• Chief Scientist Funds Incubator Companies With NIS 350 Million
• Israel & Poland Sign Environmental Joint Declaration of Cooperation
• Egypt's Economy May Expand by 3 - 3.5% during FY10/11
• Cyprus Growth Accelerates In Fourth Quarter
• BrainStorm Cell Therapeutics Raises $3.6 Million
• Mantissa Develops Miniature Radar System
• Israel Fourth Quarter Growth Outstanding
• TUNISIA: After Ben Ali – Anticipation Toward 5% Economic Growth
  

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Ministry Publishes Tender For Road 6 Northern Extension

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 CSR Announces Merger With Zoran Corporation
2.2 Chief Scientist Funds Incubator Companies With NIS 350 Million
2.3 ATP Announces Strategic Expansion into Offshore Israel
2.4 Fluidigm and Eisenberg Brothers Join Forces in Israel Distribution Deal

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Qatar Airways Announces Move Into Canada
3.2 Central National-Gottesman Acquires Turkish Paper Merchant

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 ZenithSolar to Build Two 10 MW CHP Solar Stations in Gansu, China
4.2 Better Place Signs Sonol Recharging Station Deal
4.3 Israel & Poland Sign Environmental Joint Declaration of Cooperation

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Lebanon Ranked 134th on Growth Environment Scores Index
5.2 Lebanese Trade Deficit Balance Continues To Widen In January
5.3 Kuwait & UK Sign Nuclear Energy Agreement
5.4 Saudi Arabia Adopts Measures to Improve Social Standards
5.5 UAE Inflation Falls to 1.6% in January
5.6 Saudi Arabia & France Sign Nuclear Cooperation Accord
5.7 Egypt Delays Expected Reopening Of Stock Market
5.8 Egypt's Economy May Expand by 3 - 3.5% during FY10/11
5.9 Egypt's Revolution Cost to Tourism, Construction & Manufacturing Industries
5.10 Egypt's Bid for its First Nuclear Power Plant Postponed
5.11 Egypt Retail Report Q1 2011
5.12 IMF Says Tunisia Offers More Economic Certainties Than Egypt
5.13 Morocco Automobile Report for First Quarter 2011
5.14 Morocco Passes Consumer Protection Law

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkey Auto Report for First Quarter 2011
6.2 Cyprus Growth Accelerates In Fourth Quarter
6.3 Cyprus' January-November Trade Deficit Reaches €4.9 Billion

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7: GENERAL NEWS AND INTEREST

*REGIONAL:

7.1 Kuwait Celebrates 50th Independence & 20th Liberation Anniversaries

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Mazor Robotics Completes Funding Round of $6.3 Million
8.2 Rosetta Genomics to Raise $6 Million in Concurrent Offerings
8.3 BrainStorm's NurOwn Stem Cell Technology Promising to Treat Sciatic Nerve Injury
8.4 TransPharma Completes Phase 1b Clinical Trial of ViaDor-GLP1 Agonist for Diabetes
8.5 Yissum & Danziger Introduce Revolutionary Method for Modifying Plant Genomes
8.6 BrainStorm Cell Therapeutics Raises $3.6 Million

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 MiniFrame & LG Electronics Partner for POS Market Solution
9.2 TowerJazz Named Best Foundry Supplier by Skyworks Solutions
9.3 Mellanox Accelerator Wins Silver Medal Award from Storage Magazine
9.4 Skanska Selects ClickSoftware for Optimized Mobile Workforce Management
9.5 Alcatel-Lucent & Altair Enable TD-LTE Solutions for Emerging Markets
9.6 DEFENSOFT to Supports IDF Surveillance Array on the Israel-Egypt Border
9.7 Wavion Expands Wide-area Wi-Fi Coverage in San Luis Province, Argentina
9.8 LucidLogix Releases Virtu GPU Virtualization Software to Motherboard Manufacturers
9.9 Silicom Secures Major Design Win from Fortune-100 Networking Company
9.10 Clarion Events Chooses Magic Software's iBOLT
9.11 Civcom's First Multi-Rate Tunable Optical Transceiver for SAN Applications
9.12 Mantissa Develops Miniature Radar System
9.13 Israel's Ministry of the Interior Chooses Magic Software's uniPaaS Solution

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's Economy Grows by 5.4% in 2010
10.2 Israel Fourth Quarter Growth Outstanding
10.3 Israeli Demand for Homes Keeps Climbing
10.4 Israeli Bus Ridership Increases 24% Over 5 Years

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11: IN DEPTH

11.1 LEBANON: Prospects for a New Lebanese Government
11.2 JORDAN: Jordan Seeks to Preempt Discontent with New Government
11.3 JORDAN: A New Investment Landscape
11.4 JORDAN: King Abdullah II Got An Earful From Tribal Leaders
11.5 BAHRAIN: Fitch Places Bahrain on Rating Watch Negative Ratings
11.6 BAHRAIN: S&P Lowers Ratings One Notch to 'A-/A-2' On Heightened Political Risk
11.7 BAHRAIN: Moody's Places Bahrain's Sovereign Ratings On Review For Possible Downgrade
11.8 UNITED ARAB EMIRATES: Water Report for First Quarter 2011
11.9 OMAN: On Track
11.10 SAUDI ARABIA: Economy - Bearing Gifts
11.11 SAUDI ARABIA: Water Report Q1 2011
11.12 PAKISTAN: Freight Transport Report 2011
11.13 EGYPT: Egypt's Pound Depends On Political Progress
11.14 LIBYA: IMF Executive Board Concludes 2010 Article IV Consultation
11.15 LIBYA: Fitch Downgrades Libya to 'BBB', Rating Watch Negative Ratings
11.16 LIBYA: S&P Lowers Long-Term Ratings to 'BBB+' On Elevated Political Risk
11.17 TUNISIA: After Ben Ali – Anticipation Toward 5% Economic Growth
11.18 ALGERIA: Infrastructure Report 2011
11.19 MOROCCO: Agribusiness Report Q1 2011
11.20 CYPRUS: Moody's Downgrades Cyprus to A2 from Aa3
11.21 GREECE: Return to the Drachma? Greece May Have to Quit Euro

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 Finance Ministry Publishes Tender For Road 6 Northern Extension

On 1 March, the Ministry of Finance today published the request for proposals (RFP) for two extensions of Road 6 (the Cross-Israel Highway) toll road. The northern 20.5 kilometer section will cost an estimated NIS 3 billion to build. Even through both extension are planned as toll roads, the ministry is considering set up grants to the tender's winner in view of the project's low economic viability. The inter-ministerial tender committee published the RFP for the construction and maintenance of northern sections 3 and 7 of Road 6 as a BOT (build, operate, transfer) project. The tender committee comprises the ministries of finance and transport and the Cross Israel Highway Company. The winner will plan, finance and build the sections, and operate and maintain them for 30 years. (Globes 01.03)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 CSR Announces Merger With Zoran Corporation

Cambridge, England's CSR is to buy Zoran Corp. for $679m. In addition, CSR announces that it intends to return up to $240 million to shareholders via an on-market share buyback program. Following the merger, Zoran's shareholders will receive 35% of the merged company. For each Zoran share, the shareholders will receive 1.85 shares in CSR. Completion of the CSR-Zoran merger is expected in Q2/11, subject to CSR and Zoran shareholders and regulatory approvals. CSR is a supplier of wireless connectivity and location chips. It sells Bluetooth, GPS, FM, Wi-Fi and audio devices.

The merged company will provide differentiated, integrated technology that addresses the rapidly growing market for connected, location-aware multimedia devices including handsets, digital cameras and home entertainment equipment. Combining the two highly complementary technology portfolios is designed to uniquely position the merged company to deliver advanced platforms to capture and stream media-rich content. This will strengthen the ability of the combined customer base to provide differentiated products to the end consumer.

Haifa's Zoran Corporation (http://www.zoran.com) is a leading provider of digital solutions for the digital entertainment and digital imaging markets. With over two decades of expertise developing and delivering digital signal processing technologies, Zoran has pioneered high-performance digital audio and video, imaging applications and Connect Share Entertain technologies for the digital home. Zoran's proficiency in integration delivers major benefits for OEM customers, including greater capabilities within each product generation, reduced system costs and shorter time to market. Zoran-based DTV, set-top box, silicon tuners and receivers, DVD, digital camera, and multifunction printer products have received recognition for excellence and are now in hundreds of millions of homes and offices worldwide. (Zoran 20.02)

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2.2 Chief Scientist Funds Incubator Companies With NIS 350 Million

The Office of the Chief Scientist is investing NIS 350 million in 20 new start-ups at technology incubators. Five of the companies are in cleantech, eight are in software and telecommunications and seven are in the life sciences. Jerusalem's ProMining Therapeutics, which is developing molecules to treat cancer, is one of the companies receiving funding. Meytag Technology Incubator portfolio company Gensis, which is developing an automated system for the sale of bags of purified water, is another. (Globes 16.02)

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2.3 ATP Announces Strategic Expansion into Offshore Israel

Houston's ATP Oil & Gas Corporation is expanding its deepwater operating and infrastructure expertise to offshore Israel. Subject to approval of the Ministry of National Infrastructures (MNI), ATP has signed agreements to acquire five licenses, of which two are pending, in approximately 4,000 feet of water. The strategic use of their deepwater technical expertise in Israel is one facet of ATP's global diversification plan. Each license offers an attractive opportunity in the Levantine Basin which is emerging as a prolific area. The recently announced discoveries in offshore Israel totaling approximately 25 Tcf of natural gas have demonstrated a significant catalyst for the offshore hydrocarbons sector. ATP's ability to enter this area during the early stages of exploration and development enhances their future ability to acquire and develop desired proved undeveloped assets in this region. Israel is working towards energy independence and security of its natural resources by encouraging domestic offshore exploration and production. ATP will operate all its licenses with working interests ranging from 40% to 50%. Upon the award of the licenses, expected before the end of March 2011, ATP will discuss its estimated capital program projected to be minimal in 2011 and resource potential for the acquisitions. (ATP 24.02)

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2.4 Fluidigm and Eisenberg Brothers Join Forces in Israel Distribution Deal

South San Francisco, California's Fluidigm Corporation, the inventor of integrated fluidic circuits (IFCs), has appointed Eisenberg Brothers as its distributor in Israel. Eisenberg Brothers will offer Fluidigm's complete portfolio of BioMark, EP1 and Access Array Systems and the complete line up of Dynamic Array, Digital Array and Access Array IFCs for real-time PCR, digital PCR, genotyping, gene expression, copy number variation and absolute quantification for sequencing. Eisenberg Brothers is a leading supplier of Scientific, Optical, Electro-Optical and Medical equipment in Israel. Eisenberg Bros. has excellent and extensive connections in the scientific, medical and the high-tech markets in Israel for over 50 years. (Fluidigm 23.02)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Qatar Airways Announces Move Into Canada

Qatar Airways, the national airline of Qatar, is set to make its debut in Canada with the launch of scheduled flights to Montreal, effective 29 June. Canada's second largest city will be served with three-flights-a-week on Wednesdays, Fridays and Sundays using the airline's flagship Boeing 777-200 Long Range aircraft. The non-stop journey from the airline's hub in Doha to Montreal's Pierre Elliot Trudeau International Airport will be a total flying time of 13 hrs 20 minutes. The destination marks Qatar Airways' first foray into Canada following a series of bilateral negotiations in Doha last year, when the airline secured rights to fly passenger and cargo flights to the country. Montreal becomes the airline's fourth destination in North America. The airline currently operates daily flights to New York, Washington and Houston. (Qatar Airways 28.02)

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3.2 Central National-Gottesman Acquires Turkish Paper Merchant

Purchase, NY's Central National-Gottesman announced that its European subsidiary, Central National-Gottesman Europe GmbH, has acquired a 78% ownership interest in Korda Kagit Pazarlama ve Ticaret (Korda), one of Turkey's leading paper merchants. Korda was founded in 1996 and is now one of the largest distributors of printing papers and packaging grades to the Turkish market. The company is headquartered in Istanbul, where it maintains a 10,500 sq meter warehouse and administrative offices. Korda also operates three additional regional warehouses, with locations in Ankara, Izmir and Adana. Central National-Gottesman is a leading international marketer of pulp and paper. (CNG 16.02)

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4.1 ZenithSolar to Build Two 10 MW CHP Solar Stations in Gansu, China

ZenithSolar it has signed an MOU with the Energy Bureau of Gansu Provincial Development and Reform Commission of the People's Republic of China for cooperation in the development of combined heat and power (CHP) solar stations in the Gansu province. The MOU was signed at a ceremony in the provincial capital Lanzhou. Under the agreement, ZenithSolar will provide the technology for the installation of two 10 megawatt (MW) cogeneration plants based on ZenithSolar's Z20 CHP system. The Gansu province of China has a population of near 30m and is located in northwestern China approximately 1,200 kilometers from Beijing. The Gansu Province lies at the edge of the Gobi desert and has the best solar energy conditions in China and among the best anywhere in the world. The agreement is focused on two planned facilities which are to be located in the cities of Jiayuguan and Jinchang and to commence their installation during 2011. One of the installations will be used to provide electricity and process heat for an industrial plant and the other for a large neighborhood. Under the terms of the MOU, the Energy Bureau of Gansu will recommend the use of ZenithSolar's CHP system for other locations in the Gansu Province after the successful operation of the two pilot plants.

Kiryat Gat's ZenithSolar (http://www.zenithsolar.com) has developed a modular and easily scalable combined heat and power (CHP) high concentration photovoltaic system (HCPV). The core technology is based on a unique, proprietary optical design to extract maximum energy with minimal land usage. The highly efficient system provides high electricity output combined with heat at temperatures well suited for domestic hot water use. In addition the heat can be used for industrial process applications as well as other cogeneration applications. Zenith Solar has a unique, cost effective mass production capability based on the use of readily available materials and a vertically integrated supply chain. (ZenithSolar 22.02)

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4.2 Better Place Signs Sonol Recharging Station Deal

Electric car venture Better Place (http://www.betterplace.com) signed a strategic agreement with Sonol Israel to place electric car recharging points at Sonol gas stations. Better Place will bear the installation and operating cost of the recharging points. Better Place Israel says that electric cars are scheduled to enter the Israeli and other markets this year, and that the company is rapidly moving forward on deploying the necessary infrastructure nationwide. The battery replacement terminals will operate alongside Sonol's gasoline and diesel pumps. The system provides for the rapid and safe removal of the empty battery from the car and its replacement with a fully charged battery within minutes. (Globes 01.03)

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On 24 February Israel and Poland signed a joint declaration of cooperation on water supply and sustainable energy technology management policy. This and other agreements were signed by Deputy Foreign Minister Ayalon and Polish Minister of the Environment Blaszczyk. The declaration is concerned with the planning, defense, development and mobility of water sources and sustainable energy, with emphasis on bilateral cooperation for the benefit of the citizens of both countries. The cooperation is primarily in the realms of promoting investment, exchange of technologies, increasing dialogue and exchange of information, and the establishment of uniform standardization. Cooperation will be in the form of rotation of specialists, both professionals and technicians, and will include reciprocal learning tours, joint projects and research, training courses, exhibitions and workshops. In addition, cooperation between private entities on the above issues will be increased. (MFA 24.02)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Lebanon Ranked 134th on Growth Environment Scores Index

Global investment bank Goldman Sachs ranked Lebanon 134th among 182 nations globally on its Growth Environment Scores index for 2010, up from 142nd place in 2009 but down from 85th place in 1997. Goldman Sachs also ranked Lebanon 97th among developing nations, up from 104th place in the previous survey but down from 46th place in 1997. Lebanon also came in 18th among 23 countries in the Middle East and North Africa region, unchanged from the previous year and down from ninth place in 1997. Additionally, Lebanon came in last place among 43 Upper Middle Income Countries included in the survey, unchanged from 2009 but down from 22nd place in 1997. The GES is a composite measure of economic growth conditions in 182 countries that summarizes the overall growth environment and that ranks countries according to their ability to achieve their growth potential.

