TOP STORIES
TABLE OF CONTENTS:
1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
1.1 Israel to Raise $1 Billion in US Bond Offering
1.2 Finance Ministry Eases Personal Import Duties
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2: ISRAEL MARKET & BUSINESS NEWS
2.1 IBM Advances Mobile Capabilities with Acquisition of Worklight
2.2 American Eagle Stores to Open in Israel This February
2.3 Tefron Signs Strategic Cooperation Agreement with Italy's CIFRA
2.4 Spacecom's Amos 5 Communications Satellite Begins Operations
2.5 Presto Engineering Opens New Semiconductor Service Hub in Israel
2.6 Powermat Raising $30 – 40 Million
2.7 ClearOne to Acquire VCON Video Conferencing
2.8 Energy Ministry Approves Meged Field Development
2.9 IAI & Boeing Expand Arrow Collaboration
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3: REGIONAL PRIVATE SECTOR NEWS
3.1 Illinois Represented at Arab Health 2012
3.2 Arab Middle East Leads World on Hotel Demand in 2011
3.3 US' Anytime Fitness Pumped for Middle East Expansion in $50 Million Drive
3.4 Azerbaijan Takes on Burj with Plan for World's Tallest Tower
3.5 Carefusion Opens Office in Dubai
3.6 Royal Jordanian Launches Third Libyan Route
3.7 Saudia Signs Up For $2.4 Billion Boeing Plane Order
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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS
4.1 UAE-Spain Solar Venture Plans to Spend $5 Billion
4.2 Masdar to Build Solar Plant on Tongan Island
4.3 Canadian Firm to Develop UAE Solar Project
4.4 Turkey Moves Forward in Renewable Energy
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5: ARAB STATE & PAKISTANI DEVELOPMENTS
5.1 Lebanese Inflation Rises by 3% as Consumer Goods Prices Soar
5.2 Lebanon's 2011 Growth Slows to 1.5%
5.3 Lebanon Needs $15 Billion in External Financing
5.4 Lebanon Passes Minimum Wage Law
5.5 Jordan Wins $250 Million World Bank Loan after Regional Unrest
5.6 US Committed To Provide Jordan With JD 660 Million in Aid This Year
5.7 Jordan & EU Launch Twinning Project For Free Circulation of Industrial Goods
5.8 Iraq to Invest $2 Billion to Build 18 Hospitals
5.9 Iraq to Use Chinese Surveillance Systems
►►Arabian Gulf
5.10 Kuwait's 2011 Inflation Climbs to Three-Year High
5.11 Qatar Alcohol Ban Could be Tip of the Iceberg for GCC
5.12 FIFA Says No Alcohol in Qatar- No Deal On World Cup
5.13 UAE's Inflation Rate Stable at 0.9% in 2011
5.14 UAE Cabinet Liberalizes Food Import Licenses to Curb Rise in Food Prices
5.15 UAE Government Pays off $544 Million Debt of Citizens
5.16 Abu Dhabi Considers Long-Term Water Supply Plan
5.17 Louvre & Guggenheim Museums Revived In Abu Dhabi After Cost Reviews
5.18 Dubai's GDP Forecast to Grow 4.1% in First Quarter
5.19 Saudi Arabia Allows Foreign Companies to List Securities
►►North Africa
5.20 IMF Mission Statement on Egypt
5.21 Egyptian Minister Supports Industrial Zone Agreement With Israel
5.22 Oil Production in Libya is Likely to Reach Pre-War Levels by Mid 2012
5.23 Tunisia to Sell Ben Ali Palaces
5.24 Benkirane Unveils New Moroccan Government Plan
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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS
6.1 Turkey's Official Jobless Rate Falls to 9.1%
6.2 Cyprus Receives Second Part of Loan from Russia
6.3 Greeks & Cypriots Propose Teaming with Israel to Export Electricity
6.4 EU & IMF Press Greece on Reforms Before Aid Flows
6.5 Greek Tourism Revenues Up In 2011 Despite November Drop
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7: GENERAL NEWS AND INTEREST
*ISRAEL:
7.1 Tu Bishvat to Begin on 7 February
*REGIONAL:
7.2 Milad an-Nabi - Birthday of the Prophet Muhammad
7.3 Egypt's Moslem Brotherhood Wins 47% of Parliament Seats
7.4 Libyan Islamists Rally to Demand Sharia-Based Law
7.5 Turkish Machinations and Conspiracies Cloud the Future
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8: ISRAEL LIFE SCIENCE NEWS
8.1 Hadasit Bio-Holdings' Portfolio Company Thrombotech Raises $1.4 Million
8.2 BioLineRx Signs Exclusive License Agreement for BL-8020, an Oral Treatment for Hepatitis C
8.3 NasVax to Receive NIS 3.5 Million Chief Scientist Grant
8.4 PolyPid Raises $2 Million in Second Financing Round
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9: ISRAEL PRODUCT & TECHNOLOGY NEWS
9.1 Snapkeys: New App Showcases Invisible Keyboard Technology
9.2 INEX/ZAMIR Receives Lenel Factory Certification for Interface
9.3 Perion Releases New PhotoJoy App for iPad and iPhone
9.4 Amino Selects Celeno Wi-Fi for Connected IPTV Set-Top Boxes Worldwide
9.5 Alvarion to Provide Wavion Wi-Fi Solution to Telecel, a Cellular Operator in Burkina Faso
9.6 Siklu Sold Over 1000 E-Band Wireless Backhaul Links in 2011
9.7 ORBIT to Supply Commercial Earth Observation Ground Station Solution to Russia
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10: ISRAEL ECONOMIC STATISTICS
10.1 Bank of Israel Asserts Food Expensive in Israel
10.2 Israel's Social Protest Affected Price Rises
10.3 Israeli Exports to Turkey Rise to Equal Exports to Germany
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11: IN DEPTH
11.1 ISRAEL: Summary of Israeli High-Tech Company Capital Raising 2011
11.2 ISRAEL: Israelis Overpay for OTC Drugs
11.3 JORDAN: Austere Measures
11.4 QATAR: Energy Rising
11.5 QATAR: Increasing Petrochemicals Production
11.6 UAE: Abu Dhabi - In the pipeline
11.7 UAE: United Arab Emirates Water Report Q4 2011
11.8 UAE: Dubai - Year in Review 2011
11.9 UAE: Moody's Disclosures on Credit Ratings of United Arab Emirates
11.10 OMAN: Water Report for Q4 2011
11.11 SAUDI ARABIA: Year in Review 2011
11.12 SAUDI ARABIA: Agribusiness Report for Q1 2012
11.13 EGYPT: Year in Review 2011
11.14 EGYPT: What Really Ruined Egypt's Economy in 2011?
11.15 EGYPT: Egypt Information Technology Report for Q1 2012
11.16 LIBYA: Concluding Statement of the 2012 IMF Staff Visit
11.17 ALGERIA: IMF Executive Board Concludes 2011 Article IV Consultations
11.18 PAKISTAN: Defense and Security Report for Q1 2012
11.19 CYPRUS: Fitch Comments Further on Downgrade of Cyprus to 'BBB-'; Outlook Negative
11.20 CYPRUS: Gas Strike
11.21 BULGARIA: Retail Report Q1 2012
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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS
1.1 Israel to Raise $1 Billion in US Bond Offering
Israel's Ministry of Finance plans to issue 10-year dollar bonds in the US, depending on market conditions, the ministry announced on 23 January. The ministry reportedly plans to raise $1 billion. Ministry of Finance tax revenues and budget deficit figures for 2011 show that deficit exceeded the target by 0.4%. The ministry also expects the 2012 deficit to exceed the target, and the government apparently wants to raise capital to balance the budget. The budget deficit totaled NIS 28.6 billion in 2011, 3.3% of GDP, compared with a deficit target of NIS 25.2 billion, or 2.9% of GDP. Israeli government shekel bonds are currently traded at a yield of 4.53%, so the success of the offering will partly depend on the spread between the bonds' interest rate and the benchmark in Israel. This is the first time that Israel is marketing dollar-denominated bonds since March 2009, when it raised $1.5 billion. The previous international issue was in euros, when Israel raised €1.5 billion in March 2010. The underwriters for this offering are Barclays Capital, Goldman Sachs and UBS. (MoF 23.01)
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1.2 Finance Ministry Eases Personal Import Duties
On 30 January, the Ministry of Finance today cancelled customs duties on online purchases up to NIS 1,200 and on goods up to $75 when returning to Israel from abroad. The cancellation of the duties was one of the Trajtenberg Committee's recommendations to increase competition and lower the cost of living. The measure will cost the Treasury NIS 60 million a year. Minister of Finance Steinitz signed the two directives. The first exempts from customs duties personal imports up to $325 (NIS 1,200). The second raises the import duties exemption from $50 to $75. Until now, shipments of clothes, footwear or books were exempt from customs only if they were sent as gifts. The exemptions do not apply to personal imports of cigarettes or alcoholic beverages. (Globes 30.01)
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2: ISRAEL MARKET & BUSINESS NEWS
2.1 IBM Advances Mobile Capabilities with Acquisition of Worklight
In a move that will help expand the enterprise mobile capabilities it offers to clients, IBM announced a definitive agreement to acquire Worklight, a privately held Israeli-based provider of mobile software for smartphones and tablets. Financial terms were not disclosed. With this acquisition, IBM's mobile offerings will span mobile application development, integration, security and management. Worklight will become an important piece of IBM's mobility strategy, offering clients an open platform that helps speed the delivery of existing and new mobile applications to multiple devices. It also helps enable secure connections between smartphone and tablet applications with enterprise IT systems. Worklight accelerates IBM's comprehensive mobile portfolio, which is designed to help global corporations leverage the proliferation of all mobile devices -- from laptops and smartphones to tablets. IBM has been steadily investing in this space for more than a decade, both organically and through acquisitions. As a result, IBM can offer a complete portfolio of software and services that delivers enterprise-ready mobility for clients -- from IT systems all the way through to mobile devices.
Shefayim's Worklight http://www.worklight.com delivers mobile application management capabilities to clients across a wide range of industries including retail, financial services, technology, travel and hospitality and manufacturing. This enables organizations to efficiently create and run HTML5, hybrid and native applications for smartphones and tablets with industry-standard technologies and tools. Worklight's unique capabilities provide a complete and extensible integrated development environment (IDE), next-generation mobile middleware, powerful management and analytics. (IBM 31.01)
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2.2 American Eagle Stores to Open in Israel This February
American Eagle Outfitters will open its first stores in Israel on 3 February in six different shopping centers: The Ramat Aviv Mall in Tel Aviv, Herzliya's Seven Star Mall, Haifa's Grand Canyon and the Haifa Mall, the Ir Yamim Mall in Netanya and Petah Tikva's Avnat Mall. Additional stores will open on 5 February in the Kiryat Ono Mall, on February 6 in Ra'anana's Renanim Mall, and on 10 February in Rishon Lezion's Gold Mall. The 10th store will open in the Kiryon Mall in Kiryat Motzkin on 15 February. American Eagle Outfitters is an American fashion retailer which sells basic and trendy clothes and is said to be the cheap version of Abercrombie & Fitch and Hollister. The chain specializes in cheap jeans and a variety of accessories, and offers the aerie intimates sub-brand which targets 15- to 21-year-old girls and will also be sold in Israel. The retailer's franchiser in Israel is the Fox Group. One of the group owners said that the prices in Israel would be slightly higher than in the United States due to transport costs and VAT.
Two years after H&M and Gap entered Israel, and 15 years after ZARA changed Israeli fashion consumption habits, the Israeli fashion industry, which generates about $2.9 million annually continues to attract international chains. While the first Forever 21 store increased traffic at Tel Aviv's Azrieli Mall, Gap's new owners have promised to reduce prices by 20% this year. COS by H&M is expected to open a store at the Ramat Aviv Mall and additional chains may arrive in Israel as well, including Gap's Old Navy and even Uniqlo and Urban Outfitters. American Eagle plans to follow in the footsteps of H&M and Forever 21 with grandiose inauguration celebrations in Tel Aviv. (Ynet 21.01)
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2.3 Tefron Signs Strategic Cooperation Agreement with Italy's CIFRA
Tefron is once again leading the fashion market and announces a new line of products based on a seamless "warpknitting" technology that will allow Tefron to produce unique lingerie and sports products while creating a competitive advantage. Under the agreement Tefron and Italy's Cifra will co-produce and market worldwide products to Tefrons customers. Cifra is the leading global manufacturer of seamless warpknitting technology products. Misgav's Tefron http://www.tefron.com is a market leader in the field of apparel, serving customers in the U.S. and Europe. Tefron focuses on developing, producing, marketing and selling undergarments, athletic wear, beach and swimwear. Tefron activities are divided into two business sectors: "Seamless" design, development, production and sale of undergarments and athletic apparel; and "Cut & Sew" design, development, production and sale of undergarments, swimsuits and athletic apparel. The design and production are mainly performed in Israel, Jordan and the Far East, while the finished goods are sold mainly in the U.S. and Europe. Company customers include leading international players, such as: Hanes Brands Industries, Reebok, Patagonia, GAP, Calvin Klein, Wal-Mart and Victoria's Secret. (Tefron 18.01)
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2.4 Spacecom's Amos 5 Communications Satellite Begins Operations
Spacecom Satellite Communications announced that its Amos 5 communications satellite began commercial operations on 25 January, after reaching geosynchronous orbit. Spacecom reached a deal with the satellite's manufacturer, Russian Information Satellite Systems (ISI), over fines for the late delivery to deduct $13.5 million from the Amos 5's $200 million cost. The Amos 5 was finally launched in mid-December after lengthy delays. The Amos 5 has a lifespan is 15 years, meaning Spacecom has also reserved this spot for the satellite that will replace Amos 5. Amos 5 will cover Africa, the Middle East and Europe, and is Spacecom's first satellite that was not built by Israel Aerospace Industries, a former Spacecom shareholder. Spacecom is controlled by the Eurocom Group. (Globes 24.01)
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2.5 Presto Engineering Opens New Semiconductor Service Hub in Israel
San Jose, California's Presto Engineering, a leader in integrated test and product engineering services, announced the opening of its newest Hub to serve the semiconductor design community in Israel. The company's new Israeli Hub was established through the acquisition of the assets of Migdal HaEmek's ITH (Israel Test House) by Presto Engineering. Working in conjunction with the existing Presto Engineering Hubs in Silicon Valley and Europe, the new Hub offers the Israeli electronics and semiconductor community a complete selection of chip testing, reliability / stress testing and failure analysis services. Presto Engineering, an ISO 9001 company, delivers comprehensive test and product engineering solutions to IDM and fabless companies. Operating from hubs in Silicon Valley, Europe and Israel, their business is focused on helping to improve the speed and predictability of new product releases. (Presto 24.01)
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2.6 Powermat Raising $30 – 40 Million
Powermat Technologies is raising $30-40 million in a financing round. The company is believed to be in the midst of raising the money. Earlier in January, Powermat announced that US rapper and music producer Shawn Carter, better known as Jay-Z, had invested in the company and would serve as its presenter. Last September, it announced a joint venture with Duracell, owned by Procter & Gamble Co., Duracell Powermat LLC , which began operations this month. At January's CES Exhibition in Las Vegas, Duracell Powermat unveiled its prototype recharging box for toys, such as battery operated cars, dolls, and accessories, which recharges them without wires. The product also provides data about the recharging status, and statistics about the child's use of the toy. The unveiling was intended to demonstrate the products capabilities; it was not a commercial launch. Neve Ilan's Powermat http://www.powermat.com technology brings safe, simple, and efficient wireless electricity to surfaces including walls, tables, floors and desktops. It is designed to replace the need to access multiple electrical sockets with the flexibility and freedom of wireless power for real-time powering and charging of electronic devices of almost any kind in almost any environment. Powermat technology revolutionizes the way energy is consumed in the everyday course of interaction with our environment. (Globes 23.01)
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2.7 ClearOne to Acquire VCON Video Conferencing
Salt Lake City's ClearOne announced the acquisition of Israel-based VCON Video Conferencing, a leader in high-performance, end-to-end, software video conferencing solutions. ClearOne entered into a definitive agreement to acquire substantially all the assets of VCON. Under the terms of the asset purchase agreement, ClearOne will pay $4.5 million in cash and will not assume any debt or cash. The acquisition is expected to close by the end of this quarter, subject to customary closing conditions, including applicable regulatory and court approvals. Originally established in 1994, Hod HaSharon's VCON http://www.vcon.com was the first company to introduce the world's first video conferencing over IP. After it was acquired by The Emblaze Group in 2005, the company continued to introduce innovative videoconferencing products to the market, including the industry's first multipoint conferencing unit (MCU) with integrated session recording and streaming. VCON Video Conferencing, now a privately owned company, offers standards-based systems and infrastructure, which are operated easily and intuitively over a variety of networks. It is a world leader in the development and deployment of high-performance, end-to-end videoconferencing solutions over IP and ISDN networks. (ClearOne 27.01)
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2.8 Energy Ministry Approves Meged Field Development
Givot Olam Oil Exploration notified the Tel Aviv stock exchange on 30 January that the Petroleum Commissioner at the Ministry of Energy and Water Resources has approved development of the Meged field. Givot reported that it received a letter from the Commissioner relating to the stage of development of the field including production at the existing drilling Meged 5 and the Meged 6-14 drillings. Givot hopes that it will be able to develop the field for the benefit of the participation unit holders and the State of Israel. In recent weeks, Givot investors have exerted pressure on the decision makers to approve the work program for the field, including personal letters to Prime Minister Netanyahu and Minister of Energy and Water Resources Landau. (Globes 30.01)
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2.9 IAI & Boeing Expand Arrow Collaboration
Israel Aerospace Industries and Boeing Company have expanded their collaboration on the Arrow anti-ballistic missile program. On 23 January, the companies marked the 10th anniversary of their collaboration on the program. The IAI-Boeing Strategic Teaming Agreement aims to develop new opportunities in the missile defense arena. During the past ten years, the two companies jointly developed, produced and deployed the Arrow. As the world's first operational national missile defense system, the arrow has become a vital, anti-ballistic missile defense strategy for Israel's defense. IAI is the prime contractor for the Arrow. It has initiated, developed and deployed the Arrow 2 missile and, together with Boeing, is developing the Arrow 3 system - a crucial asset in Israel's multi-tier anti-ballistic defense strategy. The Arrow has been a joint effort of the Israel Missile Defense Organization and the US Missile Defense Agency since 2002. (Globes 23.01)
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3: REGIONAL PRIVATE SECTOR NEWS
3.1 Illinois Represented at Arab Health 2012
The State of Illinois exhibited at the recent Arab Health 2012 exhibition in Dubai, UAE this past 23 – 26 January. Located in the US Pavilion, the booth hosted 8 Illinois companies seeking to enter or expand their market presence in the local medical equipment and healthcare sectors. Companies offered everything from cancer detection reagents, anti-scar creams and blood safety applications, to water purification equipment, modular systems for hospitals, data migration solutions and plastic ware equipment. Pre-arranged meetings were arranged by Illinois Middle East Regional Office. Over 200 one-on-one meetings were held and a number of agreements with regional representatives are pending.
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3.2 Arab Middle East Leads World on Hotel Demand in 2011
Demand for hotel rooms in the Middle East grew by 9% in 2011, the highest growth rate in the world, according to data published by STR Global. It said the region reported both occupancy and average room rate improvements for the full-year, driven by the strong demand growth. STR Global said 2011's demand growth was the highest yearly growth in the past seven years. Abu Dhabi reported the largest growth in occupancy, increasing 9.9% to 64.8%, followed by Dubai with a 7% increase to 75.4%, STR Global's data showed. Cairo, Egypt, was the worst occupancy performer in the Middle East and Africa region, falling 44.9% to 36.1%, followed by Beirut with a 12.9% decrease to 56.2%. Jeddah and Riyadh were the top regional performers in 2011 for average daily rates. Jeddah's ADR rose by 6.9% last year to $203.51 while Riyadh rose 6.6% to $271.67. Dubai topped the regional chart for the largest revenue per available room (RevPAR) increase last year, jumping 10.7% to $168.64, the STR Global statistics showed. Cairo's RevPAR fell the most in 2011, by 49.2% to just $42.71. Overall in 2011, the Middle East and Africa region reported a 6.8% decrease in occupancy to 57.1%, a 5.3% increase in ADR to $162.81 and a 1.8% decrease in RevPAR to $92.99. (AB 24.01)
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3.3 US' Anytime Fitness Pumped for Middle East Expansion in $50 Million Drive
Anytime Fitness, the US-based health club chain, said it plans to open 100 gyms across the Middle East in the next five to seven years under an ambitious $50m expansion drive. The brand, which opened its first gym in Al Wakrah, in the suburbs of Doha, in January, has signed a master franchise deal with Almuftah Marketing, a division of the Doha-based conglomerate Almuftah Group. Capital for the clubs will be primarily raised by Almuftah Fitness, with an average cost of $500,000 per venue. Anytime Fitness claims to be the world's largest co-ed health club chain, with 1,700 gyms across 11 countries. The deal marks the first wellness venture for privately-held Almuftah, which counts Pizza Hut and Arby's among its existing franchise portfolio.
