readiness, the UAE ranked 14th globally, up from 20th, and 21st in Innovation and Sophistication, up from 24th.  (WAM 03.09)

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 5.8  Oman Ranks 46th in WEF's Global Competitiveness Report

The Sultanate of Oman was ranked 46th out of 144 global economies, dropping 13 places from last year according to the 2014-15 Global Competitiveness Report, recently released by the World Economic Forum (WEF).  Although still classified as one of 24 economies in transition from Efficiency-driven to Innovation driven, Oman witnessed an overall decline in key competitiveness indices.  Oman scored well in the macroeconomic environment covering the Government’s budget balance, national savings and control of inflation - all of which help create an attractive business environment for inward investment and the export of non-oil Omani products and services.  According to the Report, there was a general decline in the performance within the GCC countries seeing Qatar, Kingdom of Saudi Arabia, Kuwait and Bahrain also drop in their rankings from last year.  (BI-ME 03.09)

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 5.9  US Approves $2 Billion Saudi Military Upgrade Deal

The US State Department has approved a possible foreign military sale to Saudi Arabia for an AWACS modernization program and associated equipment, parts, training and logistical support with an estimated cost of $2 billion.  The Defense Security Cooperation Agency said that it delivered the required certification notifying Congress of this possible sale earlier in August.  Saudi Arabia has requested a sale of five airborne warning and control systems (AWACS) plus other mission planning systems, and training and support packages.  The upgrades are a continuation of efforts to maintain inter-operability with US and coalition forces, the statement said.  The Royal Saudi Air Force’s AWACS fleet provides early warning of potential airborne threats to Saudi Arabia and manages friendly airborne assets.  The principal contractor will be The Boeing Company.  (AB 30.08)

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 5.10  Saudi Arabia Said to Shelve Plan for Shorter Working Week

Saudi Arabia is reportedly shelving plans to bring in a 40-hour working week for the private sector that includes giving employees two days off per week.  The plan by Saudi Arabia’s labor ministry has hit obstacles following pressure from investors and the business community.  A draft of the new labor law initially stipulated a 40-hour working week, down from 48, for all employees in the private sector.  The two-day weekend was part of plans to motivate Saudi men and women to join the private sector instead of insisting on securing a job in the more attractive public sector where employees enjoy Fridays and Saturdays off. 

In February, the Shoura Council, a government advisory body, backed the plan to bring the kingdom into line with other Gulf states but the change had not yet been ratified by King Abdullah.  The Shoura Council's backing sparked strong opposition from the likes of the Council of Saudi Chambers, a collective of regional business chambers, which urged the Shoura Council to reconsider its decision.  (AB 27.08)

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 5.11  Saudi Arabia Could Earn $8.5 Billion from Mecca Pilgrimage

Saudi Arabia could earn $8.5 billion from this October's hajj, according to a study that predicted that two million Muslims would make the pilgrimage to Mecca.  The Mecca Chamber of Commerce said revenues from the world's largest annual gathering of Muslims would increase by 3% from last year.  The study was based on estimates that 1.98 million pilgrims will travel to the holy Muslim city of Mecca, including 1.38 million, or 70%, from abroad.  According to the report, a pilgrim who has travelled from another country will spend an average of $4,633 during Hajj, which runs for five days.  A domestic worshipper pays around $1,319, the study found.  Expenses include housing, food and drink, gifts and phone bills.  Saudi Arabia also hosts millions of Muslims annually for the lesser umrah pilgrimage, which may be undertaken at any time throughout the year.  Around six million Muslims took umrah during the holy fasting month of Ramadan in July this year, according to authorities.  As well as Mecca, Saudi Arabia is also home to Islam's other holiest place – Medina.  (MEO 28.08)

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 5.12  UAE to Give Egypt $8.7 Billion Worth of Petroleum Products

The United Arab Emirates will provide Egypt with petroleum products worth $8.7 billion over a year starting in September.  Egypt has struggled to curb its swelling budget deficit and meet its soaring energy demands, which have resulted in daily electricity cuts around the country of 86 million people.  Oil-producing Arabian Gulf countries have come to Egypt's aid since the army, prompted by mass protests, ousted Islamist President Morsi last year.  Under the UAE agreement, some of the petroleum products would come as grants and the remainder under a credit agreement that would be repaid in instalments.  The UAE, Saudi Arabia and Kuwait have together provided Egypt with more than $20 billion in grants, loans and petroleum products since Morsi's ouster.  Fuel subsidies have in recent years cost Egypt's government around $15 billion a year, a fifth of the state budget.  But the government slashed energy subsidies and increased prices by more than 70% in July.  Egyptian imports of petroleum products cost around $1 billion to $1.3 billion a month.  (Reuters 31.08)

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♦♦North Africa  

 5.13  Al-Sisi Approves Suez Canal Investment Certificates Law

Egyptian President Abdel Fattah Al-Sisi approved the Suez Canal investment certificate law on 1 September.  The investment certificates will be provided by the National Bank of Egypt, Banque Misr, Banque du Caire, and the Suez Canal Bank.  The Governor of the Central Bank of Egypt (CBE) announced that around 6 million tax-exempted Suez Canal investment certificates are ready to be issued, following the presidential approval.  The investment certificates will be issued at the values of EGP 10, EGP 100, EGP 1,000 with a five year maturity and a 12% interest rate.  The CBE governor announced that the interest on the EGP 1,000 certificates can be collected on a quarterly basis. However, the interest on investment certificates between EGP 10 and EGP 100 will be cumulative – redeemed at the end of the five year period.  (DNE 01.09)

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 5.14  Egyptian Exports Reach $1.66 Billion in August

Egyptian exports during August reached $1.667b (EGP 11.917b), increasing by 24.88% compared to the same month last year, a Ministry of Industry and Foreign Trade report said.  In the preceding month, exports totaled $1.4b, approximately EGP 10.06b, with the report adding that exports to date represent around 60.53% of the total $25b exports’ target for the year.  Exports of furniture, medical industries, leather goods and agricultural goods all exceeded annual expectations.  Exports of food industries, engineering and electricity goods, weaving, chemical and construction material, however, fell short for the exportation target.  Focusing on August’s exportation target, all goods fell short, aside from the agricultural products and the readymade garments.  During August, Arab League states were the highest recipient of Egyptian exports followed by the US, Sub-Saharan countries and the European Union.  Russia is the top non-Arab importer of Egyptian agricultural products and is the second largest importer of Egyptian agricultural products after Saudi Arabia.  (MIFT 08.09)

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 5.15  Egypt has 18th Slowest Broadband in the World

Egypt took 175th position, of 193 countries, for internet speed, with download speed at 2.7 Mbps, compared to 20.1 Mbps globally, broadband testing company Ookla said in its Netindex report.  In February, thousands of Egyptians pledged to not pay their monthly internet subscriptions, to protest poor service and high prices, in an effort to put “pressure” on internet service providers.  The act of online protest led the National Telecom Regularity Authority (NTRA) to call on internet service companies to review the quality of their services and to improve their efficiency over the short and long term, and to set fair internet prices.  The NTRA has observed an increase in complaints of poor internet service through its hotline or on social networks.  (Various 28.08)

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 5.16  Number of Tourists to Egypt Fell by 20.5% in June 2014

The number of tourists coming to Egypt from different countries fell back by 20.5% to reach 786,000 tourists in June 2014 compared to 989,000 tourists in June 2013.  CAPMAS said the number of tourists during the month of June 2010 (before the revolution) amounted to 1.029 million tourists.  The largest number of tourists in June 2014 were from Eastern Europe countries, followed by Western Europe and the Middle East during the same period.  The total number of nights spent by departing tourists fell by 14.5% as they reached 6.8 million nights during June 2014 compared to 7.9 million nights in June 2013.  Tourists from Eastern Europe spent 40.2% of the total number of nights, followed by Western Europeans with 29.5% of nights, and Middle East tourists with 21.2%.  The average number of nights for each tourist were nine nights in June 2014 compared to 8.5 nights during the same month in 2013. The rate was 10.9 nights in June 2010.  (CAPMAS 31.08)

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 5.17  Egypt's Illiteracy Rates Increased in 2013

Egypt's illiteracy rates increased in 2013 according to figures issued by the Central Agency for Public Mobilisation and Statistics (CAPMAS).  In 2013, illiteracy rates reached 25.9%, with 17.2 million illiterate Egyptians, while in 2012 the rate was 24.9% with 16.1 million Egyptians unable to read or write.  From figures in this year's report, 10.9 million women are among the total number of illiterate Egyptians in 2013.  The highest rates of illiteracy are in Upper Egypt.  The agency also said that the rate of illiteracy among youth, ranging from 15 years, is 29.8%, while the rate among the elderly, ranging from 60 years or more, is 64.9%.  Egypt's President Abdel-Fattah El-Sisi has promised Egyptians since election in June to fight against poverty, illiteracy and to enhance educational services.  (CAPMAS 08.09)

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 5.18  Morocco Launches Census

Morocco's sixth national census is under way.  Conducted every ten years, the project will provide data to guide future development and public policy programs.  No fewer than 70,000 census takers have set off to meet Moroccan households, as part of the three-week General Population and Housing Census (RGPH) operation that began on 1 September.  Citizens have welcomed the project, especially questions introduced into the 2014 census on the quality of housing and access to basic facilities.  For the first time in the history of the census, the 2014 edition is using satellite imagery and special websites.  The population segments covered by the census are ordinary households, nomadic households, people living alone, the homeless and those in temporary housing.  The figures on the population living legally in Morocco will be published towards the end of 2014.  The demographic and socioeconomic characteristics of the population are expected to be announced next year.  (Magharebia 05.09)

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 5.19  Morocco Says Shale Oil Exploitation Will Start in Five Years

Morocco’s National Office of Hydrocarbons and Mining (ONHYM) clarified in a statement issued on 3 September that shale oil production from San Leon’s Timahdit permit, which is 240 km south East of Rabat, will only start in 5 years.  While initial testing results by San Leon Energy were encouraging they need to be complemented by further research, including environmental feasibility and technical studies.  The production, which would be limited to 10,000 barrels a day would not take place before 5 years.  ONHYM has been careful to manage to manage expectations in the current drilling run for oil and gas this year.  (Morocco World News.  06.09)

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6:  TURKISH, CYPRIOT & GREEK DEVELOPMENTS

 6.1  Morocco Says Shale Oil Exploitation Will Start in Five Years

Morocco’s National Office of Hydrocarbons and Mining (ONHYM) clarified in a statement issued on 3 September that shale oil production from San Leon’s Timahdit permit, which is 240 km south East of Rabat, will only start in 5 years.  While initial testing results by San Leon Energy were encouraging they need to be complemented by further research, including environmental feasibility and technical studies.  The production, which would be limited to 10,000 barrels a day would not take place before 5 years.  ONHYM has been careful to manage to manage expectations in the current drilling run for oil and gas this year.  (Morocco World News.  06.09)

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 6.2  Turkey's Exports Jump to IS-Controlled Areas of Syria

Turkey’s overall exports increased by 5.2% in the first eight months of the year while exports to Islamic State-controlled Syria increased by 57%.  IS continues highly mobile, well-organized attacks without any logistics shortcomings, while Turkey has boosted exports of vehicles and spare parts, clothing, durable foodstuffs, electronic items such as cellular phones and chemical products to the area IS controls.  According to data provided by the Exporters Assembly of Turkey (TIM), national exports increased by 5.2% as compared to same period last year and reached to $104.6 billion.  The figure that attracted the most attention was the exports to Syria whose border with Turkey is controlled by IS and Jabhat al-Nusra.  Last year Syria was 43rd on the list of Turkey’s export destinations.  This year it has moved up 10 rungs to become 33rd.  Exports to this country increased by 57% to $903 million, up from $574 million, in the first eight months of this year compared with last year.  In August, Syria led the list of countries of highest increase in exports by 99%.

