• PM Netanyahu Choses Defense Cuts to Finance Free Day Care
• Alcatel Lucent Sets Up Israeli Multimedia Center
• IKEA to Open 3rd Israel Store in Kiryat Ata
• Korean Cars Dominate the Jordanian Market
• Solar Farms on the Rise in Greece
• Libya - Tunisia Border Re-Opens
• Bulgarian Finance Minister Confirms VAT Reduction
• Homosexuals Press For Rights in Turkey's New Constitution
• IRAQ: Reforming Iraqi Kurdistan's Oil Revenue
• MOROCCO: Is the New Mega Mall an Anomaly?
  

TABLE OF CONTENTS:

1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 PM Netanyahu Choses Defense Cuts to Finance Free Day Care
1.2 Finance Minister Abolishes Customs On Hundreds Of Items
1.3 Minister Katz Proposes 2nd International Airport in Negev
1.4 Knesset Keeps Women's Retirement Age at 62

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 US Reserves $235 Million for Israel's Defense Systems
2.2 Israel Halts Defense System Sale to Turkey
2.3 Alcatel Lucent Sets Up Israeli Multimedia Center
2.4 mBeach Software Acquires a Controlling Interest in IRIS Marketing
2.5 JVP & Goldman Sachs Lead $40 Million Investment Round in Cyber-Ark Software
2.6 BluePhoenix Completes Sale of AppBuilder Business to Magic Software
2.7 IKEA to Open 3rd Israel Store in Kiryat Ata
2.8 Akamai to Acquire Cotendo
2.9 Record Auto Sales in Israel During 2011

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Korean Cars Dominate the Jordanian Market
3.2 Fero Industries' New Distribution Agreement to Expand Sucanon in the Middle East
3.3 Kuwait's KFH Finalizes First Canadian Real Estate Investment
3.4 Steve Madden Opens 10th Store in the UAE
3.5 UAE Dairy Giant Set for Major Investment In 2012
3.6 Iraqis Savor Beer from Turkey as Turks like English Whiskey
3.7 Foreign Automakers to Invest More in Turkey

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Cabinet Approves Dead Sea Salt Harvesting Deal
4.2 Solar Farms on the Rise in Greece

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Power Crisis Threatens Lebanese Economy
5.2 EU Grants Jordan €103 Million
5.3 Cost of Jordan's National Railway Network Estimated at JD2.8 Billion

►►Arabian Gulf

5.4 $5 Billion Arabian Gulf Fund Set Up for Morocco & Jordan Projects
5.5 Kuwait Inflation Eases to 4.2% in November
5.6 Kuwait Becomes China's Biggest Liquefied Petroleum Gas (LPG) Supplier
5.7 Abu Dhabi Rescues Aldar with Dh16.8 Billion
5.8 Fitch Says Repeat of 2008-2009 Unlikely for Abu Dhabi
5.9 Dubai 2012 Expenditure Projected at $8.8 Billion
5.10 Saudi GDP Increased by 6.8% in 2011
5.11 Jadwa Says Saudi Growth May Decline To 3.1%
5.12 US Finalizes Deal to Sell F-15s to Saudi Arabia

►►North Africa

5.13 Egypt Hemorrhaging Cash
5.14 Cairo to Reduce Spending in Bid to Offset Budget Deficit
5.15 Defense Spending in Egypt
5.16 Libya - Tunisia Border Re-Opens

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkey: A Soft Landing?
6.2 Turkey's Exports Up by 18.2% in 2011
6.3 Cyprus to Privatize its Stock Exchange
6.4 Greece to Hold Parliamentary Elections End-April
6.5 Bulgarian Finance Minister Confirms VAT Reduction
6.6 Bulgaria to Start Building Gas Links to Greece & Romania in 2012

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Fast of Aseret b'Tevet Observed
7.2 Jerusalem's Christian Population Has Decreased Since 1988

*REGIONAL:

7.3 SCAF Shortens Upper House Parliamentary Elections to Two Phases
7.4 Moroccan King Appoints New Coalition led by Moderate Islamist Party
7.5 Homosexuals Press For Rights in Turkey's New Constitution

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Israeli Innovation in Natural Agro Pest Control
8.2 OPKO Health buys FineTech Pharmaceutical for $27.5 Million

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 ESCORT & Siano Give Passengers a Personal TV Experience with Compact iOS Accessory
9.2 MoMinis Launches PlayScape - Mobile Mega-Game for Android
9.3 Alvarion Confirms Industry Certification
9.4 TangoTec Announces ITU-T G.hn chipset

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's Unemployment Rate Falls to a Record Low
10.2 Bank of Israel Slashes 2012 Growth Forecast
10.3 Israel's Policy Easing to Maintain Growth?

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11: IN DEPTH

11.1 ISRAEL: Moody's Disclosures on Credit Ratings on Government of Israel
11.2 ISRAEL: Paying Up To 50% More For International Fashion Labels
11.3 LEBANON: Growth Hinges on Regional Developments
11.4 LEBANON: Food and Drink Report Q1 2012
11.5 JORDAN: Despite Setbacks, National Economy ‘Resilient, Salvageable'
11.6 JORDAN: Year in Review 2011
11.7 IRAQ: Reforming Iraqi Kurdistan's Oil Revenue
11.8 GCC: Waste Treatment Market to Hit $2 Billion
11.9 OMAN: 2011 Article IV Consultation Concluding Statement of the IMF Mission
11.10 EGYPT: Fitch Downgrades Egypt to 'BB-'; Outlook Negative
11.11 EGYPT: Has Egypt's Revolution Left Women Behind?
11.12 EGYPT: From Tahrir to Trade - Gaining International Economic Support
11.13 MOROCCO: Is the New Mega Mall an Anomaly?
11.14 GREECE: 'Key Driving Sector': Greece Turns to Energy as its Economic Savior

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1: ISRAEL GOVERNMENT ACTIONS & STATEMENTS

1.1 PM Netanyahu Choses Defense Cuts to Finance Free Day Care

On 1 January, Prime Minister Benjamin Netanyahu told his cabinet that he will submit to them what he believes is the proper balance between defense needs, economic needs and social needs, including free compulsory education from the age of three, to be institutes in 2012. This will be done while keeping within the budget framework. Netanyahu also listed some of the Trajtenberg Committee recommendations that came into effect that day, including NIS 430 a month for working fathers with children up to the age of 3 and NIS 15 a month for working mothers with children up to the age of 5.

Minister of Finance Steinitz said 2011 was a very good year for the Israeli economy in many ways. Growth was a high 4.8%; the unemployment rate fell to 5%, bucking the global trend, to its lowest level in decades, though Israel must fight to maintain strict budget discipline to keep these achievements. He added that there were still worries that unemployment would rise in 2012, which was why he was insisting on budget discipline. Steinitz also mentioned the income tax cuts, the NIS 300 monthly earned income tax credit for working mothers and the government's plans to move forward on free education for day care, even as he reiterated that breaking fiscal discipline was liable to cause severe harm to the economy. (Globes 01.01)

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1.2 Finance Minister Abolishes Customs On Hundreds Of Items

On 28 December, Minister of Finance Steinitz signed a directive abolishing customs duties on hundreds of imports, beginning on 1 January 2012. The directive applies to industrial and consumer items. The directive will cost NIS 400 million a year in revenues - a quarter of total annual customs duties on these items. The directive is one of the Trajtenberg Committee's recommendations. The Ministry of Finance said that the directive would apply to consumer items, including baby carriages, toys, clothing, home appliances, cosmetics, sewing machines, tires, leather handbags and luggage, glassware and medications. It will also apply to raw materials for industry, such as chemical compounds and wood. (Globes 28.12)

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1.3 Minister Katz Proposes 2nd International Airport in Negev

Transportation Minister Katz recently presented the government with a proposal to build a second international airport in the Negev. The airport, which is slated to be Israel's second biggest airfield, will be built in Nevatim and will handle overflow air traffic from Ben Gurion International Airport. In 2010, the government reviewed a similar proposal for an airport in Megiddo. The proposal was voted down over the residents' objections. The cabinet asked Katz and Defense Minister Barak to submit their operational recommendations for the Nevatim airport in the next three months. Katz noted that a Transportation Ministry steering committee has been tasked with formulating the plan, adding that building an international airport in the Negev will propel the area's development, create employment opportunities and bring about an economical and social boom. The Defense Ministry had previously opposed building an international airport close to the area's military base. Nevertheless, the heads of the local authorities in the south urges the government to execute the plan, saying it was time for the Negev to realize its potential as a tourist attraction. (Ynet 26.12)

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1.4 Knesset Keeps Women's Retirement Age at 62

On 26 December, the Knesset plenum approved by a majority of 73 MKs a bill by Labor, Welfare & Health Committee chairman MK Katz (Likud) to keep women's retirement age unchanged at 62 for the next five years. The vote went against the recommendation by the Nissan committee, established by Minister of Finance Steinitz, to raise the retirement age to 64. (Globes 26.12)

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2: ISRAEL MARKET & BUSINESS NEWS

2.1 US Reserves $235 Million for Israel's Defense Systems

The Unites States has announced it will allocate $235 million for the development of safeguards against rockets and missiles that could be launched towards Israel by Hezbollah and Iran. A large part of the funds will go towards the development of the David's Sling system, designed to intercept medium- to long-range rockets and cruise missiles, and the Arrow 2 and 3 systems against long-range ballistic missiles. This unprecedented sum comes at an unexpected time, while the American government is dealing with large budget cuts, including at the Pentagon. However, Pentagon officials were the ones who requested that Congress approve a $106 million aid budget for Israel's defense systems against missiles, on top of the Iron Dome budget. Congress chose to nearly double that amount, approving a budget of $235 million for 2012, amounting to $25 million more than in 2011. This budget, however, is not considered to be part of the American aid to Israel, but rather, goes towards military cooperation between both countries, with each one allocating a similar amount in developing anti-missile systems. The US' defense assistance to Israel is estimated at over $3b for 10 years, beginning in 2007, two-thirds of which end up in the hands of America's military industries. (Ynet 22.12)

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2.2 Israel Halts Defense System Sale to Turkey

Israel's Ministry of Defense has ordered Israel Aerospace Industries (IAI) and Elbit Systems to cancel a contract with the Turkish Air Force for the supply of airborne intelligence gathering systems. The contract was signed jointly with Elbit unit El-Op and IAI unit Elta in late 2009. Defense sources familiar with the matter said that the Ministry of Defense had given the grounds of the instruction to the two companies as "diplomatic considerations". The companies were told that the export licenses necessary for continued performance of the contract will not be renewed. Elbit's share of the agreement with the Turks is $87 million and IAI's $54 million. The systems were to have been supplied to the Turkish Air Force over four years. Defense sources said that the systems in question were among the most advanced of their kind. Before the crisis in Israeli-Turkish relations erupted, there was close military cooperation between the two countries and substantial arms sales. Among other deals, IAI sold the Turks UAVs, Elbit Systems sold electronic systems and IMI had a large project to upgrade Turkish tanks. (Globes 22.12)

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2.3 Alcatel Lucent Sets Up Israeli Multimedia Center

Alcatel Lucent is setting up a multimedia development center in Israel, which will work on internet-protocol television (IPTV), multiscreen video services, focused IP multimedia systems (IMS) and other telecommunications technologies to meet Israel's growing needs in these fields. The new center will begin hiring soon. The multimedia center will reflect Alcatel Lucent's technologies and range of products in the field and adapt them to Israel. In addition to the centers that Alcatel Lucent is setting up in Israel for multimedia and cloud computing, the center is further evidence of the company's confidence in Israel's human capital and its capabilities. (Globes 01.01)

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2.4 mBeach Software Acquires a Controlling Interest in IRIS Marketing

mBeach Software, the holding company for Skin Cancer Scanning (SCS), entered into a binding Memorandum of Understanding (MOU) to acquire 51% of IRIS Marketing, an Israeli company that has developed global markets in Central Africa and India. The de facto merger of IRIS Marketing with mBeach, when concluded, will diversify mBeach line of activities to R&D and ongoing commercial marketing. These two lines of activities will create stable ongoing revenue which will counteract the R&D high risk and high potential which characterizes all development programs, thereby growing the share and company value and at the same time providing more security and comfort for mBeach shareholders in their investment. Under the MOU, MBHS will acquire 51% of IRIS, partly by investing no less than $2.8 million in IRIS and partly by issuing new MBHS shares to IRIS shareholders in exchange for a portion of their shares in IRIS. The MOU is contingent upon funding, limited in time and is subject to a definitive agreement.

Tel Aviv's Skin Cancer Scanning http://www.scs-med.com is a medical device company pioneering the development and commercialization of a revolutionary and proprietary imaging system for the early detection and diagnosis of skin cancer. Their SkinScan 650 product is a non-invasive, point-of-care (in the doctor's office) system to detect and identify different kinds of skin nevi, tumors, lesions and cancers. SkinScan 650 enables physicians to diagnose skin cancer at an earlier, more curable stage. This will reduce the number of biopsies, lower treatment costs, and improve quality of life. IRIS is an Israeli company, operating in developed global markets in Central Africa and India and is marketing and distributing products in communication fields, electronic equipment, infrastructure and textile components. (mBeach Software 14.12)

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2.5 JVP & Goldman Sachs Lead $40 Million Investment Round in Cyber-Ark Software

Cyber-Ark Software has signed an agreement for a $40 million investment round led by Goldman Sachs and Jerusalem Venture Partners (JVP). The transaction includes the purchase of shares from existing shareholders, as well as the provision of growth capital for the company. Cyber-Ark will use the proceeds to further accelerate growth, while capitalizing on its position as a market leader in Privileged Identity Management, one of the fastest growing segments within the $4b Identity and Access Management market1. In both traditional data centers and in the cloud, managing access to accounts and data is at the core of delivering system security and trust. Following the round, Cyber-Ark's main shareholders will include JVP, Goldman Sachs, Vertex Venture Capital and Cabaret-ArbaOne.