In the Arabian Gulf, Anytime will compete directly with the region's existing biggest gym chain, Fitness First, which recently announced its own aggressive expansion plans. The UK-based chain told Arabian Business in October it would also roll out 100 new branches in the region over the next five years, in partnership with Dubai's Landmark Group. Landmark, which acquired the franchise after purchasing a subsidiary of Saudi leisure company Al Hokair Group, said it would spend $136m on expanding the chain, with 35 outlets planned for the UAE alone. (AB 16.01)
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3.4 Azerbaijan Takes on Burj with Plan for World's Tallest Tower
A developer in Azerbaijan has unveiled plans to build the world's tallest building, eclipsing Dubai's 828m-tall Burj Khalifa by a full 27%. Property company Avesta said the 1.050 km super-scraper would form part of a chain of 41 artificial islands in the Caspian Sea, with construction scheduled to start in late 2013. The tower would also bypass the Prince Alwaleed-backed Kingdom Tower, the 1,000m building set to begin construction in Jeddah in Q1/12. Avesta said the tower had initially been designed at 560m, but had nearly doubled under the latest version of the development. The super-scraper will house a business center at the heart of the Khazar Islands project, to be located 15 miles south of the Azerbaijan capital Baku. Dubai's Burj Khalifa, named the world's tallest tower following its launch in 2010, has seen a number of developers announce plans to eclipse its 828m height. The most recent, the $1.2b Kingdom Tower, is being designed by Chicago-based design firm Adrian Smith + Gordon Gill Architecture. Smith was also the architect behind the Burj Khalifa. (AB 25.01)
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3.5 Carefusion Opens Office in Dubai
CareFusion, a leading global medical technology company based in California, said it has opened its office in Dubai to serve as regional hub and gateway to Indian sub-continent and Africa. The 3,000 sq ft CareFusion regional office, located in Dubai's JLT area, will be dedicated to clinical and technical support of customers across the Middle East region. It will also provide hi-tech training facilities for CareFusion customers, distributors and health professionals in the region. CareFusion said its products are available in key hospitals across the region, in particular infusion products, ventilation products and automated dispensing systems and skin preparation products. (TradeArabia 21.01)
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3.6 Royal Jordanian Launches Third Libyan Route
Royal Jordanian started operating flights to Misrata, Libya starting on 28 January, amid high demand from Libyan passengers for Jordan's medical tourism sector. RJ said that the company's decision to open a third route between Jordan and Libya was due to high demand from passengers. The airline already operates flights to Tripoli and Benghazi from its Amman hub. The demand was seen particularly from people patients who take advantage of Jordan's medical tourism sector. Libyans prefer to visit Jordan for medical tourism despite competition from European countries. A large number of Libyans are currently being treated in Jordan. Royal Jordanian resumed its operations to Tripoli with six weekly flights and to Benghazi with four weekly flights after halting services to both cities for 10 months due to the turmoil seen in Libya last year. The airline operates a total of 12 weekly flights between Jordan and Libya with an option of an increase depending on the demand. Misrata lies on the coast of the Mediterranean Sea 208km east of Tripoli. (AB 28.01)
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3.7 Saudia Signs Up For $2.4 Billion Boeing Plane Order
Saudi Arabian Airlines has announced an order for eight Boeing 777-300ER aircraft worth $2.4b at current list prices. The announcement was made as Boeing delivered its first two 777 planes to the Saudi national carrier. Boeing said its partnership with Saudi Arabia dates back to 1945 when President Franklin D Roosevelt presented a DC-3 Dakota airplane to King Abdulaziz Al-Saud. Saudi Arabian Airlines took delivery of its first 777, a 777-200ER, in December 1997 and currently owns and operates 23 Boeing 777-200ERs. Saudi Arabian Airlines said last August it plans to obtain loans from local banks to finance the purchase of Airbus and Boeing aircraft. The carrier said it has also approached the government for funds. Saudi Arabian Airlines said in July it had seen a 14% rise in passenger traffic in the first half of 2011, with the domestic market accounting for 65% of total flights. (AB 24.01)
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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS
4.1 UAE-Spain Solar Venture Plans to Spend $5 Billion
Torresol Energy, a joint venture between Spain's Sener and Abu Dhabi's Masdar, plans to invest up to $5b in the short-term to build concentrated solar power plants (CSP) in Spain, the United States and the Middle East. Sener said it was aiming to add about 6,000 megawatts (MW) of capacity over the next three years and that one of the plants could be built in Abu Dhabi, in the United Arab Emirates. The investment would range between $3.5b to $5b. It added that the firm is optimistic of securing funding for the upcoming projects despite tough market conditions. Torresol Energy, a 60/40 joint venture between Sener and Abu Dhabi government owned green energy firm Masdar, connected two new 50 MW solar plants in Spain to the grid earlier this month. Between them, Valle 1 and Valle 2 are expected to produce 160 gigawatt hours (GWh) of carbon-free electricity a year. Oil-rich Abu Dhabi is aiming to get 7% of its electricity from renewables by 2030. (AB 18.01)
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4.2 Masdar to Build Solar Plant on Tongan Island
Masdar, Abu Dhabi's renewable energy company, has signed a memorandum of understanding with the Government of Tonga to build a solar power plant on Vava'u Island. Masdar will be in charge of the implementation and construction of a 500 kW solar photovoltaic power plant, financed by a grant provided by Abu Dhabi Fund for Development (ADFD). The solar plant is expected to deliver around 13% of Tonga's annual electricity demand. Commissioning the photovoltaic power plant is part of the Tonga Energy Road Map - a 10-year plan to increase the quality of access to modern energy services through an environmentally sustainable manner. In 2011, a team of technical experts from Masdar studied the island's grid system to ensure it was ready for the solar project. The grid on Vava'u has an installed capacity of 1.87 MW with a base demand of around 500 kW during the day and a peak power demand reaching 1 MW during the early hours of the evening. The solar plant will deliver more than 50% of the base load during the day. (AB 20.01)
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4.3 Canadian Firm to Develop UAE Solar Project
Canadian Solar, a leading solar company, has entered into a deal with UAE-based Al Fahad Group, a major provider of comprehensive energy solutions in the region, to develop one of the largest solar Photovoltaic (PV) projects in Abu Dhabi. Al Fahad Group is a diversified conglomerate with expertise in defense and intelligence, homeland security, networking and communications and power. Under the agreement, Canadian Solar will supply more than 1.5 MW of its solar modules to the Al Fahad Group, which is spearheading one of the largest solar PV projects in Abu Dhabi. This will be a governmental venture, which was agreed upon during the recent World Future Energy Summit (WFES) held in Abu Dhabi, said a statement from the Canadian firm. Canadian Solar's CS5A-M solar modules will be used for the project, as they are ideally settled for the local environmental conditions. (TradeArabia 28.01)
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4.4 Turkey Moves Forward in Renewable Energy
Turkey's Energy Market Regulator (EPDK) has announced measurement requirements for applications for sun and wind energy stations. Private companies applying for an authorization to build new energy stations must provide the EPDK with wind and sun measurements for six months at a particular location and one year's worth of experimental data that has been approved by the Turkish State Meteorological Service. Wind measurements will be taken using wind measurement poles at least 60 meters high off the ground at the possible energy station sites, according to the EPDK specifications. The measurements are a critical part of the investment process; after receiving the measurements this year, EPDK plans to accept applications for the sun energy stations. EPDK is initially aiming for an 11,000-megawatt wind energy project that will later be expanded to 20,000 megawatts. For sun energy, the EPDK is projecting a 600-megawatt target, which could be increased to 10,000 megawatts. This would require a roughly €10m investment in total. On average 1 MW of power can supply electricity to as many as 300 U.S. households per year. According to TurkStat figures, the average person in Turkey consumes 540 kilowatts of electricity in one year. (Hurriyet 30.01)
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5: ARAB STATE & PAKISTANI DEVELOPMENTS
5.1 Lebanese Inflation Rises by 3% as Consumer Goods Prices Soar
The inflation rate in Lebanon registered a 3% rise in the month of December 2011 compared to the same period in 2010, while the cost of consumer goods rose by 17.6% in the month of December compared to the same period in 2007, the Central Bureau of Statistics reported. The report added that inflation rates registered a 0.04% rise in December 2011 compared to November of the same year. Central Bank Governor Salameh has said that Lebanon's annual inflation rate for 2011 was around 6%, but many economists have argued that the real figure is far higher, due to the soaring prices of consumer goods over the past three years. The CPI, according to the report, indicated that throughout the month of December 2011, the cost of food and commodities had remained steady. Meanwhile, prices of foodstuffs and non-alcoholic beverages registered a 1% rise in December, while those of alcoholic beverages and tobacco rose by 0.5%. The cost of furniture and household equipment rose by 0.1%, while that of health care and telecoms remained unchanged. The cost of leisure-related activities rose by 1.1%. Prices at restaurants and hotels went up by 0.1%. The Central Bank is entrusted to keep inflation low, but Salameh admitted that it would rise by 2% if the government enacted the pay raises. (TDS 24.01)
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5.2 Lebanon's 2011 Growth Slows to 1.5%
Lebanon's Central Bank Vice Governor Andary said on 20 January that the country's economic growth slowed sharply to around 1.5% in 2011, in what would be the slowest rate since 2006. Andary said he remained upbeat about growth prospects for this year and that greater political stability would help, but he did not elaborate. The preliminary estimate for 2011, which matches a forecast by the IMF, is slightly down from the central bank's 2% growth prediction in November and reflects regional unrest and political tensions. In 2009, it was about 9%, followed by 7%, now it is probably around 1.5% of real GDP. The central bank's governor last November blamed slower growth on widespread fears that unrest in neighboring Syria would affect Lebanon. Internal political tensions that brought down the government of Lebanese Prime Minister Hariri in January helped bring growth crashing to a halt for the first six months of the year, he added. Economic activity in Lebanon is showing signs of a pickup and growth could reach 3 to 4% in 2012, the IMF said in November. But it warned risks to the outlook were "high and to the downside" because of global economic uncertainty and regional unrest. (TDS 21.01)
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5.3 Lebanon Needs $15 Billion in External Financing
The World Bank estimated Lebanon's external financing needs at 35.1% of GDP in 2012, or $15 billion, constituting the highest external funding requirements among developing countries this year. It defined external financing needs as the scheduled payments on short- and longer-term debt to private creditors, plus the current account deficit relative to GDP in 2011 times the projected nominal GDP for 2012. The International Monetary Fund estimates Lebanon's GDP at $41.5 billion in 2011 and $45 billion in 2012 if it achieves 3.5% growth. Lebanon's external financing needs for the public and private sector is estimated at $15 billion. The World Bank said Lebanon is set to post the highest current account deficit this year among developing economies and the third-highest level of debt repayment in the developing world. Lebanon is one of only 27 developing countries that had fiscal deficits in excess of 5% of GDP in 2011, and one of just 14 developing economies with a gross debt level in excess of 75% of GDP last year. Lebanon, along with Egypt and Eritrea, are the only three developing countries that posted both a fiscal deficit above 5% of GDP and a gross debt-to-GDP ratio that exceeded 75% of GDP in 2011.
Regionally, Jordan's external financing needs are equivalent to 12.5% of GDP and those of Tunisia at 10.2% of GDP. In parallel, the World Bank estimated foreign direct investment in Lebanon at $3.96 billion in 2011, constituting a decline of 20.5% from $4.98 billion in 2010, and compared to $4.8 billion in 2009. Total FDI to Egypt, Jordan, Tunisia, Lebanon and Morocco regressed by 39.7% to $9.56 billion in 2011. FDI to Lebanon accounted for 41.4% of aggregate FDI to these countries last year, relative to 31.4% in 2010 and posting the largest share relative to the second highest share in 2010.
Lebanon was followed by Egypt with a share of 23.2% in 2011, Jordan with 12.1%, Tunisia with 11.7% and Morocco with 11.4%. Furthermore, FDI in Lebanon was equivalent to 9.6% of the country's GDP last year, compared to 12.7% of GDP in 2010, posting the highest level relative to GDP among the covered economies. It was followed by Jordan with 4.1% of GDP in 2011, Tunisia with 2.3% of GDP, Morocco with 1.1% of GDP and Egypt with 1% of GDP last year. (TDS 24.01)
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5.4 Lebanon Passes Minimum Wage Law
On 18 January, the Lebanese cabinet finally passed the minimum wage law after several months of acrimonious political wrangling. The new law increases the minimum wage from LBP500,000 (c.$332) to LBP675,000 (c.$448) per month, without allowances. The law also has increases the salary of workers depending on their income brackets. However, a clause sponsored by Minister of Labor Nahhas requiring employers to provide a transportation allowance was rejected. A new law is currently being drafted to set a price ceiling for transportation and education allowances. (TDS 19.01)
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5.5 Jordan Wins $250 Million World Bank Loan after Regional Unrest
The World Bank said it approved a $250 million loan to Jordan to aid the nation in overcoming economic difficulties. The loan will helps Jordan manage the global economic downturn and the short-term shocks caused by political events in the region. The kingdom's economy was hurt by increasing food and fuel prices as tourism dropped 16%, remittances from expatriates fell 3% and foreign direct investment declined 32% last year due to regional unrest. Jordan, one of the smallest economies in the Middle East, imports almost all of its energy needs and relies on foreign investment and grants to support its budget and current-account deficits. Jordan's energy bill is forecast to rise this year to $5.64b because of disruption to natural-gas deliveries from Egypt and as consumption rises. (BI-ME 26.01)
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5.6 US Committed To Provide Jordan With JD 660 Million in Aid This Year
Jordanian Planning & International Cooperation Minister Hassan confirmed the US commitment to provide Jordan with JD660 million in assistance this year. He said American officials also indicated at the meetings held during King Abdullah's recent visit to the US that Washington will examine the possibility of providing Jordan with an additional wheat grant for 2012. US officials expressed their understanding of the challenges facing the country in light of regional developments, noting that the two sides will discuss the percentage of financial aid that will be channeled directly as a supplement to the state treasury. (Various 24.01)
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5.7 Jordan & EU Launch Twinning Project For Free Circulation of Industrial Goods
Jordan and the European Union (EU) launched a twinning project on 25 January on the implementation of an action plan for the free circulation of industrial products, which was approved during the Euro-Mediterranean conference of trade ministers held in Palermo in 2003. This action plan aims at concluding conformity assessment agreements, called Agreement on Conformity Assessment and Acceptance of industrial products (ACAAs) between the EU and the southern Mediterranean countries on industrial products. According to the Jordan Institution for Standards and Metrology, the €1.2 million project will be implemented by a European consortium comprising representatives from Germany and Slovenia, under the supervision of the Ministry of Planning and International Cooperation. (JT 24.01)
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5.8 Iraq to Invest $2 Billion to Build 18 Hospitals
Iraqi health authorities have decided to build 18 hospitals throughout the country with a total budget of $2 billion. The General Inspector at the Health Ministry said that the majority of the hospitals will have at least 100 beds and will be constructed according to international standards. There are 321 public and private hospitals in Iraq with a total medical staff of 25,000. On 15 January, the Ministry said the country needed some 7,000 anesthetists. Among the hospitals will be specialized hospitals for heart disease, nervous system, burns and maternity. The Ministry of Health announced earlier in January that its 2012 budget exceeds $6 billion. The Ministry said it will sue the money to build 150 clinics, contracting with more doctors including Indian medical practitioners. (AKnews 19.01)
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5.9 Iraq to Use Chinese Surveillance Systems
Iraqi authorities plan to install about 250,000 surveillance cameras in Baghdad in an attempt to reduce insurgent attacks in the capital. The Chairman of the Security Committee of Baghdad's provincial council said they allocated about $8m to the installation of the security systems, and that the relevant authorities are in talks with a number of Chinese companies to start working on the project. The authorities in Baghdad will also establish a Control Center to monitor all activities in the capital. Prime Minister al-Maliki had discussed this issue with the Chinese companies in his recent visit to the country and in July last year he signed a number of cooperation agreement with the Chinese Premier. (AKnews 20.1)
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►►Arabian Gulf
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5.10 Kuwait's 2011 Inflation Climbs to Three-Year High
Kuwait's average inflation climbed to a three-year high of 4.8% in 2011, though price pressures are expected to subside this year. Consumer price growth in the OPEC member, which was spared the unrest sweeping the Middle East and North Africa last year apart from some small-scale demonstrations, reached 4.0% in 2010. Kuwait's 2011 inflation rate is the second-highest in the Arabian Gulf Arab oil-exporting region, just below 4.9% for Saudi Arabia. However, inflation in Kuwait, home to around 2.7 million people, decelerated last year, slowing to a 19-month low of 3.1% in December from a 6.0% peak seen in December 2010, with analysts expecting it to fall further. On the month, consumer prices in Kuwait, which pegs its dinar to a dollar-dominated currency basket, edged higher by 0.5%, the fastest rise in three months, the data from the country's Central Statistics Office showed.
Food prices, which account for 18% of consumer expenses, soared by 1.1% month-on-month, rebounding sharply from a 0.1% rise in November. Housing costs, which make up for over a quarter of the basket, increased by 0.8% month-on-month in December after remaining flat in the previous two months. Analysts have expected prices in the world's No. 6 crude exporter to go up last year helped by a rise in global commodity costs as well as the government's social handouts. Last January, the government announced plans to spend nearly $5 billion, or almost 4% of its gross domestic product, on cash grants and free food rations for its citizens. Kuwait, one of the richest countries in the world with 2011 per capita income of over $40,700 estimated by the IMF, plans to hold a parliamentary election in February following the latest government resignation in November. (AB 25.01)
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5.11 Qatar Alcohol Ban Could be Tip of the Iceberg for GCC
Qatar's move to ban the sale of alcohol on its flagship Pearl development may hint at the start of a Gulf-wide clampdown on these sales as governments look to pacify local fears, analysts said. The GCC states may move to rein in sales and tighten alcohol legislation in a bid to walk the line between the expatriate population and their Muslim citizens in the wake of the Arab Spring unrest.
The sale of alcohol is strictly monitored in five of the Gulf states with Saudi Arabia operating an outright ban on the sale and consumption of liquor. The move to offer alcohol licenses to outlets and non-Muslims is largely a nod to the region's expatriate workers, who vastly outnumber the local population. But the decision has been met with criticism from some citizens who oppose the sale of liquor in Muslim countries. Qatar retains comparatively tight rules governing alcohol consumption.
A number of Arabian Gulf states have seen conflicts over alcohol regulations in recent years. Pressure groups in Bahrain forced the closure of bars and clubs in the Gulf state's three-star hotels in 2009, while Oman has chosen to confine the sale of booze to certain hotels and restaurants. Dubai, widely seen as the Gulf's most tolerant market, last June banned standalone bars and restaurants from displaying alcohol behind their bars. Outlets licensed to serve alcohol but located outside hotels were forced to tint glass doors on fridges, move entire displays and even re-design whole bar areas to comply with the ban. The suspension of sales on Qatar's Pearl could be seen as "a wake-up call or a reminder of the invisible red lines not to be crossed." (AB 15.01)
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5.12 FIFA Says No Alcohol in Qatar- No Deal On World Cup
Alcohol is a non-negotiable aspect of the World Cup and the right to sell it must be enshrined in a new law the Brazilian Congress is considering, the secretary general of FIFA has said. Football's governing body pushed for the sale of alcohol at 12 venues of the 2014 World Cup finals in spite of a Qatar-wide ban on the sale of alcohol in sports venues as part of a bid to stamp out violence amongst fans. This move comes just weeks after Qatar, host of the 2022 World Cup, curbed the sale of alcoholic drinks on its flagship development, the Pearl, in what is seen as a display of tension between Qatar's Muslim culture and its largely expatriate population. The offer of alcohol licenses to outlets and non-Muslims is largely a nod to the region's expatriate workers, who vastly outnumber the local population. But the decision has been met with criticism from some citizens who oppose the sale of liquor in Muslim countries. (AB 19.01)
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5.13 UAE's Inflation Rate Stable at 0.9% in 2011
Inflation in the UAE remained at 0.9% on average in 2011, unchanged from the previous year and well below analysts' forecasts, data showed, with the rate being the lowest since the Gulf War started in 1990. Pressures remained benign last year although the government raised public spending, the main engine of the hydrocarbon-reliant economy, partly in response to social unrest seen in several nearby Arab countries such as Bahrain and Oman. The UAE Ministry of the Economy expected inflation of between 1% and 1.5% in 2011. Annual consumer price growth in the UAE decelerated to levels close to zero in 2011, ending the year at 0.2%, as its oversupplied housing market offset food price advances and credit growth remained subdued following the 2009-2010 Dubai debt crisis. Compared to the previous month, prices edged down by 0.1% in December, after staying flat in November, mainly due to lower housing costs.
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The UAE, which pegs its dirham to the US dollar, depends on imports for much of its food needs. That makes it vulnerable to swings in global food prices and the greenback's moves against other currencies. In December, food prices, which account for 14% of consumer expenses, rose 0.6% month-on-month. They surged by 5.9% on average in 2011. Housing costs, a major inflation driver before the global crisis pierced Dubai's property bubble, fell by 0.3% in December after staying flat for two consecutive months, the data showed, bringing the average decrease to 2.4% last year.