Lebanon got a score of 4.1 points, up from 3.69 points in the previous year but down from 3.95 points in 1997. Lebanon's score was less than the global average score of 5.25 points, the UMICs' mean of 5.55 points, the developing economies' mean of 4.75 points, the MENA average score of 5.2 points and the Arab mean score of 5.2 points. The scores of 19 countries in the region improved year-on-year and four declined, while the ranks of nine countries improved and 14 declined. Singapore posted the highest score in the world and Bahrain had the best score across developing economies. (TDS 21.02)

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5.2 Lebanese Trade Deficit Balance Continues To Widen In January

The balance of trade deficit in Lebanon continued to widen up to January 2011 despite attempts by industrialists and farmers to increase exports to Arab states and Europe. According to statistics issued by the Customs Department, imports in January alone jumped by 39% to $1.729b compared to the same month of 2010 while exports fell by 5% to $297m. Imports in 2010 reached $17.964b compared to $4.253b in exports and this caused the balance of trade deficit to stand at $13.697b, one of the highest in Lebanon's history. The government collects high revenues from tariffs on imports. Industrialists complain that the high cost of production and the unfair competition from other states that subsidize their locally made goods makes it very difficult for them to increase exports to other markets. (TDS 28.02)

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5.3 Kuwait & UK Sign Nuclear Energy Agreement

Kuwait's Prime Minister Sheikh Nasser Al-Mohammad Al-Jaber Al-Sabah met visiting UK PM Cameron on the latest regional developments and several issues of mutual interest. Following talks, two memos of understanding were signed between the parties on peaceful nuclear usage, technical business and trade cooperation. Another two memos of cooperation were signed between Kuwait Petroleum Corporation (KPC) and British Petroleum (BP) and Shell. A national personnel training agreement was also hammered out between Kuwait Oil Company and Shell. (KUNA 22.02)

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5.4 Saudi Arabia Adopts Measures to Improve Social Standards

King Abdullah announced measures to improve social welfare and living standards of Saudi nationals. Measures include increasing housing spending by $10.7 billion and social security by $266.7 million. In addition, it was announced that Saudi Credit Bank (SCB)'s capital, which provides Saudi families most in need with interest-free loans and aids SMEs, will be raised to SAR30 billion. Furthermore, King Abdullah decided to exempt borrowers from the SCB from paying two installments over two years. Other measures include creating 1,200 jobs in supervision programs, aiding unemployed nationals for one year, and setting a permanent 15% cost-of-living allowance for government employees. Beltone expects Saudi Arabia's King Abdullah to start introducing measures to contain any potential discontent among a growing Saudi population, as the political turmoil across the region threatens Saudi Arabia's internal political stability. Despite Saudi Arabia's massive oil wealth it suffers from high unemployment rates especially among Saudi youth, standing at 10% in 2009 and suffers from a shortage of affordable housing to the poor. In addition, the ruling family has been criticized domestically because of their seeming high expenditures. Furthermore, Saudi Arabia has been growing at very modest growth rates over the past decade, despite the government's increasing and large fiscal spending bills. Beltone highly commend the country's measures to improve the social welfare and living standards of Saudis; however, there is a lot more to be done to improve the country's democratic governance, which is expected to surface as a major criticism by citizens, particularly given the regional political changes. (Beltone 24.02)

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5.5 UAE Inflation Falls to 1.6% in January

Inflation in the UAE fell to 1.6% on an annual basis in January and an unexpected drop in food costs helped to push consumer prices into a second monthly decline in a row. Consumer price growth in the world's third largest oil exporter hovered close to 1% for most of 2010. Inflation was 1.7% in December, above 0.9% for the full year of 2010, which was the lowest annual level since the Gulf war started in 1990. In January, living costs in the UAE fell by 0.3% month-on-month, the same decline as in the previous month. Record high global food prices, which helped spur a popular revolt that has gripped much of the Arab world, are one of the main factors seen fuelling inflation in the Gulf, the world's top oil exporting region, this year. Food costs, which account for 14% of the UAE basket, dropped by 0.8% in January after a 1.6% fall in the previous month, mainly due to a seasonal decrease in vegetable, fish and fruit prices. Food price developments also differed across seven emirates that make up the UAE, the second largest Arab economy after Saudi Arabia. Housing prices, the largest consumer expense at over 39% of the basket, fell by 0.5% in January as new units came to the property market. Transport costs were flat on the month, the data showed. (BI-ME 28.02)

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5.6 Saudi Arabia & France Sign Nuclear Cooperation Accord

Saudi Arabia signed a bilateral agreement with France for cooperation on the development of peaceful nuclear energy. Beyond the production of nuclear power, areas of cooperation will include research and development, training, safety and waste management. This is the first nuclear agreement signed by Saudi Arabia. Although it sits on the world's largest oil and gas reserves, Saudi Arabia is struggling to keep up with rapidly rising power demand as petrodollars have fuelled a Gulf-wide economic boom as well as a rapid population growth. Power demand is expected to trebled by 2032, requiring additional energy plants with total installed power production capacity of 80 gigawatts (GW). France has a total installed capacity of around 100 GW. Saudi Arabia aims to study alternatives on offer worldwide as part of a long-term program to build alternative energy plants for electricity production and water desalination. (BI-ME 22.02)

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5.7 Egypt Delays Expected Reopening Of Stock Market

Egyptian officials have again delayed the restart of the country's stock exchange, a move that brokers said would likely only undercut investor confidence in a market many expect to take a hammering as the country struggles to regain footing after massive protests that ousted its longtime president. The Egyptian Exchange, closed for over a month, was to resume trading on 1 March. But exchange officials said the market would reopen instead on 6 March to "allow investors to profit from the government's support to guarantee stability in the bourse." The decision reflected the strong undercurrent of unease in the Arab world's most populous nation where the market's benchmark stock index had shed almost 17% in two consecutive trading sessions before it closed at the end of the business day on 27 January. The exchange's closure was repeatedly extended as protests in Egypt gained momentum demanding Mubarak's ouster. Even after he was pushed from power, the suspension continued as massive labor strikes gripped the country and banks closed for a week. (Al Masry 01.03)

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5.8 Egypt's Economy May Expand by 3 - 3.5% during FY10/11

Egypt's central bank said Egypt's economy is likely to expand by 3 - 3.5% during FY10/11 ending in June 2011. Central Bank Deputy Governor Ramez said that the economy would be much more positive in the medium term and the Suez Canal would likely not be affected by the unrest. Egypt's political unrest will probably halve the country's economic growth in FY10/11, but the economy should rebound quickly after that, the central bank added.

The government had projected growth of 5.8% up to 6.2% for FY10/11, but a decline in tourism and industrial production since anti-government protests broke out on January 25th meant it would be far lower. The Central Bank had expected $10 - 12 billion to leave the country in the first two to four days after banks opened from a week-long closure on 6 February, but the feared outflow did not materialize.

Beltone feels the impact of the political events in Egypt will undermine its growth prospects in the short term, through a slowdown in domestic demand (which has been the main growth driver in Egypt, accounting for 72% of GDP in FY09/10). They had asserted that the longer the political uncertainty remains, the more extensive the effect on domestic demand will be. The revolution has led to a first of phase of production halts which did not end with Mubarak stepping down. Egypt has entered another phase of production halts that are caused by strikes across the board, adding more downward pressure on growth prospects in the short term.

Therefore, Beltone reviewed their estimates downward to 3.5% in FY2010/11 from an earlier projection of 4.5%, to reflect the current situation. The deceleration in growth in domestic demand will reflect badly on growth in almost all of the economic sectors. However, some sectors have been, and will remain, more affected than others. They expect tourism (hotels and restaurants), financial institutions, manufacturing and construction to be impacted more severely than other sectors in the short term as the impact is more direct. The growth outlook in the medium term will improve, slightly, as domestic demand picks up more rapidly, on the back of an improvement in private and government consumption, although investment expenditure is expected to remain affected for a longer period of time. (Beltone 20.02)

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5.9 Egypt's Revolution Cost to Tourism, Construction & Manufacturing Industries

The revolution in Egypt has cost the tourism, construction and manufacturing industries at least $1.7b, according to data released by CAPMAS. The tourism sector has suffered on the back of hotel cancellations and a decline in salaries of employees working in the sector. February bookings were cancelled amounting to losses of $825 million for February. The government said before Mubarak's resignation on 12 February that about 1 million tourists fled Egypt, costing it some $1b. Manufacturing lost E£3.7b during the period between 28 January – 5 February, with production in the key industrial zones falling by 60%. The construction sector lost E£762m.

Beltone feels that construction and manufacturing are most likely to continue to suffer more losses until the situation is resolved between the employees and managers of companies and factories where there are strikes. Tourism will likely rebound once safety in Egypt is guaranteed, although they expect a relatively quick recovery in inbound tourism to the Red Sea resorts. (Beltone 20.02)

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5.10 Egypt's Bid for its First Nuclear Power Plant Postponed

The international bidding process for the construction of Egypt's first nuclear power plant for electricity generation in Al Dabgha has been postponed. The tender will be postponed until the political situation in Egypt stabilizes, to ensure the largest number of companies with different nationalities enter the bid. An international consultant is currently working with the Ministry of Electricity and Energy to identify additional locations to Al Dabgha for the construction of nuclear plants and develop the necessary infrastructure for it. (Beltone 20.02)

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5.11 Egypt Retail Report Q1 2011

Research and Markets (http://www.researchandmarkets.com) Egypt Retail Report Q1 says the country's retail sales will grow from an expected $30.14b in 2011 to $41.09b by 2014. Key factors behind the forecast growth in Egypt's retail sales are an extremely large and youthful population, the emergence of more affluent middle class, a vibrant tourism industry and the growing acceptance of modern retail concepts. Egypt's nominal GDP is predicted to be $254.55b in 2011, with growth set to match 2010s level of 5.1%. Average annual GDP growth of 5.3% is forecast by BMI between 2011 and 2014. With the population increasing from 86.0m in 2011 to an estimated 90.3m by the end of the forecast period, GDP per capita is predicted to rise by 49.0%, reaching $4,489.

Egypt's substantial population makes it the largest market in the Arab world, with the population of the Cairo area alone over 15 million people in 2008. Alexandria is also a large city, with a population of more than 4 million. In 2005, 63.3% of the Egyptian population was described by the UN as economically active, with 36.3% in the 20-44 age range crucial for retail sales. In 2010, an estimated 65.1% of the population was active, while the proportion of those in the 20-44 age band is forecast to reach 37.4%.Increasing urbanization is also contributing to growth in the retail sector. In 2005, 42.3% of the population was classified by the UN as urban, and this was estimated at 43.2% by 2010. (R&M 17.02)

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5.12 IMF Says Tunisia Offers More Economic Certainties Than Egypt

On 16 February, the Director of the International Monetary Fund (IMF) for North Africa, the Middle East and Central Asia said the economic outlook is more certain for Tunisia than Egypt. For the IMF, the Tunisian economy will revive more swiftly that the Egyptian one, even though the two economies would be affected by the drop of tourism and reluctance of investors facing the political uncertainty arising from the change of the political regime. The Tunisian authorities themselves said they expect a growth of 2% to 3% in their economy this year. The IMF remarked that this seems a very reasonable forecast. Events are still underway in Egypt, more than Tunisian, and it is difficult for anyone to make accurate projections on the extent of the economic impact. (TAP 16.02)

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5.13 Morocco Automobile Report for First Quarter 2011

Research and Markets (http://www.researchandmarkets.com) "Morocco Autos Report Q1 2011" says that so far 2010 has been a mixed year for the Moroccan auto industry. The first quarter of the year saw sharp falls in the sales of both imported cars and locally-produced complete knocked down (CKD) models, down by 7% year on year (y-o-y) in total. The second quarter of 2010 then saw the market gain some traction, in the wake of Casablanca's successful hosting of the 2010 Auto Expo, which boosted consumer interest in the purchase of new cars. Indeed, both May and June saw strong gains in passenger car sales y-o-y, which led to some hope within the country that the stagnation in the Moroccan auto sector was coming to an end. Total H1/10 sales (imports + CKD) stood at 48,925 units, which was a drop of 2.49% y-o-y. The most recent data from Morocco's Association of Vehicle Importers (AIVAM) for August 2010 has shown that the operating environment for car companies remains tricky and that the short-term boost to sales provided by the Auto Expo coupled with attractive financing deals tied in to the hosting of the motor show has now faded. August sales of imported cars stood at 4,280, with locally-produced CKD sales standing at 1,951, for a total of 6,231 units. Monthly sales were also impacted by the fact that Ramadan fell mainly in August during 2010. (R&M 24.02)

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5.14 Morocco Passes Consumer Protection Law

The Moroccan Parliament enacted a long-awaited law to safeguard consumer rights. To put an end to unregulated sales practices, Moroccan lawmakers passed a much-anticipated law that guarantees transparency about goods and services and protects consumers against violations. The bill was first drafted in 1999 but left in the drawers of the Secretariat of State for ten years before being presented to Parliament and adopted on 5 January.

The legislation lays down obligations to provide appropriate and clear information about products purchased or used by consumers. It aims to protect customers against certain clauses in contracts, deemed unfair or related to financial services, loans for purchases of goods or real estate, advertising, remote sales and door-to-door selling. It also stipulates that compensation must be paid for losses incurred by consumers and outlaws false and misleading advertising.

Sales have been a particular bone of legal contention. Consumers could fall prey to swindles without having the right to make complaints. The new provisions compel traders to display the previous price, which must be crossed out, as well as the new price and the periods for which sales last. The law will enable consumer protection organizations to appear in court to help customers. At present, in cases of consumer rights violations, people don't know what to do or whom to contact. (Magharebia 16.02)

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkey Auto Report for First Quarter 2011

Research and Markets' (http://www.researchandmarkets.com) "Turkey Autos Report Q1 2011" says the Turkish auto industry has continued to develop in a dramatic fashion. Growth has already overtaken many forecasts for the year and BMI believes that Turkey's auto industry is quickly regaining its position as one of the global success stories in this market. Automobile production in Turkey grew an impressive 29% year-on-year (y-o-y), to just under 917,700 units during the first 10 months of 2010, according to estimates from the country's Automotive Manufacturers' Association (OSD). With this performance, Turkey not only overshadows BMI's already-optimistic estimate for over 11% y-o-y output growth by end-2010, but is also likely to regain its position as the biggest carmaker in emerging Europe (outside of Russia). The Czech Republic overtook Turkey in terms of autos production in 2009, following the latter's 26% y-o-y drop in output. In view of these trends, BMI has revised up its 2011 production expectations to just under 1.1mn units, signaling a complete recovery from the over 26% y-o-y fall in production in 2009. When compared with the feeble 4.4% growth expected in Czech autos output, to just over a million by end-2010, Turkey seems to be making a clear breakthrough. (R& 24.02)

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6.2 Cyprus Growth Accelerates In Fourth Quarter

Economic growth in Cyprus accelerated in the fourth quarter of 2010 compared with the year earlier according to the Statistical Service. GDP is estimated to have risen in real terms by 2.1% over the corresponding quarter of 2009, compared with 1.9% in the third quarter and only 0.5% in the second. One reason was the low baseline: growth contracted by 2.9% over the year earlier in the fourth quarter of 2009. On seasonally and working day adjusted basis, the real GDP growth rate is estimated at 2.2%, compared with 1.8% in the third quarter. One slight note of caution was the deceleration compared with the previous quarters. Growth rose in seasonally adjusted terms by 0.3% over the previous quarter, down from 0.8% in the third quarter and 0.6% in the second. The Statistical Service said that relative to previous quarters, growth is mainly attributed to the improved performances for tourism, transport, trade and banking activities. The broad services sector also continued to show positive results, while construction and manufacturing were still negative. According to Sapienta Economics estimates based on the quarterly figures, the growth rate for the whole of 2010 was around 0.9%. (FM 15.02)

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6.3 Cyprus' January-November Trade Deficit Reaches €4.9 Billion

The trade deficit in Cyprus reached €4,891.4m in January-November 2010 compared with €4,326.8m in the corresponding period of 2009 according to revised data. Total imports/arrivals (covering total imports from third countries and arrivals from other Member States) in January-November 2010 amounted to €5,930.4m compared with €5,215.3m in January-November 2009. Total exports/dispatches (covering total exports to third countries and dispatches to other Member States) in January-November 2010 reached €1,038.9m compared with €888.4m in January-November 2009. During November 2010 total imports/arrivals (covering total imports from third countries and arrivals from other Member States) were valued at €710.2m. Total exports/dispatches (covering total exports to third countries and dispatches to other Member States) including stores and provisions in November 2010 amounted to €111.4m. Exports/dispatches of domestically produced goods, including stores and provisions, reached €52.0m whilst exports/dispatches of foreign goods, including stores and provisions, reached €59.4m. (FM 15.02)

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7: GENERAL NEWS AND INTEREST

*REGIONAL:

7.1 Kuwait Celebrates 50th Independence & 20th Liberation Anniversaries

On 25 February, Kuwait celebrated its50th anniversary of independence and 20th anniversary of liberation, as well as the 5th anniversary of Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah assumption of power. The National Day marked the creation of Kuwait as a nation in 1961. On this day, the national celebrations included public meetings, firework displays and celebrations. After Kuwait gained independence from the United Kingdom in 1961, the nation's oil industry saw unprecedented economic growth. In 1990, Kuwait was invaded and annexed by neighboring Iraq. The seven month-long Iraqi occupation came to an end after a direct military intervention by United States led forces. Around 773 Kuwaiti oil wells were set ablaze by the retreating Iraqi army resulting in a major environmental and economic catastrophe. Kuwait's infrastructure was badly damaged during the war and had to be rebuilt. Kuwait is a constitutional monarchy with a parliamentary system of government, with Kuwait City serving as the country's political and economic capital. The country has the world's fifth largest oil reserves and petroleum products now account for nearly 95% of export revenues, and 80% of government income. Kuwait is the eleventh richest country in the world per capita. In 2007, it had the highest human development index (HDI) in the Arab world. Kuwait is classified as a high income economy by the World Bank. (Global Arab Network 26.02)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Mazor Robotics Completes Funding Round of $6.3 Million

Caesarea's Mazor Robotics (http://www.mazorrobotics.com), a developer of innovative surgical robots and complementary products, has closed a PIPE funding round of $6.3m, led by the Phoenix Holdings Company and including the participation of additional leading Israeli financial institutions. Mazor will use the capital to expand its worldwide sales and marketing operations. The funding will significantly strengthen Mazor's ability to capture greater market share and to fully demonstrate the capabilities of SpineAssist to spine surgeons, neurosurgeons and orthopedic surgeons in key markets, specifically in the U.S. SpineAssist is a specifically designed surgical robotic system that enables surgeons to conduct spine surgeries in an accurate and secure manner. The system has been successfully used in the placement of thousands of implants in the US, Europe and Israel and has been scientifically proven to increase the accuracy of spinal implants and significantly lower rates of misplaced screws and neurological deficits. For patients, this translates to fewer complications and revisions; and the minimally invasive technique contributes to faster recovery, with less pain and scarring. Additionally, the SpineAssist results in less radiation exposure for the patient, surgeon and entire OR team while in surgery. (Mazor Robotics 24.02)

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8.2 Rosetta Genomics to Raise $6 Million in Concurrent Offerings

Rosetta Genomics has entered into definitive agreements with investors to purchase an aggregate of $6m in securities in concurrent private placement and registered direct offerings. The closings are subject to the satisfaction of customary closing conditions. Under the terms of the private placement, Rosetta will sell an aggregate of 4,541,668 ordinary shares at a price of $0.60 per share. Rodman & Renshaw acted as the exclusive placement agent for both offerings.