Petah Tikva's Cyber-Ark Software http://www.cyber-ark.com is a global information security company that specializes in protecting and managing privileged users, sessions, applications and sensitive information to improve compliance, productivity and protect organizations against insider threats and advanced external threats. With its award-winning Privileged Identity Management, Sensitive Information Management and Privileged Session Management Suites, organizations can more effectively manage and govern data center access and activities, whether on-premise, off-premise or in the cloud, while demonstrating returns on security investments. (Cyber-Ark 21.12)

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2.6 BluePhoenix Completes Sale of AppBuilder Business to Magic Software

BluePhoenix Solutions completed the sale of its AppBuilder business to Magic Software Enterprise for $17 million. The amount paid to BluePhoenix at closing (after deduction of $3.5 million net) was $9.5 million. An amount of $4 million is held in escrow accounts to secure certain obligations under the sale agreement. Concurrently with completion of the sale of AppBuilder business, BluePhoenix entered into agreements with its bank lenders to revise the set of financial covenants to suit its current level of operations. Herzliya's BluePhoenix Solutions http://www.bphx.com is the leading provider of value-driven legacy IT modernization solutions. The BluePhoenix portfolio includes a comprehensive suite of tools and services from global IT asset assessment and impact analysis to automated database and application migration, rehosting, and renewal. Leveraging over 20 years of best-practice domain expertise, BluePhoenix works closely with its customers to ascertain which assets should be migrated, redeveloped, or wrapped for reuse as services or business processes, to protect and increase the value of their business applications and legacy systems with minimized risk and downtime. Or Yehuda's Magic Software Enterprise http://www.magicsoftware.com is a global provider of application platforms and business integration solutions. Their business technology gives partners and customers the power to efficiently build, deploy and integrate IT applications. (BluePhoenix 27.12)

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2.7 IKEA to Open 3rd Israel Store in Kiryat Ata

The IKEA Israel chain announced the purchase of 50% of the Shikun & Binui complex in the northern Israeli town of Kiryat Ata, at a total investment of about $14.5 million. The international home products company's third Israel store is expected to be built in the complex in the future. A total of $157,500 will be invested in the commercial project. Austrian furniture retailer Kika is also planning to open another store in Israel in the Haifa bay area in partnership with the Ashtrom construction company, after opening its first store near the IKEA branch in Netanya. IKEA's third store, expected to open in 2014, will be located in the commercial center near Kiryat Ata's Ata Junction. (Ynet 02.01)

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2.8 Akamai to Acquire Cotendo

Cambridge, Massachusetts' Akamai Technologies and Cotendo signed a definitive agreement for Akamai to acquire Cotendo. Helping to mitigate the challenges of operating in a hyper-connected world, Akamai provides a secure platform over which businesses can engage users across the Web, mobile, cloud or a mix of public and private network environments. Cotendo offers an integrated suite of Web and mobile acceleration services. The combination of the two companies' technologies and teams is expected to increase the pace of innovation in the areas of cloud and mobile optimization. Under terms of the agreement, Akamai will acquire all of the outstanding equity of Cotendo in exchange for a net cash payment of approximately $268 million, after expected purchase price adjustments, plus the assumption of outstanding unvested options to purchase Cotendo common stock. The closing of the transaction, which is subject to customary closing conditions, including regulatory approvals, is expected to occur in the first half of 2012.

Founded in 2008, Cotendo http://www.cotendo.com is headquartered in Sunnyvale, California, with a technology center in Netanya, Israel. Cotendo currently has approximately 100 employees, with over 50 based in Israel. A fast growing innovator of cloud-based acceleration technologies, Cotendo offers an integrated suite of Web and Mobile Acceleration Services from its global distributed points of presence (POPs). Cotendo's single platform software was built from the ground-up and includes acceleration services for dynamic web applications, static and dynamic web content, SSL, Advanced DNS, Adaptive Image Compression, performance monitoring and automatic failover as well as real-time reports and analytics. Cotendo also offers a distributed cloud application environment called Cloudlet that allows decision-making (logic, data) at the edge, closest to the end users. (Akamai Technologies 22.12)

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2.9 Record Auto Sales in Israel During 2011

New motor vehicles sales reached an all-time high of 226,000 in 2011, 4.3% more than in 2010. The slowdown in motor vehicle sales continued in December, with just 14,000 sales. However, importers say that their orders backlog for January-February from leasing companies and individuals is huge. The waiting list for some models is weeks and even months. Motor vehicle industry sources believe that most buyers are still waiting for the Zelekha committee to publish its recommendations for increasing competition in the motor vehicles import and distribution market, and for clarification on prices. In addition, the Ministry of Finance has not yet published its updated Green Taxes regulations, which will raise prices for many of the most popular models on the market. The new regulations will probably be published in February. (Globes 01.01)

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3: REGIONAL PRIVATE SECTOR NEWS

3.1 Korean Cars Dominate the Jordanian Market

Korean-made cars are still taking the largest share of Jordan's imported autos, beating Japan, Germany and the US, official figures showed on 26 December. Since the beginning of this year until the end of November, according to the Jordan Customs Department (JCD), a total of 50,942 cars manufactured in South Korea entered the domestic market, representing over 75% of the overall number of vehicles imported from 32 countries. During the first 11 months of 2010, Jordan imported 43,873 cars from South Korea. The JCD report showed that Jordan imported a total of 67,638 cars at a value of JD438.7million during the first 11 months of this year, a slight increase over the same period of 2010 when a total of 67,524 cars were imported to the domestic market at a value of JD518.9 million. The value of cars brought from Korea exceeded JD224.9 million by the end of November this year compared to JD182 million last year. The JCD figures showed a sharp decline in the number of cars imported from Japan, which came in the second position on the list of exporters to the Kingdom, with 6,005 cars compared to over 11,000 vehicles imported during the first 11 months of 2010. Experts attribute the drop in car imports from Japan to the fact that Jordanian motorists prefer affordable Korean-manufactured cars. The average price of a Korean car in the local market ranges between JD6,000 to JD8,000. Germany came third, swapping place with the US, with a total of 3,856 cars while the number of cars from the US stood at 3,261 followed by France with 1,164 vehicles, the JCD figures indicated. (JCD 27.12)

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3.2 Fero Industries' New Distribution Agreement to Expand Sucanon in the Middle East

Calgary, Alberta's Fero Industries, the exclusive owner, producer and distributor of the Type-II diabetes treatment Sucanon, announced that it has entered into a Distribution Agreement with Premium Pharma Co. for the marketing and distribution of Sucanon in several countries in the Middle East region (Egypt, Saudi Arabia, UAE, Bahrain, Kuwait, Qatar, Oman, Jordan, Lebanon, Iraq, Sudan and Libya). The 5-year Distribution Agreement calls for a minimum purchase of $13 million and gives Premium Pharma the exclusive right to market and sell Sucanon through its established distribution channels and will begin shortly the regulatory process with the Ministries of Health for the sale of Sucanon. Fero is also taking the necessary steps to comply with the US government for this agreement and the companies expect to complete the licensing process and commence shipping of Sucanon within a year. (Fero Industries 22.12)

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3.3 Kuwait's KFH Finalizes First Canadian Real Estate Investment

Kuwait Finance House (KFH) has announced the acquisition of a residential apartment complex in Canada in a deal worth about $32.5m, its first as part of a joint venture agreement. The purchase of the newly constructed 180 Mill Road Apartments, a 127-unit complex in downtown London, Ontario, is the first property held under KFH's joint venture with Killam Properties. The investment firm signed the joint venture agreement last year with Killam with the objective of acquiring residential properties in Canada. Under the agreement, the partners are committed to contribute equity up to C$100m, representing real estate acquisitions of approximately $250m, KFH said in a statement. The purchase price of 180 Mill Road was C$33.3m ($32.5m), with KFH/Sigma's ownership interest being C$25m. KFH said its expected rate of return including fees will be 10-12% upon exit. Construction of the 12 story apartment building, with two levels of underground parking, and seven adjacent townhouses, was completed during Q1/11. (AB 27.12)

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3.4 Steve Madden Opens 10th Store in the UAE

Steve Madden, a leading footwear brand from US under the Landmark Group portfolio in the region, has launched its 10th store in the UAE at Oasis Centre, Dubai. The store was inaugurated in the presence of the senior management of Landmark Group's International Footwear division. (TradeArabia 02.01)

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3.5 UAE Dairy Giant Set for Major Investment In 2012

The largest dairy producer in the UAE has announced major expansion plans for 2012 when it aims to double its output. Al Ain Dairy plans to invest AED100m in a new cow farm while another AED150m will be spent on expanding the company's factory. The company has also invested nearly AED3m on a new camel milking parlor as it looks to increase production volumes across its product portfolio next year. The company added that it is also planning to introduce new products to market in 2012 to meet the "demands of the growing consumer market". The Chief operating officer said they will shortly be announcing yet more new product innovations - some completely new product such as a range of camel milk ice creams. The company said it will leverage on the global increase in demand for camel milk, taking an "aggressive approach" to marketing and branding in the coming year. Al Ain Dairy started operations in 1981 with just 200 livestock. Today the company has well over 5,000 cows and 2,500 camels with further plans to extend their livestock count substantially in the coming year.

In September, Al Rawabi Dairy Company, a major producer of dairy products and fresh juices in the GCC, said it was investing $200m as part of its expansion plans. The dairy company, which serves Dubai, Abu Dhabi, Sharjah, Al Ain, the Northern Emirates, Qatar and Oman, said it plans to extend its regional footprint to Bahrain and Kuwait, where it will replicate the business model it runs in the UAE. Al Rawabi Dairy said that it is also looking to invest a further $100m this year to further augment its milk production and processing capacity. (AB 23.12)

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3.6 Iraqis Savor Beer from Turkey as Turks like English Whiskey

Iraqis love an ice cold Turkish beer and Turks enjoy sipping a glass of English whiskey, according to a report from the Turkish Undersecretariat of Foreign Trade (DTM) titled “2011 Alcohol and Alcohol-free beverage Sector Report.” The report, which looked at Turkey's alcohol exports and imports, highlighted that nearly 40% of Turkey's beer exports in 2010 went to Iraq. Iraq accounted for approximately $27.5 million of Turkey's $68.4 million in beer exports that year. In 2008, Turkey exported $21.1 million in alcoholic beverages to Iraq and $27.3 million in 2009. Iraq has become Turkey's largest alcohol export market since the United Nations lifted its embargo on Iraq in 2003. In terms of beer exports, Northern Cyprus came next followed by Azerbaijan and the United Arab Emirates. Lebanon, Canada, Uganda and Bahrain also comprised a large chunk of Turkey's beer exports. On the other hand, English whiskey made up the bulk of Turkey's alcohol imports from abroad. Last year Turkey imported $21.4 million of whiskey and more than half of which was from England. The US came next with $7.8 million in whiskey imports. Wine was Turkey's second most imported alcoholic beverage. Turkey imported wine primarily from France, Italy and Chile, according to the report. (Anatolia 27.12)

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3.7 Foreign Automakers to Invest More in Turkey

Many foreign auto manufacturers, like U.S. Ford and Japanese Mazda, Nissan and Toyota are increasing their investments in the Turkish market in 2012 despite the global economic volatility. U.S. auto giant Ford plans to invest $1 billion in its Turkish facilities in 2012. Japanese Toyota and Nissan also had Turkish investments in the pipeline. Mazda, another Japanese auto maker, plans to boost its offerings in Turkey by focusing on new motor technology. Mazda has been relatively quiet in Turkey over the past five to six years. Now, however, the company has plans to revamp its technology and bring forth a new era in auto production. The largest leap will be with the Skyactiv motor Mazda3, which will come to the Turkish market in 2013. The Mazda3 will have a 1.3 liter diesel engine, which will be capable of using only 3.3 liters of gas per 100 km. Mazda currently has 30 distribution centers in Turkey, but only 12 of these are active. (Hurriyet 27.12)

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4: CLEAN TECH & ENVIRONMENTAL DEVELOPMENTS

4.1 Cabinet Approves Dead Sea Salt Harvesting Deal

On 1 January, the Israeli cabinet approved the agreement between the Ministry of Finance and Israel Chemicals on the NIS 3.8 billion project to rehabilitate the Dead Sea, NIS 3 billion of which the company will finance, and the doubling of the company's royalties on potash sales to 10% above three million tons a year. Minister of Environmental Protection Erdan and Minister of Tourism Misezhnikov voted against the agreement. In six weeks, a team will submit recommendations for the use of the increased royalties, which will be paid into a designated fund that will finance environmental damage caused by industrial operations. The Society for the Protection of Nature in Israel said it welcomed the approval of the full salt harvesting option. Environmentally, full salt harvesting is much better than all the other options proposed over the years, which is why it should be expedited, because any delay in implementation will cause further environmental degradation. (Globes 01.01)

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4.2 Solar Farms on the Rise in Greece

The record for the installation of renewable energy sources in Greece has been broken this year, with photovoltaic systems grabbing the lion's share, according to data compiled by grid operator DESMIE. Newly installed power from RES in the first 11 months of the year amounted to 613 MW, taking the total capacity to 2,337 MW at the end of November. This will likely reach up to 2,500 MW by the end of the year. Photovoltaic installations more than doubled over the course of the year, as they soared from 153 MW at the end of 2010 to 400.25 MW at end-November. There was little movement in other RES domains. For instance, the capacity of installed hydroelectrics remained unchanged for the fifth month in succession, at 205.33 MW. (ekathimerini 28.12)

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5: ARAB STATE & PAKISTANI DEVELOPMENTS

5.1 Power Crisis Threatens Lebanese Economy

Energy experts warned recently that the mounting losses of the electricity sector would wreak havoc on the Lebanese economy if not addressed in the near term. The experts were speaking during a three-day seminar on sustainable energy in Lebanon. The Council for Development and Reconstruction, said successive energy ministers had made very little progress toward solving the major problems in the electricity sector since 2002. The Lebanese economy will suffer miserably if the electricity sector maintained its losses indefinitely. No governments to date have kept promises to privatize the state-run Electricite du Liban (EDL) or find a private-sector partner that could ease the burden on the state. The annual losses of the electricity sector are expected to exceed $2b by the end of 2011. EDL has long been a drain on the Lebanese state's coffers and experts complain that the state-run firm is plagued by poor management, unqualified and unmotivated staff and rampant corruption. Many agree that the best solution for the ailing electricity sector would be privatization, or a private-public partnership in which a private firm would jointly run EDL with the state. But some critics have voiced fears that the sale of state assets to private companies could increase unemployment. EDL sells a kilowatt hour to private electricity companies between LL50 to LL75 while EDL's subscribers pay LL125, meaning that private concession companies make a profit of up to LL75 for every kilowatt they sell to their customers. Energy and Water Minister Bassil has submitted a plan to build new power plants and rehabilitate the existing ones over the next five years at a cost of $4.5b. (TDS 22.12)

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5.2 EU Grants Jordan €103 Million

Jordan and the European Union (EU) on Wednesday signed grant agreements worth €103 million to support the budget and implement development projects. Some €25 million of the total amount will go to support schemes in the fields of water, democracy, governance and local communities' development. A total of €78 million to be dispensed in the period between 2012 and 2114 and will be allocated to support the budget and support the implementation of renewable energy, education and financial reform programs. The EU will also provide the Kingdom with €74.6 million by the end of this year to support the budget as part of grant agreements signed between the two sides during this month. Nearly 70% of the grants given by the EU to Jordan during the period 2007-2011 went to support the state budget, while the total amount of money that went to budget through the ministry's agreements in 2011 reached $184 million or JD222 million, including the latest US grant, with a 30% increase compared to last year. Planning and International Cooperation Minister Hassan indicated after signing the agreements that the upcoming two years will witness the signing of grant agreements worth of €125 million to support media, trade, security, community development and other sectors. (JT 22.12)

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5.3 Cost of Jordan's National Railway Network Estimated at JD2.8 Billion

Jordanian Transport Minister Batayneh said on 26 December said the cost of the National Railway Network project is estimated at JD2.8 billion. At a meeting with officials and employees of the Aqaba Railway Corporation, he noted that technical and environmental studies related to the project have been completed. The government is working to secure financing for the scheme's infrastructure by cooperating with international private sectors, particularly in China and some Arabian Gulf countries. The length of the railway network inside the Kingdom, which will connect Jordan with Syria, Iraq and Saudi Arabia, is 950 kilometers. (Petra 27.12)

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►►Arabian Gulf

5.4 $5 Billion Arabian Gulf Fund Set Up for Morocco & Jordan Projects

Energy-exporting Arab Gulf countries decided at a summit on 20 December to set up a $5b fund to help development projects in aspiring Gulf Cooperation (GCC) members Morocco and Jordan. The higher council agreed to set up a Gulf development fund, which will offer support for development projects in both countries to the value of $2.5b each. Arabian Gulf countries said in September they plan to fund a five-year development aid program for Morocco and Jordan. The Arabian Gulf monarchies are seeking closer ties with Arab kingdoms outside the Gulf as part of efforts to contain pro-democracy unrest that is buffeting autocratic ruling elites throughout the Arab world, analysts say. Jordan and Morocco are the only two Arab states outside the Gulf with monarchies. The UAE said last month there was no consensus yet among Gulf Arab states on admitting Jordan and Morocco to the GCC. (AB 20.12)