In January, the UAE, which remained politically stable amid the regional turmoil, raised minimum pensions of former military and government employees. The measure followed a plan, announced in November, to increase wages of some state employees. Both moves are expected to encourage consumer spending but also increase the fiscal burden in the country, which has one of the world's largest incomes per capita of nearly $48,600, according to the IMF. (AB 18.01)
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5.14 UAE Cabinet Liberalizes Food Import Licenses to Curb Rise in Food Prices
The UAE cabinet has approved a measure to liberalize import licenses for 12 essential commodities as part of measures to stabilize food prices and enhance customer rights. The decision was chaired by the Sheikh Mohammed bin Rashid Al Maktoum. The decision is aimed at fighting monopoly and encouraging competition in the local market and affects dairy products, livestock and edible oils, according to the UAE Minister of Economy. (Beltone 24.01)
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5.15 UAE Government Pays off $544 Million Debt of Citizens
The government of the UAE will settle $544.5m of debt owed by its nationals. Sheikh Khalifa bin Zayed al-Nahayan, president of the UAE, ordered the settlement of non-performing loans of citizens whose debt does not exceed $272,000. Debt will be paid by the government and borrowers will be released under the condition that 25% of their salaries will be deducted until the debt is paid back. The move applies to both people who are detained for defaulting on debt or have agreed to settle their debt through scheduled payments. A total of 6,830 UAE citizens will benefit from the decision. Most UAE fiscal spending occurs at the level of individual emirates, mainly oil-wealthy Abu Dhabi, with the federal budget accounting for only 11% of the total. The government has already announced plans to invest $1.6b over three years to improve living conditions in less developed northern emirates and a 70% rise in military pensions among other measures. (AB 25.01)
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5.16 Abu Dhabi Considers Long-Term Water Supply Plan
Abu Dhabi aims to develop a plan to secure long-term water supply, the head of Masdar, the government-run renewable energy company said. The emirate is pursuing several programs to study water conservation and cut domestic use, which may lead to a "comprehensive and holistic approach" to water security in the next year or two. Abu Dhabi, which holds most of the UAE's oil reserves, is largely desert. The emirate has already developed a food storage site in a neighboring emirate to guard against shortages. Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al Nahayan mandated the water initiative at a press conference earlier in the capital. (AB 18.01)
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5.17 Louvre & Guggenheim Museums Revived In Abu Dhabi After Cost Reviews
Abu Dhabi plans to resume suspended real-estate projects including branches of the Louvre and Guggenheim museums after reviewing their viability. The largest and wealthiest of United Arab Emirates' seven sheikhdoms also approved new investments in housing, health and education, according to a statement posted on the Executive Council's web site. No cost was given. Abu Dhabi's plans to revamp its economy ran into hurdles after the economic crisis caused home prices to drop by 45% and made neighboring Dubai the region's worst-performing property market with a 65% price decline. At least $30 billion worth of projects were put on hold in Abu Dhabi while the government conducted the review. Budgets and opening dates were approved for museum projects in the cultural district of Sadiyat Island, including the Zayed National Museum and franchises of the Louvre and Guggenheim branches. Other projects include the construction and redesign of the Al Ain National Museum and the cultural Hilli site. The Executive Council approved the building of 13,150 homes for UAE. citizens in North Al Wathba. Another 7,608 villas are expected to be completed this year and delivered to the government, the statement said. Other projects include 24 schools, 14 hospitals, six treatment centers and Abu Dhabi's Cleveland Clinic. A 700,000 square-meter extension of the airport will be completed in Q4/16. The new terminal will handle 27 million passengers a year, according to the statement. Infrastructure spending will include metro and tram systems, two major roads and industrial zones built to focus on petrochemicals, food and auto manufacturing. (AB 25.01)
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5.18 Dubai's GDP Forecast to Grow 4.1% in First Quarter
Dubai's GDP is expected to grow 4.1% in Q1/12, according to the Dubai Economic Outlook 2011 report released by the Dubai Economic Council. However, the report also suggested that GDP growth might decline as the year wears on. Any such decline would be brought on by an economic slowdown in Dubai's trade partners such as the EU members, China, India and other GCC states. In anticipation of continued expansion in the global economy, real GDP is expected to grow through Q1/12. The lowest estimated growth rate - about 3.5% - was attributed to the Q3/11, followed by an increase of 5% in Q4/11. While Dubai recorded a zero inflation rate in Q4/11, inflation is expected to rise to 1.5% in the first quarter of 2012. European sovereign funds and the consequences of the euro's decline and the dollar's gains as well as the stable cash flow in the local market were the main factors that would keep inflation at 1.5%.
The structure of economic costs in the Government of Dubai shows that about two-thirds of total expenditures were allocated to 2011 current expenditures. Revenue from corporate tax and duties dominated at 77% in 2011, with revenues from fees and fines account for the largest share of non-tax revenues at 62%. Customs revenue dominates the structure of tax revenues with a share of about 86% in 2011. The real estate sector is seen contracting in the third and fourth quarters of 2011, with the expectation of a rise in the number and value of deals in the first quarter of 2012. During Q1/11, the real estate sector witnessed a reduction in apartment deals and transaction values, as well as stability in average price per square foot compared to the first quarter of 2010. (GN 24.01)
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5.19 Saudi Arabia Allows Foreign Companies to List Securities
The Capital Market Authority (CMA) in Saudi Arabia market has amended rules to allow foreign issuers to list securities on the local bourse, known as Tadawul. From now on, a foreign issuer whose securities are listed in another regulated exchange may apply for its securities to be registered and admitted to listing", provided that the rules in the foreign country are equivalent to that of Saudi Arabia. It has been previously reported that the CMA is holding discussions with international banks to ease regulations on foreign investment on the stock exchange by 2013. However, a timeline for the new framework has not been determined. Non-resident foreigners are only permitted to trade through share-swap transactions and exchange-traded funds, with the market regulator approving the first ETF in March 2010. Meanwhile, GCC nationals are allowed to buy and sell local shares as of 2007. The opening up of the stock market is likely to attract considerable interest as it offers foreigners a chance to invest directly in blue chips like Saudi Basic Industries, the world's most valuable chemical company. (Various 23.01)
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►►North Africa
5.20 IMF Mission Statement on Egypt
Following a request by the Egyptian authorities for IMF support for their economic program, the IMF Director of the Middle East and Central Asia Department visited Cairo on 16 – 17 January for discussions with the authorities and other stakeholders. The IMF said it had productive initial talks with the authorities on a possible IMF supported program to help stabilize Egypt's economy, restore confidence, lay the foundations for job creating growth and ensure that vulnerable households are protected during the transition. This initial visit will be followed by technical work during the coming weeks, both in Cairo and in Washington. The IMF observed that Egypt's economy, despite its solid and sound fundamentals, is facing a number of difficult challenges, which have to be addressed through an economic program that safeguards macroeconomic stability and creates conditions for a strong recovery. The program developed by the Egyptian authorities and its key policies are currently being discussed with emerging political parties to ensure broad political support. This should help reduce uncertainty and boost confidence in the program's successful implementation. The IMF also had the opportunity to meet with the economic committee of the Freedom and Justice Party and members of other parties and civil society represented in the Advisory Council of the SCAF. These meetings provided the IMF with a cross-section of views about Egypt's current economic and political situation, and possible avenues to address the challenges facing the economy. (IMF 18.01)
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5.21 Egyptian Minister Supports Industrial Zone Agreement With Israel
Canceling an agreement that allows companies to export products with Israeli components duty-free to the US would harm Egypt, Trade and Industry Minister Issa said on 30 January. The Qualifying Industrial Zones agreement, signed between the Egypt, the US and Israel, allows hundreds of Egyptian companies to export the products. The agreement is chiefly an economic trade agreement, not a political one, Issa said. Under the agreement, Egypt exports products estimated at $1.3 billion annually. Israeli exports are estimated only at $130 million, so Egypt benefits economically from the agreement. He said it would be better for Egypt to continue with the agreement because of the peace treaty with Israel, which is more comprehensive. "Even if we canceled the agreement, Israel will be able to export to companies located in free zones in Egypt," Issa said. "We cannot prevent it, as both Egypt and Israel are members of the World Trade Organization. During talks that started three years ago, Egypt requested the inclusion of Upper Egyptian factories in the agreement, Issa said, and received a positive response due to a high percentage of unemployment. The number of Israeli components in Egyptian products lowered from 10.5 to 8%, which means Egypt benefited from the agreement. (AA 29.01)
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5.22 Oil Production in Libya is Likely to Reach Pre-War Levels by Mid 2012
Civil unrest and the ensuing international military intervention in Libya had crippled oil production in the country in 2011. The country's oil output declined from 1.6 million barrels per day (MMbpd) in January 2011 to 45 thousand barrels per day (Mbpd) by the end of the war in October 2011. Initial estimates suggested that it will take at least a year for the country to bring back the production to pre-war levels. However, the country is witnessing a rapid recovery in oil production as the foreign companies restarted their operations in the country soon after the war. The country's oil output rose from 45 Mbpd at the end of the war to about one MMbpd in January 2012. Libya's NOC, Agoco, anticipates reaching pre-war production levels by the end of February. Several foreign companies are also planning to bring the expatriate oil workers they had evacuated during the war back to Libya. The return of this manpower is considered crucial for carrying out the specialized repair works needed to help bring the country's production back to pre-war levels. (R&M 27.01)
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5.23 Tunisia to Sell Ben Ali Palaces
Interim Tunisian President Marzouki announced plans last month to sell off the majority of presidential palaces once owned by ousted dictator Zine El Abidine Ben Ali. The earnings will then be used to create job opportunities for the nation's unemployed youth. Presidential palaces, except for the Carthage Palace, will be returned to the state at a first stage. In a second stage, they will be sold in a public auction with all transparency and clarity, and the proceeds that will be generated from the sale will be injected into employment funds. According to the most recent official statistics, Tunisia's unemployment rate is estimated at 18%, leaving 800,000 people without jobs. Marzouki pledged to tackle the issue after his election. Ben Ali had many luxurious palaces in several Tunisian cities, the most prominent of which were Sidi Dhrif Palace in Sidi Bou Said, Hammamet Palace, Mornag Palace, Ein Darahem Palace, Sousse Palace and Cyprus Palace. A significant section of Tunisians said selling these palaces was better option than keeping them as part of presidential or state properties, especially with the current condition of the Tunisian economy. They said that funds generated from such sales could be used to support industrial institutions and start new projects, thereby stimulating economic growth and creating jobs. Ben Ali, meanwhile, continues to live in a palace in Saudi Arabia despite Tunisia's repeated requests for extradition on murder charges. (Magharebia 27.01)
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5.24 Benkirane Unveils New Moroccan Government Plan
On 19 January, Moroccan Prime Minister Benkirane recently laid out the new government's key policy priorities. Speaking to parliamentarians, PM Benkirane vowed to promote moderate Islam, fight bigotry and strengthen inter-Maghreb ties. The prime minister also stressed the importance of preserving the diversity of Moroccan identity, including Arab and Amazigh. The government will also continue to exert efforts in anti-terror fight and put effective resources in place to ward off any threat to its security, Benkirane said. Through this speech, the Justice and Development Party (PJD) tried to reassure those who fear the Islamists' ascent to power. Benkirane has set out the limits, making it clear that he will oppose any fanaticism.
On the socio-economic front, the goal is to reduce unemployment to 8% by 2016 and to achieve a growth rate of 5.5% over the next five years. The government has also proposed a scheme for long-term unemployed graduates, offering them monthly grants for the duration of their training. The aim is to provide training for 50,000 youths a year. Among other priorities are the fight against corruption and rent-based economy, promotion of good governance, accountability and improved business climate. Opposition MPs, however, were skeptical about the unveiled socio-economic program. (Magharebia 23.01)
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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS
6.1 Turkey's Official Jobless Rate Falls to 9.1%
Turkey's unemployment rate fell to 9.1% in the three months to November, from 11.2% in the same period in 2010, official data showed 16 January. The number of jobless people fell by 447,000 to 2.454 million, the statistics institute said. Turkey's economy has staged a spectacular recovery from the global crisis, growing 8.9% in 2010 and 9.6% in the first nine months of 2011. In October, Ankara forecast however that growth in 2012 would slow to 4.0% owing to the eurozone crisis. Unemployment remains a major challenge in a country where many young people swell the workforce each year, and a declining farming sector is driving unqualified laborers to urban areas. Turkey's jobless rate is determined through household surveys across the country; these are then compiled to make a nationwide three-month projection. Experts say the figures do not reflect the overall picture because of widespread undeclared or hidden unemployment, or the employment of educated, qualified people in menial jobs. (Turkstat 16.01)
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6.2 Cyprus Receives Second Part of Loan from Russia
The second installment, worth €1.32 billion of a €2.5 billion loan from the Russian Federation was received on 26 January by the Republic of Cyprus, to enhance the public sector's cash flow and cover the Republic's financing needs for 2012. The Ministry of Finance said the first installment, worth €590m was received at the end of 2011 and the third and final installment (€590 million) will be received at the end of March 2012. Finance Ministry noted that part of the loan will be used for repaying Cyprus bonds that expire within the next months. The final agreement for the loan was signed on 23 December, by the Deputy Minister of Finance of the Russian Federation Storchak and by the Cypriot Minister of Finance Kazamias on behalf of Nicosia. (FM 26.01)
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6.3 Greeks & Cypriots Propose Teaming with Israel to Export Electricity
Quantum Energy, in cooperation with Greece's state-controlled power utility PPC, has offered to lay a subsea electric power cable some 540 nautical miles long linking Israel, Cyprus and Greece, to use natural gas to increase electricity production in Israel, and to export electricity through the cable to Europe. The 2,000 MW cable, called the EuroAsia Interconnector project, will be laid at a maximum depth of 2,000 meters and will carry electricity west 540 nautical miles across the Mediterranean linking Asia and Europe. The cable will connect Israel with Cyprus, Cyprus and Crete, and Crete with the Peloponnese from where electricity supply can be distributed to Greece or further west. DEH-Quantum Energy said that the EU might finance part of the project, estimated to cost €1.5 billion. Israel is likely to gain significantly more from exporting electricity than from other offers of exporting natural gas itself. According to forecasts, Europe's natural gas consumption will jump in the next two decades, especially following the closing of Germany's nuclear reactors in 2022. (FM 23.01)
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6.4 EU & IMF Press Greece on Reforms Before Aid Flows
The European Union and IMF want Greece to push through more budget cuts and implement a series of long-agreed austerity reforms before they agree on a new bailout the country needs to avert bankruptcy. Many have been watching Athens' tortuous debt swap talks with its private creditors in recent weeks. However, with or without a deal with private creditors, Greece must convince its euro zone partners and the IMF that it is doing enough to implement reforms they require in return for a €130 billion bailout package it needs to avert a chaotic default. To do so, Greece will have to make extra spending cuts worth 1% of GDP - or just above €2 billion - this year, according to a preliminary estimate drawn up by the EU and the IMF in the document outlining the reforms Athens should enact. Looming elections which could take place as early as April are distracting politicians and senior officials from enacting the unpopular austerity reforms, sources close to the talks say. Greece's partners are worried about whether a new government would stick to reforms.
Greece's fiscal derailment was plain to see in official budget data. The general government deficit, which the euro zone uses to measure its members' fiscal progress, reached €17.14 billion for the first nine months of the year - already just exceeding an initial €17.1 billion target for the full year.
The EU, IMF and ECB lenders - known as the troika - have drawn up in the confidential report a list of measures they want to see enacted by Athens. Top of the list is passing a supplementary budget with more cuts to reach fiscal targets in 2012. The troika suggests large spending cuts in Defense and health spending as well as cutting redundant state entities. The EU and IMF are pressing Greece to adopt a much-delayed reform of supplementary pensions, ensure that a plan to replace only 1 out of 5 civil servants leaving the workforce is enacted and want Greece to finalize the opening up of its many closed professions such as lawyers and pharmacists, which they have been demanding for years, the document shows. They also want the Bank of Greece to complete its assessment of Greek banks' capital shortfall and they expect the government to enact legislation to improve wage flexibility and further liberalize product and service markets, the document says. (FM 27.01)
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6.5 Greek Tourism Revenues Up In 2011 Despite November Drop
Cash inflows from tourism in the January-November 2011 period showed an annual increase of 9.7%, climbing to €10.4 billion from €9.5 billion in the same period in 2010, according to the Bank of Greece. However, in November alone, receipts from tourism were reduced by 12.5% year-on-year, while Greek tourism spending abroad contracted by 21.6%. The central bank's border survey showed that in the first 11 months of last year the number of tourist arrivals rose by 9.6% compared to the same period in 2010. At the same time the spending of Greeks traveling abroad expanded by 4.6%, reaching €2.1 billion, despite the ongoing crisis. The current account deficit continued to shrink, amounting to €18.9 billion. It posted an annual decline of €2.3 billion, or 10.7%. This is due to the considerable decline in the trade deficit (that does not include oil products) by €3.4 billion. Direct investment posted a net outflow of 1.9 billion euros in the year to November, against a net inflow of €300 million in the same period in 2010. (ekathimerini 21.01)
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7: GENERAL NEWS AND INTEREST
*ISRAEL:
7.1 Tu Bishvat to Begin on 7 February
Tu Bishvat is a minor Jewish holiday, occurring on the 15th day of the Hebrew month of Shevat, this year falling at dusk of 7 February through the dusk of 8 February. It is also called "The New Year of the Trees" and is one of four "New Years" mentioned in the Mishnah. The name Tu Bishvat is derived from the Hebrew date of the holiday; "Tu" stands for the Hebrew letters Tet and Vav, which together have the numerical value of 9 and 6, adding up to 15.
Tu B'Shvat is the new year for the purpose of calculating the age of trees for tithing. The Torah states that fruit from trees which were grown in the land of Israel may not be eaten during the first three years; the fourth year's fruit is for G-d, and after that, the fruit can be eaten. Each tree is considered to have aged one year as of Tu B'Shvat, no matter when in the year it was planted. This is the season in which the earliest-blooming trees in the Land of Israel emerge from their winter sleep and begin a new fruit-bearing cycle. It is customary to plant trees and partake of the fruits of the land of Israel to mark the occasion. On this day Jews also remember that "man is a tree of the field" (Deuteronomy 20:19) and reflect on the lessons that can be derived from this botanical analogue.
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*REGIONAL:
7.2 Milad an-Nabi - Birthday of the Prophet Muhammad
In the Islamic calendar, the 12th day of Rabi-al-Awwal, which this year corresponds to 4 February, marks the birthday of Islam's Prophet Muhammad. There are mixed beliefs on how one observes Muhammad's birthday. Some people see the Prophet's birthday as an event worthy of praise. Others view the celebration of birthdays as contradictory to Islamic law. Both sides cite the hadith (narrations originating from the words and deeds of the Prophet Muhammad) and events from Muhammad's life to support their views. Mawlid is celebrated with large street parades in some countries. Homes and mosques are also decorated. Some people donate food and other goods for charity on or around this day. Others listen to their children read out poems about events that occurred in the Prophet Muhammad's life. However, many Muslims also do not participate in celebrations on this day. Instead, they may mark the occasion by spending more time to read the Koran. Muhammad is said to have been born on a Monday and some scholars see fasting during the hours of daylight on Mondays as another way to celebrate his birth.
The UAE has declared Saturday 4 February as a one-day public holiday for workers in the government and private sector to mark the birthday of the Prophet Mohammed. The day will also be marked by a holiday for private sector workers.
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7.3 Egypt's Moslem Brotherhood Wins 47% of Parliament Seats
The Muslim Brotherhood (running as the FJP, or Freedom and Justice Party) won 47.18% of seats in the Egyptian parliament, the electoral commission announced on 20 January, as it released the final results from national polls. The Salafi-oriented Nour Party came in second place with 121 seats or nearly 25%, while the liberal Wafd Party follows with nearly 9%. The FJP secured 127 seats on party lists and its candidates won another 108 in a landmark election that was the first since the overthrow of President Mubarak in February last year. The election was launched in November and carried out in three stages The People's Assembly, or lower house of parliament, is made up of 498 elected MPs and 10 appointed by the ruling military. Once elections for parliament's upper house, or Shura Council, are concluded in February, the two chambers are to choose a 100-member panel to draft a new constitution. A new president is then to be elected by June under the timetable set by the military rulers who announced that candidates can register for the presidency from 15 April. But there is widespread belief that the SCAF, to which Mubarak handed over power, will continue to hold on to some sort of power after the transition. In Egypt's complex electoral system, voters cast ballots for party list candidates to make up two thirds of parliament, and direct votes for individual candidates for the remaining third.
A total of 15 political parties are represented in this parliament of 498 elected seats, while 21 parties were eliminated from party list seats because they did not attain the 0.5% of total votes on the national level. Ten Members of Parliament (MPs) were directly appointed by Head of SCAF Tantawi. Below is the number of seats won by each of the 15 political parties.
1. Freedom & Justice Party won 127 party list & 108 individual seats (47.2% of total parliamentary seats)
2. Al Nour Party won 96 party list seats and 27 individual seats (24.7%).
3. Wafd won 36 party list seats and two individual seats (7.6%).
4. Egyptian Bloc won 33 party list seats and one individual seat (6.8%).
5. Al Wasat Al Gadeed won 10 party list seats (2%).
6. Reform and Development won 8 party list seats and one individual seat (1.8%).
7. Revolution Continues won 7 party list seats (1.4%).
8. Masr Al Qawmy won 4 party list seat and one individual (1%).
9. Al Hurreya won 4 party list seats (0.8%).
10. Egyptian Citizen won 3 party list seats and one individual seat (0.8%).
11. Al Itihad won two party list seats (0.4%).
12. Arab Egyptian Union won one party list seat (0.2%).
13. Democratic Peace won one party list seat (0.2%).
14. Conservative Party won one individual seat (0.2%).
15. Al Adl won one individual seat (0.2%). (Various 21.01)
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7.4 Libyan Islamists Rally to Demand Sharia-Based Law
Hundreds of Libyan Islamists rallied on 19 January to demand that Muslim Sharia Law serve as a primary source of legislation. The rally's organizers called the event a response to the emergence of secular political parties after the fall of Muammar Qadhafi's dictatorship last year. Assembled by Islamist political and religious groups, mostly young and bearded men holding up copies of the Koran demonstrated in squares in the capital Tripoli, the eastern city of Benghazi, and in Sabha in the southern desert. In Tripoli's Algeria Square, Islamists burned copies of the "Green Book," Qadhafi's eccentric handbook on politics, economics and everyday life, to underline that the Koran should be the country's main source of legislation. By contrast, a group of secularists who have staged a sit-in in the square for more than a month chanted: "We want a civil state." The Islamist demonstrators encompassed members of the conservative Muslim Brotherhood and harder-line Salafis, who both back strict versions of Islam, and relative moderates who prefer a civil state simply inspired by Sharia. The protests offered a glimpse into Libya's political future in which Islamist and secularist parties are expected to vie for seats in a national assembly scheduled to be elected in June to draft a constitution for the North African country.