The Syrian town of Azez, opposite Turkey's Kilis, fell into the hands of Islamic militants in September 2013.  Turkey’s exports through this crossing increased by 79% since then.  Security forces have seized considerable amounts of medical supplies and spare parts in anti-smuggling operations.  Meanwhile the international media keeps on reporting that Turkey is supporting IS not only with its exports but also by buying IS oil.  (Al-Monitor 02.09)

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 6.3  Cypriot Revenue from Tourism Increases by €43.4 Million in June

Revenue from tourism increased by €43.4 million in June, 2014, compared to the same month in 2013, while during the first half of the year, revenue increased by €81.1 million, according to the Statistical Service of the Republic of Cyprus.  On the basis of the results of the Passenger Survey, revenue from tourism reached €303.2m in June 2014 compared to €259.8m in the corresponding month of the previous year, recording an increase of 16.7%.  As regards tourist arrivals, they reached 342.221 in June 2014 compared to 308.219 in the corresponding month of 2013.  (FM 04.09)

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 6.4  Cyprus’ Inflation Drops by 0.7% in August

Cyprus’ rate of inflation continued to fall, decreasing by 0.7% in August, compared to a 0.6% drop in July and by 0.9% in August 2013.  This is mainly due to decreases in the prices of air travel, petroleum products and certain fresh fruit and vegetables. An increase has been recorded in the price of electricity.  For the January-August period, the CPI recorded a -1.7% decrease compared to the corresponding period of 2013.  This follows an announcement on Wednesday that GDP shrank in real terms by 2.2% during the second quarter of this year compared with the same quarter of the previous year.  According to the Cystat data, GDP stood at €3.494b in the 2Q/14 compared to €3.571.2b in the same quarter of 2013. Based on seasonally and working day adjusted data, it is estimated that the GDP shrank by 2.5% compared to the same period of 2013, and 0.3% compared to the previous quarter.  Positive growth rates were recorded in tourism and trade, while negative rates were recorded in manufacturing and construction.  (Cystat 04.09)

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7:  GENERAL NEWS AND INTEREST

♦♦ISRAEL:

 7.1  Rosh Hashanah – the Jewish New Year

Rosh Hashanah, commonly known as the Jewish New Year, is celebrated on the first and second days of the Hebrew month of Tishrei.  This year that date falls on the afternoon of 24 September and continues until the evening of 26 September.  This year (2014), the second day of the holiday is immediately followed by the Sabbath.  In Hebrew, Rosh Hashanah literally means "first of the year."  The name Rosh Hashanah is not used in the Bible to discuss this holiday.  The Bible refers to the holiday as Yom Ha-Zikaron (the day of remembrance) or Yom Truah (the day of the sounding of the shofar).  The holiday is instituted in Leviticus 23:24 - 25.  The shofar is a ram's horn; the sounding of the shofar in the synagogue is one of the most important observances of this holiday.  The Bible gives no specific reason for this practice, though one that has been suggested is that the shofar's sound is a call to repentance.  No work is permitted on Rosh Hashanah.  Much of the day is spent in synagogue, where the regular daily liturgy is somewhat expanded.  In fact, there is a special prayer book called the machzor used for Rosh Hashanah and Yom Kippur because of the extensive liturgical changes for these holidays.  Religious services for the holiday focus on the concept of G-d's sovereignty.  One popular observance during this holiday is eating apples dipped in honey, reflecting the wish for a sweet new year. 

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 7.2  Israeli Children Go Back to School

On 1 September, 2,105,394 Israeli children began the new academic year at kindergartens and schools throughout the country.  The Ministry of Education said 149,705 of those are students entering their first year of school, compared with 112,750 entering their 12th and final year of studies.  Alongside them, 164,999 teaching staff began their new year.  Israeli Police mobilized 5,000 personnel and volunteers in preparation for the new school year, both to ensure security and direct traffic. 

As a part of this year's curriculum, teachers will be implementing the "Other is Me" program, a series of educational activities about racism, incitement and freedom of speech adapted for each age group.  Students will participate in discussions and workshops about these topics, including a special discussion about incitement on social media.  In all, it is a welcome start to the new school year and a relief for many parents, who until just a few days ago had been confined to bomb shelters together with their children at the height of summer during the 50-day Operation Protective Edge.  (Various 01.09)

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 7.3  The Beach Boys are Surfin' to Israel

The legendary Beach Boys band will arrive in Israel this winter for one performance at Tel Aviv's Nokia Arena on 29 November.  Producer Gad Oron has confirmed that he recently signed a contract with the American band, which will perform in Israel without one of its founders, Brian Wilson, but with another founder, Mike Love, alongside Bruch Johnston, Tim Bonhomme, Scott Totten, Randell Kirsch, John Cowsill and Jeff Foskett.  The Beach Boys concert is expected to include the band's greatest hits.  Ticket sales will begin soon, with prices starting from NIS 390 (about $109).  In 1966, the music industry held its breath when The Beach Boys released its 11th studio album, "Pet Sounds," which redefined the worlds of rock and pop, influenced many bands and artists, including The Beatles, and is considered one of the best albums in the history of popular music.  (Various 03.09)

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 7.4  Kiss is Coming to Israel

Rock band Kiss just announced an upcoming concert in Israel scheduled for this coming summer, as part of a tour celebrating the band's 40 year anniversary.  Co-lead singer Gene Simmons, whose original name is Chaim Witz, was born in Haifa, but left Israel for the United States as a small child.  He is the child of a Holocaust survivor.  Paul Stanley, the band's other lead singer, is also Jewish.  In an interview with Israel Hayom in 2011, Simmons said that he still has family living in Haifa and that Kiss has wanted to perform in Israel for a long time.  Leading producers in Israel were surprised by the announcement, with some saying they had not been in touch with Kiss regarding the concert plans.  Simmons has always expressed strong support for Israel, saying that he still feels like an Israeli.  (IH 05.09)

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♦♦REGIONAL:

 7.5  Oman's Population Forecast to Grow By 2.4 Million by 2040

Oman's population is forecast to grow by 2.4 million over the next 25 years, according the National Centre for Statistics and Information (NCSI).  Its Population Projection in Sultanate of Oman 2015-2040 study predicted the increase between 2015 and 2040, adding that the average age of Omanis at the end of the review period would be 27.  The report said population growth by gender is forecast to be 69% for males and 72% for females over the same period.  In April, Oman's population passed the four million mark, according to the NCSI.

Fertility forecasts estimate that between 25-30% of the population in 2040 will comprise of children below 15 years old, while between 8-11% of the total local population will be under 5 years old.  The 15-29 years age group is expected to comprise 27% in 2040, 3% lower than the 2015 forecast figure while the number of people aged 15-64 years of age will account for between 64-69% of the total population, the report added.  The NCSI report also revealed that the number of dependents in 2040 is forecast to range between 45-56 for every 100 people within the employment age.  (AB 30.08)

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 7.6  Women Sidelined as Saudi Arabia Selects All-Male Asian Games Team

Saudi Arabia has failed to include a single female athlete in its 199-strong team for the upcoming Asian Games in South Korea, saying its women are not sufficiently competitive.  The Saudi stance sparked criticism from Human Rights Watch, which condemned its all-male line-up, saying the ultra-conservative state was shutting the door on female athletes, having previously shown signs of wanting to break down barriers.  Saudi authorities were widely applauded for including two women in their team for the 2012 London Olympics, a symbolic first for the Islamic kingdom.  But just over two years later, Riyadh has opted not to pick any females for the 17th Asian Games, to be held in South Korea from 19 September to 4 October.  The Olympic Council of Asia (OCA), which organizes the Asian Games, said that while it fully encouraged the participation of women, it did not comment on team selections.  Qatar and Brunei, which also included female athletes at the London Olympics for the first time, have both picked female competitors for the Asian Games.  (AB 08.09)

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 7.7  Turkey's Erdogan Sworn in as President, Consolidates Power

Former prime minister Erdogan was sworn in as Turkey's president on 28 August, cementing his position as its most powerful leader of recent times in a step opponents fear heralds more authoritarian rule and widening religious influence in public life.  Moments after being sworn in, Erdogan appointed outgoing foreign minister Ahmet Davutoglu as acting prime minister.  Erdogan's victory in Turkey's first popular presidential election this month capped more than decade as prime minister in which the economy has tripled in dollar terms and the country has carved out a growing, though often controversial, role in the politics of the conflict-torn Middle East.

Opponents warn his ambition to establish an executive presidential system will concentrate too much power in the hands of a leader with autocratic instincts and roots in Islamist politics, and lead the EU candidate country ever further from the secular ideals of Ataturk.  Senior representatives of some 90 countries from Asia, Africa, the Middle East and Europe attended the ceremonies, including the emir of Qatar and Iran's foreign minister.  There were no heads of major Western states, many of which have viewed Erdogan skeptically since a crackdown on anti-government demonstrations in June of last year.

The AK party must win a stronger majority in parliament in a general election due by next June if Erdogan is to secure his ambition of changing the constitution and establishing an executive presidency.  In the meantime, he will use to the full the powers of the existing presidency which has functioned under predecessors largely as a ceremonial position.  He can head government meetings and exert influence by dint of his personal authority, as reflected in a series of election victories since 2002.  (AFP 28.08) 

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 7.8  Turkey Tightens Internet Controls & Expands Government Control

On 8 September, Turkey's parliament passed a law tightening internet controls and expanding the powers of its telecoms authority late, weeks after a new government took office pledging the beginning of a "new Turkey".  The move follows of legislation passed in February that made it easier for the authorities to block access to web pages without a prior court order, prompting public anger and raising concern about free speech.  The new law expands those powers, allowing the TIB telecoms authority to block sites if it is deemed necessary for matters of "national security, the restoration of public order and the prevention of crimes".  The February law limited these powers to cases of privacy violations.  The new legislation also gives the TIB, which reports to the prime minister's office, access to individuals' browsing history without a court order.  The reforms are part of the first package of legislation passed by parliament since Erdogan, prime minister for more than a decade, was sworn in as president last month.  (Various 09.09)

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8:  ISRAEL LIFE SCIENCE NEWS 

 8.1  BioControl Medical Milestone Evaluating CardioFit System in Heart Failure

BioControl Medical has reached an important clinical trial milestone, reaching 480 randomized subjects – or 70% – of the planned 650 subjects with congestive heart failure (HF) in the INOVATE-HF (INcrease Of VAgal TonE in Heart Failure) trial of its CardioFit system, the first medical device designed to treat HF using neurostimulation.  With more than 65 participating centers in the United States and Europe, INOVATE-HF is the largest prospective, randomized global study ever to evaluate the treatment of HF with vagus nerve stimulation.  CardioFit is a unique, implantable vagus nerve stimulation system, which includes a pacemaker-like stimulator placed in the upper chest and a proprietary nerve stimulation cuff placed on the right vagus nerve in the neck.  It is designed to help patients achieve optimal therapy parameters by providing stimulation only when a patient’s heart rate is between pre-set limits.  The primary endpoint of the study is to compare the number of HF hospitalizations and all-cause mortality in patients with CardioFit vs. those on standard evidence-based management.