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5.5 Kuwait Inflation Eases to 4.2% in November

Kuwait's inflation rate eased to 4.2% in November, the slowest pace in more than a year. The inflation rate fell from 4.8% in October, according to the Central Statistics Office. That is the lowest since July 2010. Kuwaiti inflation will be between 5% and 6% this year, central bank governor Sheikh Salem AbdulAziz Al-Sabah said in March. Inflation in Kuwait, the only Gulf Arab state to have dropped its currency peg to the US dollar, accelerated to a record 11.6% in August 2008. Meanwhile, Bahraini inflation accelerated to 1.3% in November from 0.9% in the previous month. (AB 25.12)

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5.6 Kuwait Becomes China's Biggest Liquefied Petroleum Gas (LPG) Supplier

Kuwait became China's biggest liquefied petroleum gas (LPG) supplier in November 2011, overtaking Qatar, latest data by the Chinese government shows. Kuwait's LPG shipments to China surged 64.4% y-o-y to 80,500 tonnes in November, accounting for a quarter of China's total LPG imports, according to the General Administration of Customs. In October, Kuwait was China's number two LPG supplier after Qatar. Kuwait's January - November LPG shipments to China also skyrocketed 139.6% from the same period last year to 505,000 tonnes. China is the world's second-biggest LPG consumer after the US. State-run Kuwait Petroleum Corporation (KPC) has successfully expanded its market share in China since the establishment of KPC's Beijing office in early 2005, including LPG, crude oil and sulfur. (Various 28.12)

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5.7 Abu Dhabi Rescues Aldar with Dh16.8 Billion

On 28 December, the Abu Dhabi government came to the rescue of the emirate's biggest property developer, Aldar Properties PJSC, with a Dh16.8 billion lifeline in exchange for strategic assets. This is the second such move in a year. In January, the developer had agreed to sell real estate assets, including the Ferrari theme park, and convertible bonds to the government for Dh19.2 billion to reduce its debt. Under this new agreement, the Abu Dhabi government purchased 760 apartments in Al Raha Beach for Dh3.5 billion. Aldar retains ownership of the remaining inventory of units at Al Raha Beach, which are available for purchase or rent-to-own.

The Abu Dhabi government has also agreed to reimburse Aldar with Dh5 billion once it finishes work on certain existing and to-be-completed infrastructure assets at Al Raha Beach. This amount will be settled by the immediate retirement of Dh5 billion towards the currently outstanding infrastructure loan from the government of Abu Dhabi. These infrastructure assets will be transferred to the relevant government authorities as and when directed by the government of Abu Dhabi. Aldar also said that Central Market and its associated infrastructure have also been sold to the government of Abu Dhabi for Dh5.7 billion. Aldar will be responsible for the construction management and supervision of the completion of the project as well as the immediate day-to-day operations, management of the facilities and tenant relations on behalf of the government of Abu Dhabi. The estimated completion costs of Dh2.6 billion will be funded by the government of Abu Dhabi, the developer said. Aldar's portfolio of projects in Abu Dhabi is valued at more than $75 billion (Dh275.40 billion), with the entire inventory slated to be completed and delivered within this decade. (AB 29.12)

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5.8 Fitch Says Repeat of 2008-2009 Unlikely for Abu Dhabi

On 30 December, Fitch Ratings http://www.fitchratings.com said that the support extended to property developer Aldar demonstrates that contingent liabilities remain a risk to Abu Dhabi's balance sheet. But the emirate will not be subjected to as severe a strain as in 2008 and 2009, when its strong balance sheet enabled it to deal with such contingencies, despite much lower oil prices than today. IMF stress tests suggest that further solvency support for the emirate's banks will probably not be needed. In addition, we believe that there are limits to the amount of further support Dubai might require, as it has better identified its core liabilities and no longer seeks to prop up its entire public sector. This is in contrast to 2008-2009, when sharply lower oil prices and negative returns for sovereign wealth funds coincided with capital injections for Abu Dhabi's banks, and to bolster Dubai. Abu Dhabi's balance sheet remains exceptionally strong, and at current oil prices foreign asset growth should pick up to over 10%.

Fitch rates Abu Dhabi 'AA' with a Stable Outlook. When Fitch affirmed the rating in September, they noted that contingent liabilities from state-owned enterprises (SOEs) were the main threat to the sovereign balance sheet, and that although SOE borrowing had fallen sharply since 2009, overall SOE debt had continued to increase. Abu Dhabi has made clear its intention to support its flagship SOEs. Aldar is neither wholly state owned nor a majority-owned government-related entity. It is minority state owned via Mubadala. But the government of Abu Dhabi announced a second support package, in the form of asset purchases and debt relief, worth around $4.6b. This confirms Abu Dhabi's willingness and ability to support strategically important companies in which it has a stake. Aldar is responsible for various priority infrastructure and real estate projects. (Fitch 30.120

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5.9 Dubai 2012 Expenditure Projected at $8.8 Billion

On 25 December, Dubai's ruler approved a 2012 government budget with a smaller deficit than in 2011, as spending on development projects in the debt-laden Gulf Arab emirate decreased. The budget shortfall of the UAE member was set at AED1.83b ($498.2m) or 0.6% of its 2010 gross domestic product, down from an AED3.78b gap or 1.3% of GDP planned for 2011. Spending is projected at AED32.26b, the statement said, slightly down from AED33.68b planned for 2011. Revenues have been set at AED30.43b, up from AED29.91b projected for 2011. It is unclear whether Dubai planned to issue government bonds to finance the gap. The emirate's government launched a $500m 10-year bond in June. The Arabian Gulf trade and business hub, whose budget stands at around 14% of that of neighboring Abu Dhabi, does not release regular updates on its fiscal performance. Dubai relies on various fees, taxes and customs duties for around 85% of its budget revenues since it lacks oil wealth of Abu Dhabi. Fiscal policy is a key tool for UAE policymakers to steer the oil-reliant economy, as the central bank's flexibility is limited by the OPEC member's currency peg to the US dollar. Most of UAE government expenditure is undertaken by the individual emirates with Dubai accounting for around 11% of the total. Dubai, which narrowly averted a bond default in 2009, could use money raised by its sovereign wealth fund to help repay $3.8b in bonds owed by state-linked firms which mature next year, a source said. (AB 25.12)

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5.10 Saudi GDP Increased by 6.8% in 2011

Saudi Arabia's strong economic growth this year was a positive surprise, Finance Minister Alassaf said on 27 December, adding that the government's plans to build hundreds of thousands of homes aimed to limit future inflationary pressures. The ministry estimates that Saudi's GDP grew by 6.8% in 2011, the country's fastest expansion since 7.7% growth in 2003. The ministry estimates the government sector grew 6.7% this year while the private sector expanded 8.3%. The non-oil industrial sector grew an estimated 15%, and the construction sector 11.6%. The ministry's 2011 GDP growth estimate is well above the 5.1% forecast made by the central bank in its annual report released in December. The Saudi government boosted expenditures to a record $214b this year, a 39% increase over its initial plan, to ease social tensions as a wave of unrest swept through the Arab world. Alassaf also said that the government's plan to spend on building new housing units, announced earlier this year, should reduce price pressures in future. Inflation is expected to average 4.7% this year, the ministry said, below 5.3% in 2010. (AB 27.12)

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5.11 Jadwa Says Saudi Growth May Decline To 3.1%

Saudi Arabia's economic growth is expected to fall to 3.1% in 2012, from 6.8% in 2011 as the kingdom's oil production is forecast to drop after a large rise in 2011, a Jadwa Investment report said. Growth in the non-oil economy will be 4.7% and government spending will be supported by greater bank lending and high consumer spending. It said Saudi will experience another year of reasonable economic performance. Non-oil growth will be strong and inflation should ease. Lower oil production will cause total real economic growth to slow, and combined with lower oil prices, will reduce the budget and current account surpluses, it said.

High government spending will remain the engine of the non-oil economy, said the report. Construction, the main beneficiary of government spending, should be the fastest growing sector. Budgeted government spending for 2012 is well below the actual level for 2011, but this latter figure was distorted by one-time payments, said the report. Inflation is forecast to moderate to an annual average of 4.4% in 2012. Negligible external price pressures, due to lower commodity prices, a strong dollar and subdued inflation in trading partners, will underpin the decline. This will be supported by lower rental inflation, as more properties enter the market, though the amount of new supply, and therefore its impact on inflation, is not clear. There is a danger that the debt crisis in the Eurozone could spiral out of control, causing renewed global recession and a shock to the global financial sector similar to that of late 2008. The implications for the Kingdom would be serious, but not disastrous, given the government's willingness and ability to honor its spending commitments, the report said.

With Libyan production likely to return to very close to pre-conflict levels by the end of 2012 and output from Iraq steadily rising, Saudi oil production is expected to fall by 4.4% to 8.8 million bpd. (Jadwa 31.12)

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5.12 US Finalizes Deal to Sell F-15s to Saudi Arabia

The sale of $30 billion worth of F-15SA fighter jets to Saudi Arabia has been finalized by the Obama administration. Under the agreement, the U.S. will send Saudi Arabia 84 new fighter jets and upgrades for another 70 jets. Production of the aircraft, which will be manufactured by Boeing Co., will support 50,000 jobs and have a $3.5 billion annual economic impact in the U.S. The sale is part of a larger U.S. effort to realign its defense policies in the Arabian Gulf to keep Iran in check. The announcement followed new threats from Tehran that it could disrupt traffic through the Strait of Hormuz if the US government levies new sanctions targeting Iran's crude exports. US administration officials said the timing of the announcement was not tied to the new threat from Tehran. But they did make clear that the fighter jet sale would help Saudi Arabia counter potential troubles with Iran. The fighter jet sale is part of a larger 10-year, $60 billion arms deal with Saudi Arabia that also includes helicopters, a broad array of missiles, bombs and delivery systems, as well as radar warning systems and night-vision goggles. The deal was approved by the US Congress about a year ago. (Various 02.01)

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►►North Africa

5.13 Egypt Hemorrhaging Cash

Egyptian Prime Minister Ganzouri decried recently that funds pledged by the US, the G8 and Arab states has not been delivered. Ganzouri said the Arab world delivered $1b of $10.5b promised in soft loans and aid, while the U.S. had not delivered its promised $2.25b in re-financing, grants and loans for small industries. Egypt's net outflows reached $8.9b in January through September. The hemorrhaging of capital was largely caused by the sale of $7.5b of securities, especially treasury bills, by foreigners. Cairo's worsening economic outlook has brought record bond yields, credit rating cuts and the threat of currency devaluation. The loss of capital has forced the government to raise its forecast for the budget deficit in the current fiscal year to 10% this week from 8.6% as Egypt's central bank announced it had used up almost half of its foreign currency reserves in 11 months of straight outflow. Moody's Investors Service cut Egypt's rating by one level to B2, citing political instability, a deterioration in the balance of payments, “increasing pressure” on government finances and the absence of “a meaningful level of exceptional, external financial support.” Ganzouri was appointed by Egypt's caretaker junta in December as the country faces renewed violence between security forces and demonstrators demanding that the generals step down. (IsraelNN 20.12)

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5.14 Cairo to Reduce Spending in Bid to Offset Budget Deficit

An Egyptian Finance Ministry official has said that the government plans to reduce its spending in order to offset the state budget deficit. It vows to cease building new offices and only buy Egyptian products. The plan aims to reduce the LE134b deficit by LE20b. The Ministry has set a maximum wage for government officials at 35 times the minimum wage, said Finance Minister al-Saeed. In its first meeting on 19 December, the new government wrote off bank interest amounting to LE153.7 million for more than 22,000 farmers banking with the state-owned Agricultural Credit Bank. It has also agreed to reschedule farmers' debts over another five years, and pay the debts of 25 farmers who have been imprisoned for failing to pay them. The debts total some LE4.8 million. The minister also said Arab and foreign investors would be able to pay the government the difference in prices for state-owned land they bought cheap, without having to resort to international arbitration. (AA 19.12)

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5.15 Defense Spending in Egypt

BMI's Defense Spending in Egypt said that Egypt's defense expenditure amounted to $4.2 billion in 2010, representing a compound annual growth rate (CAGR) of 9.3% for the period spanning 2006 - 2010. Spending on personnel proved most costly, amounting to $2.3 billion, equivalent to 53.8% of overall costs. Defense expenditures are forecast to decelerate in Egypt, with an anticipated CAGR of 8.5% for the five-year period 2010-2015, which is expected to increase spend to $6.4 billion by the end of 2015. (BMI 20.12)

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5.16 Libya - Tunisia Border Re-Opens

The main border crossing between Libya and Tunisia resumed operations on 22 December, ending a 3-week closure over security concerns and allowing hundreds of cars to access the vital portal. Libyan Interior Secretary Khedhri gave the signal to open the crossing after ensuring that new equipment was in place and regulations were met regarding security and customs control. In turn, Tunisian authorities overseeing their side of the crossing expressed satisfaction with the restart of activity in a more systematic manner, confirming their readiness to secure the flow into Tunisia and to improve the services rendered and speed up procedures. The border reopening was marked by ceremonies on both sides, during which the national anthems played and national flags fluttered. The crossing, located 180km west of Tripoli and about 700km south of Tunis, is vital to the economy of the two countries. The majority of inhabitants in the border region make a living from informal trade between the two countries. (Magharebia 26.12)

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6: TURKISH, CYPRIOT, GREEK & BULGARIAN DEVELOPMENTS

6.1 Turkey: A Soft Landing?

Morgan Stanley observed that Turkey's growth rate remained high in 2011 and it is expected it to reach 7.2%Y (6.6% previously) following 9% growth in 2010. However, the anticipated recession in the euro area in 2012 coupled with global financial strains (deleveraging and sovereign issues) and tight monetary policy will result in a sharp slowdown in growth, in their view. MS has revised down their forecast to 2.7%Y. MS expects a noticeable recovery and growth to return to slightly below the long-term trend at around 4.2% in 2013. MS sees inflation pressures continuing in H1/12, which is likely to see monetary policy on hold (and tight), hence we see the repo rate being unchanged throughout the year. However, MS believes that the CBT will actively use the overnight rate corridor and implement both quantitative and financial stability measures to stem inflation pressures and keep expectations at bay. (MS 15.12)

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6.2 Turkey's Exports Up by 18.2% in 2011

Turkey's exports increased by 18.2% during 2011, amounting to $134.6 billion. Exports in December 2011 alone increased by 4.5% and amounted to $12.1 billion. Top importers of Turkish goods in December were Germany, Iraq, Britain and the United States. 2011 export data showed Turkey returned to pre-crisis period in exports, Economy Minister Caglayan said. (Hurriyet 02.01)

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6.3 Cyprus to Privatize its Stock Exchange

Nicosia will turn the state-controlled Cyprus Stock Exchange (CSE) into a company, as a first step towards privatization, Minister of Finance Kazamias announced. On 21 December, the Cypriot cabinet adopted the Finance Ministry's proposal that will begin with the amendment of the law on the Stock Exchange. Initially the state will be the sole shareholder but gradually the CSE will be privatized. According to Kazamias, the CSE is the only state-controlled Bourse in Europe. The Minister said that the parliament approved the law creating a state-controlled CSE in the 1990s as there were no safeguard clauses for its correct supervision. (FM 22.12)