Pundits believe the Muslim Brotherhood is the most organized political force and could emerge as the leading political player in Libya after Qadhafi, who harshly suppressed Islamists during his 42 years in autocratic power. Western powers are coming to accept that the advent of democracy in the Arab world means bringing Islamists to power. They have become the biggest election winners in Egypt, Tunisia and Morocco over the past few months. The chairman of Libya's ruling National Transitional Council (NTC), Mustafa Abdul Jalil, promised in October to uphold Islamic law. (Various 21.01)
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7.5 Turkish Machinations and Conspiracies Cloud the Future
European Union financial officials are acknowledging that the latest round of loan guarantees for Greece may not keep that Balkan nation from default. This means the possibility that Greece will leave the euro-zone will once again be on the table. The unstable economic and political situation in Greece has gotten the headlines, which means the increasingly curious political situation in Turkey has gone largely unnoticed. Over the last month the Turkish government has arrested several more people on charges of participating in the Ergenekon conspiracy. Ergenekon is an alleged ultra-nationalist super-conspiracy involving military, intelligence and internal security personnel. The current government, led by the Islamist Justice and Development Party (AKP), has now arrested or investigated around 400 people it claims are involved in a conspiracy aimed at toppling it. According to the AKP, these former officers and officials now under arrest are part of the nefarious secret organization that really controls Turkey. Many Turkish secularists claim the government's charges are completely manufactured and the AKP is pursuing trumped up allegations in order to arrest its political opponents. The next step, the secularists argue, is an Islamist dictatorship. In other words, the AKP is operating its own Islamist conspiracy. The concern in Turkey is that the military, at one time the dominant political force in Turkey, increasingly believes it is being falsely accused of disloyalty, and tensions are increasing between the military and the AKP. (Strategy Page 18.01)
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8: ISRAEL LIFE SCIENCE NEWS
8.1 Hadasit Bio-Holdings' Portfolio Company Thrombotech Raises $1.4 Million
Hadasit Bio-Holdings announced the completion of an investment round totaling $1.4 million for Thrombotech at a pre-investment valuation of $5 million. Thrombotech's three major shareholders participated in the round: Clal Biotechnology Industries (46%), Ofer Hi-Tech (26%) and Hadasit Bio (25%). Thrombotech is developing a unique technology and solution that brings hope to patients suffering from a stroke. The funds raised will support the completion of the current clinical trials. In parallel, Thrombotech is in negotiations with multinational pharmaceutical companies to create an international collaboration for the next steps in the clinical development of its lead product, THR-18. Thrombotech is currently conducting its Phase IIa clinical trial with THR-18, for the treatment of stroke. THR-18 is a synthetic peptide that addresses a huge market potential estimated at $3 billion per year. It enables currently available drugs to dissolve blood clots safely and efficiently, while preventing the life-threatening side effects that characterize these drugs, such as internal brain hemorrhaging. The recent funding is intended to support the Phase IIa clinical trial, expected to be completed by the end of 2012.
Hadasit Bio-Holdings http://www.hbl.co.il, established in 2006, is the publicly traded subsidiary of Hadasit - the technology transfer company of the Hadassah University Hospital, Israel's foremost medical research center. The Company was established for the purpose of promoting and commercializing the intellectual property and R&D capabilities generated by Hadassah. HADSY is the domestically traded ADR of Hadasit Bio-Holdings, a public investment vehicle of six portfolio biotech companies all based on inventions developed by Hadassah. Hadasit Bio-Holdings focuses on advancing companies that have already shown proof of concept and successful preclinical trials to completion of Phase I/II. The portfolio companies develop drugs with blockbuster potential (targeting markets that are worth over a billion dollars) operating in the fields of cancer, inflammatory diseases and tissue regeneration using stem cells - areas in which the Hadassah Hospital has extensive knowledge and recognition as a global leader. (Hadasit Bio-Holdings 18.01)
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8.2 BioLineRx Signs Exclusive License Agreement for BL-8020, an Oral Treatment for Hepatitis C
BioLineRx signed a worldwide, exclusive license agreement with Genoscience, a French company focused on viral disease therapeutics, to develop and commercialize BL-8020, an orally available treatment for Hepatitis C. BL-8020 acts via a unique mechanism of action, by inhibiting Hepatitis C virus (HCV)-induced autophagy, which differs from the mechanism of currently used anti-HCV agents. BL-8020's safety and efficacy were demonstrated in pre-clinical studies. These studies have shown that BL-8020, when combined with other anti-Hepatitis C virus (HCV) agents, has a synergistic effect. BL-8020's synergistic effect on other therapies is likely to increase their potency and reduce the numerous adverse effects often associated with these drugs, by enabling utilization of lower dosages. In addition BL-8020 may reduce therapy duration, which is currently up to 48 weeks. The use of two drugs acting by different mechanisms is also likely to be beneficial for patients who have developed resistance to current treatments and is an effective strategy used against other viruses such as HIV.
Jerusalem's BioLineRx http://www.biolinerx.com is a publicly-traded biopharmaceutical development company. It is dedicated to building a portfolio of products for unmet medical needs or with advantages over currently available therapies. BioLineRx' business model is based on acquiring molecules mainly from biotechnological incubators and academic institutions. The Company performs feasibility assessment studies and development through pre-clinical and clinical stages, with partial funding from the Israeli Government's Office of the Chief Scientist (OCS). (BioLineRx 24.01)
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8.3 NasVax to Receive NIS 3.5 Million Chief Scientist Grant
NasVax obtained provisional approval for NIS 3.5 million in grants for the Office of the Chief Scientist to finance 50% of the company's NIS 5.6 million development plan in Israel and 30% of the plan that will be carried out overseas. If the grant is provided in full, NasVax will receive nearly NIS 1.7 million for its overseas R&D plan and almost NIS 1.8 million for its R&D in Israel. NasVax is developing improved vaccines and immunotherapies for the treatment of graft rejection after transplantation, Streptococcus pneumoniae and Alzheimer's disease. Ness Ziona's NasVax http://www.nasvax.com engages in the development and commercialization of proprietary polycationic lipid-based molecules, designed to improve vaccines either by formulating an intranasal carrier platform for painless administration of vaccines or by serving as an adjuvant platform for superior response of the body's immune system. (Globes 26.01)
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8.4 PolyPid Raises $2 Million in Second Financing Round
PolyPid has raised $2 million in a second round of financing from new and current investors, at a company value of $10 million, after money. PolyPid's first product is BonyPid, a biodegradable bone void filler that is nano-coated with a biodegradable formulation, which gradually releases one or more selected antibiotics into its surroundings. Subsequently, the bone void filler scaffold remains and supports bone recovery. PolyPid's patented platform can be tailored to almost any API, including small molecules, peptides, proteins and nucleic acid. The formulations can be pre-programmed to achieve the desired release rate of the APIs and the optimal duration, which can last up to several months. PolyPid raised $1.4 million from private investors in its first financing round in 2010. Investors include Xenia Venture Capital, which owns 24.1% of the company, and invested $300,000 in the present round.
Petah Tikva's PolyPid's http://www.polypid.com technology platform is an innovative new family of drug carriers, representing a fusion between two known drug delivery systems: Polymers and Lipid-based systems. PolyPid technology makes it possible to entrap a large variety of one or more biologically active molecules, and to release them at a pre-programmed rate for up to several months, all according to the desired clinical rate. During its long lasting effect the drug reservoir is fully protected from both bio-degradation and hydration. (Globes 26.01)
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9: ISRAEL PRODUCT & TECHNOLOGY NEWS
9.1 Snapkeys: New App Showcases Invisible Keyboard Technology
Snapkeys, the inventor of 2i technology, the invisible keyboard, a revolutionary answer to the cumbersome QWERTY keyboard for mobile devices, has released "World Record" on both the Android Marketplace and Apple's App Store. The "World Record" app is designed to showcase their breakthrough data input technology. The app challenges the user to break the World Record for Speed of Typing. The traditional QWERTY keyboard, which was never meant to be placed on the screen (which is an output device, not an input device), is no longer suitable for information mediums that are becoming the norm throughout the world. Today on-screen QWERTY keyboards have become cumbersome. Snapkeys has over a decade of R&D behind it, clearing the way for mobile technology to reach a new level of use experience through their invisible interface. Snapkeys devised its "invisible interface" technology as a practical digital interface for tablets and smartphones. In a desire to encourage more people to get a feel for the 2i technology they built the "World Record" app. The app is available for both Android and iOS. Snapkeys is hoping to prepare the marketplace for their finished product later in the year. Snapkeys http://www.snapkeys.com is a Data Entry technology startup focusing on finding solutions for comfortable data entry and search experience enhancement. Snapkeys is privately held with its sales office in New York and R&D located in Jerusalem. (Snapkeys 18.01)
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9.2 INEX/ZAMIR Receives Lenel Factory Certification for Interface
INEX/ZAMIR, an Israeli provider of Automatic License Plate Recognition (ALPR) systems, has received Lenel factory certification for the interface of their Insignia ALPR solution to the OnGuard access control system. The INEX/ZAMIR system integrates with the OnGuard access control infrastructure and provides accurate license plate recognition to grant or deny access of vehicles to a particular facility or area. This integration with Lenel enables an immediate, actionable vehicle event to be sent to the OnGuard system, allowing comprehensive management of that data. Benefits to the end-user include the ability to provide a variety of double credentialing access control configurations along with a higher level of vehicle security screening. INEX/ZAMIR http://www.inexzamir.com, headquartered in Knoxville, TN with manufacturing facilities in Israel, provides a complete range of fully integrated automatic license plate reader products designed for a many Global marketplaces including, military, tolling, parking management, and commercial security. INEX/ ZAMIR provides guaranteed license plate capture -- "any plate, anytime, any speed" -- using a turnkey approach that incorporates the company's proprietary license plate imagers, processors, software and deployment applications. For more than 18 years, INEX/ZAMIR has continued to perfect the capture of license plate information creating a system solution that reads license plates in real time, for real-world applications. (INEX/ZAMIR 18.01)
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9.3 Perion Releases New PhotoJoy App for iPad and iPhone
PhotoJoy, a Perion brand and photo discovery and sharing tool, announced the release of PhotoJoy+, a new app for the iPad and iPhone that helps people discover, share and enjoy digital photographs on their mobile device in new and exciting ways. PhotoJoy+ incorporates personal photos stored on your mobile device and combines them with photos that friends and family have posted on Facebook in high-quality animated 3D designs. This new mobile app brings the PhotoJoy experience that more than 2.2 million consumers have downloaded on their desktop, directly to the Apple device allowing them to relive special moments and discover photos that have been forgotten, in a fun and exciting way on their iPad or iPhone. The free application is available for download at the Apple App Store.
Founded in 2000, Tel Aviv's Perion http://www.perion.com is a digital media company that provides products and services to consumers to help make their everyday life simpler and more enjoyable. Focusing on an underserved market of second wave adopters who value their time online, Perion offers a growing portfolio of easy-to-use products. The Company's products include: IncrediMail Premium, an award winning e-mail product sold in over 100 countries in 10 different languages; Smilebox, a leading photo sharing and social expression product and service that lets customers quickly turn life's moments into digital creations to share and connect with friends and family in a fun and personal way; PhotoJoy, a photo discovery and sharing screensaver & wallpaper product; and Fixie, a PC optimization product. (Perion 24.01)
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9.4 Amino Selects Celeno Wi-Fi for Connected IPTV Set-Top Boxes Worldwide
Amino Communications, leaders in IPTV/OTT solutions, has selected Celeno Communications to provide a range of wireless products that complement Amino's range of award-winning IPTV set-top boxes (STBs). Celeno's OptimizAIR technology will help Amino offer whole home Wi-Fi networking robust enough for HD IPTV distribution, multi-room DVR and Over the Top (OTT) video and Video on Demand (VoD) consumption anywhere in the home. Amino and Celeno will offer various wireless solutions in the market place. Ra'anana's Celeno http://www.celeno.com provides high performance Wi-Fi chips and software for HD multimedia and entertainment home networking applications. Celeno's extensive chip portfolio and OptimizAIR technology enable the wireless distribution of multiple and simultaneous HD video streams throughout the home with the highest levels of performance and reliability while ensuring a superlative quality of service and user experience. Celeno's field-proven chips have been integrated into numerous OEM Wi-Fi devices and have been deployed with over 75 service providers worldwide. (Amino 24.01)
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9.5 Alvarion to Provide Wavion Wi-Fi Solution to Telecel, a Cellular Operator in Burkina Faso
Alvarion announced that recently acquired Yokneam's Wavion, a global leader in carrier grade Wi-Fi solutions for service providers, governments and enterprises, is supplying base stations for a high speed Wi-Fi service of Telecel, a GSM operator in Burkina Faso with over a million customers. The deployment is based on Wavion's high performance two-way beamforming Wi-Fi base stations, featuring a powerful interference immunity suite, used for access and backhauling in 2.4 and 5 GHz. The network covers Ouagadougou, the capital city of Burkina Faso, using Wavion base stations for blanket coverage in major metro areas including business districts, city centers, education campuses, hotels, the international airport and key residential areas. The Wi-Fi network enables people on-the-go with smartphones, tablets and netbooks to connect to the internet at speeds of up to 2 Mbps and enjoy applications such as video, image transfer, social networking and internet browsing with scratch cards, prepaid and postpaid billing. Additional services are planned in the near future and include location based applications, and cellular data offloading with automatic SIM authentication. Network expansions for early 2012 are currently in the planning stages for additional cities in Burkina Faso, including Bobo-Dioulasso and Koudougou, allowing the service to reach a population of over 2 million people in approximately 400 square kilometers of the three main cities in Burkina Faso.
Tel Aviv's Alvarion http://www.alvarion.com provides optimized wireless broadband solutions addressing the connectivity, coverage and capacity challenges of telecom operators, smart cities, security and enterprise customers. Their innovative solutions are based on multiple technologies across licensed and unlicensed spectrums. (Alvarion 24.01)
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9.6 Siklu Sold Over 1000 E-Band Wireless Backhaul Links in 2011
Siklu has established a leading position in the wireless backhaul over millimeter wave market with its strong performance in 2011. With more than 1000 EtherHaul links installed and running successfully under varying weather conditions all over the world, Siklu has solidified its position as a front-runner in millimeter wave systems. The Siklu EtherHaul solution has been performing stably in trials under diverse weather conditions, from the harsh European winter to the rainy monsoon season in India. Operators also benefit from a small form factor that facilitates fast site acquisition and deployment, as well as plug and play setup that reduces installation time. Siklu's high capacity gigabit wireless backhaul solutions support next generation 4G/LTE and broadband bandwidth requirements, at the lowest cost in the industry. Petah Tikva's Siklu http://www.siklu.com has been committed to reducing the cost of high capacity wireless backhaul solutions since 2008. The company's success centers on an innovative silicon-based design of the millimetric wave radio system and components that has resulted in the lowest cost millimeter wave systems available. The EtherHaul radios deliver Gigabit speeds over the millimetric wave spectrum and are ideal for urban wireless backhaul of macro, micro and picocells. (Siklu 25.01)
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9.7 ORBIT to Supply Commercial Earth Observation Ground Station Solution to Russia
ORBIT Communication has been selected by STEC.COM, a Russian space company, to supply a commercial ground station solution to support dual communication with Low Earth Orbit (LEO) and Geostationary Earth Orbit (GEO) satellites. The total value of the contract is estimated at $800,000. ORBIT's solution is based on a customization of its AL-4300 series, a heavy load, high-performance positioning system. To overcome the limited size of the ground station, which cannot accommodate separate X-Band and C-Band antennas, ORBIT tailored an innovative solution that incorporates both bands in a single 5.5 meter antenna, cutting the ground station's size in half and dramatically reducing its cost. A special "store and transmit" mechanism was developed to gather the data received from the LEO satellite over X-Band, and subsequently transmit that data over C-Band to the GEO satellite on its way to the final destination. In addition, to meet Russia's extreme environmental conditions, the customer required a rugged and reliable solution that can operate without failures in strong winds and very low temperatures without a radome. Netanya's ORBIT http://www.orbit-cs.com is a world leading supplier of innovative Satellite Communications solutions as well as Tracking & Telemetry and Communications Management Systems. The company's products are deployed on board airborne, marine and land platforms with both military and civilian customers and are installed on thousands of projects with companies and organizations worldwide. ORBIT is a public company traded on the Tel Aviv Stock Exchange. (ORBIT 30.01)
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10: ISRAEL ECONOMIC STATISTICS
10.1 Bank of Israel Asserts Food Expensive in Israel
On 18 January, the Bank of Israel announced that private consumer prices in Israel in 2010 were relatively high compared to OECD countries, especially when one takes into account that income per capital in Israel is lower than the OECD average. The BoI added that dairy products, fish and non-alcoholic beverages are especially expensive as compared with international prices, whereas the exposure to imports of apparel and competition in the field contribute to competitive pricing. Conversely, hotel, restaurant, culture & leisure and automobile prices are high when compared on an international scale. OECD figures show that the private consumption price level in 2010 was 20% higher than expected, assuming there is a correlation between income per-capita and product prices. The high level of consumer prices in Israel reflect a combination of a strong shekel and particularly high prices for certain items as opposed to reasonable prices of other items. Figures are calculated in terms of Purchasing Power Parity (PPP), in this case of the private consumption basket. (Ynet 19.01)
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10.2 Israel's Social Protest Affected Price Rises
Since February 2009, the price of an identical basket of products in Israel has risen by 23%, a rise that is out of line with the Consumer Prices Index, which has risen by less than 10% in the same period. In May 2011, Globes reported that the price of a basket of products in the supermarkets had risen 8% within three months. This proved to be the park that ignited the cottage cheese protest and the outcry against the cost of living in Israel, which led to a boycott of Tnuva products, a boycott of Shufersal supermarkets and other protest action over the summer. Summer passed and now it remains to see whether the protest actually affected supermarket prices. Globes thus set out to check the prices of the same 30 products it had been monitoring and found a rise of 2% in the seven months since last May. The interesting thing is that, in comparison with February 2011, there has been a 12% rise in a year, mostly in the first half of last year.
It is impossible to know if the social protests curbed prices, but given the constant rise in prices beforehand, it is reasonable to suppose that without the protest, the paper would now be reporting on much steeper rises in recent months. Between February 2009 and February 2010, the price of the basket rose just 2%, which was clearly symptomatic of the economic slowdown in that period. However, from 2010 to 2011, it rose by 8%, and from 2011 to 2012 by 12%. The basket contains 30 products in various categories. According to a survey by Geocartography, 45% of Israelis have changed their consumption habits in recent months, with most of them (38% of the total surveyed) attributing this to the social protests of the summer. The change has occurred not only among low-income consumers; 28% of households in the top 10% of incomes report a similar trend. Two-thirds of those surveyed say that they now re-examine the true value of every brand and whether it is worth paying the asking price for it. (Globes 18.01)
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10.3 Israeli Exports to Turkey Rise to Equal Exports to Germany
Israeli exports to Turkey in 2011 equaled exports to Germany, according to an analysis by Meitav Investment House of Central Bureau of Statistics data, which show that exports to Turkey totaled $1.85 billion in 2011, 42% more than in 2010. Meitav stated that the deterioration in diplomatic relations with Turkey has not affected exports. In the past year, exports to Turkey rose so much that they equal exports to Germany, which totaled $1.94 billion in 2011. Israeli exports to Turkey totaled $132.1 million in December 2011, 51% more than in the corresponding month. Israeli imports Turkey rose 20.6% from 2010 to $2.1 billion in 2011, resulting in a trade deficit of $321 million.
Meitav also noted a change in the mix of exports to the EU, which is Israel's largest market, supplanting the US. Whereas the US was Israel's largest export market in 2010, the EU (the 27 EU member states; not the 17 countries that make up the Eurozone) rose to first place, accounting for a third of Israeli export of goods. The change occurred because exports to the US fell by 2% a year in the past two years, while exports to the EU rose by 20% a year, despite the shekel's appreciation against the euro since 2009."
The UK, the Netherlands and Germany are Israel's top exports destinations in the EU. Exports to the UK rose 53% to $10 billion. Exports to China tripled in 2010-11 to 6% of total exports in 2011 from 2% in 2009, reaching $237 million last year. Israeli exports to Egypt and Jordan rose 26% in 2011. (Globes 22.01)
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11: IN DEPTH
11.1 ISRAEL: Summary of Israeli High-Tech Company Capital Raising 2011
On 24 January, the results of the IVC-KPMG Quarterly Survey conducted by IVC Research Center in cooperation with KPMG Somekh Chaikin Israel were released. This survey reviews capital raised by private Israeli high-tech companies from Israeli venture capital funds, and foreign and other investors. The survey is based on reports from 120 investors, of which 49 were Israeli management companies and 71 were other – including foreign – investment entities.
In 2011, 546 Israeli high-tech companies attracted $2.14 billion from local and foreign venture investors, the highest amount in 11 years. This is almost 70% above the $1.26 billion raised by 391 companies in 2010 and 91% above the $1.12 billion raised in 2009.
The average company financing round was $3.92 million in 2011, above the $3.23 million of 2010, and the $2.51 million of 2009.
"As predicted, 2011 numbers were impressive, but our forecast for 2012 is not as optimistic," said Koby Simana, CEO of IVC Research Center. "As local venture capital funds have found it increasingly difficult to raise new capital and maintain a satisfactory level of first investments in early stage companies, foreign investors have been upping their investments, which more than doubled in the past year," he explained. "However, with Israeli VCs continuing to downsize their investments and with the world economy still very much unsettled, foreign investors can no longer be counted on to fill in the gap. We believe annual investment can fall to as low as $1.5 billion if there is no dramatic recovery in the next few months."
