economic intelligence fy2q17 growth sectors: egypt, iraq, and … · 2019. 10. 23. · year, egypt...

Economic Intelligence

FY2Q17 Growth Sectors:Egypt, Iraq, and Israel

Global Intelligence Trust, LLC.

2


FY2Q17 Growth Sectors:Egypt, Iraq, and Israel



Intel You Can TrustGlobal Intelligence Trust (GIT) is a web-based portal for the assimilation, dissemination, analysis and distribution of global intelligence and information from a unique per-spective to a unique target market. It conducts research on financial, economic, political, military, sociological, medical, and scientific information.

ResearchWe concentrate, on an intermittent basis, within six areas of major concern, in the fields of global intelligence, interna-tional security, finance, trade, and social and environmen-tal developments. Content is derived from independent contributors in such diverse fields as international law, biological and engineering sciences, international relations, political science, and journalism and information technol-ogy.

3


To inspire new global perspectives through strengthening international networks in trade, technology, security, finance, social and environ-mental research.

Our Mission


10940 Wilshire BlvdSuite 600

Los Angeles, California 90049

United States of America+1 424 488 1963

www.globalintelligencetrust.com

http://www.globalintelligencetrust.com

4

Published in 2017 by Global Intelligence Trust, LLC.

The views expressed in this publication are those of the author(s), and do not reflect the views of GIT or any other institution.


5

About the Authors


Chadd dunnAssistant Director; Financial Intelligence Specialist

Chadd Dunn obtained Bachelors of Arts in Business Administration and in International Relations from the University of Southern California. He focuses mainly on international economics, defense, and counter-terrorism. He has previously worked for European Geostrategy and studied European defense policy in Brussels, and he has worked in the U.S. House of Representa-tives. Mr. Dunn assisted with the USC Price Safe Communities Institute’s 2000 Index, which gives intelligence updates to law enforcement agencies through-out the United States on domestic violent extremists.

Charlie rhombergFinancial Intelligence Specialist

Charlie Rhomberg cocomittantly works for PPM America, which is an asset management firm based in Chicago. His areas of interest include macro-

economic events, international finance, and the US economy.

emilia garlieppFinancial Intelligence Specialist

Emilia Garliepp is attaining a Bachelor of Arts in Business Adminis-tration at the University of Southern California. She has previously worked in positions such as a Quality Control Analyst at California’s largest fresh cherry and apple packer and as Research Assistant for a bankruptcy law firm. After graduating she plans to obtain her MBA and work in the international arena.


6

FY2Q17 Growth Sectorsof

Egypt, Iraq, and Israel


Chadd Dunn, Charlie Rhomberg, and Emilia Garliepp

FY2Q17 Growth Sectors of Egypt, Iraq, and Israel

EXECUTIVE SUMMARY

Egypt, Iraq, and Israel stand among the largest economies in the Near East with high potential for exploiting their large natural gas reserves in the near-term. Israel appears best poised to maintain a stable and moderately growing economy with an influx in foreign in-vestment and a increased diplomacy with former political agitators. Should domestic political and military vulnerabilities stabilize over the next year, Egypt and Iraq will experience a boom in their service-based sectors.

7


EGYPT

SNAPSHOT:

Egypt, the most populous Arab nation, has been working hard to revive its economy since the political unrest that began in 2011. The revolution placed Egypt under control of three different leaders within a short period of three years, leaving the nation with soaring unemploy-ment rates, lack of foreign direct investments,

dwindling tourism and rising inflation rates. The current President, Abdel-Fattah el-Sisi has im-plemented an economic reform initiative with a goal of restoring macroeconomic stability to the nation.1

This program aims to “improve the func-tioning of the foreign exchange markets, bring down the budget deficit and government debt, and to raise growth and create jobs, especially for women and young people.” The process to re-storing stability has been slow moving, however in November of 2016 after lengthy negotiations, IMF reached an agreement to lend Egypt money in the amount of 12 million USD. This was meant to increase the flow of foreign currency, correct external balances as well as increase the nation’s inclusive growth.2

As part of this agreement Egypt allowed their pound to float freely which has since re-sulted in a devaluation of the pound and soaring prices on food and fuel. Along with an increase in the unemployment rate, especially among females and youths from 9% in 2011 to over 12% in early 2017.3 The sharp increases in prices and unemployment have led to social unrest and public protests resulting in increased pressure on the government.

8


Another issue contributing to Egypt’s struggling economy is the lack of tourism and foreign investment. The rise of terrorism and poor security is scaring away possible investors and has drastically reduced tourism. A severely overvalued exchange rate has led to a lack of for-eign currency, reserves and decreased competi-tiveness. Increasing exchange rate flexibility will attract tourism and foreign investment.4 Egypt’s debt is also steadily rising as it reached over 50 billion USD in 2016.5

To achieve a successful future, the gov-ernment cannot check out after the economy begins to show upward mobility due to the IMF loan. The President must also be cautious of the traditional heavy involvement of the military in economic decisions.