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6.4 Greece to Hold Parliamentary Elections End-April

Greece has decided to delay by two months the parliamentary elections so that the government may have more time to finish the negotiations with international creditors on the country's second bailout agreement. Last month, Greece's Socialists, also known as Pasok, and the conservative New Democracy party agreed to a 19 February election date prior to finalizing their participation in a coalition government being led by Lucas Papademos, the former European Central Bank vice president. Since then, New Democracy has indicated it is willing to push back the election date in order to give the government more time to complete negotiations with private-sector creditors on a plan aimed at lowering the country's debt pile by €100 billion. The debt write-down plan is a crucial part of a second bailout package European leaders and the IMF agreed upon in late October for Greece. The decision to hold April elections comes amid political bickering within the government on its overhauls agenda, which Greece needs to speed up in order to return to a growth path, according to the IMF. Turning to continuing negotiations on the debt plan, Venizelos said that the deal "is achievable" but didn't provide any more details. (Various 29.12)

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6.5 Bulgarian Finance Minister Confirms VAT Reduction

Bulgaria's Deputy Prime Minister and Finance Minister, Simeon Djankov, confirmed that the cabinet plans to lower the Value Added Tax by 1 - 2% by 2013. Speaking in an end-of-year interview for the largest private TV channel bTV, Djankov announced the intention to reduce VAT had been written in the program of the ruling, center-right Citizens for European Development of Bulgaria party, GERB and would be implemented by the end of their current term in office. He reiterated that the cabinet would go ahead with this step without any warning in order to avoid a shrinking demand over expectations for lower VAT. (SMN 30.12)

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6.6 Bulgaria to Start Building Gas Links to Greece & Romania in 2012

Bulgaria is about to start construction a natural gas interconnection with Romania in a few weeks, according to Bulgarian Economy, Energy & Tourism Minister Traikov. The building of the Bulgarian-Greek gas interconnection will be started in the third quarter of 2012. Bulgaria moved to link its natural gas grid to that of its neighbors after the January 2009 gas war between Russia and Ukraine, which cut off the Russian gas supplies to Bulgaria for full three weeks leaving it without natural gas in the middle of the winter. The gas crisis of 2009 exposed Bulgaria's almost 100% dependence on Russian natural gas. Bulgaria's Energy Minister further explained he expected to sign a memorandum with Turkey's Ministry of Energy and Natural Resources, which will cement Turkey's political commitment to the project for a Bulgarian-Turkish gas interconnection. Traikov reminded that the European Commission has already approved €9m in co-funding for the Bulgaria - Romania gas interconnection and €45m for the Bulgaria-Greece gas interconnection, and another €2.5m for the feasibility study and application form for the Bulgaria-Serbia gas interconnection. In February 2011, the European Council decided that each EU member state should have at least two sources of natural gas and electricity by 2014 in order to avoid a repetition of the Russian-Ukrainian gas crisis. (SMN 26.12)

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7: GENERAL NEWS AND INTEREST

*ISRAEL:

7.1 Fast of Asarah b'Tevet Observed

The tenth of Tevet (Hebrew: עשרה בטבת, Asarah B'Tevet), the tenth day of the Hebrew month of Tevet, is a minor fast day in Judaism. It is a "minor fast" in that it is observed from sunrise to sunset. It is also the only fast day that call fall on a Friday.

Historically, the fast commemorates the siege of Jerusalem by Nebuchadnezzar II of Babylonia, an event that began on that date and ultimately culminated in the destruction of Solomon's Temple (the First Temple) and the conquest of the Kingdom of Judea. According to tradition, the fast also commemorates other calamities that occurred throughout Jewish history on the tenth of Tevet and the two days preceding it. On the eighth of Tevet around 200 BCE, a time of Hellenistic rule of Judea during the Second Temple period, Ptolemy, King of Egypt, ordered the translation of the Hebrew Bible into Greek, a work which later became known as the Septuagint. Seventy sages were placed in solitary confinement and ordered to translate the Torah into Greek. The expected outcome would be a multitude of different translations that would then be compared and critiqued by the Greeks. This would demonstrate the muddled meanings of the Torah and the divergent opinions of Jewish interpreters. However, all seventy sages independently made identical translations into Greek. The Greeks saw this as a most impressive feat. However, various rabbinical sources see this event as a tragedy, a debasement of the divine nature of the Torah and a subversion of its spiritual qualities. They reasoned that upon translation from the original Hebrew, the Torah's legal codes & deeper layers of meaning would be lost. Many Jewish laws are formulated in terms of specific Hebrew words employed in the Torah; without the original Hebrew code, authenticity of the legal system would be damaged. The mystical ideas contained in the Torah are also drawn from the original Hebrew. As such, these would not be accessed by individuals studying the Torah in Greek (or any other language) alone. Ezra the Scribe, the great leader who brought some Jews back to the Land of Israel from the Babylonian exile and who ushered in the era of the Second Temple, died on the ninth of Tevet.

In the modern State of Israel, kaddish (the Jewish prayer for the deceased) is recited on this day for people whose date or place of death is unknown. Consequently, many rabbis have designated it as a day of remembrance for the Holocaust.

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7.2 Jerusalem's Christian Population Has Decreased Since 1988

Jerusalem is the only city in the world in which 15 different Christian communities live side by side, but the percentage of Christians living in the city has decreased since 1988, a new report released by the Jerusalem Institute for Israel Studies said. It noted that while Jerusalem's Christian population grew steadily from the end of the Six-Day War, from 12,900 in 1967 to around 14,400 in 1988, the number of Christians in the city has decreased from 2.9% in 1988 to 1.9% at the end of 2010. The reasons for the decreasing percentage are a low birthrate and a lack of Christian immigration to the capital city, combined with a pattern of Christian Arab emigration abroad since the beginning of the 20th century.

Of the total number of Christians residing in Jerusalem at the close of 2010, according to the Israeli Central Bureau of Statistics, 11,576 were Christian Arabs and 3,029 were non-Arab Christians. The latter group includes Armenians, clergy, monks, nuns, Christians with Israeli citizenship or residence, and immigrants (mainly from the former Soviet Union) who identify as Christians. Additionally, the report notes that there are an unknown number of foreign workers and refugees who work in Jerusalem and identify as Christians. The Christian presence is strong in terms of educational institutions, with approximately 20 Christian-affiliated educational bodies operating within the Jerusalem area. Lastly, the report points out Jerusalem's strong Christian tourism sector. In 2010, 66% of tourists who visited Israel and Jerusalem were Christian, compared to 30% who were Jews. The report concludes that the Christian contribution to Jerusalem's landscape and economy is immense. (JIIS 24.12)

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*REGIONAL:

7.3 SCAF Shortens Upper House Parliamentary Elections to Two Phases

Egypt's ruling SCAF shortened the duration of upper house (Shura Council ) parliamentary elections to take place over two phases instead of three. Phase one elections will take place on 29 – 30 January 2012, with run-offs on 7 February and will include the governorates of Cairo, Alexandria, Gharbia, Daqahlia, Menofeya, Damietta, North Sinai, South Sinai, Fayoum, Asiut, Qena, Red Sea and New Valley. Phase two elections will take place on 14 - 15 February, with run-offs on 22 February and will include the governorates of Giza, Qalyioubia, Sharqia, Beheira, Kafr El Sheikh, Ismailia, Port Said, Suez, Matrouh, Beni Suef, Menya, Sohag, Luxor and Aswan. (Beltone 02.01)

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7.4 Moroccan King Appoints New Coalition led by Moderate Islamist Party

On 3 January, Morocco's ruling coalition formed a new government that gives top posts to an Islamist party but also keeps close allies of the king in powerful positions. The Islamist Justice and Development Party, known as PJD, won the most seats in the 25 November parliamentary elections and is led by Prime Minister Abdelilah Benkirane. Benkirane's PJD party is not expected, however, to radically change the politics of this North African kingdom because it had to ally with three other parties close to the palace, and the king still retains veto powers over most decisions. Last year Morocco experienced pro-democracy protests calling for greater freedoms and an end to corruption. The king responded by amending the constitution to grant more powers to the prime minister and parliament and holding early elections. While the PJD has taken 12 of 31 cabinet posts including prime minister, as well as the foreign ministry, justice ministry and communication ministry, close allies to the palace retain important positions. The PJD has formed a coalition with the Istiqlal or Independence Party, which helped the country win its freedom from France in 1956 as well as the Popular Movement, a party of rural notables, and the Party of Progress and Socialism of former communists.

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7.5 Homosexuals Press For Rights in Turkey's New Constitution

A civic group advocating homosexual rights has submitted a written presentation to the Turkish Parliament's constitution-making commission, calling for explicit provisions to protect homosexuals against violence and discrimination. Sources at the Constitution Conciliation Commission said the proposals had been officially accepted for evaluation. The Social Policies, Gender Identity and Sexual Orientation Studies Association (SPOD) stressed the EU and North American countries acknowledged discrimination against lesbian, gay, bisexual and transgender (LGBT) communities as a violation of human rights and urged the commission to follow suit when drafting the new charter. Stressing homosexuals were frequently victims of violence and murder, SPOD said the new constitution should before all guarantee their right to life and explicitly ban discrimination on the basis of “sexual orientation” and “sexual identity.” References to “general morality,” propriety” and “public order” should be removed from the constitution because they are used as a basis for discriminatory moves targeting the LGBT community, the group said. It stressed the new charter must also protect privacy by guaranteeing a person's sexual orientation and gender identity are not revealed without their consent. The SPOD also stressed Turkey should remain a secular, democratic and social state of law, while guaranteeing equal treatment to all faiths. (Hurriyet 23.12)

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8: ISRAEL LIFE SCIENCE NEWS

8.1 Israeli Innovation in Natural Agro Pest Control

Israeli scientists have recently developed an environmentally-friendly pest control technology that uses edible oil to repel disease, insects, fungi and agricultural pests. Moreover, it has also been found to be effective in the early prevention of disease in plants, scientists say, making it useful in preventing future diseases and lesions before the plant is attacked. The innovation came from the Engineering Institute at the Agricultural Research Administration (Volcani) of the Ministry of Agriculture. Researchers successfully produced an emulsion made of edible oil intended for spraying on crops of various kinds, as a replacement for chemical pesticides. Some of the crops that were seen to benefit from the treatment included tomatoes, zucchinis, peppers and others. The raw material used in the project to produce the spray emulsion was actually relatively cheap oil costing only about a dollar per liter. Moreover, high quantities were not required, according to the scientists involved in the study, must like those of pesticides, due to its potency. The emulsion was effective in combating diseases, insects, fungi and agricultural pests such as mites, Sternorrhyncha, powdery mildew and more. Moreover, the emulsion was also found to be effective in the early prevention of disease in plants, and therefore could be used to prevent future diseases and lesions before the plant is attacked. (IsraelNN 28.12)

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8.2 OPKO Health buys FineTech Pharmaceutical for $27.5 Million

FineTech Pharmaceutical has been acquired by Miami, Florida's OPKO Health for $27.5 million in cash and shares. OPKO said that the acquisition will give it the ability to develop complex and problematic APIs for sale or license to pharmaceutical companies in the US, Canada, Europe and Israel. OPKO produces ophthalmologic drugs. Nesher's FineTech Pharmaceutical http://www.finetechlab.com focuses on development and production of low volume, high value specialty Active Pharmaceutical Ingredients. They develop “by-passes” to process and polymorph patents by developing non-infringing processes or polymorphs which can be patented in their own right. (OPKO 29.12)

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9: ISRAEL PRODUCT & TECHNOLOGY NEWS

9.1 ESCORT & Siano Give Passengers a Personal TV Experience with Compact iOS Accessory

West Chester, Ohio's ESCORT, designer and manufacturer of premium automotive accessories, and Siano announced a collaborative agreement to design and market a product that will deliver mobile TV in automobiles via an iOS accessory. Manufactured and distributed under the brand name ESCORT MobileTV, this small-size, custom designed accessory conveniently plugs into the car's pre-installed iPad headrest mount. MobileTV is supported by Siano's highly-integrated mobile DTV receiver chip and iOS digital TV middleware. With MobileTV, passengers can enjoy the true experience of personal, live TV in the comfort of their vehicle – while on the go!

Kfar Netter's Siano http://www.siano-ms.com is the world's leading supplier of mobile broadcast DTV solutions. Pioneers of the multi-standard approach, Siano provides high-performance and fast time-to-market digital TV solutions for cellular-handheld, consumer electronics, automotive and public transportation device makers and solution/services providers. Close partnerships with global tier-1 PC, mobile handset and home entertainment manufacturers boast a customer base that includes Samsung, Motorola, LG, ZTE, Huawei, Dell, Lenovo and many others. (ESCORT 22.12)

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9.2 MoMinis Launches PlayScape - Mobile Mega-Game for Android

PlayScape is the first mobile Mega-Game to provide users with a uniform cross-game experience by allowing Experience Points and Virtual Currency accumulated in one game to be completely transferable to any game. With Android having crossed the tipping point to become the leading smartphone platform with a 52.5% share of the global smartphone market (Gartner), the ease-of-use made possible by PlayScape will provide a solid starting point for those new to mobile gaming while still challenging hard core gamers. PlayScape is free and available for download in the Google Android Market: https://market.android.com/details?id=playscape.mominis.gameconsole.com MoMinis developed PlayScape based on the company's extensive game playing analysis of the 200+ games created with The MoMinis Studio, which allowed the company to understand the broad range of player behavior and motivation. This resulted in the creation of the PlayScape Mega-Game which was developed for a range of player types with incentives built-in to the process, creating a uniform and fun cross game experience. PlayScape is free and includes 50 games of all genres including arcade, casual, sports, puzzle, action, and brain.

Tel Aviv's MoMinis http://www.mominis.com is a privately-held company funded by BRM Capital and Mitsui Ventures. MoMinis offers a landmark cross-platform solution for the fast creation and publishing of mobile games. Games developed with The MoMinis Studio instantly operate on hundreds of mobile devices across multiple platforms such as Android, Blackberry, Symbian and J2ME and are eligible for distribution in MoMinis' Global Distribution Network. The MoMinis Studio is available as a free download at dev.mominis.com. (MoMinis 21.12)

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9.3 Alvarion Confirms Industry Certification

Alvarion confirmed that it has received IBM's SAFE (Standard Architecture Framework for Energy) certification for its wireless broadband solution for SmartGrid connectivity. Tel Aviv's Alvarion http://www.alvarion.com provides optimized wireless broadband solutions addressing the connectivity, capacity and coverage challenges of telecom operators, smart cities, security and enterprise customers. Their innovative solutions are based on multiple technologies across licensed and unlicensed spectrums. (Alvarion 24.12)

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9.4 TangoTec Announces ITU-T G.hn chipset

TangoTec announced that it will have a fully compliant ITU-T G.hn chipset family available in 2012. TangoTec's ITU-T G.hn chipset provides up to 1 Gbit/s over a mix of wires, including powerline, coax and telephone. G.hn is the ITU-T definition of the next generation home network standard for distribution of Internet Protocol (IP) content across existing AC power lines, coax cables and phone lines. G.hn enables consumers to access, store and share a wide variety of content around the home without having to install new wiring. This includes broadband data, 3D/HD Internet Protocol television (IPTV) programs, video-on-demand (VoD), multi-room 3D/HD DVR recordings, Voice over IP (VoIP), streaming of 3D video, HD video, music, photos and beyond. TangoTec's G.hn compliant MAC/PHY & AFE chipset is ideal solution in complete unification of the home wireline network for distributing bandwidth intensive and real-time applications. Jerusalem's TangoTec http://www.tangotec.com is a pioneer edge-technology company, with Fabless Semiconductors & Systems activities based on the ITU-T G.HN standard for next generation IP networks. The company designs, develops and builds next generation home networking semiconductor technology for IPTV set-top boxes, connected media players, residential gateways, home control systems and more. (Tangotec 03.01)

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10: ISRAEL ECONOMIC STATISTICS

10.1 Israel's Unemployment Rate Falls to a Record Low

The Central Bureau of Statistics announced on 26 December that Israel's unemployment rate fell to 5% of the civilian labor force in October 2011, a record time low. The bureau's data indicates that the number of Israelis without work is currently 155,000 - a drop of 1.3% since December 2010. This means that no fewer than 40,300 out of work-able people found gainful employment. These numbers fly in the face of forecasts by top economists, including the Bank of Israel and the OECD, who predicted that unemployment would rise by 1% to 1.5% and reach 6.5% by the end of this year. The unexpected drop in unemployment can be attributed to accelerated economic growth, increased efficiency and a rise in the quality of life. The report puts Israel on a higher standing than most Western countries. The U.S. currently has a rate of 8.6% unemployment and the eurozone nations come in at an average of 10.3%.