One hundred and twenty-four Israeli high-tech companies raised $569 million from venture investors – both local and foreign in the fourth quarter of 2011. This is an increase of 9% from $522 million raised by 137 companies in the previous quarter, and a 65% jump from $344 million raised by 100 companies in Q4/10.
The average company financing round was $4.59 million in Q4/11, compared with $3.81 million in the previous quarter, and $3.44 million in the year-earlier 2010 period.
In Q4/11, 77 companies attracted more than $1 million each. Of these, five raised more than $20 million, 13 raised between $10 million and $20 million, and 17 raised from $5 million to $10 million each.
Israeli VC Fund Investment Activity
In 2011, Israeli venture capital funds invested $525 million in Israeli companies, an increase of 42% from 2010, and a rise of 28% from 2009 levels. The Israeli VC fund share of total investment was 25%, the lowest in the last decade when the Israeli VC share averaged 40%.
First investments by Israeli VC funds accounted for 31% of their total investments, compared to 29% in 2010 and 2009. The average first investment in 2011 was $2.21 million, while the average follow-on investment was $1.06 million.
In the fourth quarter, first investments by Israeli VC funds accounted for 44% of their total investments, the highest percentage of any quarter in the last four years. This compares to 30% and 25% in Q3/2011 and Q4/2010, respectively. The average first investment by Israeli VC funds in the fourth quarter was $2.9 million, while the average follow-on investment was $0.95 million.
Investment Rounds Excluding Israeli VC Fund Participation
In 2011, investment transactions in Israeli high-tech companies that excluded Israeli VC fund investment reached $785 million or 37%, the highest percentage in the last decade. This compares with $269 million (21%) and $205 million (18%) invested in 2010 and 2009, respectively.
In the fourth quarter of 2011, investments reached $218 million, 8% below the $236 million of the previous quarter, which was the highest quarterly amount in 10 years.
Capital Raised by Sector
In 2011, the internet sector attracted the largest share of investments for the first time in the last decade. One hundred and fifteen internet companies raised $482 million or 23% of total capital raised by high-tech companies, compared to $222 million or 18% raised in 2010, and $147 million or 13% raised in 2009. Eighty-eight communications companies followed with $432 million or 20%, an increase of 82% from 2010, and 97% from 2009. The software sector attracted $415 million or 19%, compared to just $150 million or 12% in 2010.
In the fourth quarter, the communications sector led capital raising with $142 million or 25% of total capital raised, an increase of 25% from the previous quarter and 190% from the year-earlier period. Internet followed with $134 million or 24%, while the software sector raised $127 million or 22% and the life sciences raised $75 million or 13%.
Ofer Sela, partner in KPMG Somekh Chaikin's Technology group, observed, "Mobile solutions and applications are the primary factor behind the significant increase in communication company investments in the past two years. Israeli companies have traditionally excelled in the communications sector, and the high quality of such companies is expected to attract foreign investors in the future."
Capital Raised by Stage
In 2011, mid stage companies led capital raising - as in the last decade - with $903 million or 42% of total capital raised. Seed companies attracted 5%, slightly above the 3% of 2010 and just below the 5.5% of 2009. Early stage companies accounted for 26%, down from 35% in 2010 and 29.5% in 2009. Mid and late stage companies together raised 1.48 billion, an increase of 90% from 2010 period, when mid and late stage companies attracted $781 million.
In the fourth quarter of 2011, 24 seed companies attracted $21 million or 4% of total capital raised, compared to $48 million or 9% in the previous quarter and $9 million or 2% in the fourth quarter of 2010. Mid stage companies led capital raising with $201 million or 35% of total capital raised, the lowest percentage for the mid stage in the last three years.
According to KPMG Somekh Chaikin's Sela, "The significant increase in late stage investments indicates the strength of Israel's technology industry, as well as its attractiveness to foreign investors. An impressive number of mature Israeli companies have reached substantial sales. A decade ago, such companies would most likely have gone the IPO route, raising funds publicly. Today, due to changed conditions in IPO markets, these companies are relying principally on both existing and late-stage investors. As a result, we expect a large portion of these companies to be sold over the coming 24-month period."
IVC Research Center is Israel's leading research center providing business leaders with an unmatched wealth of data on Israeli high-tech, venture capital and private equity industries. IVC owns and operates the IVC Online Database http://www.ivc-online.com containing over 8,500 Israeli high-tech companies, venture capital funds, investment companies, angels and technology incubators, as well as news updates and lots more. KPMG Somekh Chaikin's technology professionals offer insights and experience accumulated from a long history of work with technology and life science companies. Through a global network of highly qualified professionals in Israel, the Americas, Europe, the Middle East, Africa and Asia-Pacific, KPMG helps clients address the opportunities and challenges driven by new business models such as cloud computing mobile services and others. (IVC 24.01)
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11.2 ISRAEL: Israelis Overpay for OTC Drugs
Globes reported that Israelis pay more for non-prescription drugs and not only food, compared with other countries. An investigation by "Globes" of international pharmaceutical brands found that prices of non-prescription drugs in Israel were several times higher than in the US and UK. For example, aspirin costs 460% more than in the UK and 315% more than in the US, while Neurofen pain reliever costs 158% more in Israel than in the UK and Advil Liquid Gel is twice as expensive in Israel than in the US.
"Globes" only compared the same international brands. In both Israel and other countries, alternative drugs are available that are cheaper, but they are not readily comparable because of their different ingredients. The Ministry of Health unsuccessfully tried to make a similar comparative study.
According to the Non-Prescription Drug Association another factor also has to be taken into account. List prices in Israel do not necessarily reflect the actual price. In Israel, many non-prescription drugs are subsidized by the health funds. For example, prescription Acamol aspirin is cheaper than Acamol sold without a prescription. This is because most drugs are still included in the basket of healthcare services. Therefore, the list price of a drug does not reflect reality. It has been found that more than half of consumers buy drugs via their health funds at subsidized prices. Prices of drugs on store shelves, in small packages, and imported products, are relative high in Israel. However, prices for 90% of products at the health funds are substantially cheaper in Israel.
The comparison of prices for international brands in other countries also does not reflect the conditions for Israeli consumers, because they are not included in the basket of healthcare services, and there are usually similar, but cheaper, alternatives.
The Ministry of Health supervises and sets prices for non-prescription or over-the-counter (OTC) drugs. Price controls for general sales list (GSL) drugs were abolished in 2006, which resulted in higher per unit prices. As reported by "Globes," prices for GSL drugs cost substantially more than drugs bought at the pharmacists' counter, let alone compared with prices for the drugs bought with a prescription from a health fund.
Prices Jumped When Controls Were Lifted
The Ministry of Health has said that it wants to remove price controls for OTC drugs. They claim that removing the price controls for OTC drugs will result in an equilibrium of prices between the two marketing methods, and GSL drugs will no longer be clearly more expensive. Drug companies disagree, saying that the high prices were right for the market and that the change should be upward - which is exactly what happened with the price controls were lifted. Today, in the aftermath of the social protest of the summer 2011, things may appear different.
Going Dutch
In April 1998, the drugs price controls committee decided to adopt the Dutch model, in which prices are set on the basis of the average price in four European countries (Belgium, France, Germany and Switzerland). Adopting the Dutch model was supposed to import the European competitive prices environment into the small and uncompetitive Israeli market.
The Ministry of Finance estimates that adopting the Dutch model will cut prices of non-prescription drugs by 60% in Israel. It proposes adopting the model in two steps: in the first step, the average price for drugs will be set; and in the second step, price controls on GSL drugs will be abolished, in order to allow competition between drug companies, which will result in lower prices.
On 1 June 2001, price controls on Israeli made non-prescription drugs were lifted, after the prices had been frozen for several years. The result was a jump in prices, which affected the Consumer Price Index (CPI). In November 2001, the Ministry of Finance told the Pharmacists Association in Israel to cut prices for non-prescription drugs, because their profit margins were too high. At the same time, the pharmacists' directive was amended to apply to non-prescription drugs sold in locations besides pharmacies.
Prices controls on Israeli made non-prescription drugs was restored in 2005, but shortly afterwards, the price controls were lifted on non-prescription drugs sold in locations besides pharmacies, and remained in place only at pharmacies. As a result, prices of non-prescription drugs rose by up to 40% - belying the intention to benefit consumers.
The logic underpinning the lifting of the price controls was that competition and supply would result in lower prices; reality proved otherwise. Another goal was also missed: consumer access to non-prescription drugs at supermarkets and convenience stores. It never happened, and pharmacies continued to be the main purveyors of non-prescription drugs, in close proximity to the pharmacists' counters.
No Competitive Market
A comparison of supervision of non-prescription drugs shows that, in the UK, while they can be purchased freely, most non-prescription drugs can only be sold by a pharmacist. The situation in the US is completely different: consumers can by almost all non-prescription drugs at any supermarket without a pharmacist, a model that is freer than in most countries. However, from time to time a non-prescription drug is returned to the supervision of the pharmacist. Israel lies between the US and the UK, but non-prescription drugs purchased independently cost much more.
Israel's Ministry of Health said in response, "In early 2011, the ministry examined prices for non-prescription drugs, in an attempt to compare them with prices overseas. The study found it very difficult to compare prices because of the substantial differences in the mix of the active pharmaceutical ingredients. The study found drugs that cost less in Israel and some drugs whose maximum price was higher in Israel. However, no material differences were found.
"Following last year's reform in prescription drug prices and in view of the study, the Ministry of Health director general appointed an inter-ministerial committee with the Ministry of Health, Ministry of Finance and Ministry of Industry, Trade and Labor to review price controls on these drugs. The committee is due to submit its recommendations soon. Recognizing that this market does not necessarily have the conditions of a competitive market, prices for non-prescription drugs are supervised, which makes Israel different from every country in Europe where the market is completely free."
According to the Non-Prescription Drugs Association, the non-prescription drugs market totals $200 million a year - 15% of the entire drugs markets. There is also a flourishing market of nutritional supplements, vitamins, toiletries, medical cosmetics and medical accessories, which are not supervised. D&B Israel estimates that drugs are actually only a small fraction of total sales by pharmacy chains and independent pharmacies. In Israel, in contrast to other countries, many drugs require a prescription.
Independent pharmacies are going out of business
Teva Pharmaceutical Industries and other wholesalers, including Neopharm, Medison and Dexcel Pharma market non-prescription drugs in Israel. Pharmacies dominate the market's retail side: pharmacies of the health funds account for 45% of all pharmacies, the two main chains New-Pharm Drugstores and Superpharm account for 15%, and independent pharmacies account for 40%. However, their market share has been shrinking over the years, due to the complete domination of the market by the health funds for prescription drugs, and their contractual agreements with the two pharmacy chains. This may be the reason why a fifth of independent pharmacies have closed in the past decade, whereas some other countries actually encourage private pharmacies and restrict the number of branches that chains can operate, in order to prevent the creation of large chains. (Globes 19.01)
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11.3 JORDAN: Austere Measures
Looking to a bit of belt-tightening in its public spending scheme, the Jordanian government is working to mitigate the effects of recent turmoil in the global financial markets, the Arab Spring uprisings and the eurozone sovereign debt crisis on the local economy. With this in mind, as noted by the Oxford Business Group, last month Amman proposed a budget for fiscal year 2012 that forecasts public spending of $9.66b and an estimated deficit of $1.45b, or 4.6% of Jordan's GDP.
Estimated annual GDP growth for 2011 was 3% and expansion is expected to remain around that level in 2012. The country saw inflation of 5% in 2011 and the unemployment rate is expected to remain at around 13% into 2012, according to the World Bank.
Presenting the draft budget to the lower house of Parliament, Minister of Finance Toukan said that the national economy was expected to grow in 2012. However, he indicated that a variety of challenges made it necessary to take measures to ease the burden on the public purse, such as re-evaluating the energy subsidies put in place in 2011. In 2012, projected public spending will account for 30.9% of the country's GDP, compared with 33.6% in 2011. The finance minister told the House that supporting military and security agencies will continue to be the main focus of public expenditure this year, in addition to the social safety network, which includes subsidies, the social productivity program, medical insurance, financial aid for university students, vocational training and a school nutrition program.
Toukan also touched on a plan to restructure the civil service's salary scheme, which will see government employees receive a pay rise of a so far undisclosed amount, coupled with a plan to increase military retirees' pensions.
The budget incorporates a new mechanism for managing subsidies that consumed an estimated JD2.3b ($3.23b) in 2011, an amount that included the cost of supporting citizens' energy needs at a time when the country experienced costly disruptions in supplies of Egyptian gas. The government thus subsidized imported energy products under these special circumstances for nine months in 2011, but the 2012 budget calls for allocating the fuel and electricity subsidies in a more organized manner, as the current subsidy mechanism is seen to be distorting prices.
Revenue, including foreign assistance, is expected to reach about $8.15b, or 26.2% of GDP, while current expenditures will slightly surpass that figure in 2012, comprising 26.4% of GDP. Capital expenditure, meanwhile, is estimated to reach about $1.4b.
Continued foreign aid will be key to keeping the country's deficit as low as possible. Jordan's key foreign aid country donors include the US, the EU, Japan, Canada, China and South Korea. The US is Jordan's biggest donor, disbursing grants totaling $635m in 2010; although the US government has decided to cut foreign aid to several countries, it has pledged to keep Jordan's levels unchanged. US assistance in 2012 is therefore expected to maintain its 2011 level of $660m, according to the Ministry of Planning & International Cooperation. The aid will include $360m in economic aid and $300m in military assistance.
If foreign aid – forecasted at $1.19b in 2012 – were excluded from the budget, Jordan's deficit would rise to $2.67b, or 8.6% of GDP. International Monetary Fund (IMF) guidelines advise that countries' budget deficits not exceed 3% as a ratio of GDP.
The country's balance of payments deficit was expected to hit 9.8% for 2011. Putting Jordan's total foreign and domestic debt at $18.51b, or 61% of GDP, Toukan said the country's debt level and budget deficit "should not continue because they involve negative repercussions on the stability of the economy, particularly the monetary and banking sectors" and could trigger downgrades by rating agencies.
With the ongoing turbulent conditions in the region, especially in neighboring Egypt and Syria, the government will have to walk a tightrope to ensure the country's economic situation does not decline further – a scenario which could see the government forced to raise taxes and lower subsidies to address a rapidly increasing budget deficit. The year ahead could thus be a challenging one for Jordan, although the country has also done well to maintain growth through some difficult periods in 2011. (OBG 23.01)
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11.4 QATAR: Energy Rising
The announcement of a major downstream project has been the highlight of a busy period for Qatar's hydrocarbons sector. An agreement, signed on 4 December between Saleh Al Sada, the minister of energy and industry and Shell's CEO, Peter Voser, lays out the commercial principles and scope of a proposed petrochemicals complex in Ras Laffan Industrial City in northeast Qatar.
The large development, which has undergone a pre-feasibility study, would include a steam cracker supplied with Qatari natural gas as a feedstock and a plant producing up to 1.5m annual tonnes of mono-ethylene glycol, used in manufacturing products such as polyester, coolants and aerospace de-icers. The complex would also produce 300 kilotonnes of linear alpha olefins (LAO), which are used in the manufacture of polyethylene and lubricants, and other olefin derivatives.
The project will be co-owned by state hydrocarbons firm Qatar Petroleum, with an 80% equity stake, and Shell, with 20%. The export-oriented complex particularly targets petrochemicals sales in fast-growing Asian markets.
Al Sada said at the signing that the deal "represents an important milestone on our journey to become a significant global petrochemicals producer" and that the plants would help Qatar "extract optimal value from its natural gas resources". Qatar has proven natural gas reserves of 25.3tn cu meters (13.5% of the global total) and is the leading world producer, with 116.7bn cu meters in 2010, according to energy firm BP.
The country is working to increase the value it gains from its resource wealth by using the raw materials to produce secondary and tertiary products, including petrochemicals. This goes hand-in-hand with efforts to develop oil extraction, including secondary recovery – using water or steam to push oil to the surface when its natural pressure no long suffices.
Qatar increased its oil production by 13.5% in 2010 to 1.57m barrels per day (bpd), as output at existing fields rose, and secondary extraction will help support rising output over the medium term. In the future, enhanced oil recovery, which can be used in fields where geological factors and oil density make extraction more problematic, is likely to help even more.
The country's prominence on the international energy stage was highlighted when Qatar became the first country in the Middle East to host the World Petroleum Congress (WPC), one of the world's leading oil and gas forums, held every three years. The WPC, held between December 4 and 8, was organized by the World Petroleum Council, which has more than 60 member countries that account for 95% of global oil and gas production (importing countries are also included.) The Congress addressed all aspects of the hydrocarbons industry, from technology to social, economic and environmental impacts.
Several thousand delegates from around the world took part, including government officials and major oil and gas company representatives. Qatar was also able to use the opportunity to sign several important hydrocarbons deals, including one with UK-based Centrica on gas and oil development. While petrochemicals developments is seen as central to building value in the energy sector, Qatar is also cementing its position as the world's largest liquefied natural gas producer. The country's capacity hit a milestone in the middle of 2011 when it reached 77m tonnes per annum.
Investments by the likes of Shell are indicative of private sector opportunities in developing the sector's downstream hydrocarbons capacity. "Downstream activities offer a large potential for growth in Qatar, as Qatar can rely on strong competitive advantages, notably its production of ethane and condensates," Stephane Michel, the managing director of Total E&P Qatar, told OBG. "Exporting facilities will have to be upgraded to sustain this growth."
Michel said research and development (R&D) is also of increasing importance and he sees this as an opportunity for Qatar, suggesting the country could play a leading role in R&D internationally.
"Qatar is very well positioned to become a hub for R&D in the energy field," he said. "The availability of large investors and high-quality facilities attracts professionals to this field. In addition, strong global partners and a young population locally and in the region offer a suitable platform for success in the field of R&D." Qatar is already a world leader in gas production. It is now taking the necessary steps, in partnership with international investors, to expand downstream capacity and ensure its hydrocarbons sector as a whole. (OBG 18.01)
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11.5 QATAR: Increasing Petrochemicals Production
Undertaking a large-scale expansion of its chemicals industry, Qatar is aiming to increase the value of hydrocarbons-related exports. Production of chemicals and petrochemicals will more than double by 2020, reaching 23m tonnes per year (tpy), up from 9.3m tonnes at present, the nation's minister of energy and industry, Mohamed bin Saleh Al Sada, announced in mid-January. The rise in capacity is expected to play a central role in diversifying the country's economy and making it less dependent on gas exports. It will also increase the domestic value added to the country's petroleum and gas output, with the aim of raising margins and reducing vulnerability to fluctuating hydrocarbons prices.
Al Sada said that Qatar plans to leverage increasing investment in education and research and development (R&D) to support the development of the chemicals industry, a knowledge-intensive sector that relies on applied science. The Qatar Foundation, a government-funded entity, is investing heavily in education and R&D through organizations including the Qatar National Research Fund and Education City.
As well as its growing knowledge and skills base, Qatar can capitalize on a number of competitive advantages in the chemicals sector, most importantly the availability of the world's third-largest gas reserves, which provide low-cost domestic energy and feedstock, as well as smaller, but significant, crude oil resources. These have led to the development of the petrochemicals and fertilizer industries in particular. When natural gas is processed, it generally produces around 90% methane and 10% ethane. Methane is used in the production of ammonia and urea fertilizers, while ethane is a feedstock for many petrochemicals. Other advantages include the country's location, within reach of developed markets in Europe as well as the emerging countries of Asia and Africa; relatively low-cost labor; and strong infrastructure.
The state can also draw on years of experience and increasing capacity in large existing plants. The chemical industry has thus been a leading light of the Qatar manufacturing sector for some decades, and now the state is building on its world-leading position as part of its diversification drive.
Expansion is already well under way at several companies owned by Industries Qatar, one of the country's largest companies and the owner of several petrochemicals firms. The first half of this year should see the Qatar Petrochemical Company (QAPCO) open its low-density polyethylene (LDPE) plant at Mesaieed Industrial City. The facility, known as LDPE-3, as it will be the company's third such unit, will have a capacity of 300,000 tpy. QAPCO's current LDPE output is more than 400,000 tpy, and with the inauguration of its third production line, it is due to become one of the world's leading producers of the petroleum-based thermoplastic, which is used in packaging and components.
Meanwhile, Qatar Fertiliser Company (QAFCO) is due to launch its sixth fertilizer production line, Qafco-6, before the end of the year, taking its urea production capacity to 5.6m tonnes from the world's largest single-site fertilizer plant. QAFCO is already one of the world's leading fertilizer producers, with a capacity of 4.3m tonnes of urea (giving it an 18% share of the global market for the product) and 3.8m tonnes of ammonia, up 43% and 73%, respectively, since the opening of Qafco-6 in December 2011.
Capitalizing on its natural advantages, Qatar has developed a large and thriving chemicals industry since the discovery of its gas reserves. The state's economic success now allows it to commit even more resources to the sector, both in increasing capacity and expanding R&D to support it. With ample resources as inputs, years of experience and substantial existing infrastructure, the chemicals industry is an obvious focus in the country's ongoing efforts to diversify and add manufacturing value. (OBG 26.01)
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11.6 UAE: Abu Dhabi - In the pipeline
Abu Dhabi is putting the final touches on an oil pipeline that will allow the emirate to bypass the congested Strait of Hormuz, through which about 40% of all sea-borne crude is currently shipped. Completion of the project is viewed as increasingly timely, not only in reducing congestion in the Straits but also as geopolitical tensions with Iran have escalated in recent months.