Headquartered in Yehud, Israel with offices in New Hope, Minn., BioControl Medical (http://www.biocontrol-medical.com) develops and markets advanced implantable devices for the treatment of autonomic disorders, conditions whereby the autonomic nervous system ceases to function properly, resulting in a disruption to the control of involuntary body processes.  The devices enable controlled electrical stimulation of various nerves to achieve therapeutic results.  (BioControl Medical 29.08)

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 8.2  Pfizer & Protalix Announce FDA Approval of ELELYSO for Gaucher Disease

Pfizer and Protalix BioTherapeutics announced that the U.S. FDA approved ELELYSO (taliglucerase alfa) for injection for pediatric patients.  ELELYSO is therefore now indicated for long-term enzyme replacement therapy (ERT) for adult and pediatric patients with a confirmed diagnosis of Type 1 Gaucher disease.  This pediatric indication, along with the recent announcement that ELELYSO received kosher certification by the Orthodox Union (OU), reinforces the ongoing commitment of Pfizer to addressing the needs of the Gaucher community.  The approval of ELELYSO to treat pediatric patients with Type 1 Gaucher disease provides physicians another treatment option for this rare and potentially debilitating disease.  

Karmiel’s Protalix BioTherapeutics (http://www.protalix.com) is a biopharmaceutical company focused on the development and commercialization of recombinant therapeutic proteins expressed through its proprietary plant cell-based expression system, ProCellEx.  Protalix's unique expression system presents a proprietary method for developing recombinant proteins.  (Pfizer 28.08)

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 8.3  CartiHeal Granted Four Patents for Cartilage Regeneration

CartiHeal announced the receipt of four patents - three in the U.S. and one in Japan - for its proprietary cell-free, off-the-shelf cartilage regeneration technology for patients with injuries to the articular surface of joints.  The patents describe the use of modified coral scaffolds for the treatment of cartilage and bone defects.  These patents cover a wide range of claims including treatment of cartilage and osteochondral defects, osteoarthritis and a variety of joint disorders.  The patents relate to the Agili-C implant, a bi-phasic, coralline-hyaluronate composite scaffold which has undergone chemical, physical and biological modifications.  The implant demonstrated clinical safety and effectiveness in a series of clinical trials, by enhancing regeneration of true hyaline cartilage and subchondral bone.

Kfar Saba’s CartiHeal (http://www.cartiheal.com) is a pioneer in the field of regenerative medicine.  CartiHeal’s CE-marked Agili-C implant has shown to promote regeneration of true hyaline cartilage and its subchondral bone, simultaneously without the use of cells, growth factors or other exogenous agents.  Agili-C represents a significant medical breakthrough and was voted one of the top 10 most exciting Israeli medical-device and pharmaceutical developments to watch for in 2014.  (CartiHeal 02.09)

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 8.4  BioLineRx Doses for BL-8040’s Stem Cell Mobilization Treatment

BioLineRx announced dosing of the first patient in a Phase 1 trial for a second indication of its BL-8040 cancer therapy platform, as a novel treatment for the mobilization of stem cells from the bone marrow to the peripheral blood circulation, where they can be harvested for transplant supporting the treatment of hematological indications.  The stem cell mobilization Phase 1 study consists of two parts.  Part 1 is a randomized, double-blind, placebo-controlled dose escalation study exploring the safety and tolerability of escalating repeated doses of BL-8040 in healthy volunteers.  Secondary objectives include assessment of the efficacy of BL-8040 in mobilizing stem cells as a stand-alone therapy, as well as determining the pharmacokinetic profile of the drug.  This part will be performed in up to 4 cohorts, with 8 healthy volunteers in each cohort.  Part 1 of the study will serve to select the optimal safe and efficacious dose of BL-8040 to be used as a stand-alone therapy in Part 2 of the study.

Part 2 is an open-label study designed to assess BL-8040’s stem cell mobilization capacity, as well as the yield of cells collected by apheresis.  Secondary endpoints of the study include evaluation of the viability and biological activity of cells mobilized by BL-8040 and collected by apheresis.  This part will be performed in a single cohort of 8 healthy volunteers who will receive the selected dose regimen of BL-8040 based on the data from Part 1.

Jerusalem’s BioLineRx (http://www.biolinerx.com) is a publicly-traded, clinical-stage biopharmaceutical company dedicated to identifying, in-licensing and developing promising therapeutic candidates.  The Company in-licenses novel compounds primarily from academic institutions and biotech companies based in Israel, develops them through pre-clinical and/or clinical stages, and then partners with pharmaceutical companies for advanced clinical development and/or commercialization.  (BioLineRx 03.09)

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 8.5  Teva’s Reslizumab Delivers Significant Reduction in Asthma Exacerbations

Teva Pharmaceutical Industries announced that reslizumab, an investigational anti-IL-5 monoclonal antibody, demonstrated clear levels of efficacy in achieving the primary endpoint of reduction in the frequency of clinical asthma exacerbations (CAE) compared to placebo in two pivotal Phase III studies in patients with inadequately controlled moderate to severe asthma with elevated levels of blood eosinophils.  This initial set of results shows the adverse event profile of reslizumab was comparable to placebo in both trials.  Further analyses of additional efficacy and safety data are ongoing.  Reslizumab is an investigational humanized monoclonal antibody (mAb) against interleukin-5 (IL-5).  IL-5 has been shown to play a crucial role in the maturation, growth and chemotaxis (movement) of eosinophils, inflammatory white blood cells implicated in a number of allergic diseases.

Teva Pharmaceutical Industries (http://www.tevapharm.com) is a leading global pharmaceutical company, committed to increasing access to high-quality healthcare by developing, producing and marketing affordable generic drugs as well as innovative and specialty pharmaceuticals and active pharmaceutical ingredients.  Headquartered in Israel, Teva is the world's leading generic drug maker, with a global product portfolio of more than 1,000 molecules and a direct presence in approximately 60 countries.  (Teva 02.09)

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 8.6  EndoCross Receives CE Mark Approval for the ENABLER-C

EndoCross received CE Mark approval for the ENABLER-C Coronary Catheter System.  The ENABLER-C features a unique controlled guide wire advancement technology currently available in the CE Marked ENABLER-P Peripheral Catheter Systems.  The CE Mark of the ENABLER-C Coronary Catheter System follows the successful first-in-man study of the ENABLER-C that took place at the Institut Cardiovasculaire Paris-Sud.  The ENABLER technology makes use of a propriety balloon design that allows for continuous and controlled luminal guide wire advancement through coronary chronic total occlusions (CTOs).  

Privately held, EndoCross (http://www.endocross.com) is headquartered in Yokneam, Israel with operations in Amherst, New Hampshire.  The ENABLER is a combination of a unique balloon catheter and a novel automated inflation system.  The system empowers physicians to quickly and easily advance angioplasty guide wires beyond arterial blockages, thus avoiding long and complex procedures.  (EndoCross 04.09)

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 8.7  Teva Launches Generic Baraclude Tablets, 0.5mg and 1mg, in the US

Teva Pharmaceutical Industries launched the generic equivalent to Baraclude (Entecavir) Tablets, 0.5mg and 1mg, in the United States.  Teva was first to file, making the product eligible for 180 days of marketing exclusivity.  Baraclude (Entecavir) Tablets, 0.5mg and 1mg, marketed by Bristol-Myers Squibb, had annual sales of approximately $328 million in the United States, according to IMS data as of June 2014.  Teva Pharmaceutical Industries (http://www.tevapharm.com) is a leading global pharmaceutical company, committed to increasing access to high-quality healthcare by developing, producing and marketing affordable generic drugs as well as innovative and specialty pharmaceuticals and active pharmaceutical ingredients. Headquartered in Israel, Teva is the world's leading generic drug maker, with a global product portfolio of more than 1,000 molecules and a direct presence in approximately 60 countries.  (Teva 04.09)

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 8.8  Mazor Robotics Receives China CFDA for Its Renaissance Systems

Mazor Robotics announced that the China Food and Drug Administration (CFDA) has approved the Company's Renaissance system, a state-of-the-art surgical guidance system that enables surgeons to conduct spine surgeries in an accurate and secure manner.  In addition to gaining the necessary regulatory approvals, the Company’s distribution partner in China, Cicel, has coordinated seminars and hands-on-lab experiences in the U.S. for China’s leading spine surgeons to learn about the Renaissance system and its clinical benefits.  Cicel is based in Beijing and has six other offices throughout China helping to establish close relationships with surgeons, hospitals and other medical organizations. 

Caesarea’s Mazor Robotics (http://www.mazorrobotics.com) is dedicated to the development and marketing of innovative surgical guidance systems and complementary products that provide a safer surgical environment for patients, surgeons and operating room staff.  Mazor Robotics’ flagship product, Renaissance, is a state-of-the-art surgical guidance system that enables surgeons to conduct spine surgeries in an accurate and secure manner.  (Mazor Robotics 09.09)

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9:  ISRAEL PRODUCT & TECHNOLOGY NEWS

 9.1  Israeli TTO Inventions Jump by 20%

The Central Bureau of Statistics in Israel has released data indicating that Israeli Tech Transfer Organizations (TTOs) - the agencies within public universities, hospitals and research institutes that commercialize locally-produced inventions and discoveries - saw a 20% increase in productivity over the course of 2012-2013.  TTOs reported a total of 1,438 inventions and discoveries during that period.  Biotechnology, medical devices, pharmaceuticals, physics, electronics, chemistry, nano-technology and agriculture were the primary fields of research.  The data further indicated that during 2012 - 2013, TTOs launched 72 startup ventures in Israel and abroad, generating NIS 1.88 billion in revenue in 2012 alone. Israeli TTOs include some of the global leaders in revenue and patent production globally.  (CBS 02.09)

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 9.2  City of Scranton Expands Pango Citywide with Italian Festival

Pango began a four-year expanded partnership with the City of Scranton at the city's annual Italian Festival over the Labor Day weekend.  Scranton conducted a deep review of mobile payment providers in an open request for proposals and selected Pango as the best provider.  Pango has partnered with Scranton's Italian Festival to celebrate the launch of Pango citywide.  Pango initiated a pilot with city center in 2013.  The pilot benefited drivers by providing a more convenient way to pay for parking while the city produced double-digit increases in parking and citation revenues using the Pango system.  The new agreement will now roll out Pango across the whole city and have Pango in place for the next four years.  Kadima’s Pango (http://www.myPango.com) is available in over 53 cities today around the world and used by more than more than 1 million active accounts.   Considered the company that invented the science behind the first pay-by-phone parking app, Pango was awarded a US Patent in 1997.  Pango is one of the only companies in the world to provide on street, gated, valet, event, and fleet-based parking services through an app.  (Pango 29.08)

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 9.3  Magal Launches Revolutionary New Perimeter Robot

Magal Security Systems is showcasing its innovative RoboGuard at the ASIS USA show.  RoboGuard is an agile surveillance robot that travels on a monorail, constantly patrolling a secured perimeter.  It conducts regular inspections of the fence line, which are essential to maintaining the integrity of the perimeter. It can also promptly respond and check on any suspected intrusion as needed.  A complete system consists of autonomous robots, each covering up to 1 km, with a battery recharging docking station for every two robots.

Yehud’s Magal S3 (http://www.magal-s3.com) is a leading international provider of solutions and products for physical and cyber security, as well as safety and site management. Over the past 42 years, Magal S3 has delivered tailor-made security solutions and turnkey projects to hundreds of satisfied customers in over 80 countries - under some of the most challenging conditions.  (Magal 03.09)

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 9.4  TowerJazz & Triune Systems Neo-Iso Products Ramping to Mass Production

TowerJazz and Richardson, Texas’ Triune Systems, a mixed signal and power management IC provider, announced that Triune has developed a proprietary isolated power and data technology using the TowerJazz TS18PM process on its state of the art 0.18um based power management platform.  This innovative technology is showcased in Triune’s Neo-Iso products, two isolated load switches currently ramping to volume production; TS13001 and TS13101.  Triune’s TS13001 and TS13101 are galvanically isolated load switches that replace mechanical relays in HVAC, home automation, and industrial control systems.  The products are low-profile switches with low Rdson, have current limit and fault protection circuitry, and are easily controlled through a simple microcontroller interface.  The level of galvanic isolation can be scaled from 100V to 10kV, based on the needs of the system.