The Central Bureau of Statistics also revised its unemployment figures for the preceding months, indicating a steady monthly decline of 0.1-0.2% in the unemployment rate since January. The unemployment fell from 6.2% in January to 5.6% in May and 5% in October. The figures are surprising, given that economic activity is declining, including by labor-intensive export-oriented manufacturing. However, the unemployment rate is the economic indicator with the longest time-lag in its response to changes in activity. (CBS 26.12)

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10.2 Bank of Israel Slashes 2012 Growth Forecast

The Bank of Israel has revised downwards its growth forecast for the Israeli economy in 2012. The forecast growth rate for GDP is now 2.8%, compared with a previous forecast published in September of 3.2%. The Bank of Israel estimates growth in 2011 at 4.8%. The central bank said the expected slowdown in the rate of GDP growth in 2012, relative to that of 2011 is primarily due to the deterioration in global conditions, specifically the debt crises in Europe and their effects. The central bank sees the growth in Israel's exports slowing to 1.2% next year and has revised downwards its estimate for export growth in 2011 to 2.1%, compared with 3.9% in the September forecast. The bank says that the update is due to the sharp decline in exports in 3Q/11. The growth in imports is also expected to fall drastically. The slowdown in the rate of growth of demand in 2012, compared to 2011, is expected to be reflected as well in a marked slowdown of imports, which are expected to increase by only 1.4% in 2012, compared with 8.8% in 2011. (BoI 26.12)

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10.3 Israel's Policy Easing to Maintain Growth?

Morgan Stanley said that as nearly all coincident and leading indicators suggest, the Israeli economy has entered a period of a macro slowdown even though the growth outlook remains more or less close to the long-term trend. That said, the significant downside risks to growth in the eurozone and the US, which remain as key determinants of Israel's exports potential, rising perception of geopolitical risks and deteriorating consumer sentiment suggest that things will be increasingly challenging for policy-makers. On the back of downward revisions to eurozone growth and rising external challenges, MS has cut its real GDP growth forecast marginally for 2011 to 4.7% (from 4.8%) but more so for 2012 to 2.9%Y (3.4% previously). MS expects growth to recover to the long-term trend rate of 3.5%Y in 2013. MS recently revised down its CPI forecasts to 2.6%Y for end-2011 and 2.3%Y for end-2012 and thinks that the BoI will continue to ease policy. (MS 15.12)

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11: IN DEPTH

11.1 ISRAEL: Moody's Disclosures on Credit Ratings on Government of Israel

On 28 December Moody's Investors Service http://www.moodys.com released a summary credit opinion on Israel and includes certain regulatory disclosures regarding its ratings. This release does not constitute any change in Moody's ratings or rating rationale for Israel, Government of.

Moody's current ratings on Israel, Government of are:
Long Term Issuer (domestic and foreign currency) ratings of A1
Senior Unsecured (domestic and foreign currency) ratings of A1
Senior Unsecured MTN Program (foreign currency) ratings of (P)A1
Senior Unsecured Shelf (foreign currency) ratings of (P)A1
Backed Senior Unsecured (foreign currency) ratings of Aaa

Rating Rationale

Moody's A1 rating on the debt issued by the government of Israel is underpinned by the country's high levels of economic, institutional and financial strength and moderate event risk. The Israeli economy is resilient and dynamic, and the macroeconomic policy framework is coherent. The high-tech exports-based economic model underpins favorable medium- to long-term growth prospects, though it is subject to cyclical fluctuations in world trade.

The deterioration in the government's debt metrics was relatively limited during the global crisis and the narrowing budget deficit represents evidence that the ongoing remedial measures are taking effect. The debt to GDP ratio, for example, was already fractionally below its pre-crisis level by the end of 2010. Recent political uprisings in the Middle East and North Africa have highlighted geopolitical risks in the region, unsettling longstanding relationships that had provided Israel with a degree of stability for many years. A moderate assessment of event risk reflects not only Israel's geopolitical challenges but also its track record in coping with them.

Rating Outlook

The rating outlook is stable. The fiscal rule that became effective with the 2011-12 budget is geared towards further gradual reduction of the debt to GDP ratio to the 60% level, however, a more ambitious goal would help to mitigate the increased cyclicality of the export-dependent economy as well as political event risk.

What Could Change the Rating - Up

Israel's long-term ratings could be upgraded in the event of a significant diminution of risks coming from the geopolitical environment and/or a substantial further reduction in the government's debt levels. Also positive would be the increased competition that would derive from a reduction in the concentration of ownership of the economy.

What Could Change the Rating - Down

The ratings could be downgraded should geopolitical developments be seen to pose heightened challenges to Israel's economic stability and/or if the public finance metrics deteriorate significantly again. (Moody's 28.12)

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11.2 ISRAEL: Paying Up To 50% More For International Fashion Labels

When international fashion chain Forever 21 opened its first store in Israel recently, its prices were Jeans from NIS 50, and shirts from NIS 30. Its prices were the same as its prices in the US and at its 800 stores worldwide. This is big news in Israel, where most fashion labels cost more than overseas. An inquiry by Globes at seven international labels - Zara, Mango, GAP, H&M, Celio, United Colors of Benetton and Carter's - found that Israelis pay 15-50% more than in other countries for the same items. Industry sources claim that to survive, the minimum price in Israel must always be higher than abroad and that the real effort is to narrow the gap caused by the price the local franchisee obtains from the foreign manufacturer. Additional costs include shipping, storage, advertising, and rent at malls.

This may be the reason not all international labels succeed in Israel. An example was Benetton's previous attempt to win a foothold in the country ten years ago. Israelis were not prepared to pay the premium, preferring to pay far less when travelling abroad. On the other hand, Israeli consumers are hungry for international labels, which is why so many fashion chains have made their way here. What does a premium matter when the consumer is prepared to pay it? This is the equation that the Israeli franchises seek to reach.

One of the solutions to narrow the price gap is through customer clubs. Members pay less for items, whose prices approach international levels. For example, a Carter's infant overall, which costs NIS 70 in Israel - 52% more than its online price of NIS 34 in the US, but an H&O club member pays NIS 63, narrowing the difference to 46%. Carter's is sold in Israel by H&O Fashion. Mango is offering end of season discounts of 40%, but only to its members of its customer club. The result was record sales, which totaled NIS 3 million over the previous weekend, double the sales in the corresponding end of season sales. Below is the price difference at the seven labels between Israel and overseas:

H&M - 18%
Benetton - 15%
Zara - 15-25% between the shekel and euro price Carter's - the US online site is 30-50% cheaper than Israeli prices
Mango and GAP, imported by Elbit Imaging subsidiary Elbit Retail and Trade - end of season sales equal regular prices overseas.
Forever 21 - raises the price list according to the shekel exchange rate
Celio - 15% more in Israel than in France. The Israeli franchisee is Fishman Holdings. (Globes 22.12)

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11.3 LEBANON: Growth Hinges on Regional Developments

The Economist Intelligence Unit projected economic growth in Lebanon at 3.4% in 2012, higher than the estimated growth rate of 1.5% in 2011, but still below the average growth rate of 8.1% recorded between 2007 and 2010. It said that Lebanon's growth prospects in the coming year would depend on regional developments, as Lebanon's service-oriented economy relies on demand from Arab countries,

According to the EIU the unrest that engulfed the region this year, along with domestic political instability in the first half of 2011, had a sharp impact on economic activity throughout the year. It expected any economic recovery in 2012 to be limited by the serious downside risks from the continued unrest in Syria.

The EIU said the weak performance of the tourism, banking and construction sectors throughout 2011 demonstrated how sensitive Lebanon's economy is to political uncertainty. It considered that the long-stalled economic reforms could proceed at a slow pace, given the current, more politically homogenous government. The factions within the Cabinet will only be able to reach consensus on some relatively neutral political and economic topics such as energy sector reform. However, structural changes, such as fiscal reforms, will face resistance, as corruption and patronage permeate the political system and many politicians have their own interests in maintaining a bloated public sector.

In parallel, the EIU anticipated the fiscal deficit to remain large at 7.7% of GDP in 2012 but to contract from 8.7% of GDP in 2011. Lebanon has struggled to pass budgets in the past five years due to political disputes and external conflicts. The 2012 budget proposal includes controversial tax rises that may prevent it from being ratified. Spending on reforming Lebanon's electricity sector will constitute a major component of capital spending next year. The EIU added that the Finance Ministry is now including revenues from the Telecommunications Ministry, which normally provides a large portion of non-tax revenues to the government, in its official accounts.

But it is unclear whether the funds are actually being transferred, it added. The EIU expected the deficit to begin to narrow gradually in case of higher growth rates and if a more coherent government policy allows for better expenditure management.

Also, the EIU indicated that Lebanon is unlikely to face contagion from debt crises in the eurozone and elsewhere, despite having a large structural deficit and one of the world's highest debt-to-GDP ratios, because local banks hold most of the government's foreign debt. It also projected Lebanon's current account deficit to average 21% of GDP in 2012-13, and said that the deficit will fall after reaching an estimated nearly 31% of GDP in 2011, when high prices for oil will have driven up import costs.

Ongoing unrest in Arab countries means that Lebanese exporters are struggling to get products to markets and demand in these economies has slowed down, which is worsening Lebanon's trade deficit. The drop-off in demand in Syria, as the unrest weakens the economy, will affect Lebanon's services account as it serves as an overland transit route for many goods shipped to Syria and other Arab markets. Tourism receipts, mainly coming from Lebanese expatriates who visit the country regardless of political instability, and remittances will help to moderate the widening current account deficit, although remittances may decline this year.

Lebanon's current account imbalance is normally covered by capital inflows, but noted the Central Bank of Lebanon has reported deficits on the capital account for 2011. This may not account for unreported transfers of funds from Lebanese residents abroad or some Syrian movement of money into Lebanon. (EIU 22.12)

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11.4 LEBANON: Food and Drink Report Q1 2012

BMI's Lebanon Food and Drink Report Q1 2012 said Lebanon's economy is set to slow into 2012 as a combination of elevated commodity prices and a spike in political risk weighs on consumption and investment patterns. Headline food consumption is, therefore, expected to experience only modest growth as both the global slowdown and regional political crisis are beginning to filter through into weaker domestic economic activity. Accordingly, BMI downgraded their forecast for real GDP growth for 2011 to 1.6% from 3.3% previously.

Headline Industry Data:

• 2011 mass grocery retail sales = +12.8%; forecast to 2016 = +78.7%
• 2011 hypermarket sales = +16.1%; forecast to 2016 = +41%
• 2011 soft drink sales = +5.8%; forecast to 2016 = +32.1%
• 2011 food a drink exports = +7.5%; forecast to 2016 = +39%

New Food Safety Framework: In summer 2011 Lebanese government ministers agreed on a new food safety framework after being spurred into action by a television program about Lebanon's food industry and the H1/11 E.coli outbreak in Europe. Ministers from the health, agriculture, tourism, economy and industry ministries are to implement short-term and medium-term measures to help improve food safety.

Carrefour MAF Reportedly Looking at Lebanon: Carrefour and the UAE-based Majid al-Futtaim (MAF), its exclusive franchise partner in the Middle East and North Africa (MENA), have developed a strong partnership over the years. Carrefour MAF has done well in the Gulf region, where it is a leading operator of hypermarkets – a format that is particularly popular in MENA. It is believed to now be keen to expand into the wider regions, into the likes of Iraq and Lebanon. Although the country is one of the few regional markets to offer neither a high-spending consumer base nor a large and populous market, with organized retailing still so underdeveloped there remain opportunities for companies like Carrefour MAF.

Key Risks to Outlook: Given Lebanon's reliance on foreign capital to finance domestic demand, a marked deterioration in regional or global capital markets over the coming quarters could slow financial inflow, which would negatively impact growth. Ongoing unrest in Syria poses a distinct risk to Lebanon's economic and political stability. A prolonged period of public unrest would not only increase refugee inflows, but would also result in a significant slowdown in much needed tourist arrivals. (BMI 20.12)

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11.5 JORDAN: Despite Setbacks, National Economy ‘Resilient, Salvageable'

Jordan's economy has shown some resilience to the unusual political and economic instability that hit the region in 2011, according to a Capital Investments study, which expected a possible recovery in the medium term. The study indicated that as the government attempted to cushion the impact of an economic slowdown in 2011 through additional subsidies and tax cuts, fiscal flexibility diminished and borrowing costs went up. The rough conditions brought about by a drop in domestic and foreign investments and irregular supplies of natural gas, among other factors such as the decline in tourism receipts, led most analysts, journalists and politicians to paint a gloomy picture for the Jordanian economy while ignoring many positive macro indicators, the study said, adding critics have also failed to give any valid and achievable recommendations for policy changes or improvements.

Among promising sectors, the study cited, was local exports that experienced a remarkable growth of 15.6% during the first nine months of 2011 mainly on the backdrop of a 63.2% and 34.1% increase in phosphate rock and potash exports, respectively. Other major exports that reported notable growth during the same period include clothing and food and live animals, which grew by 14.4% and 20% respectively.

Ties with GCC

Pointing to the $1.4 billion grant from Saudi Arabia last year that reduced deficit pressures, the experts in the study expected further financial support from the Gulf Cooperation Council (GCC) to Jordan in the next few years given the former's desire to see stability in the region and Jordan's decision to ramp up current spending to cool off any social unrest in the Kingdom. “Indeed, the ministerial council of the GCC decided earlier in December to submit to the six-nation superior council a recommendation for setting up a five-year development program for Jordan.”

The financial advantages in the form of either grants or cheaper oil would immediately act as an effective instrument to lower Jordan's mounting budget deficit, especially after the government exhausted most of its options to expand its subsidy program in the face of any future increases in international commodity prices. Jordan may also benefit from close ties with the six-nation bloc through more tourists, exports and remittances coupled with lower inflation and oil prices that would boost economic growth.