Rosetta Genomics is a leading developer of microRNA-based molecular diagnostics. Founded in 2000, the company's integrative research platform combining bioinformatics and state-of-the-art laboratory processes has led to the discovery of hundreds of biologically validated novel human microRNAs. Building on its strong patent position and proprietary platform technologies, Rosetta Genomics is working on the application of these technologies in the development of a full range of microRNA-based diagnostic tools. (Rosetta 17.02)

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8.3 BrainStorm's NurOwn Stem Cell Technology Promising to Treat Sciatic Nerve Injury

BrainStorm Cell Therapeutics announced that intramuscular transplantation of autologous, astrocyte-like cells that produce and secrete neurotrophic factors (NTFs), representing the company's NuOwn technology platform, preserved motor function, significantly inhibited the degeneration of the neuromuscular junctions (NMJs) and preserved the myelinated motor axons in an animal sciatic nerve injury model. The findings from this study demonstrating that BrainStorm's autologous NurOwn stem cell therapy can alleviate signs of sciatic nerve injury is an important milestone for the company. In a study conducted at Tel Aviv University, mesenchymal stem cells (MSCs) isolated from the femurs and tibias of adult rats were developed into NurOwn using a two-step medium based differentiating protocol to induce the MSCs into NTF secreting cells. These cells produce and release high amounts of NTFs, such as glial derived neurotrophic factor (GDNF) and brain derived neurotrophic factor (BDNF). The NTF secreting cells (NurOwn) were labeled with superparamagnetic iron oxide (SPIO) to enable tracking of surviving cells following injection into the muscles of the right hind limb 24-hours after sciatic nerve crush. Four days after transplantation, there was a statistically significant beneficial effect on the motor function in the NurOwn treated animals compared to the control rats, which did not receive cell transplants, or rats transplanted with non-differentiated MSCs. The high compound muscle action potential and low latency indices recorded in the hind limb muscles of NurOwn treated animals provided evidence that NurOwn preserved the myelinated motor axons and innervated peripheral muscles. Histology of the animal's hind limb muscles 3-weeks after transplantation revealed significant amount of pre-labeled NurOwn cells and high levels of BDNF in the muscles.

The NurOwn technology processes adult human mesenchymal stem cells that are present in bone marrow and are capable of self-renewal as well as differentiation into many other cell types. The research team is among the first to have successfully achieved the in vitro differentiation of adult bone marrow cells (animal and human) into astrocyte-like cells capable of releasing neurotrophic factors, including glial-derived neurotrophic factor (GDNF). The ability to induce differentiation into astrocyte-like cells along with intramuscular or intrathecal (or other) delivery makes NurOwntechnology highly attractive for treating ALS and Parkinson's disease as well as MS and spinal cord injury.

Petah Tikva's BrainStorm Cell Therapeutics (http://www.brainstorm-cell.com) is an emerging company developing adult stem cell therapeutic products, derived from autologous (self) bone marrow cells, for the treatment of neurodegenerative diseases. The Company holds rights to develop and commercialize the technology through an exclusive, worldwide licensing agreement with Ramot at Tel Aviv University, the technology transfer company of Tel-Aviv University. (BrainStorm 23.02)

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8.4 TransPharma Completes Phase 1b Clinical Trial of ViaDor-GLP1 Agonist for Diabetes

TransPharma Medical announced the successful completion of a Phase 1b trial of ViaDor-GLP1 agonist, which is being developed for the treatment of diabetes mellitus type II. The Phase 1b study was a single-dose, four-way cross over study designed to evaluate the pharmacokinetic (PK) profile, safety and tolerability of ViaDor-GLP1 agonist in diabetic patients using TransPharma's extended release state-of-the-art film patch of GLP1 agonist. The study was performed on 14 type II diabetic patients, and evaluated a once daily application of three patch formulations, as compared to a twice daily subcutaneous injection of Exenatide (Byetta). The results of the study demonstrate ViaDor-GLP1 agonist to be safe and well-tolerated with a preferable extended PK profile compared to Exenatide (Byetta), the injected GLP-1 agonist. Transdermal applications of ViaDor-GLP1 agonist resulted in therapeutic blood levels for approximately 20 hours compared to 6 hours post injection of Exenatide. Concurrently, post postprandial glucose levels were consistent with ViaDor-GLP1 extended PK profiles.

TransPharma's ViaDor drug delivery system incorporates a handheld electronic device, which creates microscopic passageways through the outer layer of the skin allowing for transdermal delivery of a wide variety of drugs from a patch. The system provides a cost-effective, easy-to-use, self-administered solution that enables the safe, reproducible and accurate delivery of a broad range of product candidates, including hydrophilic small molecules peptides and proteins. Established in 2000, Lod's TransPharma Medical (http://www.transpharma-medical.com) is a specialty pharmaceutical company focused on the development and commercialization of drug products utilizing its proprietary active transdermal drug delivery technology. The company aims to develop multiple drug products through strategic partnerships with leading pharmaceutical companies and through independent product development. Transpharma currently has 3 drug products in clinical trials: ViaDor-hPTH (1-34) product for the treatment of osteoporosis developed in collaboration with Eli Lilly currently in Phase 2b clinical studies; ViaDor-GLP1 agonist for the treatment of type II diabetes has completed phase 1b testing and the ViaDor-Calcitonin for the treatment of musculoskeletal disorders completed phase 1 clinical trials. (TransPharma Medical 22.02)

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8.5 Yissum & Danziger Introduce Revolutionary Method for Modifying Plant Genomes

Yissum Research Development Company, the Technology Transfer Company of the Hebrew University of Jerusalem, and Danziger Innovations introduced a novel, groundbreaking method for genetic modifications in plants that is precise, quick, effective, reliable and applicable to all plants. The novel method uses a modified plant virus in order to transiently infect the plant tissues and cells with genes that encode a special enzyme that is able to permanently change the plant genome in predetermined regions and in a specific manner. The unsuspecting plant cells manufacture these biological DNA editing scissors which then act to cut and change the plant genome in every virus-infected cell. The virus is then eliminated from the plant, and the seeds or vegetative tissues can be grown to generate fully modified plants. The new technique, called MemoGene, has already proven to be efficient in a wide variety of monocot and dicot plant and crops, including peppers, cucumbers, potatoes and tomatoes, as well as wheat, maize, cotton and canola. The technology is jointly patented by Yissum and Danziger Innovations.

Beit Dagan's Danziger Innovations (http://www.danziger-innovations.com), established in 2008, is a biotechnological company dedicated to the development of new and advanced breeding solutions. The Company's main current platform, MemoGene, is an innovative technology enabling site specific mutation and site specific transformation in all plants. (Yissum 22.02)

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8.6 BrainStorm Cell Therapeutics Raises $3.6 Million

BrainStorm Cell Therapeutics has entered into securities purchase agreements with certain institutional and other investors in connection with a private placement financing in reliance upon Regulation S. BrainStorm received gross proceeds of approximately $3.6m resulting from the sale of shares at a purchase price of $0.28 per share at the closing of the transaction. Proceeds from the placement will be used to fund the Phase I/II clinical trial in patients with amyotrophic lateral sclerosis (ALS) as well as for general corporate purposes. Barak Capital Underwriting acted as the lead underwriter for the offering.

BrainStorm's core technology, NurOwn, processes adult human mesenchymal stem cells that are present in bone marrow and are capable of self-renewal as well as differentiation into many other cell types. The research team is among the first to have successfully achieved the in vitro differentiation of adult bone marrow cells (animal and human) into astrocyte-like cells capable of releasing neurotrophic factors, including glial-derived neurotrophic factor (GDNF). The ability to induce differentiation into astrocyte-like cells along with intramuscular or intrathecal (or other) delivery makes NurOwn technology highly attractive for treating ALS and Parkinson's disease as well as MS and spinal cord injury. BrainStorm's stem cell therapy contains human mesenchymal stromal cells induced to differentiate into astrocyte-like cells secreting neurotrophic factors by means of a specific differentiation-inducing culture medium.

Petah Tikva's BrainStorm Cell Therapeutics (http://www.brainstorm-cell.com) is an emerging company developing adult stem cell therapeutic products, derived from autologous (self) bone marrow cells, for the treatment of neurodegenerative diseases. The Company holds rights to develop and commercialize the technology through an exclusive, worldwide licensing agreement with Ramot at Tel Aviv University, the technology transfer company of Tel-Aviv University. (BrainStorm 28.02)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 MiniFrame & LG Electronics Partner for POS Market Solution

MiniFrame and LG Electronics (LG) announce a strategic partnership to offer a joint solution for the Point of Sale (POS) market. The joint solution includes new LG network POS (Multi POS) monitors and MiniFrame's SoftXpand desktop virtualization software. With SoftXpand, any PC can be shared among multiple concurrent users providing virtual desktop workstations. Each workstation operates independently and offers top performance and high flexibility. That means each user may run several applications simultaneously, including POS-oriented programs. MiniFrame and LG offer a total POS multi-seat solution where 1 PC is connected to as many as 5 POS virtual workstations over a network. Each POS workstation may include a Touch Screen Monitor, audio output, a receipt printer and other POS peripherals; and is connected over a TCP/IP network to the host PC running the SoftXpand software.

Netanya's MiniFrame (http://www.miniframe.com) is a leading player in the software desktop virtualization market. The company develops and markets its SoftXpand technology that transforms the world of desktop computing, by turning any computer into multiple independent workstations. SoftXpand software drastically reduces the amount of hardware required, resulting in significant reductions in Total Cost of Ownership, and is recognized by industry experts as the ultimate green IT solution. SoftXpand products provide top-performance multi-seat solutions for various B2B and B2C markets. (MiniFrame 17.02)

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9.2 TowerJazz Named Best Foundry Supplier by Skyworks Solutions

TowerJazz has received the 2010 Foundry Supplier of the Year Award from Skyworks Solutions, an innovator of high reliability analog and mixed-signal semiconductors enabling a broad range of end markets. This award was granted to TowerJazz for the third consecutive year in recognition of TowerJazz's excellent quality, performance and solid alignment with Skyworks' supply chain requirements. Skyworks, a TowerJazz customer since 2002, utilizes a broad set of the foundry's specialty process offerings including mixed-signal CMOS, RFCMOS, BiCMOS and SiGe BiCMOS, to develop a wide range of Skyworks' products such as transmit/receive modules, power amplifier controllers, switch controllers, linear devices, and wireless LAN solutions.

Migdal Ha'Emek's Tower Semiconductor (http://www.towerjazz.com) and its fully owned U.S. subsidiary Jazz Semiconductor operate collectively under the brand name TowerJazz, manufacturing integrated circuits with geometries ranging from 1.0 to 0.13-micron. TowerJazz provides industry leading design enablement tools to allow complex designs to be achieved quickly and more accurately and offers a broad range of customizable process technologies including SiGe, BiCMOS, Mixed-Signal and RFCMOS, CMOS Image Sensor, Power Management (BCD), and Non-Volatile Memory (NVM) as well as MEMS capabilities. To provide world-class customer service, TowerJazz maintains two manufacturing facilities in Israel and one in the U.S. with additional capacity available in China through manufacturing partnerships. (Tower Semiconductor 17.02)

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9.3 Mellanox Accelerator Wins Silver Medal Award from Storage Magazine

Mellanox Technologies announced that the Mellanox VSA Storage Acceleration Software won the Silver Medal award in Storage Magazine/ SearchStorage.com's ‘Product of the Year' in the networking equipment category. VSA provides ultra-fast remote block storage access over a 10 Gigabit Ethernet or InfiniBand fabric. The software can be deployed over industry-standard servers to enable high-performance x86-based storage or gateways, supporting up to 500K IOPS and 6GB/s of throughput per storage target with 50us access time. The judges applauded VSA for its performance and innovation. One judge said the VSA “sets a new standard for Linux storage performance,” while another called it a “unique product that solves real operational market problems with exceptional value.” The ‘Products of the Year' competition recognizes the best new or updated storage products.

Mellanox Technologies (http://www.mellanox.com) is a leading supplier of end-to-end InfiniBand and Ethernet connectivity solutions and services for servers and storage. Mellanox products optimize data center performance and deliver industry-leading bandwidth, scalability, power conservation and cost-effectiveness while converging multiple legacy network technologies into one future-proof architecture. Founded in 1999, Mellanox Technologies is headquartered in Sunnyvale, California and Yokneam, Israel. (Mellanox 16.02)

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9.4 Skanska Selects ClickSoftware for Optimized Mobile Workforce Management

ClickSoftware Technologies announced that Skanska UK's Utilities Operating Unit, part of the Swedish construction group Skanska, has selected its ServiceOptimization Suite. Skanska will run ClickSoftware's Mobile Enterprise Application on iPhone smartphones and iPad tablets to drive efficiency, improve customer service, enhance workforce productivity and reduce the impact on the environment. Of particular importance to Skanska is the capability of ClickSoftware's Mobility Suite to operate on Apple iOS-based devices such as iPhone and iPad. ClickMobile will steer field engineers through relevant information capture and service processes via their iPhone and iPad mobile devices. This will include site schematic diagrams, safety procedures, project plans and customer and asset historical information. ClickMobile also provides a two-way conduit allowing engineers to record important service level information in the field on their Apple devices to be fed back to the enterprise, and where appropriate the end client.

Tel Aviv's ClickSoftware (http://www.clicksoftware.com) is the leading provider of automated workforce management and optimization solutions for every size of service business. Their portfolio of solutions, available on demand and on premises, creates business value through higher levels of productivity, customer satisfaction and operational efficiency. (ClickSoftware 17.02)

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9.5 Alcatel-Lucent & Altair Enable TD-LTE Solutions for Emerging Markets

Altair Semiconductor announced that their TD-LTE solution, combining Altair's 4G LTE chipsets and Alcatel-Lucent's LTE infrastructure, has successfully completed interoperability (IOT) testing and will take part in several TD-LTE field trials in India and China, scheduled to start in the coming weeks. The solution offers carriers the most mature and cost effective TD-LTE solution available in the market today. TD-LTE, a 4G wireless standard which was designed to operate in unpaired spectrum, is emerging as the de-facto 4G standard for TDD spectrum globally. Since China Mobile's selection of TD-LTE as its 4G upgrade path, TD-LTE has received strong support from leading carriers around the world.

Hod HaSharon's Altair Semiconductor (http://www.altair-semi.com) is the world's leading developer of ultra-low power, small footprint and high performance 4G semiconductors. The company's products provide device manufacturers integrating 4G LTE technology into their products with a highly power-optimized, robust and cost-effective solution. Altair's comprehensive product portfolio includes baseband processors, multi-band RF transceivers for both FDD and TDD bands, and a range of reference hardware and product level protocol stack software. (Altair 17.02)

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9.6 DEFENSOFT to Supports IDF Surveillance Array on the Israel-Egypt Border

DEFENSOFT Planning Systems has been selected by the Israeli Ministry of Defense, under a competitive tender for terrain and related analyses to produce optimum specifications, quantities, and locations for detection, surveillance and communication systems for controlling the Israel-Egypt Border. Under the contract DEFENSOFT will supply the Israeli Defense Forces (IDF) with its LIGHTHOUSE software and database, as well as related planning and consulting services for performing the analyses, specification and layout of detection, surveillance and communications equipment. The value of the contract is estimated to reach over $1m. Yokneam's DEFENSOFT (http://defensoft.com) is a private company engaged in development and marketing of software systems and services for analysis, planning, and specification of perimeter security for borders, oil and gas facilities, airports, seaports, military bases, and other critical infrastructures. DEFENSOFT sells LIGHTHOUSE software and services to commercial and government clients in Israel and other countries. In the US the products are sold under the brand name CRITERRA by DEFENSOFT's subsidiary BSEC Planning Corp. (DEFENSOFT 14.02)

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9.7 Wavion Expands Wide-area Wi-Fi Coverage in San Luis Province, Argentina

Wavion, the University of La Punta and TecnoRed of Cordoba, Argentina, announced the expansion of the high-speed wireless network, providing free internet access in the entire San Luis province in Argentina. This second phase expansion, approved by the Governor of San Luis adds more than 100 WBS-2400 base stations to cover 10 additional towns in the province. This is on top of almost 600 WBS-2400 base stations already deployed and covering more than 80 towns. Wavion's Carrier-Grade unique and powerful WBS-2400 spatially adaptive Beamforming base stations provide extended range, higher throughput and Non-Line-Of-Sight (NLOS) coverage. As a result, unlike more conventional equipment, they do not require costly high towers and can be easily installed on poles and yet provide widest homogeneous coverage and indoor penetration. Moreover, the flexible architecture and ruggedized IP-67 weather-proof enclosure add significantly to the unique value offering for Telecom Operators.