Migdal HaEmek’s Tower Semiconductor (http://www.towerjazz.com) and its fully owned U.S. subsidiary Jazz Semiconductor, operate collectively under the brand name TowerJazz, the global specialty foundry leader.  TowerJazz manufactures integrated circuits, offering a broad range of customizable process technologies including: SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensor, integrated power management (BCD and 700V), and MEMS.  TowerJazz also provides a world-class design enablement platform for a quick and accurate design cycle as well as Transfer Optimization and development Process Services (TOPS) to IDMs and fabless companies that need to expand capacity.  (TowerJazz 02.09)

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 9.5  OriginGPS’ Smallest GPS Module with Integrated Antenna

OriginGPS announced the launch of the Nano Hornet, the world’s smallest fully integrated global antenna module.  The Nano Hornet is ideal for devices that require low profile components.  OriginGPS pushed the boundaries of what’s possible and reduced the thickness of their already industry-leading Micro Hornet by nearly 35%.  But wearables aren’t the only devices that will benefit – a wide range of Internet of Things devices will be able to utilize its best-in-class feature set.  The Nano Hornet’s innovative architecture packs the most functionality and high-quality components in the smallest space by volume, to improve wearables’ fashion and function.  It boasts several key features that will improve the navigation experience of wearables and other Internet of Things devices.  Additionally, the Nano Hornet module combines OriginGPS’ proprietary low-profile GPS antenna with a dual-stage LNA, RF LDO, SAW filter, TCXO, RTC crystal and RF shield with market-leading SiRFstarIV GPS SoC.

Airport City’s OriginGPS (http://www.origingps.com) is a world-leading designer, manufacturer and supplier of miniaturized GNSS modules (“Spider” family), antenna modules (“Hornet” family) and antenna solutions.  OriginGPS introduces unparalleled sensitivity and noise immunity by incorporating its proprietary Noise Free Zone technology for faster position fix and navigation stability even under challenging satellite signal conditions.  (OriginGPS 03.09)

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 9.6  DSIT Receives Another Order for its Underwater Security System

DSIT Solutions has received another order for its Underwater Security System for the protection of a Nuclear Power Plant.  The Underwater Security System ordered is based on a special version of the company's best-selling AquaShield Diver Detection Sonar.  This special version is specifically tailored to provide superior performance against any type of intruder approaching the nuclear power plant's highly reverberant water intake.  The threats that the system is designed to counter include scuba and combat divers, divers using Diver Propulsion Vehicles (DPV) and Unmanned Underwater Vehicles (UUV).  From a security point of view, the weak point in many Nuclear Power Facilities is their water intake system.  Many nuclear power facilities use water to cool the plant reactors by sucking in large volumes of water through the water intake and into the core of the plant.  This water intake creates an opportunity for unauthorized intruders to break into the facility. DSIT's underwater monitoring systems are especially designed to counter such threats and eliminate this weakness in security.

Givat Shmuel’s DSIT (http://www.dsit.co.il) develops and produces sonar applications for the defense, HLS, energy and commercial markets.  The company employs a world-class multi-disciplinary team of professionals that are skilled in the latest sonar and real-time technologies.  (DSIT 08.09)

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 9.7  Apply to Launch Smartphone Keypad App

Apply Advanced Mobile Technologies announced its plan to soon launch an app.  The app "is a multi-lingual smartphone keypad, which includes, among other things, advanced technology to correct and improve English-language typing.”  The app was developed through a joint venture with internet company WhiteSmoke Software.  The app focuses on the world of sports, and is expected to be “branded with various sports-club and international logos of companies with whom the company signed partnership agreements, or with whom the company is in talks to establish partnerships.”  It appears that users of the app will be able to enjoy a workspace with the branding of one of their favorite brands.  Under the agreements, the two companies added, the aim is to “create various monetization options, including revenue sharing.”  At this stage, both companies noted that they do not have the ability to “estimate the commercial success of the app or the revenue that will be generated from its distribution, or the partnerships.”

Tel Aviv’s Apply (http://www.apply-tech.com) deals in the development of marketing channels and distribution of mobile apps.  A group of investors bought control of the company in 2013.  (Globes 08.09)

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 9.8  Tehuti’s 10GbE Solutions Transform Network Connectivity

Tehuti Networks announced support of the powerful Apple OS X operating system across its line of 10GbE connectivity offerings based on the TN4010 controller.  The Tehuti TN4010 controller is an optimized 10GbE device designed for low-power, single-port applications required in application servers, high-end workstations and personal computers. This makes it ideal for enabling 1GbE to 10GbE migration in bandwidth-intensive workstation applications.  Connectivity for the Mac Pro and MacBook Pro to high-performance network and storage infrastructures is enabled via Tehuti’s 10GbE TN9210-TB2 adapter prototype with 10GBase-T support.  Previous generations of the Mac Pro, that will be upgrading to OS X Mavericks can utilize Tehuti's full 10GbE product offering to leverage the new performance capabilities.

Herzliya’s Tehuti Networks (http://www.tehutinetworks.net) is a fabless semiconductor company focused on cost effective 10Gb Ethernet Network Traffic Accelerators, which enable volume adoption of 10 Gigabit Ethernet (GbE).  Tehuti Networks’ 10GbE controllers feature high performance coupled with low power, small footprint and an attractive cost.  (Tehuti 09.09)

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10:  ISRAEL ECONOMIC STATISTICS

 10.1 Tax Revenues Soar Despite Gaza Operation

Israel’s August state tax revenues unexpectedly soared above the forecast, confounding predictions of an economic slowdown caused by the fighting that took place in Gaza during most of the month.  Ministry of Finance data show that tax revenues totaled NIS 21.27 billion in August, almost NIS 1.5 billion more than the Ministry's NIS 19.9 billion forecast for the month.  Tax revenues were also considerably higher than in August 2013.  Tax revenues have totaled NIS 170 billion since the beginning of the year, a 6.8% increase, compared with the corresponding period last year, and NIS 3.6 billion more than the Ministry's forecast for the period. NIS 1.5 billion of this surplus is a result of one-time tax receipts.  Most of the increase is attributable to higher receipts from direct taxes in part because the deadline for taxes in July for residents in southern Israel was extended to August.  The Ministry of Finance also reported that the budget deficit on an annualized basis for 2014 fell to 2.6% in August from 2.7% in July although this does not include the cost of Operation Protective Edge.  (Globes 07.09)

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 10.2 Ya'alon Says Gaza War Cost Military $2.5 Billion

Israeli Defense Minister Moshe Yaalon said that the direct cost of the 50-day military offensive in the Gaza was more than $2.5 billion.  The IDF hit more than 6,000 targets, more than 5,000 of them by the air force and about 900 from land and sea.  The terror organizations in the Gaza Strip - Hamas Islamic Jihad and others - had 10,000 rounds at the beginning of Operation Protective Edge.  Today they have about a fifth of that, which is still 2,000 rounds.  On 31 August, the government approved budget cuts to help pay for the campaign in Gaza.  Ministers voted to cut 2% from the 2014 budget of every government ministry - other than defense - to raise about two billion shekels.  (AFP 02.09)

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 10.3 Israel’s New Car Deliveries Firm Despite Gaza Conflict

New car deliveries in Israel this year are up 13.6% to 173,810.  August car deliveries totaled 18,236, a relatively moderate 6.8% drop, compared with August 2013.  Initial expectations were of a much steeper fall, due to cancelations of order by car rental firms and the withdrawal of discounts.  A total of 173,810 vehicles was delivered in January-August 2014, 13.6% more than in the corresponding period last year.  The leader in car deliveries was Hyundai with 23,320, 5.5% fewer than in the corresponding period in 2013.  Delivery of Toyota cars leaped 37%, putting the company in second place with 19,632 deliveries, followed by Kia in third place with 18,631 deliveries, up 21%, compared with January-August 2013.  Kia had the most car deliveries in August.  Mazda's deliveries shot up 66% to 13,189, putting it in fourth place, followed by Skoda with 10,280 deliveries, a 17% increase.  (Globes 02.09)

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 10.4 Israel State 2014 Royalties on Natural Resources Reach NIS 705 Million

State royalties on natural resources totaled NIS 305 million in H1/14 and the Ministry of National Infrastructures, Energy and Water Resources expects royalties to reach NIS 705 million for the year.  State royalties on natural gas and oil jumped 51% in H1/14, compared with H1/13, due to gas production from the Tamar reservoir.  Most of the royalties on natural resources came from natural gas and oil, which totaled NIS 297 million in the first half of the year: NIS 292 million from the Tamar and Yam Tethys reservoirs, and the rest (NIS 5 million) from oil production royalties.  State royalties from Israel Chemicals for phosphates amounted to NIS 4.5 million in the first half, less than in the corresponding period last year.  Revenues from fees and various operations totaled NIS 3 million.  (Globes 07.09)

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11:  IN DEPTH

 11.1 JORDAN:  Jordan's Energy Decision - Go With Israel

(Contributed by Simon Henderson)

The announcement of a planned energy deal between Israel and Jordan will be followed by several stages of negotiation, and it will be several years before the first gas reaches Jordan.  The "nonbinding letter of intent" envisages the supply of gas from Israel's Leviathan field, which lies deep under the seabed eighty miles off the coast of Haifa.  The gas will be supplied to Jordan's main electricity-generating body, the National Electric Power Company (NEPCO).  Over the fifteen-year proposed span of the contract, 1.6 trillion cubic feet will be supplied, equating to around 3 billion cubic meters a year.  This is probably sufficient for most of Jordan's electricity-generation requirements.

Reported as being worth $15 billion (though $8 billion seems a more likely figure, given current prices for natural gas), the deal is much larger and certainly more significant than an agreement announced in February for Israel to supply $500 million worth of gas to two Jordanian industrial plants near the Dead Sea.  That gas will come from Israel's Tamar offshore field, which began production last year.  Noble Energy, the U.S. natural gas company that leads the consortium planning to develop the Leviathan field, which will not come on stream until 2017, says the price for NEPCO's gas will be "based primarily on a linkage to [international] oil prices and is dependent on negotiation of a binding agreement."  A new pipeline will also need to be constructed.

The putative deal offers additional good news for the export prospects for Israeli gas.  A more significant quantity of Leviathan gas is planned to be pumped to an underutilized liquefied natural gas (LNG) plant in Egypt's Nile Delta, from where it can be shipped anywhere in the world, including Asia, where prices are much higher.

For its part, Jordan currently relies on expensive fuel oil to generate electricity.  The importation of natural gas from Egypt has become erratic because of pipeline sabotage, and seems unlikely to resume even if chronic Islamist terrorism in the Sinai is eventually contained.  Jordan's Arab allies may oppose the deal with Israel and have already offered to build an LNG import facility at the Red Sea port of Aqaba.

The biggest challenge for Jordan's King Abdullah, though, will likely be managing domestic political opposition to the deal.  The majority of Jordan's population is of Palestinian origin and the close bilateral relationship with Israel is not popular.  Ever since the 1994 Israel-Jordan peace agreement, professional syndicates in Jordan have backed a so-called "anti-normalization" campaign, boycotting products - including water - from Israel.  In the aftermath of the war in Gaza, this campaign has only intensified.

Unlike the earlier $500 million deal, which involved Noble Energy and two corporations owned by Arab and Jordanian investors, this agreement provides the palace with little political cover, and the opposition will all but certainly exploit the agreement to attack the king.  The Committee for Protecting the Nation and Syndicates Resisting Normalization described the last agreement as a "crime" and called for protests to reverse it.