Inflation Pressure Under Control

Inflation has slowed down in recent months due to the government's decision to expand its subsidy programs, which helped cap the prices of fuel and a number of staple products in the following months. However, the effects of higher international commodity prices are yet to be felt by Jordanians as the country's rising budget deficit will limit the government's ability to raise subsidies in the face of increasingly expensive imports.

The study suggested a set of recommendations for policy and regulatory changes, according to the experts. If implemented in the short-term, these changes would have long-term benefits for the economy, they said.

Undertaking Fiscal Consolidations

In addition to alleviating the Kingdom's debt burden, lowering Jordan's fiscal deficit will also reduce the country's vulnerability to internal and external shocks. This would come into effect through rationalizing public expenditures, especially the size of the civil services wage bill, gradual liberalization of the energy and water sectors, reducing generalized subsidies by building targeted subsidy programs and safety nets and increasing capital spending while avoiding long-term fiscal consequences.

Expanding Private Sector Capacity For Employment

Although strong demographics are a prerequisite for long-term growth, Jordan's young population combined with limited employment opportunities poses downside risks to the country's growth outlook, the study said, pointing out that around 44% of Jordan's population is aged below 19 years old and around 70% are under the age of 30.

Should the private sector fail to offer enough jobs over the coming years, Jordan could face serious challenges while trying to improve the living standards of its citizens, negatively altering its business environment and ultimately reducing the much-needed foreign direct investments (FDI) the authors of the study warned.

Absorbing new labor market entrants, estimated at around 50,000 persons a year, while also reducing unemployment calls for a more vibrant private sector, with efforts focused on supporting small- and medium-sized enterprises (SMEs) and the currently underperforming tourism sector.

Supporting SMEs

With over 11,000 registered enterprises representing approximately 98% of registered companies in Jordan, SMEs account for nearly 60% of the country's employment, with an estimated contribution to gross domestic product (GDP) of 50% and annual exports at JD2.5 billion.

To encourage job creation in these enterprises, policy makers should improve the regulatory and business environments in addition to exploring more schemes for providing credit guarantees and giving more tax incentives to viable labor-intensive SMEs, as was done in many emerging markets and transition economies during the global financial crisis, the study suggested.

Turning Mega-Projects Into Vehicles Of Employment Generation

Investment in mega-projects can have a sizeable impact on employment generation, even in the short term, the study said. According to the IMF, evidence from Latin America and the Caribbean suggests that about 40,000 annual direct and indirect new jobs can be created in the short term for every $1 billion spent on infrastructure projects. Extrapolating these numbers to Jordan, for instance, suggests that 1% of GDP spent on infrastructure could generate in the short term as many as 8,000 new jobs. Furthermore, the passage of the public-private partnership law earlier 2011 is an important step towards boosting infrastructure projects.

To have an immediate effect, according to the study, policy makers in Jordan can therefore seek to bring forward viable labor-intensive infrastructure projects that are already in the pipeline, while maintaining fiscal sustainability and avoiding funding or issuing any form of debt guarantees for mega-projects, as such loan guarantees could be extended by donors.

Intensify Efforts to Join the GCC

The GCC's decision to formally welcome the idea of Jordan as a member of the council could represent a silver lining for the country considering the positive implications it will have on unemployment, remittances, FDI tourism and ultimately economic growth. The experts who prepared the study stressed that efforts should be made in transforming this idea into reality. On a similar note, Jordan should focus on solidifying its economic relations with Saudi Arabia as the latter is consistently ranked among Jordan's largest trade partners, donors and employer of expatriates, while accounting for significant shares in FDI and tourism receipts in Jordan. Media reports have been suggesting that the idea of accession to the GCC is dead, but officials in Amman insist that full accession needs a long time. However, in their summit last month in Riyadh, GCC leaders agreed a JD5 billion fund to be split equally between Jordan and Morocco.

Developing a More Competitive Business Environment

Indicating that Jordan's ranking in the Global Competitiveness Report 2011/2 has fallen to 71 among 142 countries, down from 50 and 65 in 2009 and 2010 respectively, the report highlighted that it is important that the government investigate this consistent decline in competitiveness rankings as this demonstrates that the inefficiency is inherent in the country's administrative bodies; more specifically in public sector performance and productivity. (JT 01.01)

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11.6 JORDAN: Year in Review 2011

The Oxford Business Group said political and economic reforms promised for 2012 are expected to improve Jordan's business environment and restore confidence after a challenging year. Jordan will enter the new year with a new government and a new economic plan, though the administration of Prime Minister Awn Khasawneh, which won a vote of confidence in early December, will have to confront many of the same issues faced by its predecessors. Khasawneh replaced Marouf Al Bakhit, who had his mandate revoked by King Abdullah II in mid-October after failing to fast track social, political and economic reforms.

In the incoming cabinet's policy statement, Khasawneh said his administration was committed to establishing fiscal stability through cutting the budget deficit and public debt, stimulating investment, boosting employment opportunities by replacing guest workers with Jordanian nationals, and supporting the production and service sectors. Along with political reforms to strengthen democracy at all levels, the prime minister told local media that tackling corruption, as well as redressing economic and social inequality, would be a major priority.

However, with a near record fiscal deficit, the government has limited resources to fund economic stimulus packages. This will be made more challenging by the recent decision by Standard & Poor's (S&P) to lower the country's long-term local currency sovereign debt rating from BB+ to BB. In a statement issued in late November, the ratings agency said it based its shift on the threat of external shocks from commodity price inflation and the fallout from regional instability, which has resulted in slower economic growth and larger fiscal deficits.

S&P said that the Kingdom's current account deficit would likely widen to 7.3% of GDP by year's end, with the overall outlook set at negative, reflecting the risks posed if Jordan's fiscal performance fails to strengthen and if there are delays in promised reforms and economic recovery. The company was more upbeat in the longer term, however, forecasting that net general government debt will peak at 45% of GDP in 2013, and gradually decline thereafter.

Both the outlook and ratings position held by S&P could be revised if the new government is able to enact reforms that lead to a more stable political environment, provide support for public finances and boost external investor confidence, the agency said.

Indeed, the country has already seen progress on several fronts this year, with solid growth posted for exports, the unemployment rate down slightly and inflation having eased from 5% in 2010 to a more moderate 4.6% in 2011. Jordan does, however, face challenges in terms of declining production and regional instability.

According to data issued by the Department of Statistics in mid-November, industrial production was marginally down in the first three quarters of the year compared to the January to September term in 2010, while the growing cost of imports – especially hydrocarbons – pushed the trade deficit up by 19.7% year-on-year as of the end of August, with the imports coverage by total exports coming in at just 44.6%.

The imposition of sanctions on Damascus by the Arab League is set to directly impact the Jordanian economy, with the industrial sector one of those that will be hardest hit, according to Nazzal Armouti, the deputy chairperson of the Jordan Chamber of Industry. “Losing any key market for Jordanian exports will result in labor layoffs and limit job opportunities,” Armouti told local media in late November.

Syria agreed in late December to allow observers into the country in an effort to avoid sanctions, but the Arab League's secretary-general, Nabil Elaraby, has told international media that there is no immediate plan to lift restrictions. Syria is one of the Kingdom's largest trading partners and sits astride some of Jordan's main transit routes to other key markets in the Middle East, Turkey and Europe. Instability in Egypt too has taken its toll, as repeated attacks on the gas pipeline that carries Egyptian natural gas to Jordan and Israel have disrupted supplies to the Kingdom's power stations.

All that said, the Jordanian economy is still poised to see growth next year: the International Monetary Fund has predicted the economy will expand by 2.9% in 2012, following on from the estimated 2.5% for 2011, though still below the 3.5% it forecasts for the wider Middle East and North Africa region. With a new government committed to focusing on economic growth, Jordan's economic prospects are set to continue moving in positive territory. (OBG 02.01)

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11.7 IRAQ: Reforming Iraqi Kurdistan's Oil Revenue

On 21 December, Shwan Zulal wrote in Sada http://carnegieendowment.org/sada that oilmen have often described Iraqi Kurdistan as the last unexplored on-shore petroleum frontier in the world. Since the region opened to developers after the fall of Saddam Hussein's regime in 2003, it lived up to expectations of plenty: The U.S. Geological Survey estimated in 2007 that the Kurdistan reserves alone contained a median of over 45 billion barrels of oil and 3-6 trillion cubic meters of natural gas. That year, when discussions over oil and gas laws (as well as revenue sharing) deadlocked in Baghdad, the Kurdistan Regional Government (KRG) introduced its own oil and gas legislation - granting some 40 contracts to companies from over 17 countries. Meanwhile, as the Iraqi federal government sought to centralize the oil sector, Baghdad accused the KRG of corruption - claiming that the KRG's Production Sharing Contracts (PSCs) with foreign companies are unconstitutional. One of the main issues is that of transparency: Baghdad has criticized that the PSCs were not made public and that they (having unknown content) could not be recognized.

In recent months, however, the KRG has taken unprecedented steps to increase transparency. In September, the KRG published the majority of the PSCs. On December 5, KRG Prime Minister Barham Salih's government approved a revised draft oil and gas revenue law. This marks a huge step towards accountability within the semi-autonomous Kurdish government. Though previous efforts have been made to increase transparency, the competing oil and gas bills from the cabinet and parliamentary committees for energy have both fallen short of expressly defining what transparency would entail. The new legislation championed by Salih perhaps sets a new standard.

The proposed bill will institutionalize the hitherto opaque process of granting contracts and give parliament greater oversight over the hydrocarbon industries. It creates an executive board that will manage and supervise the oil fund. Its members will be chosen by the cabinet (with approval from parliament) and serve for four-year periods. Accounts will be kept in hard or local currency, and only the chair of the board will be able to make payments and then with the approval of Kurdistan's parliamentary committee for oil and gas. The bill also ensures that related funds (by-products, signature bonuses, and other allowances given by the central government to the sector or towards environmental protection purposes) will fall under this arrangement. This represents a marked departure from previous measures in which payments were decided ad hoc by the two main political forces: the PUK (Patriotic Union of Kurdistan) and the KDP (Kurdistan Democratic Party).

Furthermore, proceeds of the oil and gas revenue fund are to be allocated by the parliamentary committee to finance investment in reconstruction and infrastructure projects, and their distribution will be per capita for the Kurdish provinces. While the board can recommend and allocate to different projects, parliamentary approval is required. The main beneficiaries of the fund would be the oil and gas sector, as well as local infrastructure projects. The fund is not allowed to be used for any projects which have not yet been contracted and which do not fall under the KRG's annual budget, effectively ending the ability of more powerful political parties to withdraw capital for projects they approve unilaterally. Crucially, the bill also proposes an annual independent audit to be conducted by a reputable international accounting firm—making the fund the most transparent in the region.

Another significant aspect of the legislation is the initiation of a “Next Generation Fund” from oil revenue to act as a sovereign wealth fund. This would siphon money from the national income into major investment ventures as a means of securing future revenue. The account's creation indicates that the KRG has matured enough to plan ahead in the long-term rather than perpetuate short-term fixes for enduring problems.

Salih's bill is the newest flashpoint in the tug-of-war between the KRG and the Iraqi federal government. Since 2003, the KRG has made it abundantly clear that it wants to develop its oil sector independently of federal control. Hussein al-Shahristani, the Iraqi deputy prime minister for energy, has become the symbol of opposition to the Kurdish stance. He has vehemently opposed Kurdish attempts to take control of their own, independent oil sector, and his views have put him on a collision course with Ashti Hawrami the KRG's minister of natural resources. Al-Shahristani has attempted to deter oil companies from Iraqi Kurdistan by threatening them with exclusion from the rest of Iraq, while Hawrami has lured companies to the region by offering a number of lucrative deals, hitherto only seized by the most intrepid investors, but now attractive to many major oil companies.

Most significantly, ExxonMobil signed a contract with the KRG this past October authorizing the firm to develop oil and gas in six blocks in the northern region, ruffling many feathers in Baghdad. Though condemned by the Iraqi federal government, it could prove the catalyst in the impasse.

The Exxon deal has been a significant PR coup for the KRG and has made Baghdad rethink its policy of centralized oil development. Although during his recent visit to the US, Iraqi Prime Minister Nouri al-Maliki stated on December 15 that Exxon had promised to rethink the Kurdistan deal, already the federal position has shifted. Baghdad claimed to oppose the deal on principle (i.e., not allowing international oil companies operating in Kurdistan to operate in greater Iraq) but now appears to only be concerned regarding three of the six blocks awarded for exploration: Barda Rash, al-Qush and Qara Hanjer. These blocks lie in the so-called “disputed territories” (as defined in Article 140 of the Iraqi constitution), and two of them are formally part of the Nineveh governorate, technically not a part of Iraqi Kurdistan per se, but administered to by the KRG since 2003, and control of which has been a subject of contention for the central Iraqi government.

Even if Exxon balks on the blocks in the disputed territories and only the deals in the other three blocks go through, this would mark a significant change in policy for the Iraqi federal government. It sets a precedent for the entry of the other Supermajors. In an independent regional oil sector, Salih's revised revenue bill could mean a new foundation for transparent and equitable distribution of Iraqi Kurdistan's vast oil wealth.

Shwan Zulal is a London-based consultant/analyst with a legal background. He writes regularly about politics, security risks and legal issues in Iraq and the Middle East region, specializing in work on the oil and gas sectors, contract procurement, economic development, and legislative change in Iraqi Kurdistan. (Sada 21.12)

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11.8 GCC: Waste Treatment Market to Hit $2 Billion

The water and wastewater treatment equipment market in the Gulf region is set to reach $2b by 2016 growing at a compound annual growth rate (CAGR) of 7% over the next five years, according to a report. The market is currently being pegged at $1.3b, said growth partnership company Frost & Sullivan in its latest report.

As economic development gains speed, Middle East governments are moving aggressively towards promoting water conservation/storage, wastewater recycle and reuse and desalination of sea water in order to meet the burgeoning water consumption needs of all sectors, the report stated. The region has begun investing heavily in water and sewerage networks to ensure 100% connectivity to the growing population, Frost & Sullivan noted.

Economically, the GCC region is making brisk developments and is anticipated to be a $2 trillion economy by the year 2020, supplying 25% of the world's oil. Contribution of non-oil sectors to the Gross Domestic Product (GDP) is expected to go up from 35% in 2010 to 40% in the year 2020, as economic diversification gains pace. Such rapid growth is undoubtedly straining the already scarce and stretched water resources in the region.

Water requirements by all the three sectors - agriculture, domestic and industrial - are set to grow from 35b cubic meters (BCM) to 49 BCM by 2020 in the Gulf region, writes Frost & Sullivan. While the sewage collection rate in the GCC is 52% of the total sewage generated; however, contribution of recycled water to total water withdrawal is between 4 to 8%. 'All the GCC countries were water-stressed with the per capita renewable water resources much below the critical level of 1,000 Cu. M/day,' said its author Sasidhar Chidanamarri, industry manager, Environmental and Building Technologies (Mena) at Frost & Sullivan. 'Over drafting of groundwater aquifers has led to deterioration of groundwater quality, further constraining groundwater supplies,' he noted. According to him, the GCC region mirrors the trend followed by emerging economies like India, Brazil and China where up to 80% of the water withdrawals are meant for agricultural purposes. However, in case of developed economies like the US, industries consume the majority.

The industrial growth in the GCC region, though aimed at de-risking the economy from frequent shocks of oil and gas sector, is expected to unfold opportunities for advanced water and wastewater treatment solutions, said the author. According to him, desalination is expected to continue playing a critical role in the overall water supply in the MENA region.