The Abu Dhabi Crude Oil Pipeline (ADCOP), which will enable the emirate to answer any challenges to its oil-exporting capabilities, is a 370 km long, 1.2 meter wide pipeline running from Habshan in south-western Abu Dhabi to Fujairah's export terminals, located on the Gulf of Oman. Costing some $3b, the line will be able to transport 1.5m barrels per day (bpd) of crude oil. Although an exact date for the project's completion has yet to be formally announced, the pipeline is expected to be fully operational in summer 2012.
The Abu Dhabi-based International Petroleum Investment Company (IPIC), the overseas energy investment arm of the Abu Dhabi government, and China Petroleum Engineering & Construction Corporation, a subsidiary of the China National Petroleum Corporation, are leading the project, which was launched four years ago. Abu Dhabi Company for Onshore Oil Operations (ADCO), the majority state-owned enterprise, has been tasked with the pre-commissioning, commissioning, start-up, performance testing and handover of the project facilities.
While most analysts say that it is unlikely that Iran would follow through with its threats to close the Strait of Hormuz, many suggest that this is not really Tehran's plan. Instead, a low level campaign could be waged, which could push up freighting charges, insurance costs and the price of oil itself.
The importance of developing an alternative export route gains even greater significance as Abu Dhabi pursues its plans to ramp up production to 3.5m bpd before the end of the decade, up from the present output levels of about 2.7m bpd. Abu Dhabi National Oil Company (ADNOC) has said that it expects onshore production to rise by 213,000 bpd in 2012, with further increases in output to come from offshore fields.
IPIC also has plans to develop a large-scale refinery close to the end point of the pipeline at Fujairah, which would mean Abu Dhabi could not only continue to export crude should there be a disruption to tanker traffic in the Strait of Hormuz, but the emirate would also be able to maintain sales of value-added processed fuel products. If all goes according to schedule, the $3b refinery will be operational by 2016.
ADCOP may not be not the last word in Abu Dhabi's program to safeguard the flow of oil. A second pipeline to the Fujairah terminal is reportedly in the works, one that would carry product from Abu Dhabi's offshore fields, which is heavier than the take from the emirate's onshore reservoirs. This second line would also be able to carry oil from some of Abu Dhabi's neighbors, earning ADNOC and the government additional revenue through transit fees.
With ADCOP, Abu Dhabi will have another connection to global oil markets, one that will strengthen its position as a leading oil exporter and – by guaranteeing supplies – could help smooth out some of the fluctuations in oil prices. (OBG 26.01)
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11.7 UAE: United Arab Emirates Water Report Q4 2011
BMI reported that over the summer of 2011, the UAE authorities worked harder to ensure that power blackouts and water shortages were kept to a minimum, suggesting a keener appreciation of the need for stronger water provision and a better balance between supply and demand. Whether this translates into a more concerted emirate-wide strategy for improved consumption and increased production, remains to be seen.
Looking at the track record, Abu Dhabi in particular – via its ambitious electricity and water utility the Abu Dhabi Water and Electricity Authority (ADWEA) – should be on course to ramp up supply in the period up to 2015, when BMI see total water produced to register at more than 346,000m gallons.
ADWEA is sticking to its strategy of rolling out greenfield independent water and power projects (IWPPs), while investing in the expansion of its existing stock. Investment in water transmission networks will also help to minimize leaks, while drawing more consumers, particularly those in the Northern Emirates, into the network.
Overall, Dubai is moving towards raising tariff rates in line with increases in the cost of imported fuel, which should help to rationalize demand. Under a system which has been in place since January 2011, consumers in Dubai receive monthly bills that show fuel surcharges based on a fils per gallon rating system. For September 2011, the fuel surcharge is set at 0.4 fils per gallon. However, officials in Dubai have ruled out steep increases in water prices.
In Umm al-Qawain, the Federal Electricity and Water Authority (FEWA) awarded a AED60m contract to the UAE's Balhasa Projects in July 2011. The contract will see the company construct a 30km water transmission network in Umm al-Qawain, which will come on-stream in late 2012 in response to rising demand from both commercial and residential consumers. The network will comprise 600-800mm diameter piping.
Dubai has revealed a new commitment to the private model, moving forward with plans for a 1,500MW independent power project at Hassyan, which will come on stream by 2015. If this project runs to schedule, it could lay the foundations for IWPP activity in Dubai.
Average daily water production remains on a starkly upward trajectory and BMI anticipate that the UAE will produce 950m gallons per day (g/d) by 2015 – nearly twice the level seen in 2005. BMI envisage big increases during 2013-2014 in particular, when a large slice of desalinated water capacity is due on-stream thanks to Abu Dhabi's IWPP program. ADWEA will continue to draw on assistance from international developers to help increase the emirates' overall water production by 175m g/d between 2011 and 2015. There will be pressure to invest in expansion, in light of robust domestic demand. The sense that Dubai has put most of its financial problems of 2009-2010 behind it, should also increase confidence and underpin robust consumption trends over the next five years. The big challenge is on the financing front; ADWEA and its partners could find it more onerous to tap project financing than in the pre-2008 period. Nonetheless, BMI is confident that the UAE will keep pace with rising water demand over the forecast period. (BMI 20.01)
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11.8 UAE: Dubai - Year in Review 2011
For Dubai, the Oxford Business Group observed, 2011 was a year of consolidation, with solid growth for many key economic sectors, the debt load of some of the emirate's leading corporations sharply reduced and confidence growing apace, though concerns linger over how renewed economic slowdown elsewhere will impact the emirate. Though year-end figures have yet to be released, Dubai's economy is expected to have posted growth of 4% or more for 2011, according to a recent report by the Saudi American Bank Group, mainly on the back of a strong performances by the trade and services sectors.
Over the past 12 months, leading corporate bodies, such as Dubai World, restructured their debts and worked towards trading their way out of difficulties lingering from the real estate market's plunge in 2009. Though still carrying a debt burden (some estimates put the amount to be repaid in 2012 at more than $14b), analysts believe the majority of this load will be met through internal cash resources and refinancing bonds held by local banks.
Though it has further diversified and strengthened its economy by rationalizing investments, Dubai is still susceptible to any global downturn, as was the case in 2008 and 2009. With the financial, tourism and trade sectors among the emirate's leading GDP contributors, a renewed bout of recession in Europe and elsewhere would undoubtedly have an impact on the local economy, though a greater resilience developed in recent years should help Dubai ride out any storms.
Indeed, despite the concerns over the global economy, Dubai appears to be looking at the New Year with confidence, with the government set to step up investments aimed at bolstering growth. Under the 2012 budget, approved by Sheikh Mohammed bin Rashid Al Maktoum in late December, 41% of all state expenditures will be directed towards infrastructure, transportation and economic development projects, with a further 29% to be spent on health care, education, housing and culture.
Importantly, the budget also foresees a sharp reduction in the deficit for 2012, with the revenue shortfall projected at just under $500m, more than 50% less than in the past year. Total expenditures for 2012 have been set at $8.79b, while income is expected to come in at $8.29b. This strong turn-around from the higher deficits of the past few years since the 2008 global economic crisis should further restore investor sentiment and encourage growth.
The cause of recovery will be aided by the low inflation levels going into 2012. As of the end of November, consumer inflation was running at just 0.2%, having remained at below 1% for almost all of 2011. With the emirate's property market still subdued (though showing signs of greater activity in the latter half of 2011), pressure on rental costs continued to be low, taking a main factor out of the inflationary equation. With the costs of food, fuel and property all expected to remain flat during 2012, there is little to suggest Dubai's inflation rates will markedly increase in the New Year.
Though a looming prospect of recession in some parts of the world may well impact the global travel and tourism industry, Dubai has yet to feel the effect of any slowdown. At the end of December, figures were released showing that passenger numbers at Dubai International Airport jumped by 8.9% in the preceding month compared to November 2010, with more than 4.4m travelers using the facility. The November figure took the 2011 traffic total for the airport to almost 46.3m. A strong showing was expected in December, one that would take numbers well over the 50m mark.
The upsurge in passenger traffic at Dubai International appears to have an effect across the emirate's tourism industry. According to data released by TRI Hospitality Consulting in mid-December, occupancy rates at Dubai's hotels have returned to the boom levels of 2007, prior to the financial crisis. Dubai's occupancy rates hit 87.3% in October, with revenue per room jumping 13%. The strong growth was attributed to an increase in tourist and business travel activity, as well as a flow-on effect of the Arab Spring, with many travelers looking for an alternate destination for work or pleasure amidst unrest elsewhere in the Middle East.
While the debt burden of some state-backed enterprises is still significant, it is far more manageable than it was less than a year ago. With the economy starting to regain some of the vitality of pre-crisis times, 2012 could turn out to be a year of moderate expansion, not just consolidation. (OBG 20.01)
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11.9 UAE: Moody's Disclosures on Credit Ratings of United Arab Emirates
On 28 January, Moody's Investors Services http://www.moodys.com released it summary credit opinion on the United Arab Emirates government.
Moody's current ratings on United Arab Emirates, Government of are:
Long Term Issuer (domestic and foreign currency) ratings of Aa2
Ratings Rationale
Moody's foreign and local currency issuer ratings for the federal government of the United Arab Emirates are Aa2. These high, investment grade ratings are based on Moody's assumption that the government of Abu Dhabi, the richest of the seven emirates that compose the UAE, stands fully behind the federal government. Given this assumption, Moody's links its ratings of the federal government to those of the government of Abu Dhabi (also rated Aa2 with a stable outlook).
Abu Dhabi's sovereign ratings are supported by the emirate's very strong government balance sheet and abundant hydrocarbon resources. The consolidated fiscal accounts of the UAE (which aggregates the fiscal accounts of the federal government and individual emirates) is dominated by the budget of Abu Dhabi. The IMF stated in its 2011 Staff Report that Abu Dhabi has more than $300 billion of assets under management in its sovereign wealth fund. Other related support factors include the net foreign asset position of the UAE and the federation's very high per capita income level.
The federal government's ratings face several constraints. The regional geopolitical environment is potentially more hazardous than that of other highly rated countries. The federation's economic performance and fiscal balances are volatile given its dependence on hydrocarbons, although the external current account has remained in surplus despite global oil price downturns since the late-1990s, if not longer. Another concern is that the UAE's political, administrative, and legal institutions tend to be less developed than rating peers, especially as scored by the World Bank's governance indicators. Also, while the quality, scope, and disclosure of official economic data are improving, deficiencies hinder analysis.
Although the federal government does not have significant amounts of direct debt, domestic government-related issuers (GRIs), are highly indebted both as a share of GDP and also by international comparisons. This raises the issue of the extent of potential, contingent liabilities on Abu Dhabi's and the UAE's balance sheets should GRI finances deteriorate. Given the UAE's high degree of political solidarity, its interest to protect the economic health of the federation as well as an interest in protecting its reputation, we believe that the federal government and/or the government of Abu Dhabi would be strongly supportive of other emirate governments, large or strategic government-owned companies in Abu Dhabi, and systemically important banks throughout the UAE if they were faced with serious difficulties. There have been several instances of such support in the wake of the global financial crisis. (Moody's 28.01)
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11.10 OMAN: Water Report for Q4 2011
BMI's Oman Water Report for Q4/11 observed a positive development for international developers eyeing Oman's water sector, as it is clear that regulatory reform is still receiving the authorities' attention. In September 2011, the Oman Power & Water Procurement Company (OPWP) announced that the Power Sector Law would be amended to facilitate the procurement of Oman's largest Independent Water Project (IWP) at Al Ghubrah in Muscat Governorate. OPWP says the change in the law is necessary to provide a regulatory framework for the Ghubrah IWP, which will cost an estimated $400m to develop. This is because existing legislation does not cover water desalination projects that are not combined with electricity generation. The reform should allow for more water-only desalination projects to be launched in Oman.
With an anticipated water consumption rate set to average around 13% per annum according to state-owned utility OPWP, the Sultanate needs to ensure the new desalination projects such as Ghubrah will meet anticipated deadlines – but also, critically, that the water produced is distributed effectively across the country. BMI envisage an increase of more than 5,000m gallons in distributed water between 2011 and 2015, with the bulk of the increase focused on Muscat governorate, and other regions (excluding Dhofar whose increase is likely to be a more modest 500m gallons) growing by 2,000m gallons..
In September 2011, OPWP launched the process for selecting a developer for the Ghubrah IWP which will have a 42m gallon a day (g/d) capacity – or around 191,000 cubic meters per day (m3/d). Two months earlier, in July, OPWP signed an agreement with a consortium comprising Marubeni Corporation, Chubu Electric, Qatar Electricity & Water and Bahwan Engineering Group of Oman, for construction and operation of the Sur Independent Power Project (IPP) – with no water component.
Oman's needs to enhance its approach to IWPPs. Since March 2010, the proposed IWPP at Duqm has been mothballed and much is now expected of a planned independent water and power project (IWPP) at Sur. However, the government has until now adopted a state-backed upgrade of its wastewater sector, rather than following other GCC states that have given equity stakes and management contracts to foreign companies. This may change in future years, but for the moment the traditional model will be used to improve wastewater capacity.
The business climate in Oman remains accommodating for foreign investors and project developers and Oman has an open, transparent and investor-friendly business environment. In Q3/11, it awarded a contract to the UK's Halcrow to act as independent overseer of the private-led management of Oman's water sector – after awarding a similar contract to Veolia's in the previous year. (BMI 23.01)
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11.11 SAUDI ARABIA: Year in Review 2011
As 2012 gets underway, as observed by the Oxford Business Group, Saudi Arabia can look back on 2011 as a year of solid growth, as well as anticipate a further 12 months of expansion and development, building on an already impressive economic platform as the state seeks to guarantee future growth through investments in infrastructure and human resources.
The Saudi Kingdom closed out 2011 with most economic indicators in positive territory. In part driven by higher oil prices and strong demand, Saudi Arabia's gross GDP expanded by an estimated 6.5% for the year, second only to Qatar in the region. Though analysts predict that the growth rate of the Saudi economy will ease somewhat in 2012, with forecasts in the range of 3.6% to over 4%, this will still be well above the global average, and far beyond some of the country's trading partners in Europe and North America.
While the economy grew, inflation remained steady throughout 2011, though there are suggestions that the cost of living could rise at a steeper rate in 2012. Consumer inflation stayed close to 5% through much of 2011, though it edged up to 5.3% in October before slipping back slightly in the last months of last year. However, the consumer price index could heat up in 2012 as demand spikes, fuelled by salary increases to state employees and higher public spending.
During 2011 the government unveiled a series of new investment programs valued at more than $110b, of which some $31b was to be spent during the year with the remainder to be expended subsequently. The majority of this funding – coming on top of the $155b planned for the 2011 budget – is being channeled into a wide range of infrastructure projects, particularly those aimed at boosting transport and logistics. Further funds are being directed towards schemes to provide low-cost housing, improve health and education services, expand the industrial base and strengthen the Kingdom's utilities backbone.
With an increasing number of these large-scale projects coming off the drawing board in 2012, the country's construction industry will be a big winner this year and beyond, though the high demands put on the building trade could push up costs as both labor and materials may be in short supply.
Despite this sharp increase in state spending, the IMF predicts that Saudi Arabia will post a fiscal surplus of 8% of GDP in 2012, coming on top of the 9.4% in 2011. This financial buffer will allow the state to be highly flexible in dealing with any unforeseen situations that might impact the economy.
Perhaps surprisingly, given the strong performance of the economy, Saudi consumers were less than positive as the year came to a close, with more than half the respondents to a recent survey saying their financial position was the same or worse off at the end of 2011 compared to 12 months before. The survey conducted by Bayt.com and YouGov also found that 57% of Saudis felt that the national economy had either worsened or remained the same during 2011.
However, on a more positive note, well over half of those surveyed believed the personal financial situation would improve in the coming year, while 50% said the national economy would pick up further in 2012. This improved consumer confidence could in part be a reflection of the increased state funding that will flow into the economy in 2012, while the lower levels of optimism for 2011 may suggest lingering negative sentiment from the global recession and a time lag in public confidence rebounding, despite better economic conditions. Whatever the case may be, it seems a growing number of Saudis have a positive outlook as they view the immediate future.
That outlook could be impacted to some degree if Europe and other regions slip back into recession, a downturn that would have the potential to cut demand for oil and push down prices. Should this happen, the Kingdom could see its energy earnings reduced in 2012, though with its strong fiscal reserves, increasing state investments and a powerful domestic economy, it is still well placed to ride out any further global economic turbulence.
This applies to the Saudi banking sector as well, according to the ratings agency Moody's, which said in a report issued in mid-December that the Kingdom's financial industry was well positioned to withstand any shocks from the evolving debt crisis in the eurozone. The outlook for the Saudi banking system remains stable thanks to the country's benign operating environment, the expected decline in problem loan levels, as well as Saudi banks' supportive capital, profitability and liquidity attributes, the report said.
From all accounts, the Saudi economy will continue its forward march in 2012, with external factors the only ones likely to limit how much GDP will expand. Driven by high levels of internal investment and backed by strong fiscal reserves, Saudi Arabia should be able to further consolidate its economic and social development in the coming 12 months. (OBG 20.01)
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11.12 SAUDI ARABIA: Agribusiness Report for Q1 2012
Business Monitor International's Saudi Arabia Agribusiness Report for Q1/12 says the Saudi Arabian government's drive to reduce grain production in order to conserve water in the desert country has turned it into one of the world's largest importers. BMI is therefore cautious about the grains sector and expect Saudi Arabia to grow increasingly reliant on imports of rice and wheat over the forecast period.
Saudi Arabia's 2012 real GDP growth will average 4.1% average, down from 6.3% in 2011. It is predicted to average 3.9% from 2011 to 2016. 2012 consumer price inflation will be about 4.7%, down from 5.1% 2011.
Overall, the poultry sector is expected to outperform as a result of continued public and private investment into the industry. Saudi poultry production to 2015/16 will grow by 17.7% to 696,800 tonnes. The Saudi government has made poultry output growth a priority, recognizing it as one industry for which the country can be close to self-sufficient. Corn consumption growth to 2015/16 should rise by 26.7% to 2.6m tonnes, as corn is an important part of the local diet as well as a popular source of poultry feed.
Milk production will rise by 17.5% to 2.1m tonnes by 2015/16. Demand for whole milk powder will rise as it remains a more affordable and durable commodity, also reflecting the weak distribution infrastructure in many regions.
Saudi Arabia's announcement that it will increase wheat imports in 2010/11 and 2011/12 is a direct consequence of the kingdom's decision to gradually phase out all water-intensive crops, including wheat, by 2016. In fact, the country's Grain Silos & Flour Mills Organization declared on 19 October 2011 that it plans to import 1.9m tonnes of wheat in 2010/11 and more in 2011/12. Wheat production has decreased since 2004/05 after the country halted subsidies for the grain in order to save water. In fact, wheat production has fallen on average 9.0% annually since 2005/06, and the production deficit has increased by 29.6%.
Saudi Arabia's Ministry of Commerce and Industry has decided that prices of fresh milk and milk products will be governed by the regulations of food supply for extraordinary conditions. The government will closely monitor changes in dairy prices and take action against market players selling products at prices diverging from pre-determined prices.
Poultry prices in Saudi Arabia have significantly risen in the past year and are expected to stay elevated in the medium term. This is owing to insufficient production growth in the country as well as declining output from major producers such as France and Brazil, from which the country's poultry imports come. Also, local poultry farmers have complained of increasing production costs linked to high feed costs. (BMI 25.01)
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11.13 EGYPT: Year in Review 2011
The new year of 2012 sees a very different Egypt from the one that welcomed the opening of 2011, being in the process of instituting multi-party democracy, while trying to reshape the national economy. The Oxford Business Group adds that many hurdles still have to be overcome to ensure social, economic and political stability.
2011 will be remembered as the year Egyptians rose up and overthrew Hosni Mubarak and his government; a massive show of people power unleashed in January and fulfilling its mission a month later. However, even with the former president and many of his associates facing trial, there is still a feeling that the revolution is not yet ready to be consigned to the history books, remaining as it does for many an unfinished tale.
As 2011 ended, Egypt was still in the process of conducting parliamentary elections, part of the step-by-step move towards full democracy, a journey scheduled to be completed with the voting in of a head of state in 2012. With the parliamentary ballot partially concluded, it appears that the Freedom and Justice Party (FJP), the registered political wing of the Muslim Brotherhood, led in most regions and will likely form the largest bloc in the new parliament, and play a leading role in the incoming government.
If so, the FJP and its allies face a number of challenges in righting Egypt's economic ship, which has taken a buffeting over the past 12 months. In the first quarter of the year, the Egyptian economy contracted by 4.3%, though returned to positive territory in the subsequent quarter, growing by 0.4%. While year-end figures have yet to be compiled, it is expected that the economy will have continued this trend; GDP expanded marginally over the three months to September.
Ratings agencies have remained cautious about Egypt, with Standard and Poor's downgrading the country's creditworthiness to B+, four levels below investment grade, while maintaining a negative outlook. This will further increase the country's borrowing costs, which have already jumped due to domestic concerns, as well as the state of the global debt market.
In mid-December, the planning and international cooperation minister, Faiza Abu El Naga, said Cairo could reopen talks with the International Monetary Fund (IMF) with a view to securing a loan facility, having previously closed the door on $3b of support from the fund in June. The announcement came as it was revealed Egypt's foreign reserves had fallen from $36b at the beginning of the year to around $20b, and that the deficit for the fiscal year ending June 30 could rise to around $27b.