Given the rather desperate economic conditions in the Hashemite Kingdom (the prime minister recently described the economy as being in "its worst situation in history"), the deal with Israel could not come at a better time.  Since 2011, rising energy costs have been the prime driver in the kingdom's fiscal deficit.  In addition, the agreement - which has U.S. State Department backing - should obviate Amman's determined but ill-advised plans to move ahead with the construction of two nuclear power plants.

Politically, the deal will have a steep cost for the palace, but it should also provide some welcome budget relief and longer-term energy security for the kingdom.

Simon Henderson is the Baker Fellow and director of the Gulf and Energy Policy Program at The Washington Institute.  David Schenker is the Institute's Aufzien Fellow and director of its Program on Arab Politics.  (TWI 03.09)

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 11.2  JORDAN:  Preventing ISIS Inroads in Jordan

(Contributed by David Schenker) 

Amman appears committed to difficult economic reforms, but militant Islamists -- and controversial palace initiatives -- continue to challenge the kingdom's stability.

The Islamic State of Iraq and al-Sham has twice surprised the West, first by conquering Mosul and later by routing peshmerga fighters and occupying Kurdish territory.  But ISIS, which now calls itself the Islamic State, also threatens Jordan and the group is hoping to once again shock the West by opening a new front inside the kingdom.  In recent weeks, Jordanian authorities have reportedly arrested 50 supporters of ISIS and al-Qaeda affiliate Jabhat al-Nusra.  Along with ongoing border infiltration attempts and increased reports of local funerals for Jordanian ISIS members killed in Syria, the arrests suggest that the organization may be making inroads. Yet while Amman is clearly taking steps to mitigate these concerns, King Abdullah has repeatedly described economics -- not security -- as Jordan's "biggest challenge."

Background

Over the past few months, the Jordan Armed Forces (JAF) have prevented several cross-border infiltration attempts by armed groups from Syria.  The latest skirmish -- an 24 August clash in which the JAF killed two and captured five -- was only one of several troubling incidents.  In April, for example, Jordanian F-16 fighters targeted a convoy of vehicles attempting to illegally enter the kingdom.

The war in Syria also appears to have generated a reservoir of Jordanian support for Salafi jihadists.  Over the past two years, reports of funerals in the kingdom for Jabhat al-Nusra fighters killed in Syria have become ubiquitous.  But the popularity of ISIS appears to have grown as well in light of the group's gains in Syria and Iraq.  In June, a small group of supporters held a pro-ISIS demonstration in Maan.  In early August, according to the Jordanian online daily Maqar.com, a "martyr's wedding" was held in the Beqa refugee camp for a Palestinian Jordanian ISIS member who died fighting Syrian regime forces on the Iraqi border.

It's the Economy

In June, the Jordanian parliament passed a controversial counterterrorism law providing authorities with sweeping new powers, criminalizing participation in foreign jihads, and affording the government wide legal latitude to imprison citizens who lend ideological and recruitment support to terrorist organizations.  Yet even as the government fulfilled the palace's request to create a more robust legal framework for countering the Salafi jihadist threat from Syria and Iraq, King Abdullah has focused on the economy.  On 22 August, he told a group of Jordanian economic leaders, "Today we are facing enormous challenges on more than one front, foremost of which are the economic challenges."  These challenges, he said, are inextricably linked.

The king is right.  Even before an estimated 1.5 million Syrian refugees entered Jordan, the kingdom was struggling economically.  According to Prime Minister Abdullah Ensour, "Jordan's economy faces its worst situation in history."  The official unemployment rate is 12%, but it is widely believed to be near 30%, and perhaps even higher in some regions.  Nearly 80% of the Syrian refugees in Jordan live outside of camps and their entry into the domestic labor market is exacerbating the problem -- late last month, the Ministry of Labor announced it had shuttered 125 companies illegally employing Syrian expatriates, presumably at lower wages.  Housing and commodity prices are also increasing, driven by higher local demand.

Jordan's fiscal situation is little better.  In 2013, state debt increased by $5 billion to $27 billion and is fast approaching 85% of GDP.  Debt servicing alone costs Amman about $1 billion per year -- a hefty sum given that the state's annual budget is only about $11 billion.  Moreover, Jordan's fuel imports accounted for nearly $3 billion in the first six months of 2014 -- an increase of 27% from the same period last year -- while its trade deficit rose by 10%.

Making matters worse, the government has had to raise the price of flour to subsidized mills by 2% while lowering subsidies on staples such as kerosene and electricity, in line with structural reform commitments required to secure over $2 billion in loans from the IMF.  Amman is also working on a new tax law at the IMF's behest designed to raise revenues and decrease perennial budget deficits, which this year amount to $1.6 billion -- a 14% shortfall.  Not surprisingly, local professional syndicates are already lobbying lawmakers to exempt their constituents, arguing that the new taxes will "hurt the middle class."  Taken together, these reforms, while necessary to ensure the kingdom's long-term economic health, will likely lower the standard of living for average Jordanians in the near term.

Political Controversies

Amman's economic reform policy, while praiseworthy, is yet another in a growing litany of unpopular palace initiatives.  Among the more controversial developments, parliament approved new constitutional amendments, formalizing the king's previously unofficial authority to appoint the heads of the JAF and General Intelligence Directorate.  The move was criticized in terms of process as well as substance: the amendments were legislated quickly and with little debate, prompting one local analyst to opine that Jordan should "enter the Guinness Book of World Records."

Prime Minister Ensour predictably applauded the amendments, saying they would move Jordan toward democracy by preventing "politicization" of security institutions. Other assessments were less charitable.  According to opposition parliamentarian Rula Alhroob, the changes "expand the direct powers of the King" and undermine government accountability.  "If the defense minister is unable to appoint and dismiss the intelligence chief and the commander of the army," she asked, "how can the defense minister be answerable for their mistakes?"  In the end, she said, "the military and intelligence apparatuses are not independent of the government."  The High Committee of Retired Generals was also critical, publishing a missive in the online daily Jo24.net describing the amendments as "an attack on the constitution and a challenge to the will of the people."

Less discussed was the government's 15 August announcement that it will move forward on its nuclear energy plans in the coming months, with Russian firm Rosatom slated to build two reactors in the kingdom.  To be sure, Jordan needs energy security, but the estimated $10 billion cost of the facilities and the potential environmental dangers will engender significant local opposition.  Earlier this year, the Bani Sakhr, one of Jordan's largest tribes and historically known for close ties to the palace, protested planned construction of one of the reactors on their land.  In any event, the kingdom has other energy options, including a combination of Israeli natural gas - for which a fifteen-year, $15 billion deal was signed - and indigenous oil shale in the eastern desert.

Conclusion

Notwithstanding concerns about ISIS and Jabhat al-Nusra, King Abdullah's focus on the economy is well warranted.  Even if Jordan's security solution to Islamist militancy is effective in the short term, the kingdom will become increasingly fertile ground for local recruitment if the economy does not improve.  Civil disturbances are already a regular occurrence outside the capital.  The long-restive city of Maan leads the headlines, but tire burnings and clashes between citizens and gendarmerie in Irbid and other towns are becoming routine, suggesting significant frustration.  Meanwhile, Washington has been training moderate Syrian rebels on Jordanian soil for months, and such activity could elevate the kingdom on ISIS and Jabhat al-Nusra's target list.

To be sure, reports that the al-Qaeda flag has been flying over Maan's central square for the past six weeks are disconcerting, but that city has long been a headache for Amman.  As the king noted, the key to preventing unrest from spreading is to improve the perennially weak economy.  The question is whether enough tangible gains can be made on that front soon enough to forestall further Salafi jihadist inroads.

At present, Washington's $300 million in annual funding to Jordan's robust and loyal armed forces is sufficient to contend with the threat on the Syrian and Iraqi borders.  Yet additional U.S. financial assistance beyond the current $360 million in annual aid could help alleviate some of the pain of the kingdom's economic reforms.  Even with such assistance, though, turning the economy around will take time.  With no end in sight to Syria's war and its associated refugee flows and Islamist militancy, Jordan's long-term stability will largely depend on the palace's ongoing commitment to IMF structural adjustments, and on the vigilance of the General Intelligence Directorate.

David Schenker is the Aufzien Fellow and director of the Program on Arab Politics at The Washington Institute.  (TWI 03.09)

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 11.3  UAE:  Expanding Sour Gas Production in Abu Dhabi

Looking to reduce its imports and at the same time meet growing energy demands, Abu Dhabi is seeking to develop its sour gas reserves, both on and off-shore.  Gas is used extensively for electricity generation, water desalination and as an industrial feedstock in the emirate, and demand on all fronts is rising rapidly.  Indeed, according to Abu Dhabi Water and Electricity Authority (ADWEA), power consumption is set to rise by 11.3% annually.

But with much of Abu Dhabi’s existing gas production already committed for export, the current gap in domestic demand is being bridged via imports from Qatar.  As this divide is expected to widen further in the coming years, developing local sour gas production is seen as the answer. 

In The Works

Sour, or tight gas as it is sometimes known, has high concentrations of other elements, often hydrogen sulphide (H2S) or carbon dioxide (CO2), which are toxic and corrosive.  Until relatively recently, the cost of processing sour gas to remove these other elements to make it usable has been too high to make it commercially viable. However, increasing demand and improved technology have changed this.

Currently, Abu Dhabi has a number of sour gas projects under development.  The emirate’s latest solution to the gas equation is also one of its most technologically pioneering: to produce and process gas from the onshore Shah field, most of which is deemed sour.

When up and running, which according to the current schedule should be operational in early 2015, the $10b natural gas project, a joint development between ADNOC and US-based Occidental Petroleum, is expected to produce 14.2m cu meters of gas per day.

Another project is the Bab field, located around 150km to the south west of the city of Abu Dhabi.  A joint project between Abu Dhabi National Oil Company (ADNOC) and Shell, with an estimated development cost of $10b, the field is expected to go into production in 2020, adding more than 14m cu meters of gas per day to available stocks.

A third sour gas field is located off Abu Dhabi’s coast in relatively shallow water, but has yet to be developed.  While the Hail field has a number of advantages over the major onshore deposits – for example, it has a far lower CO2 or H2S content than Shah or Bab, meaning the processing cost should be lower – its location could be a drawback.

The Hail gas reservoir lies under a significant oil deposit, and the two are separated by a layer of rock.  Though the concession for the development of the oil reservoir has been granted to ADNOC and an engineering and design contract was awarded to French engineering company Technip in April, a more detailed study of the requirements of tapping the gas deposit will be required. 

An Integrated Approach

The development of Abu Dhabi’s sour gas is not without its challenges.  Deep drilling in some fields presents its own set of difficulties, as does having to deploy advanced technology to meet the specific requirements of these fields, along with the infrastructure necessary to handle the toxic and corrosive by-products that the extraction process generates.

According to Andrew Vaughn, Shell’s country chairman, the technical requirements for the project will stretch the limits of the industry.  “Bab contains one of the largest non-associated gas fields in the UAE and its development will be extremely challenging,” he told OBG.  “The most interesting aspect of the project will be the combination of technologies that will have to be used to extract and process the natural gas. It will require an integrated approach bringing together many different technical and operational solutions.”

These technical issues also have the potential to drive up the costs of developing sour gas.  According to some estimates, the cost of sulfur extraction from the Shah field could well be in excess of the price levied for imports from Qatar.  With the even higher levels of H2S and CO2 in the Bab reservoir, the per unit cost of delivering gas to the market from this field could soar further.  Added to this will be the greater expense of maintaining pipelines and equipment, necessary due to the corrosive nature of the sour gas being extracted.

While it is hoped higher extraction and processing costs will be offset by sales of the refined sulfur separated from the gas, this will depend on international sulfur prices, which fluctuate.  This uncertainty in the market will make it difficult to factor in hard returns from the derivatives side of the operations.  (OBG 02.09)

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 11.4  SAUDI ARABIA:  Fitch Affirms Saudi Arabia at 'AA'; Outlook Stable

On 05 September Fitch Ratings (http://www.fitchratings.com) affirmed Saudi Arabia's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AA'.  The Outlooks on the Long-term IDRs are Stable.  The Country Ceiling has been affirmed at 'AA+' and the Short-term foreign currency IDR at 'F1+'.