GROWTH SECTORS:

In 2013 and 2014 Egypt spent more on fuel subsidies than it did on education or health, contributing to the poor living standards for many Egyptians. In order to promote growth Abdel-Fattah el-Sisi must restructure the budget to allocate money to encourage job growth and a stronger economy.6


Reviving the tourism industry is one of Egypt’s biggest opportunities for growth. The service industry currently accounts for over 50% of Egypt’s GDP and with decreased travel their economy is hurting.7 This will not only increase revenue, but also provide jobs and increased in-comes for the working class population. For the tourism industry to be successfully reestablished, Egypt must work on increasing security and

9


improving Egypt’s image in relation to safety and terrorism.

The agriculture industry is centered around the Nile as it is the nation’s main source of water. Egypt is almost entirely desert leaving less than 4% of land available for cultivation.8 Its current irrigation system is wasteful and ineffi-cient further reducing the arable land. If Egypt invests in improving infrastructure and irrigation technology they will create more available farm land which will grow the agriculture industry, increase revenue and reduce food imports.

Egypt is home to one of the largest natural gas reserves in the Middle East making natural gas available to be one of the nation’s largest export. However domestic demand for natural gas was high due to the poorly targeted subsidies that the government provided be-fore 2015, leaving little left over for export. The government took action to shift these subsidies by raising fuel and electricity prices. The goal was to reduce the subsidies, increasing domestic prices which in turn curves domestic demand - making more oil available for export. Greater natural gas exports will lead to reductions in the trade deficit. Ultimately Egypt needs to look outward to make better international business partnerships to create a sustainable economy.9


IRAQ

SNAPSHOT:

With a population of 33 million people, Iraq is the fourth most populous country in the Middle East, with the UN estimating it to grow to 50 million by 2020. It is also one of the most youthful countries in the world with 48% of the population under 18 years old. Younger popula-tions mean opportunities for growth and future spending as companies can capture customer loyalty from a younger base. It also increases en-trepreneurship as young people are more likely to start companies.

Two major issues have plagued Iraq in the last couple years—the rise of ISIS and the volatil-ity of oil prices. Because oil currently pays 90% of government bills, when the price of oil drops, the government and economy become paralyzed. Because the price of oil has halved since 2014, Iraq’s fiscal deficit has grown and poverty has increased. If Iraq were a stock, it would be a great value buy, because while things have been grim in recent years due to the twin crises of ISIS and oil price volatility, its demographics still point to strong growth in the near future. In fact, its econ-omy is projected to grow around 5-6% from

10


2017-2019.10 If oil prices rebounded, this would cause growth to accelerate further.

These twin issues have forced the Iraqi government to focus on increasing public ser-vices, repairing infrastructure damaged by ISIS, and maintaining economic stability. As a result, investment has stalled, and dragged down growth along with it. To go along with its eco-nomic woes, security presents a huge challenge for the Iraq. Nearly 20,000 people were killed in 2015, and over 3 million were displaced due to violence.

Based on its favorable demographics, it seems like Iraq’s economy should have been un-leashed by now. However, due to ISIS and low oil prices, its growth has stalled. This does not mean that growth will be lackluster forever, though, and points to a great value opportunity for an investor. Iraq’s young population and entrepre-neurial spirit aren’t going away, and if it can solve one or both of its twin issues, its economy will likely begin to expand at a rapid pace.

The Syrian conflict, which began in 2011 and intensified through 2013, has had a tremen-dous impact on Iraq socially and economically. Iraq’s GDP peaked at $234 billion in 2013, but due to several issues including the Syrian


conflict, ISIS, and lower oil prices, it shrank to just $180 billion in 2015. Likewise, GNP has decreased since 2013. However, the good news is that Iraq’s favorable demographics have been steady through the Syrian conflict—it still boasts an extremely young population (nearly 50% un-der 18 years old) and a population growth rate of 2.87%, which ranks 10th in the world.11 Ultimate-ly, the Syrian conflict has forced the Iraqi govern-ment to divert resources away from investment and into social programs to aid its suffering population, hindering economic growth.

GROWTH SECTORS:

Though seen as a typical Middle-Eastern oil state, Iraq is very entrepreneurial. The pub-lic sector accounts for around 66% of the labor force, with the remaining 34% being entrepre-neurs. Entrepreneurship is key to the expansion of an emerging market economy, and Iraq’s high literacy rate (79%) and high enrollment in tertia-ry education allows young people to first gain a sound education, then use that education to start companies and advance the economy.12 Foreign investment is the catalyst that can pro-pel Iraq from an oil state to a more diversified, advanced economy.