Yokneam's Wavion (http://www.wavionnetworks.com) is a technology leader in outdoor Wi-Fi applications in metro and rural areas with deployments in more than 65 countries. The company's digital Beamforming and SDMA technologies are the first and only to resolve the significant performance, penetration and profitability challenges facing large scale metro and rural deployments. Featuring Wavion Base Stations (WBS) in 2.4 GHz and 5 GHz unlicensed bands and in 700MHz licensed band, Wavion offers end-to-end solutions including access, backhaul, CPEs and management solutions. (Wavion 24.02)

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9.8 LucidLogix Releases Virtu GPU Virtualization Software to Motherboard Manufacturers

The pioneer of multi-vendor/multi-GPU graphic solutions, LucidLogix released Virtu GPU virtualization software for 2nd Generation Intel Core processor platforms to global motherboard manufacturers. With this technology, next-generation PCs will dynamically balance the advanced power-efficient, built-in media features of Intel Core processor graphics with the high-end, DirectX 11 3D, anti-aliasing and performance features of discrete GPUs, while significantly reducing the power drain of traditional entertainment desktops. Ultimately, the consumer is assured optimal simultaneous performance in 3D gaming and video functions like transcoding and HD playback without the need to swap video cable connections between GPUs. Lucid GPU virtualization software assigns tasks in real time to the best available graphics resource based on power, performance and features considerations, with no need for additional hardware. If graphics power is needed for applications like high-resolution 3D gaming, the system will assign the job to the discrete GPU. If not, the discrete GPU automatically goes into idle mode, while heat drops, fan speed slows down and GPU utilization goes down to zero, resulting in a green, power-efficient, long-lasting system.

Kfar Netter's Lucid Technologies (http://www.lucidlogix.com) has reinvented multi-core graphics with its HYDRALOGIX real-time distributed processing engine that improves visual computing for both business and gaming applications. A fabless SoC provider, Lucid's innovations are protected by more than 60 patents pending. (Lucid 22.02)

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9.9 Silicom Secures Major Design Win from Fortune-100 Networking Company

Silicom announced that the Security Business Unit of one of its major customers, a Fortune-100 company and one of the world's largest providers of networking security solutions, has selected Silicom to supply the multi port server adapters required for its new firewall appliances. Based on the customer's forecasts, Silicom expects sales of these adapters to ramp up to an initial level of approximately $2m per year until its older generation of appliances is fully replaced by the new one, and then to continue to grow gradually. The Design Win represents a strategic departure for this customer, which has traditionally relied on internally-developed customized solutions for use in its appliances. The customer gave Silicom an opportunity to create a solution for a specific challenge in one of its appliances, and, impressed by the speed of its response and the technological excellence of its solution, recognized the advantage of utilizing Silicom products in conjunction with its own. As such, the customer has now developed confidence in Silicom's technologies and solutions, and may begin to consider their deployment throughout its portfolio.

Kfar Sava's Silicom (http://www.silicom.co.il) is an industry-leading provider of high-performance networking solutions designed to increase the throughput and availability of networking appliances and server-based systems. Silicom's large and growing base of OEM customers includes most of the market-leading players in the areas of WAN Optimization, Security and other mission-critical gateway applications. Silicom's products include a variety of multi-port 1/10 Gigabit Ethernet server adapters, innovative internal and external BYPASS solutions and advanced Smart adapters, including SSL encryption solutions and Redirector adapters. (Silicom 22.02)

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9.10 Clarion Events Chooses Magic Software's iBOLT

Magic Software Enterprises announced that Clarion Events, one of the UK's leading exhibition and event organizers, chose Magic Software's iBOLT to extend the life of its System i and JD Edwards environment while rolling out a new Windows-based CRM tool. Clarion Events required a single integration technology that would extend the life of JD Edwards on System i, enable simple data integration with a brand new Windows-based corporate CRM system (FCPRO), and allow smooth and quick data integration from newly acquired businesses and subsidiaries into a centralized JD Edwards environment, all without having to make changes to its own current systems infrastructure. Clarion Events selected iBOLT because of its rapid development and integration capabilities, multi-platform functionality, easy visual mapping, strong return on investment, low total cost of ownership, and its tight interface to the IBM System i platform. Or Yehuda's Magic Software Enterprises (http://www.magicsoftware.com) is a global provider of cloud and on-premise application platform and business integration solutions. (Magic 24.02)

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9.11 Civcom's First Multi-Rate Tunable Optical Transceiver for SAN Applications

Civcom is launching the industry's first multi-rate transceiver for DWDM telecom and data optical networks. The new transmitter/receiver supports 1Gbps - 10Gbps rates, allowing usage of the same line card as network capacity grows hence reducing client TCO. The MLR transceiver is a small-size long-reach widely-tunable module, perfectly suitable for SAN applications. Channel capacity upgrades on SAN systems traditionally required the replacement of the line card array on both transmitter and receiver ends. With the new module Civcom offers the flexibility of using the same card as system capacity is upgraded, saving additional lifecycle investments. System vendors and line card manufacturers can now offer their customers an unprecedented broad range of applications, bitrates and channel flexibility. As is the case with all Civcom's FREE LIGHT transponder modules, the MLR interface is compatible with the 300-pin MSA and I²C interface and uses a widely tunable laser to cover the entire C-Band. It uses a Negative or zero- chirp Mach Zehnder indium phosphate modulator to enable high performance under OSNR load across the entire C-Band and over long distances. A configurable CDR is used to tune the transceiver between data rates of 1.06, 1.25, 2.12, 4.25, 8.5, 10.3, and 10.5Gbps through standard I²C commands.

Petah Tikva's Civcom (http://www.civcom.com) is a pioneer in the development and manufacturing of the cost-saving dynamic opto-electronic FREE LIGHT tunable transponders and FREE PATH manageable dispersion compensation modules, with bitrates of 1Gbps to 45Gbps for Telecom and high density data transfer applications. Civcom leads the way in the field of dispersion tolerance transmission providing solutions for some of the most progressive tunable transponders. Civcom was acquired in 2008 by Padtec of Brazil. (Civcom 01.03)

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9.12 Mantissa Develops Miniature Radar System

Mantissa announced that it has successfully completed the demo stage of its miniature radar, the size of a household camera. The patented system includes a sensor that combines high-frequency millimeter wave technology with innovative software algorithms that enable the radar to function in all weather and to identify threats with great precision. The radar will be sold at a much lower price than existing products. This will make Mantissa's security solution especially attractive for a wide variety of applications. The company is currently seeking an investment of $3m in order to complete the product's development and launch it in the market. Mantissa's miniature MSHRS-300X sensor demonstrates the capabilities required for securing strategic facilities, critical infrastructures and borders. It works day and night, in all weather conditions, and weighs a mere 490 grams. Its staring antenna enables vehicle recognition from a distance of up to 600 meters and can distinguish people from animals at 300 meters. The radar provides full information of target range, velocity, azimuth and heading. Due to its size and weight, it is portable and easy to install.

Mantissa was founded in 2009 by Dr. Ehud Fishler, who serves as the company's CTO. It operates in the Mofet B'Yehuda Venture Accelerator, part of the Trendlines Group. The Mofet B'Yehuda Venture Accelerator (http://www.mofet.org.il) was founded in 1991. It was privatized in 2007, when it was acquired by the Trendlines Group (http://www.trendlines.com). It is home to companies in various sectors, including the environment, agriculture and medical devices. (Mantissa 28.02)

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9.13 Israel's Ministry of the Interior Chooses Magic Software's uniPaaS Solution

Magic Software Enterprises announced that its business partner, Elad Software Systems, will migrate the Israeli Ministry of the Interior's current applications to uniPaaS. This migration will benefit local users and field controllers using mobile terminals. With uniPaaS, the Ministry of the Interior will have an updated applications infrastructure that quickly enables the rapid adoption of new technologies, allows easy maintenance and works through a clear and intuitive user interface. The new platform will allow field teams to access the system via mobile devices, including cellular equipment. This solution will achieve both cost and time savings of up to 80% when compared to other solutions. Elad Software Systems will conclude the entire project within two months.

Tel Aviv's Elad Software Systems (http://www.elad.co.il) offers its clients comprehensive IT solutions and end-to-end services based on a variety of technologies. Elad Software Systems accompanies its clients throughout the way including consultation, software development, application, training and assimilation, wide-ranging support, outsourcing services and managed services. Or Yehuda's Magic Software Enterprises (http://www.magicsoftware.com) is a global provider of cloud and on-premise application platform and business integration solutions. (Magic Software 28.02)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's Economy Grows by 5.4% in 2010

The Central Bureau of Statistics announced on 16 February that Israel's Gross Domestic Product (GDP) grew by 5.4% in the first half of 2010 after a previous 5% increase. The data show a rise in the commercial deficit; a significant rise in housing, construction and transportation investment and a sharp rise in per capita expenditure of gas, water and electricity. Per capita expenditure of basic products rose by 10%. Most notably, per capita car purchases rose by 18.4% in 2010's second half. A significant rise (7.7%) was noted in the expenditure of gas, water and electricity. (CBS 16.02)

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10.2 Israel Fourth Quarter Growth Outstanding

On 16 February, the Central Bureau of Statistics announced that Israel's GDP rose at an unprecedented pace of 7.8%, on an annualized, seasonally adjusted basis, during Q4/ 10. The GDP rose by an annualized 5.4% in H2/11, after rising by 5% H1/11 and 3.4% in H2/09. The growth rate in the fourth quarter was the fastest since 2006, when Israel fought the Second Lebanon War, after which the economy showed robust growth.

The high growth rate in the second half of 2010 demonstrates the success of the Netanyahu government's original economic policy, including the biennial budget formulated two years ago. This policy, together with a robust private sector, the Bank of Israel's monetary policy and the industrial quiet following the economic package deal with the Histadrut (General Federation of Labor in Israel) has brought Israel admirable economic achievements.

Minister of Finance Steinitz said that the 2011-12 budget includes strong measures to boost growth while reducing social gaps, especially the extension of the earned income tax credit nationwide, which gives low income-earners a substantial salary supplement from the state. The government has also diverted resources to improve education, improving infrastructures and building a network of railways and highways to the periphery. (CBS 16.02)

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10.3 Israeli Demand for Homes Keeps Climbing

The Central Bureau of Statistics announced on 28 February that the demand for new homes continued to climb in January 2011, rising 1.5% to 3,684 homes from 3,630 homes in December 2010. The increase continues the trend of recent months, although it appears to be slowing, together with an easing in the number of new homes sold. Figures for the coming months may indicate whether this is a trend, or a one-off event. Demand for homes rose by an annualized 30% in November-January, after rising at a similar rate in August-October 2010. The strongest demand was in the Central District, which accounted for 46% of total demand in January, compared with just 5% in the Jerusalem District. On the basis of new home sales in January, the inventory of new homes is sufficient for 7.9 months, i.e. the time needed to sell all remaining unsold apartments. The inventory amounts to 16 months in the Jerusalem District, 11 months in the Northern District, eight months in the Central District, seven months in the Tel Aviv District, and five months each in the Haifa and Southern districts, assuming that the pace of sales remains unchanged and there are no housing starts. (CBS 28.02)

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10.4 Israeli Bus Ridership Increases 24% Over 5 Years

The Ministry of Transport announced that bus ridership in Israel rose by 24%, from 480 million passengers in 2004 to 594 million in 2009. The ministry is still processing data for 2010. An analysis of bus travel in 2009 found that Egged Israel Transport Cooperative Society still carried the largest number of passengers - 46.6% of the total - a decade after the decision to privatize some routes. Dan Public Transport Co. carried 23.4% of all passengers and the smaller bus operators carried 30% altogether, close to their proportion of bus lines (28%). Egged increased its passenger traffic by 5%, while there was no change at Dan. Some 34% of passengers use the bus companies' monthly passes, while 26% of passengers paid the regular fare. (Globes 21.02)

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11: IN DEPTH

11.1 LEBANON: Prospects for a New Lebanese Government

Majdoline Hatoum wrote in 23 February in the Carnegie Arab Reform Bulletin (http://www.carnegieendowment.org/arb) that Lebanon's Prime Minister-designate Najib Mikati has a tough job ahead: forming a cabinet strong enough to endure the political storm expected to rise from the findings of the United Nations' Special Tribunal for Lebanon (STL) on the 2005 assassination of former Prime Minister Rafik Hariri. Hezbollah's role in naming Mikati has led the March 14 camp (under whose umbrella he ran during the 2005 parliamentary elections) to label him a tool in Hezbollah's plan to control the cabinet and to discredit the STL's anticipated implication of the party. Mikati - a multi-billionaire Sunni businessman who is credited with having overseen the highly polarized 2005 parliamentary elections that brought the March 14 coalition to power during his first term as premier - strongly denies he is being used by Hezbollah. He has vowed to form a moderate government encompassing all political factions in the country, or, failing that, a government of technocrats.

To that end, the new premier has engaged with several members of the March 14 coalition to explore the possibility of joining his government, despite the fact that he is not obligated to do so constitutionally or politically. According to the Lebanese constitution, Mikati may form his cabinet based on the majority in Parliament, which now means March 8 forces (Hezbollah and its allies). If he did so, the new premier could work with ministers from the same political milieu and save himself much bickering over how things should be run.

Mikati prefers to form a national unity government, but regaining the trust of the March 14 coalition is proving much more difficult than he expected. Members of the Western-supported alliance have refused to join Mikati's cabinet unless he commits to respecting the Tribunal's findings, a condition the veteran politician has rejected. Former Prime Minister Saad Hariri said at the memorial of his father's assassination on February 14 that the movement will remain in the opposition.

Hezbollah's main Christian ally, former General Michel Aoun, has been making Mikati's job difficult as well. Aoun, who has the second largest parliamentary bloc after Hariri, is insisting on choosing the interior minister, which until now has been the prerogative of President Michel Sleiman. If Aoun's request is met, it could mean a new era for a ministry that has been independent under Interior Minister Ziad Baroud so far, evoking fears that it could play a role in resisting STL findings.

Hezbollah has been adamant that it wants the memorandum of understanding signed with the STL revoked and has accused the UN tribunal of serving as a U.S. and Israeli tool aimed at weakening its power. In fact, Hariri's refusal to do so had been the main instigator behind the March 8 group's decision to quit his government and observers view the fulfillment of this demand as a clear prerequisite by the party for any upcoming cabinet. Mikati, however, has the support of a large number of Christian representatives in parliament, as well as Amal and the Druze leadership (since Walid Jumblatt switched camps), in addition to that of Hezbollah. Recognizing that Hezbollah would not be able to find a better and more credible Sunni partner than he, Mikati has the leverage to face any excessive Hezbollah demands.

Mikati's own views on the STL, and any commitments he has made to Hezbollah on the subject, remain unclear. Hezbollah's Deputy Chief Sheikh Naim Qassem said on February 11 that Mikati's government would be “a political government for clear political choices,” interpreted by some to imply that the new premier has secretly given his word to support Hezbollah's position on the STL. Mikati, on the other hand, said in an interview on 1 February that his own agenda “is to maintain very good relations with the international community,” adding that “Lebanon has to fulfill its commitments.”

Many Lebanese fear that a Hezbollah-orchestrated government might lead the country to a confrontation with the international community, with the possibility of Lebanon eventually facing UN economic sanctions if it fails to cooperate with the tribunal. For a country already burdened by over $53 billion of debt and with no natural resources to support its economy, the results could be catastrophic.

In addition to dealing with the outcome of the STL's findings, Mikati's government will also have other serious challenges at hand; addressing the country's deep economic woes is of the utmost importance following his predecessor's failure to do so. The new government is expected to introduce structural reforms in various sectors including telecommunications, electricity and water, education, and health. Passing such reforms requires political stability, however, which is likely to remain elusive in light of the deep political polarization in the country.

Mikati did prove, during his short time in office in 2005, that he was able to steer the country during a highly volatile period that saw, among other things, the withdrawal of the Syrian military after a 30-year presence in Lebanon. But it is also true that during that time, he had the full backing of March 8 and March 14 forces. That is no longer the case.

Majdoline Hatoum is co-founder and partner at Mideastwire.com. (CARB 23.02)

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11.2 JORDAN: Jordan Seeks to Preempt Discontent with New Government

Mohammad Hussein Al-Momani wrote on 16 February in the Carnegie Arab Reform Bulletin (http://www.carnegieendowment.org/arb) that King Abdullah II's 1 February appointment of Prime Minister Marouf al-Bakhit, replacing Samir Rifai, was in a sense nothing unusual; al-Bakhit is the seventh prime minister in the past twelve years. What distinguishes this change is that it comes at a time when regional politics are in a flurry and the domestic scene is increasingly tense due to economic hardships. The new government's basic task is to carry out concrete, immediate, and significant political reform measures. Reforms are expected to fall short of the Islamist opposition's demands, however, particularly demands to amend the constitution and make the prime minister's position elected rather than appointed. Reform decisions are likely to be guided by a fundamental strategic concern, namely that Jordan pass through this stage unscathed and remain insulated from regional events.