Key Rating Drivers

The affirmation reflects the following factors:

Saudi Arabia has exceptionally strong sovereign and external balance sheets.  The domestic net creditor position is the second-strongest of all Fitch-rated sovereigns.  Government deposits in the banking sector were 58% of GDP at end-June compared with general government debt of 0.6% of GDP at end-2013.  Sovereign net foreign assets were 112% of GDP at end-2013, the fifth-strongest of all Fitch-rated sovereigns. Saudi Arabia has no sovereign external debt.

Double-digit current account surpluses have been posted in ten of the past 11 years.  A surplus equivalent to 3.9% of forecast 2014 GDP was recorded in the first quarter and another double-digit outturn is expected this year.  Falling oil revenues, in line with Fitch's oil price assumptions, will lower the current account surplus each year to a forecast 6.8% of GDP in 2016.  On-going surpluses will allow a further build-up of foreign assets.

Fiscal surpluses have been recorded in each year but one since 2000.  A fiscal deficit was recorded in the first half of 2014 of 1.1% of forecast GDP, due primarily to unspecified foreign assistance and higher capital spending.  Fitch forecasts a general government surplus of 3.1% of GDP for 2014 due to high oil revenues.  Although the net creditor position is forecast to ease through to 2016 as deposits allocated for specific capital projects are drawn down, it will remain a clear credit strength.

Real GDP growth is in excess of peers.  Growth was 4.7% in the first quarter, driven by higher oil production.  Non-oil private sector growth eased to 4.4%, with sectors affected by the short-term impact of labor market reforms all posting notably slower growth.  Non-oil private sector growth averaged 6.5% in the past five years and is forecast at around 5% through to 2016 due to substantial government spending, completion of major projects and higher employment of nationals.  Growth volatility is below peers.

Progress continues in addressing unemployment and a shortage of affordable housing, both of which Fitch considers as potential economic sources of social instability.  Measures have been introduced to enhance access to residential real estate and Saudi employment in the private sector has risen.

The economy is heavily dependent on oil, which accounts for 90% of fiscal revenues and 80% of current account revenues, levels that have been little changed over the past decade.  However, large and growing buffers mean it would take a prolonged period of much lower oil prices to materially undermine the fiscal and external positions, though the fiscal breakeven oil price continues to rise, to a Fitch forecast $96/b (Brent) in 2014.  Oil reserves are large and the Kingdom maintains substantial spare capacity that it uses to smooth disruption to production elsewhere.

The banking sector is a rating strength and soundness indicators have improved.  Non-performing loans fell to 1.3% of total loans at end-June 2014 (1.4% at end-2013) and coverage rose to 166% (from 155% at end-2013).  Capital adequacy is high, at 18%, and the system is well regulated.  Saudi Arabia is ranked 'a' on Fitch's banking system risk indicator (BSI), the strongest of all Gulf Cooperation Council members, in line with a number of mature advanced economies and below only 'AAA'-rated Australia, Canada and Singapore.

Structural indicators are generally weaker than peers, despite recent significant improvements in some areas. GDP per capita and World Bank governance indicators are well below peer medians.  Saudi Arabia recorded the largest gain of all rated sovereigns in the 2013 UN Human Development Index and GNI per capita at purchasing power parity (PPP) more than doubled after a revision of the IMF's PPP weights (which are used by Fitch).  According to the World Bank measure, voice and accountability in Saudi Arabia is the lowest of all rated sovereigns.  Fitch considers exposure to geopolitical risk to be higher than peers given the Kingdom's prominent role in a volatile region.

Fitch considers the exchange rate peg to the US dollar a key policy anchor, even though it constrains policy flexibility.  Transparency on fiscal policy and outturns is a weakness relative to developed country peers and over-spending is common.

Rating Sensitivities

The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well balanced.  Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change.

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

- Progress in tackling weaknesses in structural indicators and the economic policy framework, relative to peers, and enhancing the business environment in ways conducive to further diversification of the economy and the revenue base

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

- A material erosion of fiscal and external buffers, likely stemming from a prolonged period of sharply lower oil prices or rapid growth in the fiscal breakeven oil price

- Spill-over from regional conflicts or a domestic political shock that threatens stability or affects key economic activities

Fitch assumes that Saudi Arabia will not be materially affected by any of the conflicts in the region and that the domestic political scene will remain stable.

Fitch assumes the government will remain committed to reforms in the labor and housing markets and that the reforms will not cause significant disruption to the economy.  The authorities will remain attentive to other potential sources of social unrest.  (Fitch 05.09)

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 11.5  EGYPT:  Questions Remain on Egypt’s Suez Canal Project

Egyptian President Abdel Fattah al-Sisi has announced an ambitious project to dig a new canal parallel to the Suez Canal to develop and stimulate international maritime traffic through the area.  Questions have been raised, however, about the Egyptian government’s ability to complete the job in only one year, as well as the economic feasibility of the project, since the state has been suffering for three years from a financial and economic crisis affecting all state institutions and sectors.

The new canal, which Sisi announced during a ceremony held 5 August and assigned to the armed forces, is expected to be 72 kilometers (44.7 miles) long, and the project will involve 35 kilometers (21.7 miles) of dry digging and 37 kilometers (23 miles) of expansion and deep digging.  The estimated cost is $4 billion under the purview of the Suez Canal Corridor Development Project.  The government is depending heavily on the project to jump-start Egypt's sagging economy.

The first challenges of this massive undertaking have already appeared, namely, problems during drilling. In particular, water was found at the drilling sites, which may require a greater financial input for dredging.  This issue is compounded by the presidentially declared one-year deadline to complete the drilling and send the first vessel through the new canal.

Haitham Awad, an engineering professor at Alexandria University, told Al-Monitor that costs are likely to skyrocket: “The cost of drilling underwater will exceed 10 times the cost of drilling in dry lands.  The drilling site chosen was 400 meters from the Suez Canal, but it would have been better to choose a site between 8 and 10 kilometers (5 to 6.2 miles) away from the old canal.”

The armed forces are executing the drilling stage at an accelerated pace.  “Twelve million cubic meters were drilled as of 19 August, just 14 days after the start of the works,” according to a statement by Kamel al-Waziri, chief of the Engineering Authority of the Armed Forces, during a visit by the Egyptian prime minister to the project site, where Al-Monitor was also in attendance.

The Egyptian army has expressed its commitment to finishing the project within a year under Sisi's directive.  According to the army, this commitment is materializing on the ground with the supply of nearly 4,500 pieces of heavy equipment, including, of course, tools for digging and dredging and loaders.  Agreements were concluded with 50 Egyptian companies to immediately begin the excavation work, and the engineering team from the armed forces was assigned to the drilling operations and to be on the lookout for remnants of past wars in the canal area.

The general aim is to dig 1 million cubic meters of the new canal area per day.  At this rate, the armed forces expect to finish within the next 11 months.  The 12th month would be a trial run of a vessel in the navigational stream.

The government is touting the economic benefits of the project, but the high expectations of fast revenues may not be achievable in the near future, raising a number of questions about the Egyptian economy’s capacity to assume the current risk.

A strong media campaign promises Egyptians an economic boom through the mere execution of the project, but economists doubt the project’s return to the economy.  “I cannot confirm that digging the new canal to increase [the canal’s] capacity, and thus allow the navigation of a larger number of vessels, will bring about a significant boom in the canal’s projected revenues,” Omar al-Shenety, chief operating officer of Multiples Investment Group and an economist, told Al-Monitor.

“Doubling the number of vessels passing through the Suez Canal is primarily linked to the global trade movement, which increases by 2-3% in regular periods, to the exclusion of periods of recession, which raises concerns about the achievement of the desired figures and revenues,” Shenety said.

With an increase in the cost of the project, the government decided to base the primary funding on investment certificates issued by the Suez Canal Authority to Egyptian nationals through Egyptian national banks.  Annual interest of up to 12% was added on the value of these certificates to encourage Egyptians to buy them.

“The financial return on investment certificates will be funded from the profits of the Suez Canal, until it becomes possible for the new canal to achieve financial surpluses.  Consequently, there is a problem with economic feasibility that will affect the net income of the Suez Canal allocated to cover the deficit and finance a part of the state general budget,” Shenety said.

The canal project, with its technical challenges and lack of economic feasibility studies, remains an economic adventure, through which Sisi intends to address the economic recession, taking advantage of all the options available to him in launching a new national project approved by the Egyptian people.  The public merely hopes that the project does not end up in the dustbin along with previous national projects, like the Toshka or al-Salam canals.  (Al Monitor 26.08)

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 11.6  LIBYA:  Sinking Into Chaos

The constant eruption that Libya has faced since the fall of the regime of former President Moammar Gadhafi appears like an inevitable chain, interspersed with periods of violent acceleration in this eruption.  The fighting between rival militias for control of the main airport in the capital could contribute to pushing diplomatic missions to leave the country in a hurry.  No central authority remains in Libya, and the state of generalized and extremely violent chaos between rival groups inside the country could transform the country into a center for regional instability.

The current stage of the crisis is characterized by the emergence of regional bases on the ground that are joined around tribal and clan affiliations, which — at times — are jihadist affiliations as well.  The warring militias are not seeking to gain control of the central authority as occurs in every political process; rather, they seek to acquire infrastructure so that they can "secure" it in exchange for financial gain.  This is in addition to the goal of establishing their presence as effective political parties.  The rebels and "revolutionaries" have transformed into militiamen who only owe allegiance to local leaders, whether tribal, religious or both.  Thus, the control of seaports, airports, oil fields and export sites has become a locus of bloody confrontations that have led to the deaths of dozens of civilians.

No Winners or Losers

The formation of these militia fiefdoms had begun to prevent the formation of the National Transitional Council (NTC).  NTC President Mustafa Abdul Jalil entrusted the task of overseeing Mitiga Airport and Tripoli Naval Base to the former jihadist leader, Gen. Abdelkarim Belhadj.  By virtue of this "sharing of legacy," we saw militias from the cities of Zintan and Misrata — before they were divided by hostilities — take responsibility for the second Tripoli airport, ministries' headquarters and other administrative centers, in addition to the barracks of the army and police forces, which had been fragmented.

Until 2013, this fragile compromise between the heavily armed factions had persisted, despite frequent skirmishes between them.  Yet during the summer of 2013, the continual confrontations between the armed groups had transformed into an open conflict: those led by Abdelkarim Belhadj (allied with the Libya Shield Force belonging to the city of Misrata) on the one hand, and the al-Qaqaa and al-Suwaiq brigades from Zintan on the other.  This conflict — in which there were neither winners nor losers — resulted in nothing but a fragile truce.  The latter involved the breakup of the alliance of Abdelkarim Belhadj and the Zintan militia, which tried to take the Tripoli naval base from the hands of Belhadj's forces.  This militia had no qualms about firing on unarmed protesters while they were calling for the departure of armed gangs from the Libyan capital (and these demonstrations did in fact lead to their accelerated withdrawal to the outskirts of the city).

In May, the temporary settlement between the various armed factions ended, following the offensive begun in Benghazi on Islamic groups — in particular Ansar al-Sharia — by the forces of Gen. Khalifa Hifter.  The latter was a US-backed officer who defected from the Gadhafi regime.  Despite what appears to be an extreme political disparity between the country's east and west, militia battles are raging in both regions at the same time.  This may be a harbinger of the division of Libya into two parts: the Tripoli Region (in the west) and the Cyrenaica Region (in the east).  Furthermore, the division of Libya facilitates the implantation of jihadist groups — expelled from northern Mali by the French Army — on Libyan soil.  These groups are concluding solid alliances with local parties and enjoy [control of] effective focal points in regional smuggling networks.