Across the Middle East, a total of 39 million Cu. M/day of desalination capacity is expected to be added between 2010 and 2020. This translates into an approximate investment of $45-50b in the desalination sector. The region was facing an uphill task of meeting the growing demand for water by industries, improving water supply and sanitation to the growing population, planning to prevent depletion and contamination along with optimization of available water resources. In its path towards meeting these challenges, opportunities are unfolding for the water sector particularly in the areas of recycle and reuse technologies such as Membrane Bio Reactor (MBR) and sea water desalination, said the report.

Urbanization is another mega trend severely impacting the already low levels of available water resources pegged at 1,200 cu m per person/ per year as against the global average being 7,000 cu m per person/ per year, it stated. In the Middle East, urbanization levels are about 50%, but the urban growth rate is about 4%. Urbanization levels are expected to touch 70% by the year 2020. Hence, the real challenge lies in continuing economic growth, eradicating poverty and preserving the environment, the report stated. 'Provision of water and wastewater treatment infrastructure is vital to make the Middle Eastern cities viable, livable and competitive, in order to attract foreign investment, increase employment and economic growth,' explained Sasidhar.

Investments in clean technologies and eco-friendly practices through the implementation of advanced treatment technologies not only solve water issues but also promote green growth and sustainable living, he added. The GCC region is witnessing installations of large capacity MBR plants, said the author. 'Muscat has recently commissioned a 76,000 Cu. M/day MBR plant that treats sewage to low levels of suspended solids, biological oxygen demand and color, for use in irrigation and other industrial applications.' These developments are revealing signs of a more expansive market for MBR's in the Middle East, he stated.

On its outlook for 2012, Frost and Sullivan said Middle East region holds significant potential for industry participants mulling a foray into the development of water and wastewater infrastructure including desalination, water and wastewater treatment, water transmission, and wastewater collection network. It has the potential to drive the market for membrane-based systems such as reverse osmosis, MBR and ultra-filtration (UF) on the treatment side, the report added. 'Additionally, the countries in the region are keen to allow the private sector to tackle critical water and wastewater issues,' said Sasidhar. 'In its quest for sustainable and green growth, Middle East is expected to be the testing ground for advanced and newer treatment technologies,' he added. (TradeArabia 22.12)

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11.9 OMAN: 2011 Article IV Consultation Concluding Statement of the IMF Mission

I. Introduction

This statement contains the preliminary assessment of the 2011 Article IV mission to Oman. The mission met with H.E. Darwish Ismail Ali Al-Balushi, Minister Responsible for Financial Affairs, H.E. Dr. Ali Mohammed Moosa, Deputy Chairman of the Central Bank of Oman (CBO), H.E. Hamood Sangour Al-Zadjali, Executive President of the CBO, and other representatives from the public and private sectors.

II. Current Economic Developments

1. Economic activity is accelerating. Driven by new oil extraction technologies and increasing government spending, overall real GDP growth is projected to reach 5.5% in 2011 with 6.4% growth in the non-hydrocarbon sector. Price pressures have remained contained and average annual CPI inflation is projected at 4.1% in 2011.

2. Despite strong economic growth, unemployment among nationals is high and a major social concern. In response, the government has raised the minimum wage for Omani workers in the private sector, established an unemployment benefit, increased the number of government jobs and raised enrollment in higher education.

3. Fiscal and external balances have strengthened along with higher oil prices. Due to rapid growth in oil revenue and despite an expected 17% increase in government expenditure, the overall fiscal and external surpluses are projected to reach 8.2 and 12.7% of GDP in 2011, respectively. The rise in expenditure has mainly been driven by increased hiring in response to high unemployment.

4. The economy has been largely unaffected by recent turmoil in international financial markets. While regional unrest has created additional uncertainty, Omani banks have little exposure to the Eurozone. Credit to the private sector has continued to pick up and is projected to grow by over 11% in 2011. With about 80% of Oman's oil-dominated exports going to Asia, the impact of the European crisis will be limited as long as it does not translate into significantly lower oil prices.

5. The domestic banking system appears sound. The system is well capitalized, with a capital adequacy ratio of 14.3% as of end of September 2011 (against the regulatory limit of 12%) and the NPL ratio of 2.6% is below the GCC average. Stress testing conducted by the CBO indicates that most banks are in a position to cope with significant macroeconomic shocks.

III. Outlook and Risks

6. The economy is set for continued expansion in 2012. Given a projected 10% increase in government expenditure and with some slowdown in hydrocarbon output, overall real GDP growth is projected to edge down to 5% in 2012. Inflation is expected to remain moderate at an annual rate of about 3%, and the fiscal and external surpluses are projected to stay high at about 8% and 10% of GDP, respectively.

7. A large public investment program is underway and will help sustain growth over the medium term. Major projects in progress include a rail network and new air and sea ports. Government plans also reflect a strong emphasis on education and social infrastructure. With civil investment by the central government projected to average about 16% of non-hydrocarbon GDP over 2012–16, annual non-hydrocarbon GDP growth is expected to stay at about 5% over the medium term. Oil production is expected to plateau and then slightly decline, leading to small contraction in real hydrocarbon GDP.

8. The main risk to the medium term outlook is a prolonged drop in oil prices. Higher government spending is raising the oil price that would be needed to balance the budget. The mission projects a breakeven price of $81 per barrel in 2012, rising to $105 by 2016. A drop in oil prices from the prevailing historically high levels could quickly lead to large fiscal deficits. If sustained, lower oil prices could force a pull-back in spending and lead to sharply reduced growth in the non-oil economy.

9. The longer-term outlook hinges on economic diversification. Oman's hydrocarbon reserves are relatively modest and cannot continue to support economic growth in the long-run. There has been progress towards diversification, with non-hydrocarbon exports - mainly petrochemicals, fertilizers and metals - now accounting for over 20% of total exports. The non-hydrocarbon export industries, however, are highly energy intensive, have not generated many jobs nor contributed much to government revenue.

10. The overarching policy challenge is to ensure strong and sustainable growth over the long run while addressing the urgent need for jobs. Achieving this calls for (i) strengthening public finances (ii) addressing the causes of high unemployment; and (iii) maintaining macroeconomic stability and supporting financial sector development.

IV. Strengthening Public Finances

11. Fiscal sustainability is a key challenge. Increased public sector hiring has for now helped address pressures stemming from high unemployment. But the step-up in spending since the original budget for 2011 has long-term implications and affordability is limited. To avoid a more severe adjustment later, there is an urgent need to start taking preventive measures.

12. Committing to a gradual improvement of the non-oil fiscal balance would help ensure fiscal sustainability. Implementing a fiscal rule targeting long-term fiscal sustainability would help anchor fiscal policy. Based on a standard model of intergenerational equity, and assuming that new discoveries will be able to provide 60 years of the current level of oil production, the projected non-oil fiscal deficit for 2011 is about 9% of GDP above the level consistent with constant real per capita consumption out of the country's petroleum wealth. To eliminate the gap, the mission recommends a fiscal adjustment of at least 1% of GDP a year over the medium term.

13. Curtailing growth in the wage bill will be critical. In order to allow for investments in infrastructure and human capital it is essential to contain wage expenditures. More generally, there is scope to achieve greater value for money, including by improving processes for ex ante project evaluation and instituting regular reviews of past spending. In addition, establishing a macro-fiscal unit, casting spending in a multiyear framework, and limiting the number of in-year revisions to the budget would provide greater stability.

14. There is also substantial scope to enhance revenues. Non-hydrocarbon revenue has been declining and currently amounts less than 11% of total revenue and only about 5% of GDP. A VAT and other steps to widen the tax base would help raise revenue as well as enhance the efficiency of the tax system. Implicit fuel subsidies could also be reduced. These subsidies, estimated at about 12% of GDP in 2011, have been increasing along with rapidly growing domestic consumption and higher opportunity costs. Steps to align domestic prices with those in international markets would provide for a more efficient allocation of resources and encourage the development of a less energy dependent production structure. While the bulk of fuel subsidies typically go to the better off, accompanying price increases with more targeted and cash-based forms of social protection would help offset the social impact.

V. Addressing the Causes of High Unemployment

15. Creating employment for the growing population is a pressing challenge. While overall job growth has been strong, most new jobs have gone to foreign workers. Strikingly, the recent census indicates that the unemployment rate among nationals reached 24.4% in 2010, although the high number may include many that are not truly looking for work. To absorb new labor force entrants and significantly reduce unemployment, some 45,000 new positions for Omanis each year will be needed, twice the number achieved in the five years to 2010. To be sustainable, these new jobs will have to be in the private sector.

16. Recent policy actions have led to large increase in public sector employment. From a base of 164,000 public sector jobs in 2010 (excluding security and defense personnel), 44,000 new government positions were created in 2011 and the draft budget for 2012 includes another 36,000. These measures have alleviated short term pressures stemming from high unemployment but do not address the underlying problems.

17. Addressing the root causes of joblessness calls for a multipronged approach. Removing labor market distortions underpinning high unemployment will require resolving the wage and benefits differentials between the public and private sectors and between Omanis and expatriates. Large-scale job creation will also require strong economic growth as well as transitioning from energy-related industries into areas with greater employment potential. Simultaneously, there is a need to enhance education and training to ensure that new graduates and job seekers have the needed skills. Raising fees for work visas or instituting temporary subsidies for hiring and training should be considered as ways of making employment of nationals more attractive.

VI. Maintaining Macroeconomic Stability

18. Maintaining macroeconomic stability is a prerequisite for sustained economic growth. Given the peg to the U.S. dollar, ensuring macroeconomic stability rests primarily on fiscal policy, but reducing excess liquidity in the banking system will also be important. The mission encourages the CBO to continue to proactively mop up excess liquidity and be ready to apply macro-prudential measures if credit growth starts to feed into higher inflation. Direct attempts at controlling market prices should be avoided.

19. The peg to the U.S. dollar has served Oman well by providing a strong and credible monetary anchor. The mission finds that the exchange rate is broadly aligned with fundamentals and that the policy of pegging to the U.S. dollar remains appropriate. Nevertheless, in light of ongoing economic diversification and deepening trade ties with Asia, preparing for a more flexible regime in the long run would be prudent. Of particular importance will be to develop hedging instruments to enable the private sector to better manage exchange rate risk.

20. The financial system is relatively shallow and could play a larger and more dynamic role in supporting economic growth. Regular issuance of government debt in a range of maturities would be important to establish a yield curve and help spur market development. The CBO could also consider expanding the range of maturities for CDs. Finally, at only about 2%, the share of bank lending to SMEs is well below that in most other countries and new initiatives to encourage bank lending in this area can potentially play a positive role. (IMF 19.12)

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11.10 EGYPT: Fitch Downgrades Egypt to 'BB-'; Outlook Negative

On 30 December, Fitch Ratings http://www.fitchratings.com downgraded the Arab Republic of Egypt's Long-term foreign currency Issuer Default Rating (IDR) to 'BB-' from 'BB' and Long-term local currency IDR to 'BB' from 'BB+'. The Outlook on both ratings is Negative. The agency has also downgraded the Country Ceiling to 'BB-'. The Short-term foreign currency IDR has been affirmed at 'B'.

"The downgrade and Negative Outlook reflect the substantial and continuous erosion of Egypt's international reserves in 2011, which accelerated in October/November. Ongoing political turbulence is also delaying economic recovery and has contributed to worsened debt dynamics," says Richard Fox, Head of Middle East and Africa Sovereigns at Fitch.

International reserves have fallen by 44% in 2011, to just over $20b in November, from $36b in December 2010. Although reserves remain above three months of current external payments, the pace of decline is a concern in the absence of substantive external assistance which has been promised but awaits definitive decisions by the government, particularly regarding IMF borrowing. The reserve decline has also returned the Egyptian government to being a net external debtor, for the first time since 2004, reversing what had been a key support to Egypt's rating. However, the country as a whole remains a net external creditor due to the net creditor position of the banking system.

The continuing reserve loss is due to the dramatic weakening of the capital account since February, with a drying up of FDI and substantial exit of foreign portfolio investment, at a time when the central bank has aimed to preserve exchange rate stability. Meanwhile, most of the substantial amounts of promised external support have not yet materialized. This has also put pressure on domestic financing, with EGP T-bill and bond yields rising to 14%-15%, compared to inflation of 9%. The provision of external support and a turnaround in foreign investment are key to stabilizing international reserves and the rating. The Egyptian authorities decided against IMF borrowing in June but are now reconsidering the position.

Public finances, long a key rating weakness for Egypt, have further weakened, with the general government debt/GDP ratio trending up again and likely to breach 80% in 2012. This year's budgeted deficit of 8.6% of GDP will be substantially overshot, largely due to weaker than expected revenue performance. Even with recently announced spending cuts, the government has said that this year's deficit will exceed 10% of GDP. Fitch forecasts a figure of over 11%. Key to stemming the deterioration of creditworthiness will be controlling the fiscal deterioration and the resumption of fiscal consolidation in the FY2012/13 budget, notwithstanding likely additional pressures arising from the newly empowered electorate's increased aspirations for jobs and improved living standards.

Elections are going well, with high turnout and results widely accepted as credible. Nevertheless, the political transition is proving turbulent and taking longer than initially expected, raising policy uncertainty and damaging confidence. Islamist parties will have a majority in parliament but the government is likely to be a coalition including secular parties. However, the precise shape of the new government will not be known until the elections conclude in January. Upper house elections will not be completed until March. The constitution will then be rewritten before presidential elections are held in June. Meanwhile, the ruling military council and newly elected parliament are likely to continue vying for power. The constitutional debate over their various powers and those of the president is likely to be heated. Meanwhile, some protestors are demanding an early end to the military government. A stable political system is unlikely to emerge until mid-year at the earliest and possibly much later.

Growth in FY2011/12 is likely to be no stronger than last year, at under 2%. Unemployment, a contributor to the February 2011 regime change, is rising, at a time when aspirations have been raised. The global slowdown will be a further drag.

The ratings will remain under pressure until the political situation stabilizes and a government is able to implement a comprehensive economic program which attracts external support and foreign investment. Such a program, effectively implemented, could stabilize the rating.

Further delay to the government transition timetable would be ratings negative. Significant further reserve loss, in the absence of promised external support would exacerbate exchange rate pressures and also bring negative rating action, as would further worsening of debt dynamics and any deterioration in the macroeconomic policy framework. (Fitch 30.12)

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11.11 EGYPT: Has Egypt's Revolution Left Women Behind?

On 10 December, Mara Revkin, the assistant director of the Rafik Hariri Center for the Middle East and editor of EgyptSource http://www.acus.org/egyptsource, recently published an essay in Foreign Policy titled "Has Egypt's Revolution Left Women Behind?"

Millions of women were among the 52% of eligible voters who cast ballots in Egypt's parliamentary elections this week, but preliminary results suggest that Egypt's first popularly elected legislature since the revolution might not include a single female face. Despite anecdotal reports of massive female turnout in Cairo and the other eight governorates that cast ballots in this first of three rounds of voting, women may very well be the biggest losers of an election that has been hailed as the freest and fairest in Egypt's recent history. Although 376 female candidates are running for parliament, not a single woman has won a seat so far in the 508-seat People's Assembly after the first two days of voting on November 28 and 29 and this week's runoff races There is good reason to believe that women will fare just as poorly in subsequent rounds of voting. The second and third stages of elections, slated for December and January, will include Egypt's most rural and conservative districts where gender biases are more deeply ingrained than the urban centers of Cairo, Alexandria and Port Said that voted (recently). Faced with the possibility of an entirely male parliament, many Egyptians are wondering: Were women left behind by the Revolution?