The composition of the new government has brought few surprises. While only six ministers retained their posts and some opposition figures appear in the 27-member cabinet, important posts went to familiar names such as Foreign Minister Nasser Joudeh, Finance Minister Mohammed Abu Hammour and Planning Minister Jaafar Hassan. Bakhit's cabinet also includes former Muslim Brother Abdelrahim Okour (Minister of Awqaf and Islamic Affairs), former chairman of the Jordan Bar Association Hussein Mujalli (Minister of Justice), and journalists Taher Adwan and Tareq Masarweh (Minister of State for Media Affairs and Minister of Culture, respectively). The new ministers can be described as economically conservative, but some have been on record suggesting political reform. Overall, the government is less technocratic in makeup than its recent predecessors.

The Islamic opposition (the Muslim Brotherhood and its political arm, the Islamic Action Front) initially rejected the new prime minister's appointment, demanding instead a figure that would be seen by the public as being more neutral. The Islamists' position suggests they believe that they can press for major reforms as a result of regional events and Jordan's economic conditions, which have led to an unprecedented level of discontent.

The Islamists are opposing Bakhit based on his record as prime minister from 2005 to 2007, when he was entrusted with forming a government in the wake of the bombings at three Amman hotels by Abu Musab al-Zarqawi's al-Qaeda-linked group in November 2005. Bakhit is experienced in security and strategic affairs, with a background as a military general, university professor, negotiator in the peace talks with Israel and an ambassador to Turkey and Israel. He does not have a strong economic and political reform record, and it is not clear yet whether he will deliver on significant reforms he once opposed.

Bakhit's economic reform orientation is closest to the social market economy approach followed in several European countries, particularly Germany and Scandinavia. This is a capitalist philosophy that advocates a competitive, open-market economy, but also takes into account the repercussions for vulnerable socio-economic classes and so calls for an active state role in providing welfare for these citizens. In this sense, Bakhit is in the middle of the ideological spectrum, between those who want a completely open free market system in Jordan and assume that society will adjust to it, and the traditionalists who believe in preserving the state's role of protecting the middle class economically and enhancing security and stability. Bakhit's own middle-class background might have helped to solidify his economic perspective, which is expected to make him popular with the spontaneous, unorganized opposition that has emerged lately in response to difficult economic conditions.

Political reforms have not been Bakhit's strong suit. In his previous term in office, a municipal election law was passed granting women a 20% parliamentary quota and ending the practice of appointing half of the municipal council members; these decisions were widely praised by the Jordanian opposition. Despite this progressive law, however, the 2007 municipal elections were fraudulent to an unprecedented degree, which prompted the Islamist movement to withdraw three hours after polling stations opened their doors.

Bakhit nonetheless managed to persuade Islamists to take part in the parliamentary elections held three months later, which he promised would be fair, unlike the municipal elections. Bakhit insisted on the Brotherhood's participation because he wanted the elections to be credible and competitive enough to win international and domestic recognition, and the Islamists' eventual consent to take part was counted as a political victory for him. The 2007 parliamentary elections were once again fraudulent, however, as was widely recognized by both the Jordanian public and decision makers. Islamists blamed the Bakhit government, which had promised fair elections, even though they and most of the political elite realized that his government at the time had been unable to control the technical management of the electoral process.

Between his first government's resignation in 2007 and his appointment this month, Bakhit has discussed his ideas about political reform in several lectures and symposiums. At the core of his vision is that Jordan should adopt a political reform program over a span of 30 years with the declared target of eventually reaching a fully democratic state. Bakhit's vision does not seem to be consistent with the royal emphasis on "immediate" reform, however, and is also at odds with the extraordinary regional situation. Consequently, it is yet to be seen whether he will adjust his vision and adopt concrete reform measures as per the king's directives.

The anticipated political reforms include redrawing the geographic boundaries for parliamentary sub-districts, giving more independence and integrity to the management of the electoral process, and perhaps introducing a partial proportional representation system to increase political parties' representation in parliament (a step Bakhit has opposed in the past). The demand that the constitution be amended so that the prime minister is elected will probably be disregarded, not only because of the belief that the Jordanian political scene is not ready to take such a big leap, but also because the current constitution already allows the parliament to vote to dismiss any prime minister.

The change of government by the king can be seen as a positive response to the demands of the organized and spontaneous opposition movements. It remains to be seen, however, how Bakhit will put the king's directives into action. His appointment can also be viewed as a preemptive reform policy in light of current events in the region, despite the essential structural differences between Jordan and the other countries facing a wave of demands for reform. Jordan is different in that it has always maintained a minimum level of respect for freedom and human rights, and because the king enjoys the consensus support of all of the political movements, including the Islamists.

Mohammad Hussein al-Momani is an associate professor in the political science department at Yarmouk University. (CARB 16.02)

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11.3 JORDAN: A New Investment Landscape

OBG observed that with efforts to accelerate the pace of economic growth and boost domestic employment taking centre stage under the new government of Prime Minister Bakhit, a new law is under discussion that would focus state incentives more squarely on investments that add value, create jobs and make use of local resources.

The new law, currently under discussion at the Ministry of Industry and Trade, would limit the granting of incentives in the future to value-added investments that employ Jordanians and use domestically sourced raw materials. For projects that meet these criteria, however, the incentives on offer will be enhanced. “The new law will seek to open up more sectors to investors, in addition to offering more incentives, especially to businesses that utilize Jordanian raw materials and labor,” Ahmad El Zubi, the acting director of Jordan Investment Board's research and studies department, told OBG.

The minister of industry and trade, Hani Mulki, called a mid-February meeting with local businesspeople and stakeholders to discuss the investment law, which was approved by the government in late 2010. The law is still being formulated, and nothing is set in stone yet. “What we do know is that the new law will not negatively affect current investors. They will continue to receive the incentives offered by the current law,” El Zubi told OBG.

Incentives currently on offer as part of the Investment Promotion Law, which went into effect in 1995, include corporate income tax rates of 24% for insurance, telecoms and financial institutions; 30% for banking institutions; and 14% for all other companies. The law also exempts from fees and taxes fixed assets that are imported into the kingdom for exclusive use in a project, and exempts hotel and hospital projects from fees and taxes once every seven years for modernization purposes.

Along with the government's economic reforms of recent years – which have included the facilitation of trade, privatization of state-owned companies and the elimination of fuel subsidies – Jordan's current investment law is widely credited with helping the country achieve annual GDP growth of around 7% between 2005 and 2008.

The proposed changes should help to shore up investor sentiment as events in the wider region look likely to have a knock-on effect on the country's economic growth, which is highly dependent on foreign investment, tourism revenues and remittances from workers overseas.

Opening up investment opportunities in the kingdom should also help to release some pressure on the tourism sector and remittance inflows, which contribute 14% and 20% of GDP respectively. Promisingly, the Ministry of Tourism reported in late February that sector revenue for January 2011 reached $224m, up 7% from $209m in January 2010. Tourist arrivals also increased to 507,206 in January, up 6% from a year earlier.

However, the true test of how the sector will fare is performance in February and March, the industry's busiest season. Though there has been some indication that tourists are cancelling their holiday packages to Jordan due to unrest in the wider Middle Eastern region, the kingdom is taking advantage of its relative calm. “In view of the current regional circumstances, we are working hard to maintain the levels of 2010, which was a tremendous year for tourism,” said the director-general of the Jordan Tourism Board (JTB), Nayef Fayez. He told local media that the JTB was highlighting the kingdom's “peacefulness” in European advertising campaigns.

Remittance levels have taken a hit recently, though for a different reason. One of the main factors behind Jordan's slower-than-normal GDP growth in 2009, when it dropped by around 5% year-on-year to 2.8%, was the 2.4% decline in remittances. Money sent home by overseas workers has accounted for as much as 20% of GDP in recent years, but as many Jordanian expatriates working in the Gulf were hit by the effects of the global economic crisis, including job losses, there was less money to send home.

The proposed changes also come on the back of the downgrading of a host of Jordan's ratings by Moody's and Standard & Poor's (S&P). In early February, Moody's revised Jordan's foreign currency bond outlook from stable to negative and downgraded the government's local currency bond rating out of investment-grade status, from Baa3 to Ba2. S&P lowered its long- and short-term local currency ratings and revised its outlook on long-term foreign currency and local currency ratings from stable to negative.

The ratings changes are not reflective of domestic economic factors so much as of concerns over potential spillover effects from political turmoil in the wider region. However, this does not mean that Jordan is sitting idly by, and King Abdullah recently said that he wants Prime Minister Bakhit to immediately usher in political and economic changes. The new investment law could be among the first of these. (OBG 01.03)

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11.4 JORDAN: King Abdullah II Got An Earful From Tribal Leaders

Kim Murphy wrote in the Jewish World Review (http://www.JewishWorldReview.com) on 28 February that Faris Fayez grew up hearing about the day in 1970 when his father and other Jordanian tribal leaders summoned the late King Hussein to complain about entrenched Palestinian fighters who were virtually occupying the country. "King Hussein was two hours late. When he finally arrived, my father stood up - and he used to call the king by his first name - 'Hussein,' he said, 'We feel now that for you we are the cover that the shepherd uses. When you get cold, you cover up with us. When you don't need us, you kick the cover with your feet.' "

The king apologized for being late. He said he didn't know the tribal elders were waiting. He valued their advice. Even better, from their point of view, he unleashed the army against the militants. "A quality man, with a humane view of people," Fayez said.

Over mint tea at his desert home, he turned the conversation to the current king.

"King Abdullah, the situation is not the same as it was with his father. There's negligence in the state. He lets things go. It's like the shepherd that leaves his sheep to go astray. For this reason, corruption has spread everywhere."

Fayez's Bani Sakher tribe this month showed its displeasure by lining up across the highway between the capital, Amman, and Queen Alia International Airport, blocking the road in protest of the government's use of increasingly valuable traditional tribal lands for development.

Although most analysts think there is little chance of a popular storm like the one that swept Egypt in this quiet kingdom of luxury hotels, impoverished mud hut villages and exotic desert castles, King Abdullah II is facing criticism from a quarter that couldn't be more troubling: some of the tribesmen and military veterans who have been the bedrock of the Hashemite dynasty and are unnerved by the country's large and growing population of Palestinians.

Tribal leaders such as Fayez's father have never hesitated to confront the king privately, but the 49-year-old monarch has faced rare, open criticism in recent months. Since the Egyptian uprising, dissent from leftists and Islamist and labor leaders has escalated into almost-daily street protests and a public letter from 36 tribe members demanding an end to corruption and the king's near-unilateral hold on political power.

The king has responded by pledging to rewrite the election laws and expand freedoms. He fired the Cabinet and replaced the prime minister with a former military officer and tribesman. "I want real and quick reform," the king said in a Feb. 20 speech, in which he pledged to investigate corruption, speed up review of the election law and hasten economic progress. "I want quick results. When I talk about political reform, I want real reform consistent with the spirit of the age." But Jordanians, emboldened by what happened in Egypt, appear to expect much more.

"These are not concessions," Labib Kamhawi, a political analyst and reform advocate in Amman, said of the new government. "The one who appointed the first prime minister who was fired is the king. The one who fired him is the king, the one who appointed his successor is the king, and the one who's going to fire him is the king. These men are mere clerks with high rank and this is not reform."

About 4,000 Jordanian protesters took to take to the streets of downtown Amman Friday to demonstrate for reform. Their key demands are fair elections and a return to the 1952 constitution as it existed before most power was transferred to the monarchy.

The Muslim Brotherhood, the only real organized opposition in Jordan, boycotted the parliamentary vote last year as a protest against what it said were fraudulent elections in 2007, in which the organization against all reasonable expectations netted only six seats out of 110. Brotherhood leaders, along with other reform advocates, are insisting on a prime minister who is selected by parliament, perhaps in consultation with the king. "What happened in Tunisia and especially Egypt has brought a big hope - Egypt was the most secure and autocratic regime, and it fell," said Murad Adaileh, a member of the Muslim Brotherhood's executive committee. "People's frustration is increasing because we have started to see a total alliance between the authority of the state and money, which has led to an unprecedented state of corruption."

Privatization efforts have led to complaints that the country was getting raw deals for selling off its golden geese. A businessman with purported close connections to the royal palace landed a lucrative cell phone license for a fraction of what other companies were offering, according to widespread complaints in the local media. Critics said phosphate and potash companies sold to foreign companies quickly showed profits greater than the amount for which they were sold. "In one year, one profited three times the sales price. This is not just corruption, it is audacious corruption," said retired Gen. Ali Habashneh, who was one of a number of senior military veterans who signed a public letter last year demanding reforms.

Much of the public blame seems to focus less on King Abdullah than on his queen, Rania. The beautiful Kuwaiti-born Palestinian's vacations in St. Tropez in the company of rock star Bono and model Naomi Campbell have not sat well among Jordanians who are reeling under rising food and fuel prices in a capital city that has the highest cost of living in the Arab world.

Public irritation came to a boiling point in September, when the queen hosted an opulent party for her 40th birthday in the scenic desert valley of Wadi Rum. Though some villages in southern Jordan can barely pay for electricity, the party reportedly featured a large number "40" in lights.

The event raised $1.6m for charity and wasn't that glitzy, said Ayman Safadi, who was deputy prime minister in the government that was sacked this month. "Any middle-class Jordanian would have thrown a better party," he said. "And the food? I came back and had to order a hamburger because I was still hungry."

Simmering at the heart of the tribal discontent is the issue of Palestinian demography that has bedeviled the kingdom since the 1967 war with Israel. Tribesmen of Jordanian stock from the East Bank of the Jordan River worry that the growing number of Palestinians who have moved in from the West Bank and elsewhere will erode their traditional hold on money and power.

Although the Palestinian population is officially pegged at 49%, most observers believe it has reached 60% and is growing. Yet Palestinians typically hold fewer than 20% of the seats in the elected lower house of parliament (a figure that slipped to 12% in the November elections).

Analysts say true reform will almost surely erode the East Bank Jordanians' hold on power and, in the process, the massive system of public subsidies they enjoy. This is not only controversial but also may be impossible — East Bank tribesmen have traditionally formed the bulk of the army and police. It means, in stark terms, taking away generations of perks from, as one analyst put it, "the guys with the guns — good luck."

Yet the king's decision to appease the East Bank by restoring many subsidies, raising public wages and appointing a new prime minister from the tribal old guard, many analysts say, is almost sure to slow the pace of economic reforms, crucial to new investment and jobs. It is in many ways a no-win situation for the king at a time when winning may be a matter of survival.

Safadi insisted that the king remains popular and had made it clear he was committed to reform even before events elsewhere in the region increased their urgency. Kamhawi, the political analyst and reform advocate, is skeptical. "The government is not wholeheartedly for reform," he said. "The government considers it its duty now to defuse the tension and this will not work."

"The issue is not the king, or royalty. We don't care about that. We have so far nobody at all proclaiming their intention to change the regime. But the regime has to accept that this is not an open check to say, 'OK, well, accept the regime as it is.' No. The regime has to change according to the will of the people." (JWR 28.02)

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11.5 BAHRAIN: Fitch Places Bahrain on Rating Watch Negative Ratings

On 17 February, Fitch Ratings (http://www.fitchratings.com/) placed Bahrain's 'A' Long-term foreign currency Issuer Default Rating (IDR), 'A+' local currency IDR and 'F1' Short-term foreign currency IDR on Rating Watch Negative (RWN). It has simultaneously affirmed the Country Ceiling at 'A+'.

"The Rating Watch Negative reflects the intensification of unrest, which together with the growing divide between protestors' demands and the government's position on political reform suggests that the protests will be extended," says Purvi Harlalka, Director in Fitch's Middle East and Africa Sovereign Ratings Group. "The unrest has created economic and political uncertainties, which increase the risks to the sovereign's credit profile."

The protests have already had fiscal consequences, by way of the estimated 2% of GDP in handouts announced on 12 February. The longer they carry on, the greater the risks they pose to the economy and public and external finances.

A substantial worsening in the security situation and/or the incurrence of larger fiscal costs would prompt a downgrade. By contrast, a restoration of order that looks likely to be sustained, with limited economic impact, together with plans to contain the fiscal impact of any concessions made, would lessen the negative rating pressure.

The recently announced fiscal measures come on top of an already expansionary budget that would see gross debt more than double to 38% of GDP by 2012 (excluding the measures) from 16% in 2008. Even at these elevated levels, debt will remain below the forecast 'A' median and Bahrain has a demonstrated track record of fiscal prudence. In addition, the budgetary expansion is more affordable given increasing oil prices. However, the increase in debt is weakening the kingdom's creditworthiness.

Fitch notes that part of the budgetary increase is directed at increased investment in social housing. This issue has been a longstanding grievance with the Shia majority and a key area of reform demanded by the protestors. Other demands, which include equality of job opportunities for the Shia, a fully elected parliament, a constitutional monarchy and an end to the alleged naturalization of foreign Sunnis, are arguably more contentious.

Furthermore, sectarian tensions between the majority Shia and the ruling Sunni minority, which is the main source of political risk in Bahrain, have been in a heightened state since the disquiet witnessed in the run-up to the parliamentary elections held in October 2010. This period saw mass arrests of up to 450 people, 25 of whom were charged with plans to overthrow the monarchy. Demonstrators have also been demanding their release.