Diversification away from oil has been the

11


focus recently of many Middle Eastern countries, including Saudi Arabia, and Iraq is no different. The government sees a future where oil plays a much smaller role than it does now, and knows that it needs to diversify its economy to compete with the rest of the world.

Iraq hopes to first diversify within the sector it knows best: energy. It hopes to add 10 million new jobs by 2030 in the gas and power sectors, while slowly diminishing its reliance on oil. Since the Syrian conflict, energy has been a prominent issue in the country, with electricity being the main resource major cities like Bagh-dad lacked. The World Bank has partnered with Iraq on an initiative to modernize their energy sector and shift the focus from short-term oil profits to sustainable energy production. It hopes to attract foreign investment into Iraqi gas, which would provide jobs to Iraqi citizens as well as improve energy dependability in the country.

Besides energy, Iraq hopes to bolster other non-oil sectors of its economy, including manufacturing, banking, and services. The World Bank has committed $900 million towards di-versifying the Iraqi economy through managing its own resources more efficiently and building stronger institutions.13 Investment in


infrastructure is something most economists agree will accelerate the growth of an econo-my, and that’s exactly what this money will go towards. The World Bank hopes that their in-vestment will spur foreign investment into the country, further accelerating its growth. If Iraq can improve its economy and allow its citizens to hold good, stable jobs, it will save money on public services and entitlement programs—two things it has spent heavily on since the Syrian conflict. Ultimately, if this investment is handled correctly, it should have many positive outcomes that build on one another and unleash Iraq’s economy.

ISRAEL

SNAPSHOT:

Israel is a predominately Jewish state named after the Kingdom of Israel according to Biblical tradition. The country was established in 1948 after the British withdrew its mandate from Palestine, and the UN declared separate Jewish and Arab states.14 Israel is an economically ad-vanced country that became an OECD country in 2010.15

The Israeli government is parliamentary democracy with a President and Prime Minister.

12


The head of the government is currently Prime Minister is Binyamin Netanyahu, and presides over a coalition government consisting of six parties that is considered politically center-right. The economy of Israel is an industrially advanced market economy that has a large and expanding high-tech industry in electronics, communica-tions, fiber optics, and medical instrument.16 Further, Israel also has a large diamond cutting industry that exports large amount of diamonds consisting of approximately a fourth of Israel’s exports.17

Due to Israel’s resources, 57% of Israel’s energy demand is fueled by coal, while only 2.6% came from renewable energy sources. Although renewable energy resources are low, Israel dis-covered natural gas off their coast in 2009, which ensured energy security.18 Domestically, Israel struggles with income disparity, as 22% of the population lives below the poverty line.19

Geopolitically, Israel continues to focus on defense, and prevention of its adversaries, such as Hezbollah, Hamas, and Iran, from gaining further power in the region. Israel is in a geo-graphically conflicted area with the Syrian Civil War to the East, Palestine to the South, and Irani-an-backed Hezbollah to the North. Israel remains to be focused on defense, and is reflected in its


domestic and foreign policies. Conscription is required for all Israeli citizens that reach the age of 18, while Israel maintains an active role in en-suring Iran does not continue on a path towards a nuclear weapon.

GROWTH SECTORS:

Israeli is a large exporter of innovation

13


and high-tech products. The growth of the high-tech industry has been backed by a large amount spent towards research and develop-ment, and capital investment from venture capitalists. In 2015, the Israeli high-tech industry raised $4.43 billion in 708 deals. Of that, Israeli venture capital funds invested $653 million in 2015, an increase from 2014, but not as high as 2008, which amounted to $780 million invest-ed.20

Israel leads OECD countries in R&D spending and is twice the average; however, the industry has slowed in recent years.21 Some of the acquisitions by tech companies has brought sales outside of Israel, and only left research and development. Jobs within in the tech industry have begun to shrink at a rate of nearly 2 percent from 2013, after 8 years of constant growth.22

Acquisitions have also slowed from $7.2 billion in 2015 to $3.4 billion in 2016, indicating a possibil-ity of some portions of the tech industry within Israel reaching maturity. Although 2016 was a slower year, the tech industry will likely continue to grow due to the vast amount of capital being spent on research and development.

In addition to high-tech, Israel is also a large exporter of diamonds. Of Israel’s exports in 2015, 23% of them were diamonds, which


amounted to $14.8 billion.23 Most of Israel’s diamond exports are not mined in Israel. Rather, the prevailing industry is diamond cutting from advanced technology and craftsmanship. The largest importers of Israeli diamonds are the United States and China.