This shortfall is due in large measure to a drop in state income. One of Egypt's main sources of revenue, the tourism trade, has experienced a marked downturn, with visitor numbers plummeting by around 80% in the early part of the year, when the protests against Mubarak and the crackdown on pro-democracy demonstrators were at their height. Since then, arrivals and receipts have recovered somewhat, but the Tourism Ministry's final revenue for the year stood at $8.8b, well down on the $12.5b of 2010.
Egypt has in the past bounced back from events such as terrorist attacks targeting foreigners that have harmed its tourism industry, which accounts for around 10% of GDP. With such a well-established tourism brand and so many internationally famous attractions, visitors should in time return in droves, and this rebound may be speeded along by promotional activities and, even more importantly, through measures to increase confidence that Egypt is again a safe destination.
Indeed, there is hope for the sector: Mansour Amer, the chairman of Amer Group, told OBG, "Currently there are about 47,000 rooms under construction on the North Coast. Some 60-70% of Egypt's total problems will be solved by electing a new government."
Another problem being faced by the government is inflation, which has been steadily climbing, topping 9% in November, a 2% rise over the previous month. Two of the largest components in the consumer price index, food and beverages, jumped even further, with the rate of cost increases rising from an annualized 8.7% in October to 11.6% in November. With spiraling prices on staples – one of the factors that drove protestors out onto the streets at the beginning of 2011 – the current administration and its elected successor will want to try to rein in inflation to avoid a renewed bout of social unrest.
The rising cost of living comes as an increasing number of Egyptians are struggling to find full-time work, with the latest data from the Central Agency for Public Mobilization and Statistics (CAPMAS) reporting the unemployment rate at 11.9%, up from 9.8% at the end of the 2010/11 financial year, which ended on June 30. However, this should ease as the economy starts to pick up and as more private sector firms begin hiring again.
Immediate prospects for 2012 indicate more of the same for the economy as seen in 2011, with growth slow and no quick-fix solutions on the horizon. Yet an eventual return to political stability and a more smoothly functioning bureaucracy will do wonders to restore confidence and invigorate an economy that has, in the past, exhibited a strong ability to rebound from adversity. (OBG 20.01)
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11.14 EGYPT: What Really Ruined Egypt's Economy in 2011?
On 24 January, Amira Salah-Ahmed commented in Daily News Egypt that it wasn't the protests. Not the strikes. Not the revolution and it definitely wasn't an unidentified foreign object – the proverbial invisible hand. The simple answer to what brought Egypt's economy to its knees: a mismanaged and slow transition.
The long-winded version: Unwillingness on the part of the ruling powers to meet peoples' demands in a manner that does not disrupt national economic affairs for prolonged periods of time. Coupled with haphazard decisions, unclear policies and a series of crisis management failures on the political and economic fronts, while creating a state of fear and chaos, this has caused uncertainty among investors and set off a domino effect of negative economic repercussions, all made worse by an extended and murky transition to civilian rule.
In power since Hosni Mubarak's ouster, the Supreme Council of the Armed Forces (SCAF) is often criticized for failing to steer Egypt on a proper economic roadmap. "The military has proven to be inflexible, much more reactionary and much less compromising - this sort of stalemate politically has impacted the economic situation," said Hani Sabra, Eurasia Group's Egypt analyst. "Reality is, if you have a civilian authority in place with people that can make decisions then the economy wouldn't be in the state it's in," Sabra added.
Hoda Selim, economist at Egypt's Economic Research Forum (ERF), agreed, citing "uncertainty including the absence of a roadmap that sets a clear date for the handing of power from military to civilian rule and the unnecessary delay in legislative elections."
Let's start from the beginning.
At the onset of the 18-day uprising in January 2011, businesses came to a complete standstill, as if someone had switched off the economy button. It's convenient to blame the mass protests for that, but logistically speaking, it was the measures taken by Mubarak's regime that made it impossible for many sectors to function.
The telecom cut, internet blackout and stifling curfews meant to put pro-democracy activists in the dark disrupted the regular work flow by handicapping communication, shortening operational hours and hampering the transportation of goods. Yes, the stock market crashed and the pound slid to fresh lows, but these are predictable reflex reactions to any unexpected unrest. The overall economy, beyond the volatile realm of speculation on listed stocks and the value of the currency, was more or less crippled by the government itself. As mass protest gained momentum, the government's closure of banks and the stock market proved detrimental to capital flow.
The continued closure of the stock market - more specifically, repeatedly reneging on promises to reopen it for trading - showed how the government's confused hesitation and indecisiveness can cause unnecessary panic and uncertainty in the market.
When banks opened, to everyone's relief, the anticipated run on banks did not materialize. However, they promptly closed days later after protests by workers in the public sector banks. Why all banks, public and private, around the country had to shut down for a whole week remains a mystery, but the move prompted more wariness about access to liquidity. Local businesses had trouble paying employees' salaries. Essentially, people's money was locked in vaults, adding another hindrance to business operations.
For almost two months the stock market remained closed despite frantic resounding calls by local and foreign investors, analysts and asset managers to open for trading and deal with the inevitable nosedive. What's worse was the lack of clarity about the reasons behind the decision.
Egypt risked being delisted from the MSCI emerging markets index and the people in charge let it reach the brink, waiting until the last possible moment to reopen the stock exchange. The longer they waited, the worse the sentiment around the market became, and like a virus, the negativity spread to the overall economy. "The greatest obstacle for investors at the start of 2011 was the restriction of capital flow, initially because of the closure of the banks, but chiefly in the unjustifiably long period during which the stock market was closed," Roelof Horne, Africa fund manager at UK-based Investec Asset Management, told Daily News Egypt.
Investec Asset Management is the largest manager of third party assets in Africa. Horne manages the world's largest Africa fund, excluding South Africa. "As long term investors…we took a view from the start that a peaceful uprising in Egypt calling for democracy and accountability was a reason to be more excited about the country, not to capitulate," he said.
Propping the pound
When Mubarak stepped down, the outburst of celebration was matched by palpable, though duly cautious, optimism on the economy. At the time, most analysts and investors cited two longstanding risk assessment nightmares as having been removed along with the ousted president: the question of succession and rampant corruption. These two factors had for years tainted the reputation of the market and made Egypt a risky investment destination. While the former was whispered about, the latter was noted on every outlook or assessment report on Egypt.
The overriding sentiment in February 2011 was that if people's demands are met, if their political aspirations are fulfilled, then investors, tourists and businesses will want to be part of the "new Egypt" story. The night Mubarak stepped down, Beltone Financial's Angus Blair told DNE, "The army [council] has to realize that there has to be good microeconomic governance of Egypt." That didn't happen and even the term "new Egypt" soon turned sour.
On February 11, the Egyptian pound was at 5.879 to the dollar and the country's foreign reserves totaled more than $30 billion. Today, the pound is steadily sliding, at around 6.04 with reserves at $18.1 billion and swiftly depleting. Throughout the year, much of the reserves went to propping up the pound instead of letting it gradually devalue to its real rate.
According to an ISI Emerging Markets Blog from April 2011, "The Central Bank of Egypt (CBE) intervened to control the depreciating pound against the dollar." This while the CBE repeatedly stated that it has not and will not artificially support the pound. "Foreign reserves have dropped because they've burned through the reserves to prop up the currency. But if they stop doing that, then the value of the Egyptian pound nosedives and basic food prices will rise, that's very sensitive politically," Sabra said.
At the same time, several downgrades from ratings agencies have affected Egypt's ability to borrow from abroad and increased the cost of doing so. The budget deficit mushroomed before being repeatedly revised and reined in to an expected LE 144 billion, or 8.7% of GDP - still quite high.
Beltone Financial reported in the last quarter of 2011 that foreign investors began dumping Egyptian debt as a result of increasing concern over the country's widening deficit, also citing a messy political transition. "Foreign reserves are … being depleted, adding fears of additional losses for foreign investors from a currency devaluation. The high budget deficit is unsustainable, is covered by borrowing and will lead to unsustainable indebtedness if not addressed soon," said Horne.
Selim, however, said that compared to costs incurred by Eastern European economies during their political transformation, "the pressure on the exchange rate and the depletion of reserves, as well as pressure on external and public finances — such costs in the short-term were not too drastic."
Political economy
On the political side, it took a while for the ruling military council to announce its first Cabinet reshuffle, after continued pressure from protesters. Since then, Egypt has seen a series of Cabinets occupied by ministers lacking any real authority or policymaking power.
The result? Stagnant and murky economic policies that left investors, both local and foreign, scratching their heads.
The ERF's Selim said, "Four governments since January 2011 made it very difficult to infer the economic orientation of the government…[and they] failed to take any short-measures to mitigate the economic slowdown. "This uncertainty was transmitted to investors and consumers who became more reluctant to take new production and spending decisions, especially in the absence of security."
Investec's Horne agrees. "The current interim government seems confined by its ‘care-taker' status. Foreign tourists still don't know if the country is safe. Investors fear reprisal actions against companies that could lead to shareholder losses." At first, the SCAF promised a transition to civilian rule within six months. The prolonged transition at one point looked like it would last well into 2013, but was shortened to June 2012 after mass protests demanded a swift handover of power. "The decision to bring forward the presidential elections from 2013 to mid-2012, as a response to sit-ins, was a welcome development," Horne said. This counters the propagated idea that protests are bad for the economy and slow down the mythical "wheel of production."
Escalating crackdowns on pro-democracy activists brought blood back to the streets several times in 2011 as the relationship between protesters and the army became irreconcilable. The blame game began as the official rhetoric changed, with ruling powers putting the onus of the faltering economy on continued protests. "It's convenient for the military, using powerful tools such as state media, to portray protests as slowing down the economy…even if there is no real connection between the two," said Eurasia Group's Sabra. "I don't think protests have been a cause to slow tourism, but if there's violence that results in death, well that scares off tourists and investors. The lack of security or the perception of lack of security hurts the economy," he added.
Expectedly, tourism numbers dropped drastically in early 2011, looked like they may recover by mid-year, but then faltered again after violent crackdowns on protests in October (Maspero), November (Mohamed Mahmoud) and December (Cabinet). According to the latest numbers announced by the tourism ministry, the sector saw a 30% drop this year, actually much better than what was expected. While Cairo tourists are scarce, the Red Sea resorts performed better throughout the year.
All the while, investors, both domestic and foreign, have repeatedly said that all they were looking for in 2011 was a clear timetable for the transition to an elected civilian power — they are still waiting. "In the short term, we worry that any further delay in the transition to a civilian government can pose higher fiscal and therefore currency risk and continue to slow the process," Horne added.
Compounding these problems is uncertainty over which contracts will be honored by the state and which are vulnerable to be disputed in courts — be it land deals, factory licenses, or previously privatized companies. Until there's a clear answer and confidence over terms of contracts, investors are left bidding their time. "New investors will probably wait until a representative civilian government, with a mandate to take bold policy decisions and which shows a willingness to honor existing contractual agreements, is in place before committing capital," Horne said. Similarly, Sabra said that the "biggest obstacle [to foreign investors] is lack of clarity about politics — investors by and large prize predictability above everything."
To IMF or to not
Meanwhile, a flighty courtship between Egypt and the International Monetary Fund over a $3.2 billion loan was the talk of the town in 2011. Egypt, essentially SCAF, first rejected the loan in June; then it was on and off the table for months before Egypt finally made an official request for it at the turn of the new year.
At the same time, little has trickled in of the billions in promised aid from Gulf countries and the G8. "The military council is so intent on playing the role of the good guy, so on their watch they don't want the currency to devalue," Sabra said, or grow Egypt's foreign debt. "It's not for nothing that you're now seeing the IMF engage more, because the military now has cover — there's a parliament and transitional government so they can start to withdraw to the power behind the scenes and have the people up front taking those decisions," he added.
Agree or disagree with borrowing from the IMF, the on again off again negotiations have been a laughable reflection of the government's decision-making power, or lack thereof. It's also slow in coming, and now Egypt's needs are much more than the announced $3.2 billion. "Borrowing from international institutions could finance some of the reforms during the transition as long as the funds are used prudently and adequately," Selim said. "Dependence on foreign borrowing should be considered temporary until reforms create an environment that attracts private capital."
With foreign reserves down, Egypt has increasingly less import cover, a factor that's beginning to manifest into supply shortages of vital necessities. But lack of transparency around this issue is only fueling concerns. Left unexplained are an ongoing butane gas shortage and, most recently, a sudden fuel crisis that left car owners scrambling to fill their tanks and queuing up for hours at gas stations. If confidence in the state to provide the most basic and most socially sensitive goods falters, analysts believe Egypt will see unrest of a different kind this coming year.
Economists have long urged Egypt to gradually scale back energy subsidies to alleviate pressure on the national budget. However, this will likely be delayed given the current circumstances. "If you look 2012 forward, the economic situation is actually quite grim. Any incoming government is inheriting a mess economically…[and] has limited political capital — they can't use it up making unpopular decisions," Sabra said.
Still, it was true in February 2011 and it's true today: The fundamentals of Egypt as an investment destination remain unchanged: a massive consumer market of mostly youth, skilled labor with a lot of unrealized potential, a strategic geographic location — as well as control of the vital trade route through the Suez Canal — and ample touristic treasures. All that's needed is for the nation's youth — the human capital that has been talked about for years, but poorly utilized — to recapture the sense of ownership it had when Mubarak was ousted. More urgently, as Horne said, "The country needs decisive leadership to stabilize the economy, currency and fiscal situation." (DNE 24.01)
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11.15 EGYPT: Egypt Information Technology Report for Q1 2012
BMI says Egypt's IT spending is expected to increase from $1.7b in 2012 to $3.2b by 2016. The Egyptian IT market grew at a double-digit rate in 2011, despite continued uncertainty following the political events of 2011. The disturbances had a disruptive impact on IT market supply chains, but PC sales made a quick recovery in H2/11.
Over BMI's five-year forecast period, Egypt will benefit from youthful demographics and improving information and communication technology (ICT) infrastructure, despite several constraints and a suboptimal distribution network outside Cairo. The Egyptian market is one of the most resilient in the region, but prolonged instability could have an impact on the country's outsourcing sector.
Spending should grow more modestly in 2012 as a weak external demand picture and elevated borrowing costs represent constraints. However, despite continued economic and political uncertainties, Egypt should continue its rise over the next few years as one of the key regional opportunities for IT vendors.
Industry Developments
In November 2011 Egypt's IT authority, the MCIT, launched a program to extend IT services to all of Egypt's governorates, particularly in Sinai and Nuba. The centers will provide computer and internet access, and will also function as hubs for e-government services such as issuing national ID cards and driving licenses. The program comes under the government's national program to develop Sinai and the plan is to establish about 30 IT houses in appropriate locations. In April 2011, the interim Egyptian government announced it would spend up to EGP150b over the next five years to build new schools. Information technology is expected to form a significant component of the spending, with around 25% of Egypt's schools not equipped with computers.
Competitive Landscape
In H1/11, Egyptian leader Raya Technology reported a 39% fall in first half net profit to EGP12.4m ($2.1m). The company, which sells mobile handsets as well as provides outsourced IT and call center services, made a net profit of EGP20.4m for the same period of 2010. In April 2011, Raya reported a 2.4% rise in 2010 net profit to EGP42.3m ($7.1m).
In November 2011, Indian IT giant Infosys announced the implementation of a core banking system for Egypt's Export Development Bank (EDBE.) The system went live in just seven months and covers over 20 branches of EDBE across Egypt. Financial services is a key sector of the Egypt IT market.
Computer Sales
Egypt's computer hardware sales are projected at $1.0b in 2012 and are forecast to reach around $1.7b in 2016. However, computer penetration is forecast to rise from 10% now to above 20% by 2016, and annual computer sales could increase to around 500,000 by the end of BMI's forecast period. Egypt's IT market will stay hardware dominated, with spending on PCs sustained by initiatives such as the 'Computer for Every Student' and 'PC for Every Home' programs. Hardware accounted for an estimated 62% of Egypt's IT spending in 2010. Households are responsible for 20-25% of unit sales, with 1.0-1.5m households said to possess a computer at present.
Software
Overall spending on software remains rather low, being projected at $234m in 2012. Access to credit remains a barrier for smaller Egyptian companies, but government and bank backed initiatives will help smaller Egyptian companies invest in IT. Overall spending on software remains rather low, with the estimated 14% share of total Egyptian IT spending on software reflecting the relative immaturity of Egypt's IT market.
While large corporations have long understood the business case for deploying technology, SMEs are increasingly beginning to see such investments as important if they are to avoid being overtaken by more tech-competent competitors.
Services
IT services revenue are forecast at around $412m in 2012, accounting for about 25% of Egypt's total spending on IT. A market CAGR of 22% is projected for the forecast period through 2016. The Egyptian IT services market is dominated by demand from government, finance and telecoms sectors, which account for more than half of total spending.
Vulnerable sectors include construction and real estate. Government spending, the largest segment, is projected to be maintained, or even increased, as a countercyclical stimulus to flagging domestic demand. One key driver is likely to be the continued expansion of Egypt as an international outsourcing destination.
E-Readiness
Egypt has continued to liberalize its telecoms market with the award of a second national fixed license, and 3G licenses to three mobile telecoms service providers. As well as generating additional spending on IT products and services from the telecoms sector, the spread of internet should provide a boost to the PC market over the next few years.
A similar story could be told about broadband, although cost remains a major barrier to broadband subscription in Egypt. It has been well documented that private broadband subscribers often club together with two or three neighboring families to get a shared broadband subscription and Wi-Fi router. More competition in the market should hopefully bring prices down and lead to subscriber growth. (BMI 01.01)
11.16 LIBYA: Concluding Statement of the 2012 IMF Staff Visit
I. Overview
1. The mission is grateful to the Libyan authorities for their hospitality, collaboration and valuable input during technical and policy discussions. It benefited greatly from interactions with government and central bank officials.
2. While the challenges are daunting, economic activity could recover quickly when the security situation normalizes. Restoration of hydrocarbon production is well-advanced at over half of pre-revolution levels and remains critical to economic recovery and reconstruction will boost non-hydrocarbon economic activity. In the short term, the key challenges for the authorities are to exercise budget discipline and resuscitate the banking system while maintaining macroeconomic stability. Most of the UN sanctions that froze Libya's foreign assets (a total of 200% of 2010 GDP) were lifted on 16 December 2011, which will allow the Central Bank of Libya (CBL) to support the exchange rate. Medium-term issues include rebuilding infrastructure, reorienting the economy away from hydrocarbon dependence, and setting up a governance framework that promotes private sector development, job creation and inclusive growth.
II. Recent Economic Developments
3. GDP is estimated to have contracted by 60% in 2011 while consumer prices increased by 14%. During the conflict, crude oil production fell from an average of 1.77 million barrels per day in 2010 (2% of global output) to 22,000 barrels per day in July 2011. Non-hydrocarbon economic activity was also affected by the destruction of infrastructure and production facilities, the departure of expatriate workers, disruptions to banking activity, and limited access to foreign exchange. Accordingly, hydrocarbon GDP is estimated to have contracted by 71% in 2011, while non-hydrocarbon output declined by 50%. Inflation picked up significantly in 2011, reflecting constraints on imports, domestic supply limitations and monetary expansion.
4. The loss of hydrocarbon income has reduced the current account balance. Exports declined from $48.9 billion in 2010 to $19.2 billion in 2011, while imports declined from $24.6 billion to $14.2 billion in the same period due to the lack of access to foreign exchange. Accordingly, the current account balance decreased from a surplus of 21% of GDP in 2010 to 4½% of GDP in 2011.
5. As of end-2011, the Libyan dinar (LYD) was trading at a 20% discount on the parallel market. The value of the LYD fell on the parallel market in 2011 due to the inability of the CBL to sell foreign exchange because of the lack of access to its foreign assets. As of January 15, 2012, the spread between the official and parallel market exchange rates had narrowed to below 10%.
6. Budget revenue declined sharply due to the fall in hydrocarbon revenues while current expenditure increased in 2011. Revenue is estimated to have declined by 69% from 57% of GDP in 2010 to 39% of GDP in 2011. In 2010, expenditures on wages, subsidies and transfers were equivalent to 21% of GDP. The budget for 2011 was reallocated to accommodate: (i) first-quarter policy changes including increased salaries; (ii) the drop in oil revenues; (iii) humanitarian needs; and, (iv) a disruption of most capital expenditure. Spending on wages rose by approximately 60%, driven by a March 2011 public sector wage increase. The 2011 budget was financed by domestic borrowing of LYD 13.5 billion, revenues from hydrocarbon exports LYD 15.8 billion, as well as estimated arrears of LYD 6 billion.
7. Despite the removal of UN sanctions on the CBL the public sector's financial situation remains precarious. The bulk of foreign assets was unfrozen on 16 December 2011 and the authorities have mostly regained access. As of end-November 2011 around $3 billion had been made available to Libya and further amounts were made available toward the end of last year. The government is financing itself by borrowing from the CBL and drawing down its deposits. The counterpart to this on the CBL balance sheet is money creation, primarily through an increase in currency in circulation as well as in commercial bank balances at the CBL.
8. The money supply increased significantly in 2011 due to monetization of the budget deficit. Currency in circulation doubled from LYD 7.5 billion at end-2010 to LYD 15.4 billion at end-2011. In response to a shortage of banknotes - vault cash held by the CBL and commercial banks is largely exhausted - the CBL imposed a limit on cash withdrawals by individuals. Demand deposits increased by 13%, linked to forced savings caused by the limits on cash withdrawals.
9. In 2011, credit to the private sector declined by about 6%, compared to an increase of 14.3% in 2010. The change in the stock of credit during 2011 was affected by loan repayments, primarily through salary deductions, and limitations on trade financing due to constraints on access to foreign exchange. Linkages between the financial system and the real economy are weak, with the ratio of credit to GDP in 2010 less than 20%. Nevertheless, reduced bank lending to the private sector is likely to have had an adverse impact on non-hydrocarbon economic activity.