Fitch will monitor political developments and their economic impact and aims to resolve the RWN in the usual three to six-month time horizon. (Fitch 17.02)

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11.6 BAHRAIN: S&P Lowers Ratings One Notch to 'A-/A-2' On Heightened Political Risk

Standard & Poor's Ratings Services (http://www.standardandpoors.com) said on 21 February that it lowered its long- and short-term sovereign credit ratings on the Kingdom of Bahrain (Bahrain or the Kingdom) to 'A-/A-2' from 'A/A-1' and placed them on CreditWatch with negative implications.

At the same time, we lowered the ratings on the Central Bank of Bahrain and Bahrain Mumtalakat Holding Co., the sovereign wealth fund, to 'A-/A-2' from 'A/A-1' and also placed them on CreditWatch negative. The Transfer and Convertibility Assessment on Bahrain was also changed to 'A' from 'AA-'.

The rating actions reflect our reappraisal of political risks in Bahrain. We expect the demonstrations that have taken place over the past month will persist, despite the government's use of force to clear the protesters from central Manama, which has resulted in six deaths and scores of injuries.

The protesters, which are mainly from the Shia community, representing just over two-thirds of the Kingdom's nationals, are looking for higher social transfers or subsidies and increased political participation in the government.

Thus far, King Hamad bin Isa Al-Khalifa has requested that his son, the Crown Prince Sheikh Salman bin Hamad Al-Khalifa, start a national dialogue with all concerned parties. Prior to the protests, but following events in Tunisia, the King had also instructed the government to disburse $2,660 to each of Bahrain's 136,000 households.

The government has also increased social spending (inclusive of higher food subsidies) of about $417 million, which was in excess of that contained in its 2011 budget. Projected higher oil prices and higher oil production volumes should help to offset this new spending, in our view. We project that general government will post deficits (net of social security surpluses of about 1.5% of GDP) less than 2% of GDP this year and next if oil prices remain near $100 per barrel.

We expect discussions on political reforms to be more protracted than those focused on improving the social safety net. At present, the King appoints the cabinet - -about two-thirds of ministers are from his own family - -and the upper house of parliament. The lower house, which has fewer powers, is elected. Al Wefaq, the main opposition party, held 18 seats in the 40-seat chamber, until party members walked out in protest of the government's response to the rebellion, on 15 February.

Standard & Poor's aims to resolve the CreditWatch listing within the next three months. "During this time, we expect the course of political events will become clearer, as well as their impact on Bahrain as an offshore financial center and a tourist destination, two important pillars for the economy," said Standard & Poor's credit analyst Mike Noone. Quick resolution of the turmoil, with a limited effect on the economy, could result in the ratings stabilizing at current levels. On the other hand, should we find that the protests have lowered Bahrain's medium-term growth prospects because of spillover effects on the real economy or on the banking sector, we could revise both the long- and short-term ratings to a lower investment-grade level. (S&P 21.02)

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11.7 BAHRAIN: Moody's Places Bahrain's Sovereign Ratings On Review For Possible Downgrade

On 23 February, Moody's Investors Service (http://www.moodys.com) placed Bahrain's A3 government bond ratings on review for possible downgrade. This rating action was motivated by Moody's concern that the ongoing political turmoil in Bahrain has sharpened fiscal and broader economic downside risks. The review will focus on the degree to which political risk has structurally increased and how significantly the credit fundamentals of Bahrain are threatened relative to rating peers.

Moody's also placed under review for possible downgrade the following sovereign ratings of Bahrain: (1) the A1/P-1 country ceilings for foreign currency bonds, the A3/P-1 country ceilings for foreign currency bank deposits; (2) the Aa3 country ceilings for local currency bonds and bank deposits; and (3) the Aa3/P-1 ceilings for the bonds and deposits of Bahrain's wholesale banks.

Moody's expects to conclude the ratings review within three months. Barring an extreme outcome to the political unrest, Moody's expects Bahrain's ratings to remain within investment grade.

RATINGS RATIONALE

Moody's decision to place Bahrain's ratings on review for downgrade was triggered by the large anti-government protests in the country in recent weeks. Although fuelled by long-standing grievances, the intensity of the protests has been amplified by the influence of the uprisings in Tunisia and Egypt. Unlike the events in those countries, the protests in Bahrain have a sectarian aspect: the political opposition in Bahrain is dominated by Shiite Muslims, who reportedly make up a majority of the population, while Bahrain's ruling family is Sunni Muslim.

Although the Crown Prince of Bahrain is attempting a "national dialogue" with opposition groups, it remains to be seen whether this effort will be successful in calming the political situation in a sustainable way. As stated in Moody's credit opinion on Bahrain from December 2010, the political tension between the government and the Shiite-dominated opposition is a credit challenge. At the time, Moody's also stated that a marked deterioration in the domestic or regional political environment could lead to a ratings downgrade.

Moody's believes that efforts by the authorities to appease discontent are likely to lead to further increases in government expenditure. However, even before the recent turmoil, Moody's had already expressed its concerns about the loosening direction of the country's public finances, as reflected in the downgrade of Bahrain's government bond ratings to A3 from A2 in August 2010. The primary driver of this downgrade was the gradual rise in the breakeven oil price of Bahrain's budget.

The government's expansionary budget for 2011 and 2012, which was published in January this year (before the recent outbreak of unrest), requires a breakeven oil price of between $97 and $100 per barrel -- a high level compared with other oil exporters rated by Moody's. Unlike other oil exporters in the region, Bahrain is not known to have a significant sovereign wealth fund of offshore financial assets that could potentially be liquidated to support the budget or broader economy in a crisis. Moreover, Bahrain's hydrocarbon reserves are relatively limited.

Moody's also remains concerned about the large size of Bahrain's banking system relative to the government's resources. Total bank assets amount to around 11 times GDP, with assets of retail banks alone amounting to over three times GDP. The potential liabilities stemming from the banking sector in a systemic crisis could therefore present a significant challenge to the authorities, notwithstanding mitigating factors.

Moody's recognizes that the wholesale banks have limited ties to the domestic economy and that some are owned by regional governments that have previously stepped in to support these institutions. The rating agency also notes that banks in Bahrain tend to have high levels of capital adequacy and liquidity which would limit the extent of support needed should their condition significantly deteriorate. The foreign operations of retail banks would also be likely to receive support from the respective governments of the countries in which they operate.

Moody's is keen to stress the positive factors that support Bahrain's sovereign ratings. These include a substantially positive net international investment position (as per the latest data for the end of 2009), a current account surplus, a typically dynamic non-oil sector and a high (albeit volatile) level of GDP per capita. Furthermore, Bahrain has strong international relations that should ensure external financial support, if needed. Moody's would expect Saudi Arabia to be especially supportive in case of need. (Moody's 23.02)

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11.8 UNITED ARAB EMIRATES: Water Report for First Quarter 2011

Research and Markets' (http://www.researchandmarkets.com) "United Arab Emirates Water Report Q1 2011" says the UAE is a thirsty consumer of water. Abu Dhabi claims the highest per capita water consumption rate in the world, at 525 - 600 gallons a day (g/d). Officials estimate that the emirates total consumption of water resources exceeds by 24 times its natural recharge capacity. In peak periods, demand spikes: Dubai Electricity & Water Authority (DEWA) noted a 6% month-on-month (m-o-m) increase in consumption in July 2010.

In the UAE as a whole, desalinated water accounts for 80% of total water consumption. The UAE has emerged as the Middle East and North Africa (MENA) regions second largest producer of desalinated water, after Saudi Arabia.

The UAE's water sector is organized along federal lines. Abu Dhabi Water & Electricity Authority (ADWEA) is the utility responsible for the supply of water in Abu Dhabi. It took over from the Water & Electricity Department in 1999. In Dubai, DEWA operates the water and electricity sector. Sharjah Electricity & Water Authority (SEWA) is the authority with responsibility for the small emirates water and power. For the four northern emirates Ajman, Fujairah, Ras al-Khaimah and Umm al-Quwain, a single authority, the Federal Electricity & Water Authority (FEWA), is the water and power provider.

With Dubai's water and power utility DEWA looking to follow ADWEA's private financing lead, the UAEs water sector stands an increased chance of attracting the kind of funding needed to meet the sharp uptick in demand that is expected over the next decade. Though the economic recession bit a chunk out of the country's demand in 2008-2010, the historic trend is expected to resume with more vigor over the next four years. For 2011, a 7.4% increase in production is expected, a substantial increase on the previous year. By 2014, an additional 200mn g/d of water is expected to be in the UAE system the bulk of this new supply emanating from the expanded array of IWPPs from the ADWEA stable.

ADWEA remains the most active promoter of privatized water provision, via a series of independent water and power projects (IWPPs). Since its foundation, ADWEA has built at least one new IWPP every year, besides expanding existing facilities. It is assisted by Abu Dhabi National Energy Company (TAQA), which has bought stakes in a series of IWPPs in the country.

The selection in October 2010 of a Korean-Japanese consortium, comprising Sumitomo and Korea Electric Power Co (Kepco), to undertake the Shuweihat S3 project under a 15-year power purchase agreement is the first significant new ADWEA power project that does not include a desalination component. In November, ADWEA's privatization director Abdullah Saif al-Nuaimi announced that if the authority's experiments with three RO plans were successful, new projects could be developed as separate water/power schemes a break with recent tradition.

Abu Dhabi's water consumption is increasing at a rapid rate. ADWEA subsidiary Abu Dhabi Water and Electricity Company (ADWEC) notes that water demand increased by 8.1% in the 2008-2009 period. The company is anticipating robust long-term demand growth, with 2015 demand expected to reach1.06b g/d, rising to 1.28b g/d by 2025.

The much weaker economic climate, poor investment flows and lower demand has resulted in delays and downscaling of projects, most notably in cash-strapped Dubai, but also, to an extent, in Abu Dhabi. This has raised fears among investors that some emirates might consider greater nationalization of the industry if major privately financed water projects encountered further delays. However, the success of some recent projects that had struggled to find funding initially and signs of recovery in the global economy seems to have allayed such concerns for the moment.

Dubai will proceed with its Hassyan 1 scheme as an IWPP, confirming that the tough economic climate could prove to be a trigger for economic reform. Meanwhile in Abu Dhabi, ADWEA said in November 2009 it would issue a call for tenders for a new electricity and desalination plant in the first half 2010, in which it would take a 60% stake, which has been the norm for previous projects.

In a positive sign of growing confidence in the Dubai Inc parastatals, DEWA issued a $1b five-year bond, the first greenback-denominated benchmark offering completed by a Dubai corporate since 2008 and the first time a Dubai parastatal has tapped the debt capital market since the Dubai World restructuring late in 2009. DEWA was reported, in Q3/09, to be seeking a new loan in excess of $1b, backed by export credit agencies. The utility needs to shore up its funding sources since it is due to spend up to AED28b in the next two years to raise both power and water supplies.

DEWA will stagger its developments as the emirate faces a sharp fall in expatriate population numbers in 2009-2010. In order to speed up project activity, in June 2009 DEWA sanctioned a cut in the bid bond for tenders exceeding AED2b, bringing it down from 5% to 2%. It also lowered the performance guarantee bond from 20% to 10%. Despite Abu Dhabi's successful deployment of private-led development models, Dubai, Sharjah and the northern emirates have yet to adopt the IWPP template. However, in Q4/07 the government made the first moves to open up the northern emirates power and water sectors to private investment. The amount of new water capacity should continue to increase across the UAE at a healthy rate, spurred on by the improving investment levels and the need to meet rising demand.

In June 2010, Abu Dhabi's main water regulator, the Regulation and Supervision Bureau (RSB), announced new trade effluent control regulations aimed at controlling effluent and boosting recycling of water. Companies will now face restrictions on the amount of wastewater they can discharge.

Another area where Abu Dhabi is focusing resources is in the storage of desalinated water, through the optimization of the existing water supply network and fostering storage. The award of a new AED1.6b contract to a Lebanese/Korean consortium in Q3/10 to build a major storage facility in Liwa is a sign of this new strategic push. In the Western Region, where Liwa is located, the aim is pump large volumes of desalinated water into the aquifer. Similarly in Dubai, construction is under way of a potable water reservoir in Mushrif with a 415mn gallon capacity. (R&W 24.02)

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11.9 OMAN: On Track

The Oxford Business group reported that Oman is pushing ahead with plans to deploy a nation-wide rail network, with this excepted to boost the economy by expanding logistics capacity and linking up the Sultanate's ports and production centers.

On 31 January, Salim bin Mohammed Al Affani, director-general for physical planning at the Supreme Committee for Town Planning (SCTP) – the state body charged with overseeing the development – told local media that contracts for route design and project management would be awarded by June, with the first services scheduled to begin operations within six years. “A tender document for pre-qualified firms will be issued soon,” he said. “It will take two years for the consultants to design the railway route and another four years to complete construction work.” Although Al Affani expects operations on the Sohar-Muscat route to begin by 2017, it will “take more time to complete” the remainder of the 1500 km. network.

While fast-moving passenger trains – with speeds up to 350 km per hour (kmph) – are likely to catch the public eye, it is the freight component of the planned rail system that is expected to be particularly important for the Omani economy – not to mention profitable.

Under the broad criteria set out by SCTP, freight trains will be required to haul loads of some 10,000 tonnes at speeds of between 80 and 120 kmph. Officials project that the railroad, once fully operational, will carry approximately 11m tonnes of freight between Sohar and the UAE, while lines connecting Muscat with Duqm and Salalah together will account for about 7m tonnes. At least six major freight yards have been proposed at strategic points along the network, with cargo-handling facilities to be established at Sohar, Barka, Al Misfah, Ibra, Sinaw and Buraimi.

Given the country's increasing industrialization, coupled with the rapid growth of the mining sector, the transport of heavy cargo is becoming more crucial to the expansion of the economy. Of course, for the Omani rail network to reach its full potential, the country's neighbors will need to keep their own railway projects – interlinking parts of the wider GCC rail network – moving ahead as well.

The planned link between Oman and the UAE is expected to be operational by around 2017, with the lines there part of the region-wide network. When the project is completed, the bloc's six member states – Kuwait, Oman, the UAE, Saudi Arabia, Qatar and Bahrain – will be connected by a railway stretching more than 2100 km.

However, it is uncertain whether the connection to the UAE will be completed by 2017. Media reports in early 2010 said that preliminary contracts for the project would be awarded within 12 months, but it was not until December that the deadline was set for the network's initial operations. In addition, Oman could be at odds with its GCC partners over its preference for electric-powered trains – a choice based in large measure on environmental concerns – rather than diesel as proposed by the other five Gulf countries. Changing from one type of engine to another when crossing Oman's national borders would add to travel time and reduce the overall compatibility of the regional network.

With the decision to have the entire network electrified, Oman will also have to make further investments in its power generation capacity to maintain the current needed to drive the system, although an expansion of the electricity grid and power stations is already under way.

Located at the entrance to the Gulf with access to the Arabian Sea and the Gulf of Oman, the Sultanate is well placed to serve as a trans-shipment and logistics base for the region. Moreover, as any rail link to the UAE and beyond would bypass the narrow Strait of Hormuz, this land-based option would also offer a secure alternative route for exports. An efficient rail network could well become a highly profitable operation, with particular benefits for the transport sector. If the broader GCC network is realized according to plan and the links are utilized to their full extent, Oman's planned railway should help to boost the economy while strengthening the country's logistics capabilities. (OBG 24.02)

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11.10 SAUDI ARABIA: Economy - Bearing Gifts

The Economist Intelligence Unit wrote on 23 February that King Abdullah of Saudi Arabia returned home on 23 February after three months abroad during which he underwent surgery on his back. His first action was to issue a series of decrees aimed at alleviating social and economic hardship, with a particular focus on housing and unemployment. He was clearly inspired to do this by concern to ward off the risk of being confronted by the same sort of unrest that has beset several other Arab countries. His appreciation of the need for the government to make a greater effort to address these problems is likely to be broadly welcomed; much more difficult for the Saudi royal family will be to find a way of satisfying the thirst for political reforms.

The Saudi reaction to the threat of social insurrection has been more comprehensive than those of the rulers of Bahrain and Kuwait, who merely handed out cash. The total value of the packages included in the 19 decrees has been estimated by Banque Saudi Fransi to be $36b. If that were to be spent during 2011, it would imply a 23% supplement to the existing planned expenditure of SR580b in the current budget. The measures include the introduction of unemployment benefits for the estimated 10% of the Saudi labor force that is out of work (youth unemployment is much higher), fresh funding for Saudis to study abroad, a SR40b boost to the capital of the state housing finance fund, SR3.5b in benefits targeted at poorer families to help them cover utilities bills and a 15% pay raise for government employees as an allowance for inflation. The king has also set up a government committee tasked with drawing up a strategy to increase the provision of jobs for Saudis in both the public and private sectors. In a nod to concerns about corruption, he authorized the addition of 300 jobs in the general auditing bureau, the control and investigation board and the royal court.

Credit due

The package of measures has clearly been under consideration for some time, but the king has taken care to time its announcement to coincide with his return home. In his absence, the affairs of state were managed by his ailing and infirm half brother, Crown Prince Sultan, and by the second deputy prime minister and interior minister, Prince Nayef. King Abdullah has taken a close interest in economic reforms since he assumed effective control of Saudi Arabia in 1998, and he apparently wished to put his personal stamp on this fresh initiative to resolve the country's critical socio-economic problems.