Works Cited:

(1) Ayyub, R. (2015, Oct. 5). 4 Challenges Facing Egypt's New President Sisi. Retrieved from http://globalriskin-sights.com/2014/06/4-challenges-facing-egypts-new-pres-ident-sisi/. (2) Lagarde, C. (2016, Nov. 11). "IMF Executive Board Approves US$12 Billion Extended Arrangement Under the Extended Fund Facility for Egypt." Retrieved from https://www.imf.org/en/News/Articles/2016/11/11/PR16501-Egypt-Executive-Board-Approves-12-billion-Ex-tended-Arrangement. (3) World Bank (2016, Oct. 1). Egypt Overview. Retrieved from http://www.worldbank.org/en/country/egypt/over-view. (4) Jarvis, C. (2015, Feb 12). How Can Egypt Achieve Eco-nomic Stability and Better Living Standards Together?. Retrieved from https://blog-imfdirect.imf.org/2015/02/11/how-can-egypt-achieve-economic-stability-and-better-liv-ing-standards-together/. (5) World Bank, 2016. (6) Jarvis, 2015.

14


(7) CIA (2017, Jan. 12) World Fact Book: Egypt. Retrieved from https://www.cia.gov/library/publications/the-world-

factbook/geos/eg.html.

(8) CIA, 2017.

(9) Ayyub, 2015.

(10) Iraq's Economic Outlook- Spring 2016. (n.d.). Retrieved March 24, 2017, from http://www.worldbank.org/en/coun-try/iraq/publication/economic-outlook-spring-2016.

(11) Iraq Overview. (n.d.). Retrieved March 24, 2017, from http://www.worldbank.org/en/country/iraq/overview#1.

(12) Beyond Conflict: Iraq's Energy Sector Targets Jobs and Prosperity. (n.d.). Retrieved March 24, 2017, from http://www.worldbank.org/en/news/feature/2014/05/06/be-yond-conflict-iraqs-energy-sector-targets-jobs-and-pros-perity.

(13) New World Bank Group Strategy for Iraq to Focus on Inclusive Growth, Jobs and Good Governance. (n.d.). Retrieved March 24, 2017, from http://www.worldbank.org/en/news/press-release/2012/12/18/new-world-bank-group-strategy-iraq-focus-inclusive-growth-jobs-good-governance.

(14) Central Intelligence Agency (2017, Jan. 12). World Fact Book: Israel. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/eg.html.

(15) Organisation for Economic Co-operation and Devel-opment (2016). List of OECD member countries. Retrieved from http://www.oecd.org/about/membersandpartners/list-oecd-member-countries.htm.


(16) Zanotti, Jim (2016, Oct. 28). Israel: Background and U.S. Relations. Retrieved from https://fas.org/sgp/crs/mideast RL33476.pdf.

(17) OECD, 2016.

(18) CIA, 2017.

(19) World Bank (2017). Israel. Retrieved from http://www.worldbank.org/en/country/Israel.

(20) IVC Research Center and KPMG (2015). Summary of Israeli High-Tech Company Capital Raising Q4/2015. Retrieved from http://www.ivc-online.com/Portals/0/RC/SurveyIVC_Q4-15%20Capital%20Raising_Survey-Final.pdf.

(21) Cohen, Tova and Scheer, Steven (2015, Jan. 19). Israel's high-tech boom is double-edged sword. Retrieved from http://www.reuters.com/article/us-israel-tech-m-a-insight-idUSKBN0KS0V520150119.

(22) Toya Cohen and Steven Scheer, 2015.

(23) OECD, 2016.

Graphics Data collected from open source databases in-cluding CIA World Factbook (2017), Economist Intelligence Unit Country Data (2017), Bloomberg Government, World Bank, and IMF.

Photograph:

© Adwo | Dreamstime.com - Valley of The Kings - Luxor - Egypt.

15



https://www.dreamstime.com/stock-photo-valley-kings-luxor-egypt-image89942554#res14972580

https://www.dreamstime.com/stock-photo-valley-kings-luxor-egypt-image89942554#res14972580

16

Acknowledgments

Financial Entities of Islamic Republic of Iran

Joseph Kiley iV,Senior Fellow

Will liChtenger,

Senior Fellow and Director, Science and Innovations

Program

andreW maleK,

Senior Advisor and Iran Chair

ideen saiedian,

Senior Fellow; Director, Securities Studies; Iran Chair

Cyrus Jabbari,

President and Founder

10940 Wilshire BlvdSuite 600

Los Angeles, California 90049

United States of America+1 424 488 1963

www.globalintelligencetrust.com

economic intelligence fy2q17 growth sectors: egypt, iraq, and … · 2019. 10. 23. · year, egypt...

Documents