Military Intervention

Naturally, this situation raises the concern of neighboring countries, such as Tunisia — preoccupied with the flow of refugees fleeing from the battlefields to its territories — and Egypt and Algeria — which fear the spread of "jihadist confusion" in the disturbed regional political context and in areas difficult to monitor.  The Algerian authorities, which continue to live under the shock caused by the attack on the Tigantourine gas facility in January 2013, deployed the army along the Algerian-Libyan border that has been closed for three months.  Reliable sources report that the Algerian armed forces have carried out several military operations on Libyan soil against jihadist groups.  These operations, which were done in coordination with French and American forces — targeted groups loyal to Mokhtar Belmokhtar, who split from al-Qaeda in the Islamic Maghreb (AQIM).  Belmokhtar is portrayed as one of the architects of the Islamist attack on the coastal-desert region.

After a long silence, the Algerian authorities denied that the Algerian army had intervened outside the country's borders. However, at the same time, it did not object to the publication of reports about its joint operations with the Tunisian army to eliminate jihadist groups in Jabal el-Chaambi (near the Algerian border). This denial was well received by many Algerian observers who are familiar with the American and French pressure to push Algeria to "directly contribute to the stabilization of Libya," i.e., militarily contribute, in other words.

These observers realize that any "adventure" by the Algerian armed forces in Libya will not contribute to calming the situation in that country, as much as it will complicate the political reality there.  This poses a threat that the danger will reverberate in Algeria and the disruption will spread to its desert regions, which for years have experienced serious social tensions.  It could be argued that joint Algerian-Egyptian military intervention on Libyan soil (something that was touched upon during President Abdel Fattah al-Sisi's lightning visit to Algeria this past June) would only ensure the division of Libya.  This is because it would give rise to two different regions of influence — one in the east and one in the west — without any guarantees to prevent the catastrophic spread of the conflict.

On 12 August of this year, the new Libyan parliament (elected this June in elections that only saw a 10% voter turnout and which meets in Tobruk because it is incapable of meeting in the capital, which says a lot about its fragility, especially in light of the current scene) overwhelmingly voted in support of calling the international community to intervene in Libya.  However, its call for help was met with nothing but silence. Moreover, many believe that the Algerian regime will not reap any notable political gain from implementing dirty tasks for the benefit of NATO.

On the other hand, the Algerian authorities can play the role of political mediator between the Libyan parties, taking advantage of its relations inside Libyan society.  These relations date back to the period of the War of Liberation, and the first operational center for the National Liberation Front's (FLN) intelligence services was established in Tripoli.  These ties included, naturally, relations with cadres from the defunct Gadhafi regime.

Aside from the substantial cross-border operations being carried out against jihadist groups, it seems clear that given the current circumstances Algeria has no intention of intervening in Libya.  The Libyan civil war is an internal matter that should be resolved politically, to avoid tearing the country apart and to keep it from falling under the control of groups such as the Islamic State (IS).  This possibility is taken seriously, and is fueled by confirmed reports about the return of Libyan jihadists to the country after taking part in the fighting in Syria.  Regional countries not only worry about the prospect of the "Somalization" of Libya alone, they also fear the possibility of the emergence of an entity such as IS on their own land.  Precisely for this reason, it is urgent and vital to participate in attempts to launch a political dialogue in Libya, where western military intervention not only caused the destruction of the Gadhafi regime, but demolished Libyan society as well.

The above article was translated from As-Safir Al-Arabi, a special supplement of As-Safir newspaper whose content is provided through a joint venture of As-Safir and Al-Monitor.  (Al-Monitor 01.09)

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 11.7 TUNISIA:  IMF Completes the Fourth Review Under the Stand-By Arrangement

The Executive Board of the International Monetary Fund (IMF) completed the fourth review of Tunisia’s economic performance under a 24-month program supported by a Stand-By Arrangement (SBA).  The completion of the review enables an immediate disbursement of SDR 143.25 million (about $217.5 million), bringing total disbursements to SDR 716.25 million (about $1.1 billion).

The two-year SBA in the amount of SDR 1.146 billion (about $1.74 billion, or 400% of Tunisia’s quota at the IMF) was approved by the Executive Board on June 7, 2013.  In completing the fourth review, the Executive Board approved the authorities’ request for modification of the end of September 2014 performance criteria.

Following the Executive Board discussion on Tunisia Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, said:

“Tunisia is set to complete its political transition with the advent of elections in the last quarter of 2014.  Progress in the transition is helping galvanize support from development partners.

“Nonetheless, the economic situation remains difficult. Growth is timid, unemployment remains high, and rising external imbalances are putting pressures on the exchange rate and reserves.

“Program implementation has been strong.  All quantitative performance criteria have been met. In spite of the challenging domestic and regional environment, structural reforms have been progressing, and the authorities have made up for earlier delays in some areas.

“Fiscal performance for the first half of the year has been strong, and continued fiscal consolidation remains essential to anchor macroeconomic stabilization.  Fiscal measures to offset spending pressures are welcome, and recent increases in energy prices, together with the implementation of new programs to protect the poor, will help reduce vulnerabilities.  Energy subsidy reform and a strict control of the wage bill will improve budget composition, which will also benefit from increased social and investment expenditures.  Comprehensive revenue reforms, strengthened public financial management, and reform of public enterprises will support fiscal consolidation and help generate more inclusive growth.

“A tighter monetary policy would help counter inflationary pressures and reduce exchange rate pressures.  Further exchange rate flexibility would help rebuild foreign reserve buffers, correct large external imbalances, and improve competitiveness.

“Important steps have been taken to reduce financial sector vulnerabilities, including through the historic adoption of public bank restructuring plans, which should be quickly implemented.  Banking sector fragilities will be reduced further through the establishment of an asset management company, adoption of the bankruptcy law, completion of public bank audits, and upgrade of the regulatory framework.

“Accelerated implementation of structural reforms is needed to improve the investment climate and generate a stronger and more inclusive growth.  Moving ahead with the competition law and the public private partnerships framework will help foster private sector development.  The upcoming “Invest in Tunisia” conference should play an important role in this regard.”  (IMF 29.08)

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 11.8  TUNISIA:  Tunisia’s Economy Threatened as Libya Unravels

Since July 2014, political instability and armed violence have been on the rise in Libya.  The future of Tunisia’s neighboring country is uncertain and could escalate at any time into a conflict that permanently destabilizes the region.  The difficult economic situation in Tunisia could get worse at a time when the country has been expecting growth to take off in 2015 with the consecration of political stability after the elections.  The Libyan crisis could endanger this optimistic scenario and is now directly impacting the Tunisian economy.

The Libyan crisis could negatively impact the Tunisian economic recovery, according to the report published in August 2014 by the United Nations’ Economic and Social Commission for Western Asia (ESCWA). Tunisia has been a member of ESCWA since 2012.  A correlation analysis between Libya and Tunisia from 1995 to 2013 has revealed that GDPs of the two countries are strongly linked despite their structural differences.  The correlation is mainly due to the strong economic ties between Tunisia and Libya.

According to ESCWA, Europe accounts for nearly 80% of Tunisian trade.  Consequently, weak growth in the EU has weakened the Tunisian economy.  Any other disturbances will also negatively affect economic growth.  Although Libya receives only 5% of Tunisian exports, this represented [a significant amount] of Tunisian GDP during the 2008 - 2013 period.  Exports increased by 23.6% annually from 2000-2013.  Until recently, Tunisia’s exports to Libya helped offset the losses from the European market.

Tunisia and Libya have developed strong economic and commercial relationships.  For example, an agreement was signed in 2013 to supply the Tunisian market with 650,000 barrels of crude oil and gas a month. Tunisia depends heavily on these imports and production disruptions in Libya have prevented it from meeting its commitments; Libya used to provide more than 25% of Tunisia’s fuel needs at preferential prices.

In addition, ESCWA said that the informal trade between Libya and Tunisia was considerable and could be as high as half of the total trade between the two countries. Informal trade takes place mainly through the border post of Ras Jedir.  Its shutdown due to the deteriorating security situation in Libya has had a huge impact, given that the informal trade in the region is significant.

Informal trade involves a large number of people, such as carriers, street vendors, seasonal retailers, wholesalers and Tunisian consumers for whom this activity makes goods more affordable.  In addition, various goods from China and Turkey enter Tunisia through Libya because of differences in tax rates, which can be as high as 78%.  Instability has hampered official Libyan trade routes, so informal trade has become even more vital for needed imports and for exports, which provide revenue in hard currencies.

The economic impact of the shutdown of the Tunisian-Libyan border is difficult to estimate.  It is reported that the unemployment rate for Ben Guerdane is 2% lower than the average in the Medenine governorate, where unemployment stands at 11%.  Up to 20% of the workforce, including 83% of the people in Ben Guerdane, are involved in informal trade in the region, making informal trade the main source of employment.

ESCWA cited a UNDP report stating that 10,000 to 15,000 families have had no income since February 2011, when the revolution in Libya broke out.  It could be that this is a consequence of the Libyan crisis.

Regarding tourism, the report estimated that about 1.8 million Libyan tourists visited Tunisia each year.  Referring to a study by the African Development Bank, it has been shown that Libyan tourists spend an average of 200 to 400 dinars ($115 to $230) a week.  On the other hand, medical tourism has become a powerful driver of economic growth in Tunisia.  The country draws in 100,000 patients a year from Libya, bringing total revenues from Libyan tourism to 890 million Tunisian dinars ($510 million).  If this flow drops because of the recent events in Libya, it will affect this crucial sector.  The survey noted that in 2011 the number of Libyan tourists in Tunisia fell 30%, but confirmed that at present an annual increase of 5.3% was being recorded.  Tunisian tourism is called to “once again prove its resilience.”

Meanwhile, the number of Libyan refugees in Tunisia has rapidly increased.  Some say that this benefits Tunisia, but they fail to consider the impact of this massive influx on state finances.  The influx will directly impact real estate markets and inflation, and will likely threaten internal security.  According to ESCWA, Tunisia is not equipped to handle a large influx of refugees because the country’s asylum system does not meet international standards.

Another consequence of the instability in Libya is the return of Tunisian workers living in Libya.  The report indicates that about 40,000 Tunisian workers left Libya in 2012.  This number is likely to increase if the conflict persists.  Moreover, the World Bank estimates that remittances to Tunisia generated by these workers represent 0.56% of Tunisia’s GDP.  Although the remittances seem small, their loss could affect the private sector.  The return of Tunisian workers will also impact the labor market, further increasing unemployment in Tunisia.

In sum, the ESCWA report reveals that the Libyan crisis will jeopardize economic development in Tunisia over the medium and long terms.  Even a small impact could have significant consequences for the country.  In addition, the security deterioration presents the Tunisian authorities with a challenge: dismantling the networks smuggling in weapons that are used to commit terrorist attacks and countering the jihadists who are trying to infiltrate Tunisia.  (Al-Monitor 07.09)

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 11.9  MOROCCO:  Moody's Changes Outlook to Stable From Negative

On 2 September, Moody's Investors Service (http://www.moodys.com) changed to stable from negative the outlook on Morocco's Ba1 government bond rating. Concurrently, Moody's has affirmed the Ba1 rating.  The key drivers of the decision to change the outlook to stable are as follows:

1) The implementation of the government's energy subsidy reform, which improves the structure of fiscal and external accounts;

2) The government's industrial policy agenda, which promotes higher value-added export industries, particularly in the offshoring, automotive and aerospace industries, and is funded by significant foreign direct investment (FDI).