An ill wind…

The fiscal impact of this extra spending will be cushioned by the financial benefits accruing to Saudi Arabia from the unrest around the region. The increase in oil prices so far this year will have earned Saudi Arabia an extra $100m plus per day in export revenue, and this figure is likely to increase over the next few weeks as Saudi production is ramped up to make up for the shortfall in supply from Libya. In light of the additional revenue that the government will earn, the effect of higher spending on the budget outturn is likely to be limited, the Economist Intelligence Unit was forecasting a surplus of 9.4% of GDP based on our assumed oil price of $90/barrel and Saudi output of 8.6m b/d in 2011.

No politics please, we're Saudi

The Economist Intelligence Unit has assessed the vulnerability of Saudi Arabia to an uprising along the lines of Egypt, Tunisia, Bahrain, Yemen and Libya as high, mainly on the grounds of a cluster of socio-economic indicators and the definition of the regime as authoritarian. Unemployment and poverty have certainly played a key role in tipping those societies over the edge, but one of the critical factors has been political disaffection, allied to the enhanced ability of people to communicate freely with one another via social networks. There is very little scope for the Saudi public to be involved in politics - a half-hearted effort to introduce elections at the municipal level has more or less fizzled out, and the only regular elections held in the kingdom are for chambers of commerce (these are often feisty affairs). That is in one sense a positive factor for political stability, as it means that Saudi Arabia is spared the humiliation and frustration of the fake democracy that has been foisted on the public in most Arab countries. However, it is doubtful whether the Saudi state can deny its citizens a political voice indefinitely without facing potentially destabilizing protests. The dilemma for the Al Saud is that if they concede the principle of democratic representation they risk undermining the whole edifice of the family's rule. (ViewsWire 23.02)

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11.11 SAUDI ARABIA: Water Report Q1 2011

Research and Markets' (http://www.researchandmarkets.com) "Saudi Arabia Water Report Q1 2011" says Saudi Arabia is the third largest consumer of water per capita in the world, but has limited groundwater to tap. The country has been plagued by shortages in recent years and with consumption rising on the back of a growing population and economic growth set to soar, the government has needed to act quickly to stave off potential disaster and civil unrest.

Desalination forms the backbone of the government's water strategy. Some 30 desalination plants have already been built by the state, but these have barely been able to keep pace with rising demand. The forecasts for water desalination capacity additions over coming years have been revised down. Desalinated water is now expected to reach 1.159 billion cubic meters (b m3) in 2010, down from 1.167b m3 in previous forecast. By 2014, water desalination supply is envisaged to reach 1.294b m3, compared with a previous forecast of 1.366b m3.

The revision reflects slower than expected progress on key schemes, as well as the delays with the major new Ras al-Zour IWPP scheme, which was to have been let on a privately financed basis, but is now being implemented as a state-backed scheme. In Q3/10, one of the largest water deals in the region was awarded. South Korea's Doosan Heavy Industries & Construction won the EPC contract for Ras al-Zour power and water scheme, in a deal worth $1.5b. The reverse osmosis/thermal hybrid desalination plant will boast 226mn gallons per day (g/d) capacity.

Building on a master plan drawn up in 2002, some $6b a year has been committed by the government to bolster the water sector over the next two decades. This was regarded as too big a task for state-owned utilities alone, so for the first time in Saudi Arabian infrastructure, outside the hydrocarbons sector, the program involves massive input from the domestic and international private sectors.

Saudi Arabia's regulatory system for the power and water sectors was overhauled to make it more investor-friendly and to enable the creation of bodies such as the Water and Electricity Company (WEC) and the National Water Company (NWC) to manage the transition and provide state partners for investors.

The main vehicles are independent power and water projects (IWPPs) in which the private sector can take stakes of up to 60%. Over $15b worth of IWPPs have been sanctioned since the program started in 2004. They will add over 1b m3 a year to the country's water supply and nearly 10 gigawatts (GW) of power capacity.

Implementation is the watch word in the wastewater treatment sector. NWC has successfully ensured the shortening of the expected duration of delivery on a number of critical water and wastewater projects worth SAR1b in Riyadh and Jeddah, following the use of acceleration mechanisms. The company claims to have reduced the delivery period on 13 impeded projects.

NWC completed the transfer of operation and management functions of water and wastewater sector in Mecca and Taif in July 2010. A French-Saudi consortium between Saur and Zamil Operations &Maintenance (Zomco) won a SR173mn contract to manage the water and wastewater infrastructure in the two cities for a five-year period.

NWC had plans to outsource the management of the Medina's water and wastewater networks under public private partnership (PPP) arrangements, with networks in the city of Dammam to follow in Q2/11. However, the Medina and Al-Khobar management contracts have been mothballed for the time being, as part of a wider strategic rethink at NWC. Most wastewater projects will be financed under traditional engineering, procurement and construction (EPC) contracts rather than build-operate-transfer (BOT) schemes over the next couple of years. In Q3/10, a SR6.6b contract for the desalination plant was awarded to a consortium led by South Korea's Doosan Heavy Industries and Construction Company. The Ras al-Zour plant will have 2,400 MW of power and 1mn cubic meters per day (m3/d) water desalination capacity, making it the world's largest IWPP. (R&M 25.02)

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11.12 PAKISTAN: Freight Transport Report 2011

Research and Markets (http://www.researchandmarkets.com) has announced the addition of the "Pakistan Freight Transport Report 2011" report to their offering.

In September 2010 the World Bank endorsed the $115.8m Karachi Port Improvement Project. Part of the National Trade Corridor Improvement Project, the investment will include deepening the channel and harbor to accommodate larger vessels, and the reconstruction of older berths. BMI believes this investment will provide upside potential to BMI's forecasts. The World Bank's country director for Pakistan, Rachid Benmessaoud, stated: 'Improving the efficiency of Pakistan's trade corridors is a key element of the bank's support to trade facilitation in the country. Karachi Port, as the main international gateway, provides a key link to international markets and through efficient and cost-effective operations can significantly reduce the cost of doing business in Pakistan. This operation will support both the provision of infrastructure capable of handling modern bulk cargo vessels and institutional support required to promote international best practice in the management of port facilities.' BMI noted that this investment provides significant upside potential to the port's throughput figures.

The overall outlook for Pakistan going into 2011 is rather somber, with limited growth prospects for the economy as a whole acting as a constraint on the freight transport sector. The widespread flooding experienced in August 2010 has had a major negative impact on agricultural production and, given that much of the Pakistani population still lives off the land, this is having negative knock-on effects on private consumption levels. To this must of course be added a difficult security situation and high levels of ongoing political risk.

As a result of their analysis, BMI estimates 2010 GDP growth of 4.1% in Pakistan (following on from 1.2% during the previous year, dominated by the global recession). BMI's outlook for 2011 is for the recovery to lose pace at a time of a 'double dip' slowdown across the industrialized economies, with Pakistani growth moving down to 2.8%, and then quickening marginally to 3.1% in 2012. In the five years to 2015 we expect growth to average a disappointing 3.2% per annum, implying Pakistan will be one of the laggards in South Asia. There is little prospect on the medium term of the country returning to the above-5% growth rates it enjoyed in 2002-2007. (R&M 18.02)

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11.13 EGYPT: Egypt's Pound Depends On Political Progress

On 1 March, Al-Masry Al-Youm wrote that Egypt's new government has little time to get a credible political process in place before it risks renewed and possibly unsustainable pressure on its currency. The revolution that ousted President Mubarak shattered two of the main pillars supporting the Egyptian pound, tourism and foreign investment, and put pressure on others, such as remittances from Egyptians working abroad. These sources of economic growth will not revive unless Egyptians and foreigners are convinced life is heading back to normal. If they aren't, Egypt risks quickly depleting its $35b in foreign reserves.

Egypt's military rulers have promised constitutional changes leading to free and fair elections within six months. A judicial committee tasked with drafting the changes proposed amendments on Saturday that will be voted on in a public referendum. Such a referendum may be just weeks away, giving the government scant time to build up its confidence, and investors will be watching to see if the constitutional process is enough to satisfy pro-democracy protesters still active on the streets.

The most immediate test of the currency and an important symbol that politics and the economy are returning to normal will be the opening of Egypt's stock market after a month-long closure. Investors are bracing for a possible plunge in share prices and a further outflow of funds from the pound, if sellers of stocks seek to exchange the proceeds for foreign currency. Bankers say that until now the central bank has deftly handled the foreign currency crisis, holding the pound's losses to 1.2% of its value since protests erupted on 25 January. The pound is currently trading at 5.89 pounds per dollar. Still, there are signs the country's finances and currency are feeling the pinch and that at least some banks are running short of dollars.

Even though banks were open for only two days in January after anti-government protests started, Egypt's foreign reserves fell by about $1b in January, their first decline in over a year and the biggest since April 2009 in the wake of the global economic crisis. Banks have reopened since then. In the last two weeks, the central bank has quietly sought to slow transfers out of pounds with a series of unwritten instructions to banks that stop short of out-and-out capital controls, bankers inside and outside of Egypt said. The central bank has placed inspectors inside the dealing rooms of at least some of the country's banks, where they are investigating where people seeking to transfer funds got their money and where they're sending it, bankers said.

Clients asking to transfer more than $100,000 must wait five days until settlement instead of the normal two. Banks are also required to double-check transfers as small as $10,000. The stated reason for this is to make sure the funds were not obtained illegally, but at the same time it is helping the government to slow the outflow of funds, bankers said. Banks have sought to discourage clients who want to shift their funds into dollars or have out-and-out refused, several people who have tried to buy dollars said. (Al Masry 01.03)

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11.14 LIBYA: IMF Executive Board Concludes 2010 Article IV Consultation

On February 9, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Socialist People's Libyan Arab Jamahiriya.

Background

Libya's non-hydrocarbon growth has been solid, against the backdrop of high domestic demand. It grew by an estimated 6% in 2009, mainly driven by investments in construction and in services. Meanwhile, hydrocarbon output declined significantly due to compliance with the OPEC quota, resulting in a contraction of overall real Gross Domestic Product (GDP) by an estimated 1.6%. Overall growth increased markedly by an estimated 10% in 2010 reflecting a sharp increase in oil production. Non-hydrocarbon growth also strengthened (to about 7%) as a result of large public expenditures. However, unemployment has remained high, particularly among the youth. Inflation is estimated to have picked up to about 4.5% in 2010 as higher oil revenue increased domestic liquidity and international commodity prices increased.

After a sharp decline in 2009, the fiscal surplus is estimated to have increased in 2010 mainly owing to the recovery in oil revenue. The fiscal surplus narrowed substantially to about 7% of GDP in 2009 as a result of a sharp decline in oil revenue that more than offset the reduction in public outlays. The latter reflects the net effect of a large decline in capital spending and a smaller increase in current outlays. In 2010, current expenditure increased by an estimated 19% compared to 2009, largely due to full explicit accounting of energy subsidies and a 15% increase in the wage bill. The ongoing prioritization of investment projects has allowed for an increase in capital expenditure by an estimated 18%.

The external current account surplus increased to an estimated 20% of GDP in 2010, from 16% of GDP in 2009. Export earnings rebounded in line with the recovery in crude oil output and prices. Imports, while also picking up due to strong domestic demand, have been steadier and remain about a third lower than exports. Net foreign assets of the Central Bank of Libya (CBL) and the LIA are estimated to have reached $150 billion at end-2010 (the equivalent of almost 160% of GDP).

Broad money is estimated to have grown by about 10% in 2010, compared to 11% in 2009. Commercial bank lending to the private sector and nonfinancial public enterprises has been constrained by lack of adequate borrower documentation, tightening of regulation, and high liquidity at public enterprises. The latter's demand for bank services has been largely limited to letter of credits and guarantees. Excess liquidity has remained high in the banking system, and financial intermediation is weak compared to neighboring countries.

An ambitious program to privatize banks and develop the nascent financial sector is underway. Banks have been partially privatized, interest rates decontrolled, and competition encouraged. Ongoing efforts to restructure and modernize the CBL are underway with assistance from the Fund. Capital and financial markets, however, are still underdeveloped with a very limited role in the economy. There are no markets for government or private debt and the foreign exchange market is small.

Structural reforms in other areas have progressed. The passing in early 2010 of a number of far- reaching laws bodes well for fostering private sector development and attracting foreign direct investment. The success of the new laws, however, hinges on promoting inter-agency coordination and open consultation with the legal and business communities, and establishing permanent bodies to monitor, assess, and oversee implementation. A comprehensive civil service reform is needed to facilitate more effective wage and employment policies that would address the needs of a young and growing labor force.

Recent developments in neighboring Egypt and Tunisia have had limited economic impact on Libya so far. To counter the impact of higher global food prices, the government abolished, on 16 January, taxes and custom duties on locally-produced and imported food products. Later in January, the government also announced the creation of a large multi-billion dollar fund for investment and local development that will focus on providing housing for the growing population.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Libya's strong macroeconomic performance and the progress on enhancing the role of the private sector and supporting growth in the non-oil economy. The fiscal and external balances remain in substantial surplus and are expected to strengthen further over the medium term, and the outlook for Libya's economy remains favorable. Directors saw as the main challenges the need to provide employment opportunities for a young and growing labor force, and the steadfast implementation of reforms to diversify the economy and reduce the high dependence on oil revenue.

Directors supported the overall fiscal stance and noted that the increase in capital spending in 2010 will support private sector development. At the same time, they emphasized the need to contain the increase in current spending and ensure the quality of spending. Directors also encouraged the authorities to cast fiscal policy in a medium-term framework to minimize the impact of oil price volatility.

Directors commended the efforts to strengthen public financial management, including the new and simplified income tax law and the effective unification of the current and investment budgets. They encouraged the authorities to carry on with their plans to establish a treasury single account, improve the consistency of budget classification, and streamline procedures to enhance expenditure management. These steps would also facilitate fiscal and monetary policy coordination.

Directors welcomed the introduction by the Central Bank of Libya (CBL) of a new 28-day certificate of deposit and its establishment of an overnight facility as steps to enhance the monetary policy framework. They noted the importance of addressing the factors behind the large excess liquidity in the banking system, including by establishing the treasury single account and reforming the specialized credit institutions (SCIs) with a view to reducing their on-lending activities and curtailing budget allocations. Directors encouraged the authorities to continue to strengthen bank supervision, with a focus on capacity building and enhancing coordination between on-site and off-site supervision units.

Directors agreed that the dinar's peg to the Special Drawing Rights (SDR) remains appropriate by providing a strong monetary anchor. They noted the staff's assessment that the dinar's exchange rate is broadly aligned with fundamentals.

Directors welcomed the passing of the Libyan Investment Authority law, which enhances its regulatory and operational framework. While recognizing the role that investment funds are playing as part of Libya's diversification strategy, Directors noted that investment funds outside the budget can complicate public expenditure management. It would also be important to ensure that the CBL's involvement with these funds does not conflict with monetary policy objectives.

Directors encouraged the authorities to further advance structural reforms to support private sector development. They commended the authorities for their ambitious reform agenda, and looked forward to the effective implementation of the many important laws passed in the last year, complemented by policies aimed at adapting the labor force to the economic transformation. Directors encouraged the authorities to continue to improve economic and financial statistics. (IMF 16.02)

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11.15 LIBYA: Fitch Downgrades Libya to 'BBB', Rating Watch Negative Ratings

On 21 February, Fitch Ratings (http://www.fitchratings.com) downgraded Libya's Long-term foreign and local currency Issuer Default Ratings (IDR) to 'BBB' from 'BBB+' and placed them both on Rating Watch Negative (RWN). The Short-term foreign currency IDR has also been downgraded to 'F3' from 'F2' and the Country Ceiling has been downgraded to 'BBB' from 'BBB+'.

"The downgrade reflects the eruption of political risk evidenced by the increasing momentum of the popular uprising aimed at ending Muammar Gadhafi's 42-year rule," says Charles Seville, Director in Fitch's Sovereign Ratings Group. "The Rating Watch Negative reflects the wide range of possible political outcomes."

Lack of a political resolution to the conflict and escalating violence would likely result in a further downgrade. This would especially be the case if disruption extended to Libya's oil production. Political reforms and/or outright regime change is also unlikely to be smooth, given the absence of a mechanism to guide any transition. However, political reforms which successfully quelled unrest would help stabilize the rating.

Libya's credit profile balances substantial oil and financial wealth against fragile and idiosyncratic political institutions. Sizeable political risk is already incorporated into the rating. With no formal constitution in place, it has never been made clear how and to whom the Libyan leader - who holds no formal political office - would hand over power. This uncertainty is magnified by the present circumstances. Under the system of revolutionary direct democracy presided over by Mr. Gadhafi, there has been limited space for dissent against the government, as recognized by the World Bank's governance indicators, which Fitch uses as a benchmark.

Libya is the only Fitch-rated sovereign that has no government debt. Moreover, following several years of high oil prices it has accumulated sovereign assets of up to $139b (190% of GDP) at end-2009, split between the foreign exchange reserves of the Central Bank of Libya and the investments of the government's sovereign wealth fund, the Libyan Investment Authority, created in 2007 and granted legal statute in 2010. The strength of the government's balance sheet substantially exceeds that of Saudi Arabia ('AA-'), where sovereign net foreign assets are 130% of GDP.

