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Carver-Nofarim Mifgash

By Sherwin Pomerantz

Reading the press these days, one might come to the conclusion that the Middle East is engulfed in chaos making it a less than attractive business destination.  Yet while ISIS is a threat and Syria remains locked in a Civil War, much of the Middle East remains a robust place to do business.  Some examples follow. 
Reading the press these days, one might come to the conclusion that the Middle East is engulfed in chaos making it a less than attractive business destination. Yet while ISIS is a threat and Syria remains locked in a Civil War, much of the Middle East remains a robust place to do business. Some examples follow.

The country’s Central Bureau of Statistics announced recently that, after a less than stellar first quarter, the Israeli economy grew 2.9% in the first half of the year overall and is now moving forward at an annualized 3.7% clip. The figures show that private consumption, the economy's growth engine for the past two years, grew even faster in the first half of the year, with a 7.3% increase. Concomitantly, unemployment in Israel continues to break new records, as the national unemployment rate in July fell to a historic low of 4.7% which means that virtually anyone who wants to work can find a job. International credit rating agency Moody's affirmed Israel's A1 stable credit rating at the end of July, noting in a statement that its decision stemmed from the government's economic and fiscal policies.

On the high tech side, two Israeli startups have won first and second place at the 2016 Global Innovation Awards in Beijing. Haifa startup NiNiSpeech, which developed an ingenious digital platform for speech disorder treatment, won first place, and Israeli startup AerialGuard, which has developed an autonomous navigation system for unmanned aircraft, came in second. This is the second consecutive year that an Israeli startup has won first place in the competition. The two Israeli winners competed against 21 other startups from China, the U.S. and Europe, which were selected in an eight-month selection process out of 3,000 contenders from across the globe that vied for places in the finals.

Budding Israeli companies continue to garner a wealth of investments from abroad. For example the Israeli firm Kaltura secured $50 million of pre-IPO funding from Goldman Sachs’ Private Capital Investing group. Kaltura will use the additional capital to extend its footprint across all six continents, and to further its unique positioning as the ‘Everything Video’ company – providing leading video products for an unprecedented array of markets and use-cases.

Recognizing the potential of major planned building projects and opportunities in Israel, fifty foreign construction companies have submitted bids to work in Israel according to the Ministry of Construction and Housing. The bidders include Chinese, Spanish, Greek, Turkish, Russian, Ukrainian, Portuguese and Vietnamese companies. Initiated by the Ministry, the aim is to allow up to six foreign companies to work in Israel and each bring up to 1,000 workers to build residential projects. Using this method, the Ministries of Finance and Housing together hope to build 60,000-70,000 homes per year.

In retail, the Spanish fashion chain Stradivarius recently opened its first store in Israel. Stradivarius is the 'little sister' of Inditex' Zara (the group also includes the brands Pull&Bear, Bershka and Massimo Dutti). The plan is to have three stores in Israel. Stradivarius was founded in 1994 and has some 1,000 stores in 62 countries.

Arabian Gulf
Columbus, Ohio's DSW, a leading branded footwear and accessories retailer in North America, recently announced the signing of Apparel Group as its exclusive franchise partner in the Arabian Gulf. The agreement will expand DSW into Saudi Arabia, Bahrain, Qatar, Kuwait, United Arab Emirates and Oman with plans to open 40 stores across the territory, with the first stores opening in 2017. The stores in the Middle East will be located in both malls and on high street locations, with the initial stores averaging 15,000 square feet and offering approximately 2,000 choices per store.

Apparel Group is a global fashion and lifestyle retail conglomerate headquartered in Dubai, UAE. Today, Apparel Group caters to shoppers via 65 international brands that it represents, with 13,000 multi-cultural staff serving 1,300+ stores spread over four continents. The conglomerate that began with just one brand in 1999 is now aiming to have 1500 stores in the region by the end of 2016.

Despite the unsettling political events during the last two years in Turkey, the country remains a location where international business activity continues strong. For example, Tempe, Arizona's First Solar has booked 160MWdc of photovoltaic (PV) module sales in Turkey in the first half of 2016. The orders were placed by Basariarge Enerji A.S. and Zorlu Enerji. Zorlu Enerji, a subsidiary of Zorlu Holding, and has contracted First Solar to supply 100MWdc of its high performance Series 4 thin film modules, for projects expected to be constructed and commissioned in 2017. First Solar established an office in Istanbul in April 2014 and has since secured a contracted module sale pipeline of over 300MW, making it a leading PV module supplier in the country.

While Egypt has some serious foreign currency reserve problems which makes it tough for some importers to pay their sources overseas, and austerity measures on the part of the government in order to comply with IMF funding has created challenges, the country continues to build for the future.

As an example, Egypt is to construct a 1,000 MW solar power station and a solar panels factory that will be implemented in two stages, 500 MW each. According to the agreement, it is expected that China will fund the establishment of the station and the factory with $3.3b in concessional financing. A memorandum of understanding (MoU) was signed on July 27th between Egypt and China that will enable construction of a solar power station with a capacity of 1,000 MW and a solar panels factory.

An International Monetary Fund (IMF) mission visited Cairo this summer to discuss support for the authorities’ economic reform program through IMF financial assistance. At the end of the visit, the IMF expressed optimism through a statement announcing a staff-level agreement on a three-year Extended Fund Facility (EFF) in the amount of SDR 8.5966 billion (422% of quota or about $12 billion). They noted that, “Egypt is a strong country with great potential but it has some problems that need to be fixed urgently. The Central Bank of Egypt (CBE) monetary and exchange rate policy will aim to improve the functioning of the foreign exchange market, increase foreign reserves, and bring down inflation to single digits during the program. Moving to a flexible exchange rate regime will strengthen competitiveness, support exports and tourism and attract foreign direct investment. This would foster growth and jobs and reduce financing needs.”

Saudi Arabia
In Saudi Arabia, the government continues to take major steps to diversify its largely oil-dependent economy while the now more “internationally aware” leadership is setting off in new economic directions that will be significantly beneficial to the Kingdom in the long run.

Trade continues to increase bolstered more recently by the shipment of military materiel by the US to the Kingdom. The U.S. State Department has recently approved the potential sale of tanks, armored recovery vehicles and other equipment, worth about $1.15 billion, to Saudi Arabia. The U.S. Defense Security Cooperation Agency, which implements foreign arms sales, said that General Dynamics will be the principal contractor for the sale.

In addition to such sales, tourism in Saudi Arabia continues to grow as well. Tourism spending in Saudi Arabia is expected to exceed $38.4 billion this year, according to official forecasts by the Saudi Commission for Tourism and National Heritage (SCTH). There are 11 international hotel projects in the pipeline that will provide over 2,800 new rooms, the Saudi Gazette reported. Tourism is the second most important sector for driving economic growth after oil and petrochemicals.

These are just a few examples.
Although Jordan, Oman, Qatar and Kuwait are not mentioned here specifically, they are also moving forward in their respective economic development programs.

In short, while the international press portrays the Middle East as somewhat less than stable, facts on the ground indicate that business development continues, economic growth is visible across the region (with the exception of the disaster areas of Syria and Yemen), and the region continues to hold out opportunities for business connections worldwide.

JANVEST Capital Partners is a U.S.-based venture firm directed at premium early stage innovation within Israel’s emerging technology market.

More info>>
The “Other” Middle East – The One That Sees Economic Growth & Development