The affirmation of Morocco's Ba1 rating balances the expected peak in the country's debt/GDP in 2015 and significant ongoing borrowing requirements with its easy access to funding.

Moody's has also kept all rating ceilings unchanged, namely the foreign-currency bond ceiling at Baa2/P-2, the foreign-currency deposit ceiling at Ba2/NP, and the local-currency bond and deposit ceiling at Baa1.

Ratings Rationale - Implementation Of Energy Subsidy Reform

The first driver of Moody's decision to change the outlook on Morocco's government bond rating to stable from negative is the implementation of the government's energy subsidy reform.  This reform is facilitating structural adjustments to the fiscal and external accounts and helping to reduce the large twin deficits that the government accumulated in the aftermath of the Arab Spring.  The formation of these deficits was the key driver for the negative outlook assignment in February 2013.

Cumulative budget execution data from January to June 2014 confirm Morocco's progress in reducing subsidy expenditures, in line with Moody's expectations.  Subsidy and transfer expenditures over the first half of 2014 were almost 47% lower than over the same period in 2013.  The government is on track (1) to reach the MAD35 billion end-year subsidy expenditure target; and (2) to reduce the subsidy bill to 3.8% of GDP in 2014 and below 3% in 2015, from 4.8% in 2013 and 6.6% in 2012.  The latter assumes that oil prices remain broadly constant.  Moreover, the retrenchment in subsidy expenditures has allowed the government to expand public investment expenditures significantly in H1/14 compared to the same period last year.

Moody's also notes the impending pension reform and the expected adoption of the Organic Budget Law as being supportive of creditworthiness.

Industrial Growth Strategy Bearing Fruit

The second driver of the outlook change is the government's industrial growth strategy, which has started to show significant results in the areas of offshore outsourcing and the creation of export-oriented industrial zones with a focus on higher value-added automotive, aerospace and electronics industries.  Automobile construction and electronics-related exports have increased at high double-digit rates over H1/14 compared to the same period last year, with the potential for further expansion.  The development of these industries was funded by significant FDI inflows, which have also strengthened Morocco's international reserve base.

Morocco's "Vision 2020" strategy for the development of the tourism industry as the country's main source of foreign currency income is also supportive of creditworthiness.

Rationale for Ba1 Rating Affirmation

Moody's has affirmed Morocco's government bond rating at Ba1 to reflect the following key considerations: 

1) Morocco's general government debt-to-GDP is projected to peak at about 66% of GDP in 2015, and to decline only gradually thereafter, thus leaving the fiscal strength indicators in line with Morocco's rating peers.

2) The country's gross borrowing requirements remain significant at about 15% of GDP per year, in line with peers, although its low share of foreign-currency funding and ample access to domestic and external funding at favorable conditions are mitigating factors.

3) The availability of IMF support under the Precautionary and Liquidity Line (PCL), which provides additional insurance against deteriorating funding conditions in case of tighter external liquidity conditions or a significant change in market sentiment.

What Would Change The Rating Up/Down

Upward rating pressure would result from higher economic growth through improved competitiveness.  In addition, further institutional improvements such as negotiated under the Deep and Comprehensive Free Trade Area (DCFTA) with the EU would be supportive of creditworthiness.  Risks to Morocco's current rating stem from a potential reversal in the country's fiscal consolidation strategy due to the materialization of domestic or geopolitical risk, as well as a significant worsening of the current account following a protracted slowdown in the euro area, which is Morocco's main trading partner.  (Moody’s 02.09)

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 11.10  MOROCCO:  Poised To Adopt Islamic Finance Legislation

The lower house of Morocco’s parliament unanimously passed a long-awaited banking bill at the end of June that among other reforms paves the way for the development of Islamic finance in the kingdom.  The upper house is expected to vote on the bill in September.

Islamic banking – or participatory banking, as it is known in countries such as Morocco and Turkey – has traditionally had a limited profile in the North African market, but the sector has seen significant growth in the Arab Gulf and Southeast Asia and authorities are hoping that the new legislation will pave the way for similar growth domestically.

According to a research note by Kuwait Finance House, a Kuwaiti sharia-compliant lender, global assets in the Islamic finance sector exceeded $1.8trn by year-end 2013, while a study published by Thomson Reuters in April estimates that Sharia-compliant financial assets could represent 3%-5% of Moroccan bank assets by 2018. 

Past Efforts

Efforts to introduce Islamic finance date back to 2007, when the government first allowed conventional banks to offer a limited set of alternative financial products, including Sharia-compliant services.  Morocco’s largest bank by assets, Attijariwafa Bank, was the first to establish an Islamic banking subsidiary, Dar Assafaa.

However, these products saw mixed results.  The banks were unable to offer competitive prices under conventional financial regulation.  Foreign lenders including Qatar International Islamic Bank have previously publicly expressed their interest in moving to Morocco to operate sharia-compliant windows.  But statements from the government show that the total value of alternative banking products did not exceed Dh1b ($120m) in terms of annual turnover between 2007-2011.

The banking bill – which covers a range of topics, including strengthening surveillance and auditing requirements for microcredit institutions and paving the way for sharia-compliant bonds, known as sukuk – allows both conventional banks and distinct Islamic banks to apply for participative banking licenses.  To ensure products offered by participatory banks adhere to agreed-upon norms, a new sharia committee will work in coordination with the Bank Al-Maghrib, Morocco’s central bank, to approve associated regulations. 

Market Potential

While Islamic banks have not seen the same sort of growth in North African markets as they have seen in the Gulf, the potential for Islamic finance is significant in Morocco.  According to Thompson Reuters, the value of Sharia-compliant financial assets in the kingdom could range between $5.2b and $8.6b by 2018 and generate total profits of $67m-$112m for service providers.

This is still moderate compared to more developed markets in the Gulf, where Sharia-compliant assets represent around one-quarter of the financial sector in countries such as Qatar and Saudi Arabia, and could bring a host of benefits for Morocco.

Providing new avenues for both lending and accessing debt could help address some of Morocco’s longstanding challenges in the banking sector.  Domestic financial services have been characterized by tightening liquidity in recent years, putting pressure on lenders.  There is also a sizable need for financing in the public sector. The economic planning agency Haut Commissariat au Plan (HCP) predicted in June that Morocco’s budget deficit would rise to 5.2% of GDP in 2014, higher than the government’s prediction of 4.9%.

The potential benefits for financial inclusion are also significant.  According to the Thompson Reuters study, 79% of respondents in Morocco – using a representative sample of the population - said they would be “very interested” in Islamic retail banking services.  Banking penetration in Morocco is 58%, one of the highest in Africa, but with rural and remote areas still largely underserved and the country aiming to hit 65% by the end of 2016, sharia-compliant products could help draw in new clients.

Furthermore, the rollout of sukuk and related products could help Morocco as it strengthens its financial links with West and Central Africa through initiatives like Casablanca Finance City, by providing additional tools for potential investors interested in the broader region. 

New Players

A number of institutions are already reportedly looking to open up participatory operations as a result of the change in legislation.  Banque Populaire (BP) plans to open some 60 participative bank branches in the next 4-5 years.  The Banque Marocaine du Commerce Exterieur (BMCE Bank) has also indicated that it is in the final stages of concluding a strategic partnership with a Gulf-based operator.

The initial service offering in Morocco is likely to focus on personal finance, followed by home and consumer goods financing. In the future, Islamic insurance (takaful) is thought to have considerable potential, but it is not included in the draft legislation currently before parliament.  (OBG 25.08)

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 11.11  TURKEY:  Turkey's EU Accession Remains in Limbo

Reading the new government program at the general assembly meeting in the parliament 1 September, Ahmet Davutoglu, Turkey’s new prime minister, said the European Union membership process remains a strategic value for the country.  He even announced that the target was “to crown the Republic’s centennial by EU membership.”  Yet he also weighed in on building a “New Turkey” as a strategic mission through a “restoration,” saying that this has already been going on since the ruling Justice and Development Party (AKP) came to power over a decade ago.

Davutoglu’s desire for strategic accomplishments sends out a potentially contradictory message.  “Few people really understand what the prime minister means by ‘restoration’ except that it signals a change in the current system,” Nilgun Arisan Eralp, an EU expert at the Ankara-based think tank TEPAV, told Al-Monitor.  “The EU accession process already puts a program before Turkey, and if the EU membership is really a strategic target for the country, there really is no need to talk about a separate restoration process.  It only confuses the mind.”

EU diplomats who spoke to Al-Monitor cited the critical importance of the requirements that Turkey needs to adopt, placing particular emphasis on Chapter 23 of the accession talks, which deals with judiciary and fundamental rights.  The diplomats said they would be interested to see how the separation of powers and judicial independence would evolve in the new era, but that the recent past didn’t leave them hopeful for a positive outcome.

The 2013 Turkey progress report by the European Commission has already outlined concern over an independent judiciary in the country. European Commissioner for Enlargement Stefan Fule, for example, drew attention in his remarks announcing the progress report that cooperation with Turkey had to be closer before new laws were conceived and that this was the only way the EU could remain a standard for reforms in Turkey.  The EU report was clear in expressing its reservations over how the government changed laws after the December 2013 corruption scandal surfaced.

Indeed, a delegation for the European Council visited Turkey in May 2014 for a peer review mission on the High Council of Judges and Prosecutors (HSYK), stressing that that was a key component in measuring the independence and impartiality of the judiciary system.  “The most important element was the reform of the HSYK, which was accomplished in 2010, but in certain respect did not go far enough.  Before that reform could take root, the new legislation of February 2014 increased governmental influence on the HSYK and the Justice Academy,” the July 30 report said.  “The Constitutional Court struck down most of the new provisions which had given the Minister of Justice in his capacity as the ex officio President of the HSYK a high degree of control over the HSYK.  Some provisions, which have survived that Court’s scrutiny still raise concerns from a European point of view. … The legislation of February 2014 should be corrected soon and the reform agenda resumed in order to comply with European standards of independence and impartiality.”

In that respect, European diplomats said Turkey’s accession talks would remain in the limbo, because they expected the government's intervention in the judiciary would continue.  According to the EU diplomats, what’s more critical at this moment, however, is that “what is happening in Iraq and Syria is directly linked to foreign immigration.”  European governments are also facing a difficult dilemma in handling the massive number of immigrants pouring into their nation.  A June 2014 UN Refugee Agency report stated that the number of people living as refugees from war or persecution exceeded 50 million in 2013, the first time since World War II.  This is indeed a huge burden for European governments, and the growing instability in the Middle East is pushing these countries to put more conservative political parties in charge.

While Turkey’s prospective EU membership has never been popular in this club, there are concerns over the sympathy of the AKP base for radical Islamist movements like the Islamic State (IS).  “There is a new poll that suggests 38% of the AKP constituency considers IS favorably,” one European diplomat told Al-Monitor.  “This is worrisome for us.”  Die Welt, a German daily, also reported on 5 August that Ankara has information that more than 1,000 Turkish citizens have joined IS, an estimated 10% of the total number of IS militants.

Yet the European diplomats told Al-Monitor that they were pleased that Davutoglu nominated former chief EU negotiator Mevlut Cavusoglu as foreign minister and Volkan Bozkir, the former permanent representative of Turkey in Brussels, as Cavusoglu’s successor.  One EU diplomat told Al-Monitor, “We now have a prime minister and his two key men in relations with the EU — all speaking English, and this is going to help us to directly communicate with each other and build a stronger personal relationship.  Those things do matter a lot at the end of the day for resolving many critical issues.”

Tulin Daloglu is a columnist for Al-Monitor's Turkey Pulse. She has also written extensively for various Turkish and American publications, including The New York Times, International Herald Tribune, The Middle East Times, Foreign Policy, The Daily Star (Lebanon) and the SAIS Turkey Analyst Report.  (Al-Monitor 03.09)

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