Libya is the sixth-largest per capita oil producer in the world and has the largest proven crude oil reserves in Africa, but long-term growth performance since 1970 has been weak. Public investment and reforms to the state-dominated economic model began in the mid-1990s but have struggled to translate oil wealth into higher living standards and create jobs. Unemployment is estimated at 20%, with most Libyans reliant on relatively low-paid government jobs and subsidized goods. (Fitch 21.02)

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11.16 LIBYA: S&P Lowers Long-Term Ratings to 'BBB+' On Elevated Political Risk

On 22 February, Standard & Poor's Ratings Services (http://www.standardandpoors.com/) lowered its long-term sovereign credit rating on the Socialist People's Libyan Arab Jamahiriya (Libya) to 'BBB+' from 'A-'. At the same time, we affirmed the short-term ratings at 'A-2'. We placed all ratings on CreditWatch with negative implications. We also changed the Transfer and Convertibility Assessment to 'BBB+' from 'A-'.

The rating actions reflect our reappraisal of political risks in Libya. We expect that the violent outbreaks of civil unrest seen in Libya's eastern region, and particularly the city of Benghazi, of the past few days will persist. Also, media reports indicate that unrest has now spread to the capital Tripoli. These developments are occurring despite the government's use of force to quell domestic unrest, which, thus far, some independent estimates suggest have resulted in more than 200 fatalities.

The protesters appear to have many grievances, including demands for improved employment opportunities and living standards, increased political participation and opposition to the regime of the leader, Colonel Muammar al-Qadhafi.

Colonel Qadhafi apparently continues to retain support in Tripoli. However, in our view, the longer the unrest continues, the higher the risk of political instability spreading across the country. As yet, the authorities have declined to engage the protesters in a national dialogue over economic and political reforms.

The Libyan government has significant flexibility to expand its social spending; with a general government surplus which we estimate at 11.5% of GDP in 2010 and the fiscal coffers benefiting currently from oil prices of over $100 per barrel. However, absent a swift resolution to the current crisis, we believe that risks to Libya's macroeconomic stability are likely to grow.

At present, the Libyan political system is defined internally as a "Jamahiriya" or Republic of the People, with representation governed via national and local congresses. Colonel Qadhafi is the effective head of state and is referred to as "the leader," although he holds no constitutional position. Discussion over introducing a constitution has thus far occurred in the context of preserving existing political institutions.

Standard & Poor's aims to resolve the CreditWatch listing within the next three months. At present, the extent of the risks to Libya's oil production, the key driver of the economy, while negative in our estimation, remain highly uncertain. A rapid resolution of domestic unrest, with limited economic impact, could lead us to affirm the current ratings. However, a more protracted political crisis, which we consider likely to greatly impair Libya's medium-term growth prospects, could lead us to lower the long- and short-term ratings further. In such a turn of events, and depending on the severity of the crisis, the ratings might be lowered by one or more notches. (S&P 22.02)

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11.17 TUNISIA: After Ben Ali – Anticipation Toward 5% Economic Growth

The Global Arab Network (http://www.globalarabetwork.com) reported that the new year brought radical change to Tunisia, as the country's long-time president, Zine El Abidine Ben Ali, was forced to step down in mid-January following a wave of increasingly violent street protests. While this transition has cast an air of uncertainty around Tunisia's future, the country's economic performance over the past year was nonetheless impressive.

According to the Tunisian National Institute of Statistics, GDP grew by 3.8% year-on-year (y-o-y) in the third quarter of 2010, following a rise of 3.1% over the course of 2009. The IMF, meanwhile, reported that Tunisia's growth could increase gradually and reach an average of about 5% over 2010-14.

Real GDP growth has accelerated since mid-2009, reaching 4.5% y-o-y in the first quarter of 2010, driven by 6.6% growth in the non-manufacturing sector, 5.7% in manufacturing, 5.2% in services and 4% in non-merchant services, supported by public administration. However, this was offset by a slowdown in agriculture and fishing, with production declining by 8.6%, as compared to an increase of 6% in 2009, mainly a result of insufficient rainfall.

With a view to improving the performance of the agricultural sector, one of the country's main aims has been to increase its share of high-quality exports to the global market. To cope with an expected drop in olive oil production, from 160,000 tonnes in 2009/10 to a projected 110,000 tonnes in 2010/11, the government announced the projected launch of a Tunisian quality label for olive oil and unveiled plans to raise the production of packaged and processed olive oil to 10% of total production, Global Arab Network reports.

As part of its efforts to tap into the lucrative international market for organic food products, over the past decade Tunisia has been steadily increasing the amount of cultivated land farmed using approved natural methods. As a result, it has become a major player in the organic farming industry, ranked second in Africa and 24th globally in terms of organic production, with the sector aiming to move further up the rankings. Under a program running from 2009-14, Tunisia plans to increase the total land set aside for organic produce to 500,000 ha by the end of 2014.

Tunisia's budget deficit is expected to remain at 3% of GDP, the same level as in 2009. Public debt, meanwhile, has continued falling, from 43% of GDP in 2009 to 39% in 2010. In parallel, imports increased by 20% in 2010, while exports grew by 17%. At the end of November 2010 the account deficit stood at 4.6% of GDP, against 2.8% in 2009. However, official estimates originally projected it to fall again, to 3.7% in 2011.

In 2010 the exchange rate of the Tunisian dinar to the euro was stable, a departure from 2009, when its depreciation made it more attractive for EU investors. The EU remains Tunisia's main trading partner, accounting for 72.5% of the country's imports and 75% of its exports in 2009.

According to IMF figures, foreign direct investment (FDI) was up by 5% y-o-y in the first four months of the year. The World Economic Forum's “Arab World Competitiveness Review 2010” said that Tunisia became an “outsourcing hub” in the MENA region, succeeding in attracting FDI both in traditional sectors such as textiles production, car assembly and food processing, as well as in high-value sector such as IT, aeronautics, and customer service. This shift has begun to bear fruit. According to figures from the Ministry of Industry and Technology, around 25% of Tunisia's 2009 exports were high-tech products. The ministry expects this number to increase to 50% by 2014.

The Tunis Stock Exchange (TSE) ended 2010 at 5111 points, an increase of 19.1%, compared to a rise of 48.4% at the end of 2009. The stock market remains relatively small with around 50 listed companies and relatively low liquidity. The TSE's rise owed much to the performance of Tunis Re (+110.9%), STIP (+107.1%), El Wifack Leasing (+94.6%), Attijari Leasing (+92.2%), Insurance Salim (+70.9%), Siam (+59.6%) and Amen Bank (+51.6%). Meanwhile, ADWYA (-22.6%), Tunisair (-18.9%), SIPHAT (-14.1%), SOPAT (-12.9%) and SOTUVER (-18.6%) closed with poor results.

According to local media reports, the tourism sector, the country's largest foreign currency earner, saw overnight stays increase from 27.3m in 2009 to 28m in 2010. However, receipts from tourism fell over the first eight months of the year, from €1.3b in 2009 to €1.1b in 2010. Quality has been a particular focus of late, with efforts under way to upgrade infrastructure and improve vocational training centers. Cultural, environmental, wellness and sports tourism are also being developed to balance what is currently a largely seasonal industry. The tourism ministry aimed to welcome 10m tourists per year by 2015, against 7m arrivals in 2009. An influx of Algerian and Libyan visitors – which served to substitute a drop in European tourists during the global recession in 2008-09 – has also been crucial to fiscal stability.

The country's key challenge is to boost job-generating growth and employment levels, according to IMF economists. As a result of the economic slowdown, unemployment remains high, at 13.3% in 2009, particularly among young graduates (21.7% in 2009). Similarly, inflation – which increased from 3.5 % in 2009 to 4.6% at the end of September 2010 – is an issue that causes hardship among the less well off. These two concerns, allied to a perception of wholly unacceptable levels of corruption, were the main causes of the riots that overthrew the president.

Despite a relatively strong performance in 2010 and gradually improving indicators in some of its main markets in Europe, the ongoing political instability and the public dissatisfaction evident on the nation's streets make it difficult to predict anything about Tunisia's fate, let alone its economy. (GAN 16.02)

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11.18 ALGERIA: Infrastructure Report 2011

Research and Markets' (http://www.researchandmarkets.com) "Algeria Infrastructure Report 2011" says growth in Algeria's construction industry will bounce back in 2011 demonstrating the resilience of the sector. Continued revenue from the country's extensive oil and gas resources has helped to power infrastructure development. Real year-on-year (y-o-y) growth of 6.9% is expected for 2011 as a result of investment in the country's power sector. This will see construction industry value rise to $14.8b for 2011, a positive trend that will continue until the end of the forecast period in 2015 when the industry value will be $20.8b.

Recent factors in the forecast include:

In May 2010, Oil Minister, Chakib Khelil announced plans to produce 5% of the Algeria's electricity needs from solar energy by 2017. This is in line with the government's intention to diversify into renewable energy and decrease reliance on fossil fuel.

New laws passed in Algeria in September 2010 mean that foreign contractors aiming to win a share of Algeria's $286b infrastructure budget will need to form joint ventures (JVs) with local firms. The move is the Algerian government's latest attempt to give preferential treatment to local firms and is the latest illustration of the state's growing intervention in the private sector. Bids submitted by local companies for government contracts are now allowed to be up to 25% higher than those submitted by international firms.

Along with the other frontier markets in North Africa (Libya, Morocco and Tunisia) Algeria offers significant opportunities for investors wanting exposure to the region's high growth. The infrastructure sector currently possesses the greatest growth potential over the long term.

Risks to doing business are considerable, with an over reliance on demand from the euro zone, concerns over long-term property rights, and elevated political risk, likely to lead to the region maintaining its high risk profile for the time being. New laws reportedly aimed at reducing unemployment may also have the effect of further reducing investor confidence in Algeria's already uncertain business environment. (R&M 18.02)

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11.19 MOROCCO: Agribusiness Report Q1 2011

Research and Markets' (http://www.researchandmarkets.com) "Morocco Agribusiness Report Q1 2011" says in the five years to 2015, Morocco is anticipated to have strong production growth for most agricultural sectors. However, growth is expected to be particularly high in the case of livestock and dairy produce, as well as corn and sugar. Corn production will expand from a relatively low base, fuelled by a demand for the grain as a form of animal feed. The production of livestock and dairy produce will benefit from the steady expansion of Morocco's economy and from rising per capita incomes.

Meanwhile, the sugar industry stands to benefit from strong government support and efforts to raise output. Over the five-year forecast period, positive demand growth is envisaged for all Morocco's agricultural sectors; we expect growth in the consumption of poultry, beef, milk and sugar to benefit from rising living standards and by an expanding population. However, although BMI is predicting steady growth for Morocco's economy, a double-dip recession for the global economy would also affect Morocco. Per capita income would inevitably be affected, forcing consumers to cut back on the consumption of meat, dairy produce and sugar in favor of staple foods.

Key Industry Forecasts

Wheat is a staple food in Morocco. Due to poor harvest and the impact of drought, production of the grain is predicted to fall to 4.47 million tonnes in 2010/11 from 6.31 million tonnes in the previous year. Long-term production growth is expected to be steady but not impressive, with output predicted to rise by around 5.8% per year to 2014/15.

Demand for wheat will grow by 2% in 2011 to 7.85mn tonnes, up from 7.68mn tonnes in 2010. Based on rising demand for a wide range of wheat-based products, demand for the grain is predicted to rise by 12% over the five years to 2015. Morocco is expected to remain highly dependent on wheat imports to satisfy overall demand.

Other key grains include barley and corn, both of which are predominantly used for animal feed. Growth in corn production is predicted to be particularly strong in the five years to 2014/15, rising by 14% over our forecast period to 233,400 tonnes. Production will benefit from a growing demand for animal feed.

Livestock Production Forecast, 2010-2015: Poultry: 29%; Beef: 21% - fuelled by strong domestic demand for meat, as well as government support for modernization and expansion initiatives.

Dairy Production Forecast, 2010-2015: Milk: 24%; Cheese: 18% - fuelled by rising consumption demand, especially in the case of higher-value dairy products. Production will also benefit from the adoption of more productive technology and the introduction of higher-yielding, quality producing cows.

Sugar Production Forecast, 2010-2015: 28% - supported by government initiatives to double production by 2013. Improvements are expected in key areas, including irrigation, improved farming methods and greater access to inputs such as fertilizers. (R&M 18.02)

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11.20 CYPRUS: Moody's Downgrades Cyprus to A2 from Aa3

On 24 February, Moody's Investors Service (http://www.moodys.com) downgraded Cyprus's government bond ratings by two notches to A2 from Aa3, reflecting its view of the country's weakening medium-term credit fundamentals. At A2, the rating outlook is stable. This rating action concludes the review for possible downgrade, which Moody's initiated on 13 January 2011.

RATINGS RATIONALE

The key drivers for this rating action are:

1. Concerns that the deterioration in the Cypriot government's fiscal metrics, relative to levels recorded prior to the financial crisis, is largely structural;
2. The banking sector's exposures to macroeconomic stress in Greece and
3. Concerns about the country's competitiveness.

The stable outlook reflects Moody's view that the A2 rating captures the increased risks that Cyprus faces, and that, at present, upside and downside risks are evenly balanced. Cyprus's country ceilings for bonds and bank deposits are unaffected by Moody's ratings review and remain at Aaa (in line with the Eurozone's rating).

RATIONALE FOR DOWNGRADE

"Given the rigid structure of government spending in Cyprus, the deterioration in the government's fiscal metrics since the financial crisis is likely to be a lasting one. While it is true that government finances have improved in 2010, these improvements are likely to be short-lived," says Moody's. Public-sector wages and social transfers account for two thirds of state spending and, in the absence of structural reforms to these areas, Moody's estimates that longer-term deficit and debt reduction will be very difficult to achieve. The Cypriot government does have a proven ability to increase revenues, but growth in public-sector wages and social transfers are likely to outpace the government's ability to raise revenues, particularly given its commitment to remaining a low-tax destination.

Moody's decision to downgrade Cyprus was also informed by its concerns about the country's banking sector. "Cypriot banks' exposure to macroeconomic stress in Greece is substantial, and prolonged macroeconomic stress increases the probability that these contingent liabilities will crystallize on the sovereign's balance sheet," says the rating agency. Although current capital and liquidity levels are not a source of concern, the country's credit profile is affected by the banking sector's large size relative to the size of the economy; bank assets total around 650% of GDP if we exclude foreign banks' subsidiaries/ branches and 925% of GDP if these are included. Its exposures to Greece are significant, as in aggregate the three largest domestic banks have over 40% of their total lending in Greece.

Moreover, Moody's concerns about the country's long-term competitiveness also influenced today's decision to downgrade Cyprus, but were much less important than the first two rating drivers. "Wage increases have outstripped productivity gains in recent years, the current account is consistently in deficit, and the tourism sector faces heightened international competition," explains the rating agency. "However, potential GDP growth remains fairly robust, which gives the country time to address these competitive challenges."

WHAT COULD CHANGE THE RATING UP/DOWN

If problems in the Cypriot banking sector's Greek exposures were to materially increase from their current level, then this could prompt Moody's to implement a further downgrade to the sovereign. Should spending on public-sector wages or social transfers increase more quickly than they have in the past, then this would also exert downward pressure on the rating. A resumption in the deterioration in the current account deficit could also put downward pressure on the rating if this deterioration were judged to be more structural than cyclical.

Conversely, Moody's points out that government efforts to enact significant reforms to the social transfers system or to the public-sector wage bill could arrest, or even reverse, some of the expected deterioration in government finances and could therefore merit an upgrade. A lower probability of problems crystallizing in the banking sector's Greek exposures could also put upward pressure on the rating, but would -- on their own -- be unlikely to merit an upgrade. Moreover, a sustained decrease in the current account deficit that was structural in nature would also be credit-positive. (Moody's 24.02)

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11.21 GREECE: Return to the Drachma? Greece May Have to Quit Euro

Greece's debts are rising rapidly despite radical austerity measures. Now a group of leading European economists has warned that creditors might have to write off more than 30% of their loans. Greece might even have to reintroduce the drachma to overcome its debt crisis, they argue. The European Economic Advisory Group (EEAG), a group of leading European economists, has warned that Greece may need another bailout by 2013 at the latest.

Greece's current savings program won't suffice to cope with its debt problems, the EEAG said in a new report which was published on 22 February. Greece is unlikely to be in a position to refinance itself via the financial markets once the current rescue package runs out, the economists said. The Greek government has so far stressed that it will "pay back every cent" and will start reducing its debts in 2014 at the latest.

The EEAG recommends drastic steps to prevent the EU from having to provide Greece with long-term aid: Greece should either return to its national currency, the drachma, or launch even tougher austerity measures, including general cuts in wages and salaries.

According to a Sueddeutsche Zeitung article, leading banks are already giving up hope that Greece will be able to pay back all its debts. Thomas Mirow, the head of the European Bank for Reconstruction and Development, believes a Greek debt restructuring is unavoidable. "It is doubtful that Greece will be able to bear a debt ratio of more than 150% over the long term," Mirow told the Sueddeutsche. "The markets have been pricing in a debt restructuring for some time. The ratio should be lowered to 100% so that the country can overcome its problems." That would mean creditors would have to forego more than 30% of their loans. (Der Spiegel 22.02)

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