10. Commercial banks had adequate capital buffers before the conflict, but the quality of their assets has deteriorated. Non-performing loans (NPLs) in the banking system were 17.2% of total loans at end-2010 - one of the highest in the MENA region. Nevertheless, risk-weighted capital adequacy was 17.3% - well in excess of statutory requirements - and provisioning was 85%. Given the depth and length of the conflict, NPLs will have increased sharply due to economic disruption (which will delay some repayments) and because of a deterioration in asset quality (including physical destruction). Some loans may have been made to elements of the former regime and may be irrecoverable. Moreover, the threat of legal challenges to property seized by the former regime creates potential risks for the banking sector, particularly if these properties had been used as collateral. The magnitude of these losses has not been estimated. (IMF 26.01)
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11.17 ALGERIA: IMF Executive Board Concludes 2011 Article IV Consultations
On January 11, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Algeria on a lapse of time basis.
Background
Despite an uncertain international economic environment, the Algerian economy has been doing relatively well. Real non-hydrocarbon GDP growth in 2010 reached 6% and total GDP growth was 3%. Overall inflation fell to 3.9% in 2010 due to a fall in fresh food prices, while nonfood inflation remained low. Unemployment continued to decline slightly to 10% at end-2010, but youth and female unemployment remain high. The generally prudent macroeconomic management during 2000–10 has enabled large external reserves to be accumulated and sizable budgetary savings to be built up in the oil stabilization fund, while substantially reducing debt levels.
In 2011, growth is estimated to have remained solid and higher oil prices are strengthening Algeria's external balance and boosting fiscal revenues. The ripple effects of the Public Investment Program (PIP) are expected to maintain non-hydrocarbon growth at about 5%, and to bring overall GDP growth to about 2.5%. Higher international prices for food and substantial civil service pay rises have so far not led to significantly higher inflation, because of increased subsidies for basic food products, a higher level of household savings, greater demand for imports, and a vigilant monetary policy. Overall, inflation is expected to have stayed at about 4% in 2011. With higher oil prices, the current account surplus will increase to 9.5% of GDP in 2011 and hydrocarbon fiscal revenues rise by 30%. Official reserves have grown by $16 billion since end-2010, reaching $178 billion at end-August 2011 (three years of imports). The budget will remain in deficit at around 4% of GDP as a 32% increase in total expenditure, in particular higher public salaries and transfers, will more than offset higher fiscal revenues.
The outlook remains favorable in the short term, but fiscal sustainability and financial stability over the medium term have become more dependent on volatile oil prices. Growth will continue to be supported in the short term by public investment and the national hydrocarbon company's investment program. Non-hydrocarbon GDP could grow by 5% in 2012, but hydrocarbon output would continue to decline because of weak global demand, constraining overall growth to about 3–3.5%. Inflation would remain at about 4% if fresh food prices remain subdued and inflationary pressures from increased wages are contained. Over the medium term, the relatively high projected oil prices would sustain a positive external balance and large fiscal revenues, but the budget balance will remain in deficit.
Nevertheless, the expansionary fiscal stance of recent years has made the fiscal position vulnerable to oil price swings as the break-even price that balances the budget now slightly exceeds $100/barrel. Important downside risks will arise in the event of a worsening in the international economic environment and a prolonged decline in oil prices. The external and fiscal positions would be seriously weakened, likely forcing scaling down public investment and leading to slower growth and higher unemployment. Also, much smaller resources in the oil stabilization fund would be left over for future generations.
Important challenges persist, including the need for diversification of the economy, improving the business climate, reducing unemployment, as well as curtailing medium-term vulnerabilities. With public investment expected to play a less dynamic role in the economy, the private sector will need to become a stronger engine for growth and employment creation. To achieve this objective, in 2011 the authorities launched a series of consultations with social partners to improve the business environment, which is central to improving long-term growth prospects.
Executive Board Assessment
Executive Directors welcomed Algeria's overall good economic performance in recent years amid a difficult international economic environment. Nevertheless, they noted that significant challenges persist, and encouraged the authorities to renew their efforts to preserve macroeconomic stability, restore fiscal prudence and diversify the economy with a stronger private sector. Further reducing unemployment, especially among the young, and enhancing economic opportunities for all remain pressing needs. More decisive structural reforms are vital to achieving these goals.
Directors stressed that while high oil prices provide scope for addressing pressing social demands and maintaining social stability, this should be managed carefully to avoid inflationary pressures and preserve medium-term fiscal sustainability. They noted that the significant growth in current expenditure in 2011 has made the fiscal position vulnerable to the risk of prolonged lower oil prices. Directors encouraged the authorities to adopt fiscal consolidation measures, which could include limits on wage increases and new hires, and a better targeting of transfers and subsidies. The continuation of greater mobilization of non-hydrocarbon fiscal resources and tax administration reforms should also help reduce the budget's dependency on hydrocarbon revenues.
Directors emphasized the importance of ensuring good quality and efficiency of public expenditure. As the budget is the main lever in using and redistributing hydrocarbon wealth, they encouraged the authorities to build on recent progress in controlling the quality of public investment and to advance more forcefully in key areas of budgetary reform.
Directors commended the Bank of Algeria for containing inflationary pressures and effectively absorbing greater systemic liquidity from higher hydrocarbon revenues and large public spending. The significant growth in liquidity has not translated into higher inflation, but the risk of inflation has increased. In addition to the moderation of current spending, Directors noted that the authorities should consider tightening monetary policy early to prevent inflationary pressures from materializing. Directors considered that the exchange rate regime has served Algeria well. They welcomed the authorities' commitment to maintaining the real exchange rate close to equilibrium, but emphasized the need to strengthen exchange rate fundamentals, including the fiscal position and productivity gains.
Directors stressed that, to make a significant dent in unemployment, a more ambitious structural reform agenda should be implemented. While welcoming the authorities' efforts to support SMEs financing and improve the business environment, in consultation with social partners, they emphasized that stronger measures will be necessary for diversification of the economy, improving competitiveness, and boosting growth and employment. Directors also considered that the advances in financial sector reform should continue in order to address key constraints that limit financial intermediation and access to financing for the private sector. Moreover, they noted that increases in labor costs well above productivity gains, and constraints to private investment, such as the limitations to FDI adopted in 2009, hamper competitiveness and growth prospects. Directors encouraged the authorities to ensure a better synergy between macroeconomic policies and the structural reform agenda. They also encouraged the authorities to continue to seek better integration of Algeria into the regional and global economy. (IMF 27.01)
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11.18 PAKISTAN: Defense and Security Report for Q1 2012
BMI said Pakistan's security outlook remained severe in the closing stages of 2011, as terrorists continued to stage bomb attacks in Peshawar and other cities with apparent impunity. Relations with the United States and neighboring Afghanistan also reached crisis point.
The Pakistani-US relationship in particular plumbed to new depths in late November 2011, as US forces operating in Afghanistan attacked a Pakistani border post, killing 28 Pakistani troops. Islamabad accused the American forces of launching an unprovoked attack, while the Americans claimed to have responded to incoming fire. With US President Obama offering condolences but declining to apologize for the incident, the Pakistani government ordered US forces to vacate the Shamsi airbase, which has been used by US Predator and Reaper unmanned aerial vehicles (UAVs) as a base from which to strike suspected militant targets. It also said it would boycott an upcoming conference on Afghanistan's future due to be held in Bonn and blocked NATO supplies entering Afghanistan by road.
Even before this episode, US-Pakistani ties had been in turmoil following the killing of Osama bin Laden by US Navy Seals in Abbottabad during an operation conducted without the permission of the Pakistani government. The behind-the-scenes chaos the raid had created in Islamabad spilled out into the open in November, when the Pakistani ambassador to the US, Hussain Haqqani, was forced to resign over the leaking of a memo in which he appealed to the then US Head of the Joint Chiefs of Staff, Admiral Mike Mullen, to protect Pakistan's civilian government from a military coup. In September, shortly before retiring, Admiral Mullen had accused Pakistan's military intelligence agency, Inter Services Intelligence (ISI), of co-operating with the Taliban-affiliated Haqqani network. In his memo, the Pakistan ambassador told Mullen that he would have the sections of ISI that co-operated with the Taliban disbanded in return for US help.
Relations with the Afghan government also came under severe strain, as Kabul decided to strengthen its ties with India, despite the unfavorable reaction that the move was bound to provoke in Islamabad. After Afghan President Hamid Karzai visited New Delhi in October and signed a new Strategic Partnership Agreement, India announced that it would begin training Afghan security forces ahead of the pull-out of NATO forces in 2014. The move came against a backdrop of generally improving ties between Pakistan and India. In November, Pakistan conferred Most Preferred Nation status on India in a step that should boost bilateral trade. Prime Minister Yusuf Raza Gillani and his Indian counterpart Manmohan Singh said they believed they were opening a new chapter in India-Pakistan relations. However, India's improving relationship with Afghanistan remains hard for Islamabad to stomach, and it has the potential to derail further progress towards stable relations.
With the US seemingly starting to give up on Pakistan, Islamabad's alliance with China began to assume even greater importance. Gillani met Chinese Premier Wen Jiabao in November and the two sides agreed to advance their economic and Defense ties. The two countries are now also starting their push for export orders for their flagship joint military program, the JF-17/FC-1 Thunder fighter aircraft, which they showcased at the Dubai Airshow in November. That month, the Pakistan Air Force confirmed it had now raised two squadrons of JF-17s, with a third due to be added in 2012. With American funding now likely to dry up, the Pakistani armed forces will become ever-more dependent on Chinese procurement and co-development. (BMI 27.01)
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11.19 CYPRUS: Fitch Comments Further on Downgrade of Cyprus to 'BBB-'; Outlook Negative
Fitch Ratings http://www.fitchratings.com, on 27 January, provided further comment on the rating actions it took earlier today on the Republic of Cyprus (Cyprus), where its Long-term Issuer Default Rating (IDR) was downgraded to 'BBB-' from 'BBB', Negative Outlook, and its Short-term IDR was affirmed at 'F3'.
The downgrade follows the Rating Watch Negative (RWN) placed on the sovereign ratings of Cyprus and five other Euro Area Member States (EAMS) on 16 December 2011. The RWN was initiated in response to concern over the lack of clarity on the ultimate structure of a fundamentally reformed Economic and Monetary Union; the risk of self-fulfilling liquidity and even solvency crises in the absence of a fully-credible financial 'firewall' against contagion; and the significant negative external shock to the region's economy from the prolonged nature of the eurozone systemic crisis.
Whilst Fitch has reduced the score assigned to capture financing flexibility in its assessment of the credit profile of those eurozone sovereigns that have large fiscal financing needs and significant financial/economic imbalances, in Cyprus's case this was already reflected in its low investment-grade ratings. Instead, the one-notch downgrade of the sovereign rating mainly reflects the Cypriot banks' large capital need in light of the Greek debt restructuring expected this quarter.
Fitch estimates that the amount needed to recapitalize the three largest banks to a Tier 1 ratio of 10% following a 50% haircut on Greek government bonds (GGB) amounts to EUR0.9b or 5% of GDP. A 70% haircut would require EUR1.7b or 9.9% of GDP. The now higher likelihood of a haircut in the 50%-70% range, compared with Fitch's view in August, when a 20%-30% haircut was the agency's baseline, is the primary reason for the rating downgrade.
While two of the three largest Cypriot banks, Bank of Cyprus ('BBB-'/RWN) and Hellenic Bank ('BBB-'/RWN) have already impaired their GGB exposures by 50% of nominal value, and consequently reduced their exposure, further pressure on banks' capital is expected if the final GGB haircut is higher, notably in the case of Marfin Popular Bank ('BBB-'/RWN). In addition, Fitch believes internal capital generation will be weighed down by continuing asset quality problems in their Greek loan portfolios, and to a lesser extent Cypriot loan books.
As the Cypriot banks are large holders of Greek government bonds, the potential capital requirements will be correspondingly high. Fitch believes it is highly uncertain whether the necessary funds will be found in the private sector or whether government assistance for certain institutions will instead be required to meet such capital requirements. This would increase the government debt/GDP ratio and might require external assistance.
Whilst Cypriot banking sector exposure to Greece is significant the domestic banks have already written off a proportion of Greek government bonds. Approximately one third of the banking system's assets are booked as Greek exposure, including not only sovereign and bank bonds but substantial Cypriot bank loans to Greek companies and households.
The recorded 10-year yields on sovereign debt remain high at over 12% and the market has become shallow and illiquid. The rating reflects the loss of access to international markets, albeit the government is able to raise some funds on the domestic market (e.g. a three year bond was successfully sold in the local market earlier this month at a yield of 6.89%). Fitch also notes that despite the government's evident reluctance to approach its fellow EU members or the IMF for assistance, this is likely to be available, albeit with policy conditionality.
Since its last review of Cyprus in August 2011, the government has passed three consolidation packages and expects to bring the deficit down to 2.5% in 2012 from 6% of GDP in 2011. While Fitch does not see this target as realistic, forecasting instead at least 3%, the underlying fiscal stance is encouraging as is the fact that the measures were passed by a clear majority in parliament. In broad terms the package is designed to restrain public sector wage costs and employee numbers, cut welfare costs by a better targeting of recipients and raising taxes, including a rise in VAT from 15% to 17%.
The government has also effectively pre-funded the 2012 annual borrowing requirement mainly by negotiating a €2.5b loan from the Russian government. This will permit the repayment of over €1b in debt falling due in the first two months of 2012 which had been a consideration in Fitch's previous sovereign downgrade in August 2011. The government however remains unable to access the international debt markets. Nor is there any guarantee that further bilateral inter-governmental loans will be forthcoming.
An important outstanding policy issue is the future of COLA, the official wage adjustment to inflation process. The government has pledged to introduce reforms to the system, blamed by many for excessive wage rises in the past, by mid-year. The COLA system has been much valued by the powerful trade union movement and has previously proved immune to reform or abolition. The latest round of negotiations will provide one early test of the government's determination to reform the functioning of the economy.
The Negative Outlook primarily reflects the risk that the eurozone crisis could intensify further. Triggers for further negative rating action would include failure to implement fiscal consolidation, a failure to secure sufficient and timely external financial support if needed, or a major further deterioration in the banking sector outlook, such as capital flight via bank deposit outflows. Successful implementation of the 2012 and 2013 budgets, and the attainment of private sector recapitalization funds by the banks and their eventual return to normal profitability and funding would help to stabilize the Outlook. (Fitch 27.01)
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11.20 CYPRUS: Gas Strike
On 23 January the Economist observed that Cyprus has struck gas offshore, raising hopes amid the economic doom and gloom that its economic and political troubles will soon be over. However, there are many hurdles to overcome before revenue can be tapped and, in the current geopolitical environment, the gas find is more likely to raise tensions in the eastern Mediterranean than act as a catalyst for the solution of the decades-old Cyprus problem.
A lot of hot air
On 18 December, Noble Energy, a US-based company, announced the official results of oil and gas exploration in Block 12 in the southern part of Cyprus' Exclusive Economic Zone (EEZ). The amount of estimated natural gas, at between 5trn and 8trn cu ft, is enough to supply Cyprus' domestic consumption for around 200 years.
The news has been greeted with euphoria in a country that has seen successive downgrades by rating agencies worried about over-exposure of the banking sector to Greece. Without doubt a significant gas find will have substantial long-term benefits if it is managed well. At the very least, it means that Cyprus, which currently has the highest electricity costs in the EU, can produce cheap electricity. There could be spin-off sectors, such as the petrochemicals industry, although the combination of expensive deep-water extraction and higher labor costs than the Middle East might make petrochemicals an unviable option.
The greater opportunity, however, lies in exports. Of the three export options - pipeline to Turkey, pipeline to Greece, or a liquefied natural gas (LNG) plant - only the third is politically and economically viable. The Republic of Cyprus remains de facto divided between Greek Cypriots in the south and Turkish Cypriots in the north who are beholden to Turkey, which stations some 30,000-40,000 troops in the unrecognized Turkish Republic of Northern Cyprus (TRNC). A pipeline to Greece is probably too expensive, which leaves an LNG plant as the only real option. Experts note that 5trn to 8trn cu ft is probably just short of the optimal size in terms of economies of scale needed to feed an LNG terminal, therefore the focus is on joining with Israel to exploit its giant Leviathan field of 16trn cu ft. In preparation for a possible deal, the Cyprus government has been bolstering relations with Israel. The media expect Israel and Cyprus to sign a security co-operation agreement during the visit to Cyprus of the Israeli prime minister, Binyamin Netanyahu, on 16 February.
Building an LNG plant would be a massive investment for a $20b economy - estimates of the cost of construction range from $10b to more than $20b - and could take ten to 15 years to build. Therein lies the first risk, namely successive governments' inability to take decisions about important energy issues. Infighting among the various energy-related institutions, conflicts of interest and institutional inertia meant that a planned regasification plant that would reduce pollution and substantially lower electricity costs never got built. A similar story has emerged with natural gas. The director of the Energy Service, Solon Kassinis, has fought bitterly with the new commerce minister, Praxoula Antoniadou-Kyriacou, over his competences, and the state-owned Electricity Authority of Cyprus (EAC) has bickered with the gas-importing authority, the Public Gas Corporation (DEFA), over who has the authority to bring the gas onshore.
Turkish dislike
Nonetheless, the bigger risk lies in the response of Turkey. While Turkey has its own claims on blocks in the western EEZ, it objects to gas drilling in the south on the basis that natural resources on the island should be shared by the Greek Cypriot and Turkish Cypriot communities as co-founders in 1960 of the Republic of Cyprus. A breakdown of inter-communal relations in 1963 led to the withdrawal of Turkish Cypriots from government, a failed Greek-inspired coup and Turkish military intervention in 1974. This resulted in the splitting of the island and in 1983 the unilateral declaration of the TRNC, which is recognized only by Turkey.
Responding to what it perceives as Greek Cypriots' unilateral exploitation of a shared natural resource, Turkey sent a seismic exploration ship into Block 12 in late September. Subsequently, on November 2nd the TRNC granted eight exploration licenses to the Turkish Petroleum Agency (TPAO) in blocks that overlap most of the Cyprus EEZ, including part of Block 12. At present TPAO does not have the equipment to drill in very deep waters in the south. However, if, as seems likely, the Cyprus problem stays unresolved, Turkey's chances of EU membership remain dim and if Turkey's relations with Israel worsen, one can envisage a situation in which Turkey might be prepared to send seismic ships and rigs to drill in the more promising deep-water blocks, if it felt that the geopolitical gain was worth it. This could provoke a response from Israel (or Greece, in order to protect Cyprus), with unpredictable consequences for security in the eastern Mediterranean. (EIU 23.01)
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11.21 BULGARIA: Retail Report Q1 2012
Business Monitor International's Bulgaria Retail Report for Q1/12 forecasts that the country's total retail sales will grow from an estimated $10.89b in 2011 to $13.26b in 2015. Key factors behind retail market expansion include rising disposable incomes and Bulgarians seeking the choice and low prices offered by foreign and domestic chains. EU membership achieved at the start of 2007 and a substantial amount of foreign direct investment (FDI) have allowed retailers to make significant inroads into the market, contributing to forecast average annual retail sales growth of 4.8% in local currency terms between 2011 and 2015.
Bulgaria's nominal GDP in 2011 is forecast to be $48.9b, with growth of 2.7% expected for the year. Average annual GDP growth of 3.8% is forecast by BMI between 2011 and 2016. Although the population is predicted to decrease slightly, from 7.5m in 2011 to 7.2m by 2016, GDP per capita is forecast to grow by 36.5% to reach $8,957.
The growth in the overall retail market will be driven largely by a growing urban population, with higher disposable incomes and an interest in aspirational purchasing. According to the UN Population Division, the urban population in Bulgaria reached 72.2% in 2010 and will rise to more than 78.0% by 2030. Retail sectors that are likely to expand over the forecast period include consumer electronics, due to the growth potential offered by relatively low household penetration rates for digital products. BMI predicts that consumer electronics sales will rise by 23%, from a forecast $1.44b in 2011 to $1.77b by 2015.
In the automotive sector, sales of new imported completely built units should grow rapidly over the coming years, with BMI forecasting an increase in vehicle sales from 21,416 units in 2011 to 31,939 units by 2015, a rise of more than 49%. OTC pharmaceutical sales are predicted to increase by more than 13%, from $0.26b in 2011 to $0.30b by the end of the forecast period.
BMI food consumption data suggest that the food retail segment will have a market share of 47.4% in 2011. The sector is forecast to be worth $4.8b in 2011 and sales are expected to grow only by 4.2% to $5.0b by 2015. Given that expansion of non-food retail is expected significantly to exceed that of the food segment, BMI's forecast is for a reduction in the retail market share of food to 37.0% by 2015. Mass grocery retail (MGR) sales are forecast to reach $1.43b in 2011 and to grow steadily while overall food sales fall, increasing by 26.6% to $1.81b by 2015. Although Bulgaria's MGR sector is immature compared with most other countries in Central and Eastern Europe (CEE), rising disposable incomes over the longer term will provide a solid base for premiumization. BMI forecasts that MGR's share of the overall food market will rise from 31.0% in 2011 to 35.6% by the end of the forecast period.
Retail sales for the BMI universe of CEE countries in 2011 are forecast to amount to $1,281b based on the varying national definitions. Total consumer spending for the region based on BMI's macroeconomic database is expected to be $2,188b. Russia, Turkey and Poland are predicted to account for an estimated 79% of regional retail sales in 2011, a share that is likely to remain fairly stable through to 2015. Bulgaria's predicted market share of 0.8% in 2011 is expected to fall slightly, to 0.7%, by 2015. (BMI 24.01)
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