Women have been on the frontlines of protests in Tahrir Square since the earliest days of the uprising and were instrumental in mobilizing the grassroots groundswell on Twitter and Facebook. But as activist youth movements like the Revolutionary Youth Coalition struggle to define their role in the post-revolutionary system - pondering if and how they should convert the momentum of the street into formal political representation - women are increasingly being left out of the conversation. While it's true that the forty some-odd parties launched since last January have welcomed women as members and in some leadership positions, when it came time to nominate candidates for the parliamentary elections, women were conspicuously absent from the party lists. In late October, as parties began lining up their candidate rosters for the two thirds of parliamentary seats that will be allocated by closed-list proportional representation, Gameela Ismael, one of Egypt's most prominent political activists and the ex-wife of presidential candidate Ayman Nour, publicly defected from the Democratic Alliance - a primarily Islamist coalition dominated by the Muslim Brotherhood's Freedom and Justice Party - just weeks before the election, citing the coalition's discriminatory stance against female candidates.

Although women represent almost 25% of Egypt's labor force and 49% of university students, they still suffer from persistent discrimination and harassment in the workplace and at home. In 2010, Egypt ranked a dismal 120 out of 128 countries in gender equality by the World Economic Forum Global Gender Gap Report, largely due to its poor performance in the subcategories of political empowerment and genuine female opportunity in the economy. Gender-based violence remains a serious problem for women, including major public figures like Bothaina Kamel, a former television anchor and Egypt's first female presidential candidate, who claims to have been sexually assaulted by soldiers after joining a recent protest in Tahrir Square.

Although the discourse surrounding the January uprising drew inspiration from liberal democratic values, the revolution has not altered the fundamentally patriarchal infrastructure of Egyptian society or its biased gender norms. Mozn Hassan, a women's rights activist and director of the organization Nazra for Feminist Studies, recognizes that entrenched values and attitudes won't be uprooted overnight. "Some people thought the culture-based discrimination we had been raised on could be changed in 18 days," she said, referring to the revolution. "Now they know it's a long struggle.

Female candidates already face an uphill battle in overcoming sexist attitudes on the campaign trail, but to make matters worse, structural features of the new electoral system have stacked the odds against women. Amendments to the electoral law introduced in October replaced the 64-seat quota for female parliamentary representatives - enacted by the former regime - with the requirement that each party's candidate list include at least one woman. Although final results will not be determined until the third round of voting in January, it's already clear that the revised gender quota has radically diminished the odds for female candidates and preliminary results virtually guarantee that Egypt's next government will include significantly fewer women than did that of Hosni Mubarak.

Mubarak's former ruling National Democratic Party (NDP) realized early on that it could consolidate its monopoly on power and burnish its paper-thin credentials as a nominal democracy by promoting the political participation of women. In 2010, the NDP introduced a 64-seat quota for female representatives in the People's Assembly. Even though the decision was primarily motivated by the ruling party's desire to further consolidate an already overwhelming parliamentary majority by padding the People's Assembly with regime-friendly appointees, the quota was hailed by international observers as a victory for women's rights. Although the former regime blatantly exploited its female loyalists as political pawns, women undeniably benefited from their representation in parliament and unprecedented visibility in the political arena. But the recent election results don't bode well for their role in the new political system. After women held a respectable 12% of the seats in Mubarak's last parliament (4 elected and 60 appointed), the current elections are projected to produce a parliament that is entirely devoid of women.

Looking more closely at the new electoral system, structural features of the political game will make it extraordinarily difficult for women to win. At face value, the requirement that each party include a woman on its list looks like a step toward leveling the playing field. But in reality, forcing parties to nominate women has done no favors for female candidates. Parties have dealt with the gender requirement by relegating women to the least desirable slots at the bottom of their candidate lists. As one female candidate, Suheir al-Matanin described the problem, "Women are just there for decoration." Under the proportional representation system, seats are allocated to candidates according to their relative position on a party's list. In most cases, only the first two or three names on a list have a reasonable chance of winning seats, so if every party places its female candidates near the bottom, it would be nearly impossible for women to win more than a handful of the 498 elected seats in the lower house. At present, it is possible that one female candidate from the Muslim Brotherhood's Freedom and Justice Party – Omayma Kamel, who ranked fourth on a list that received 59% of the vote in Cairo's fourth electoral district – could be allocated a seat after the third round in January, but final results will not be determined until then.

The SCAF could of course remedy the blatant gender imbalance in a backhanded way, by packing the ten seats reserved for government appointees with women and Coptic Christians, a favorite tactic of the former regime to artificially inflate the parliamentary representation of minorities.

In light of the landslide victory by Islamist parties this week (projected to win up to 70% of the People's Assembly), some Egyptians are concerned that a parliament dominated by the Muslim Brotherhood and Salafis could reverse progress on women's rights. Farkhonda Hassan, secretary-general of the National Council for Women (NCW), warned that the underrepresentation of women in the next parliament could set Egypt "a dozen steps back." "If Islamists come to power, I expect that they will strip women of the achievements they made throughout the previous years," Hassan predicted. When Salafi parties were required to include women on their candidate lists, they made sure that the candidates' faces were replaced with flowers on campaign materials, because displaying photos of women in public was deemed inappropriate. If the Salafis are already censoring posters, their parliamentarians aren't likely to look favorably on the participation of women in public and political life. Reacting to election results on December 6, U.S. Secretary of State Hillary Clinton stated that the United States expects "all democratic actors and elected officials to uphold universal human rights, including women's rights." But without a voice in parliament, the rights Egyptian women have fought for over the past few decades could be in jeopardy. (RHCME 10.12)

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11.12 EGYPT: From Tahrir to Trade - Gaining International Economic Support

On 21 December Danya Greenfield wrote in Sada http://carnegieendowment.org/sada that the recent violence in Cairo and other parts of Egypt has sparked serious concerns about the direction of the country and the intentions of the Supreme Council of the Armed Forces. Not only does the lethal action the world has witnessed against unarmed demonstrators shift attention away from the electoral process and the political transition, but it further delays prospects for a recovery of Egypt's economy, which is rapidly deteriorating.

Egypt's economy may face a severe crisis due to persistent street protests, strikes, capital flight, rising inflation, increased food prices, and unemployment. Tourism has tanked, factories have shut their doors and anyone with a job is clamoring for higher wages. The country has been hemorrhaging foreign reserves, and Egypt may run out of dollars in a matter of months. Mahmoud Nasr, a senior army financial official, estimated that Egypt's dollar reserves would plummet by one-third by the end of January, reaching a paltry $15 billion. An IMF official recently estimated that Egypt would likely run out of cash in two to three months, which could prompt panic, further devaluation of the Egyptian pound, and massive inflation. This cash flow problem amplifies underlying distortions that will only be resolved by significant fiscal reform and the revamping of subsidy policies.

Buoyed by promises from Gulf countries of financial assistance, Egypt shunned loans offered by the IMF and the World Bank last June because (according to officials at the Ministry of Planning) they did not want to add additional debt burden and because conditions were “incompatible with Egypt's national interest.” But as funds from its Gulf neighbors have not been forthcoming, Egypt will likely return to these financial institutions to renegotiate aid packages. This may help stem an acute crisis, but only as a stopgap measure with short-term benefits. Rather, what is needed is a long-term strategy, one that resuscitates the Egyptian economy in a sustainable and growth-oriented way, which will not emerge from wealthy Gulf cash transfers, loans from international lending institutions, or economic aid from Congress. The only solution is to unleash the dynamism, ingenuity and entrepreneurial spirit of Egypt's private sector internationally, regionally and domestically to breathe life back into the country's economy.

Economic failure on Egypt's path forward would mean a rise in radicalism, security threats, disruption of energy flows and migration pressure, which is simply not an option. The United States needs to engage with newly elected leaders from all parties and build relationships in order to promote the principles of democratic inclusiveness and encourage the entrepreneurial spirit that will be essential for Egypt's success.

While the actual policies of a Muslim Brotherhood-dominated parliament remain to be seen, the Freedom and Justice Party (FJP) has been forthcoming in support for a fairly liberal, free-market approach to Egypt's economy. Its electoral platform advocates the kind of policies a Washington-based audience likes to read: economic freedom, enhanced global competition, rule of law to regulate economic transactions, institutional reform, and the centrality of the private sector. In fact, the FJP's economic platform is far more developed than many of the neo-liberal secular parties (al-Ghad, the Free Egyptians, the Democratic Arab Nasserites, and al-Tagammu), many of which assert the need for social protections and more equitable wealth distribution but do not detail specific trade and investment policies.

A healthy dose of skepticism may be warranted, however, since the FJP is in uncharted territory and has never been in the position of governing. Though well developed, their economic platform supports protectionist trade policies by insulating domestic industries from international competition and reducing the import of luxury goods. Given the party's firm commitment to an equitable (re)distribution of resources and social justice, a critical question will be how the FJP envisions the government's role in fulfilling these principles. Additionally, there is a growing fear that the demonstrated strength of the Salafi parties will prompt the FJP to move to more extreme positions on sharia-compliant tourism and social policies. The need to outflank the extremists may also manifest itself in populist policies to curry favor by creating new jobs, re-nationalizing industries or increasing wages. Nour, the largest Salafi party, espouses a moderate economic liberalism, but its advisors note that sharia would prevent privatization of natural resources (e.g., water and gas). Their platform notes the necessity of tax reform, but does not specify what type of changes they would seek. What this will mean in practice will be seen only in the coming months.

Given this context, the United States and Europe should rally all possible diplomatic and financial resources to encourage, then help actualize, the promised market-oriented policies of these newly elected leaders. Yet in the current climate of austerity, aid packages from the United States and Europe will be extremely limited. Even so, opening trade flows and leveraging the power of the private sector are both realistic and key drivers of sustainable economic growth. Considerable gains can be realized through economic initiatives that promote trade, support new business growth and encourage investment, not only for companies in the target countries in question, but in the United States and Europe as well. Foreign assistance can help resolve immediate financing, but the key to long-term growth and prosperity lies in mutually beneficial trade partnerships. Perhaps most importantly, the United States and the EU need to encourage the private sector in the West and in Egypt to identify barriers to trade and investment and to direct attention to specific economic sectors that could provide additional growth. It is the business community, and not the government, that will be best placed to make these choices and to inject a spirit of ingenuity and initiative into the economy.

In particular, the United States and the EU should expand Egypt's access to American and European markets and engage Egypt on an individual basis in order to negotiate free trade agreements or deepen existing preferential trade arrangements. The existing Bilateral Investment Treaty with Egypt (signed in 1992) is sorely outdated as it excludes sectors that should be covered while also lacking core protections (e.g., intellectual property rights) that the United States now requires. Now is the time to update this treaty and to initiate more ambitious agreements that would pave the way for a more robust trading relationship. Recently, the EU announced it would begin free trade talks with Egypt, Morocco, and Tunisia, and the United States should follow suit. Although the latter may be reticent to engage in negotiations while the political situation remains fluid, articulating these intentions and providing international support for Egypt's economy is essential in order to reassure markets and offer encouragement to Egyptians that see little hope in their economic future.

Danya Greenfield is the Deputy Director of the Rafik Hariri Center for the Middle East at the Atlantic Council. (Sada 21.12)

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11.13 MOROCCO: Is the New Mega Mall an Anomaly?

Inaugurated by pop star Jennifer Lopez in front of the cream of Moroccan society, Casablanca's first mega mall, complete with a two-story high aquarium, is dripping with glamour and luxury. While developers describe it as a step bringing Morocco closer to the ranks of the developed world, detractors worry that it is a vanity project that a country teetering on the edge of an economic crisis can ill afford.

Morocco, at first, seems a curious choice for what its developers are billing as the biggest mall in Africa. It already has world-renowned traditional bazaars featuring exquisite ceramics and rugs that draw tourists from across the globe. The North African kingdom of 32 million is home to the largest income inequalities in the Arab world - and now hosts Louis Vuitton, Gucci, Dior and Ralph Lauren boutiques and department store Galeries Lafayette in the new mall.

Stark Contrasts

It is a stark symbol of the contrasts of a country with 8.5 million people in poverty that ranks 130 out of 186 on the UN's human development index, but will still host acts like Shakira and Kanye West for a summer concert series. The 20-minute coastal drive from downtown Casablanca — Morocco's largest city — to the mall showcases the complexity of the country, with slums hidden from sight by high walls, construction areas for new shopping centers and finally, the villas and night clubs of the wealthy. Most Moroccans will not be shopping at the mall.

The country has some of the lowest literacy and highest unemployment rates and the highest income disparity in the Middle East and North Africa, according to the Gini coefficient, a statistical tool used by economists to measure the inequality of distribution in a country. The disparity has been growing every year. Crowds packed the mall in the weeks after it opened, ambling through galleries and gazing at the aquarium and the 350 stores on offer. There were few shopping bags in sight, however, and most seemed just curious to finally see this much-talked-about monument to shopping that has been four years and $260 million (Dh955 million) in the making.

Tourism is a vital part of the mall's plan, according to its secretary general, Jenane Laghrar, who anticipates 20% of its estimated 12 million annual visitors will come from abroad. "When you enter the mall, you see Gucci and Dior, but don't forget you have the largest content in Africa — at the same time, you have more affordable brands," she said. There is also an aspiring middle class that wants to be able to buy these luxury products, she added. The hope is also that European tourists will add to their usual itinerary of beaches and the exotic cities of Fez and Marrakesh, a trip to Casablanca — and the mall. Laghrar said they are especially hoping to attract visitors from the rest of Africa who pass through Casablanca airport on their way to Europe.

For now, however, visitors from Africa make up less than 5% of Morocco's tourists, with the vast majority still from Europe. This could well be a problem as the European continent sinks into crisis and in fact Europe's woes pose a dilemma for the Moroccan economy as a whole. Morocco's main sources of hard currency, including foreign investment, tourism and remittances from its workers abroad, overwhelmingly come from Europe. On 20 December, the government reduced growth projections for 2012 by half a percent in response to Europe's crisis. The mall's developers point to Morocco's consistent growth of between 4 and 5% for the past few years as a sign that the economy can support this kind of luxury shopping. Those growth figures, however, are not producing jobs, and unemployment overall is at least 8%, while for those under 34, it is a staggering 30%.

The government budget is also dangerously overstretched, after it increased food subsidies and raised government salaries in a bid to stave off the anti-government unrest sweeping the Arab world. The Morocco Mall project was conceived in the headier days of the mid-2000s when it was decided that what the country needed was more shopping centers. While Europe falters, the wealthy oil states of the Gulf are playing a role in building a more consumerist Morocco. Half the funding for Morocco Mall comes from the Saudi Al Jedaie Group which has built malls across Saudi Arabia.

Pro-democracy demonstrations that rose in Morocco earlier this year have faded away, but there are still regular protests by the millions of unemployed university graduates across the country, frustrated at their prospects. Investment has not been in sectors like industry that produce a lot of jobs, rather in retail, services and infrastructure that have not been creating the employment the nation needs. The economy is still at the whim of the annual agricultural harvest. Part of the reason for the country's steady growth recently has been good weather. (GN 29.12)

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11.14 GREECE: 'Key Driving Sector': Greece Turns to Energy as its Economic Savior

Der Spiegel notes that Greece's economy is in ruins, crushed by the country's vast debt load. But government officials say that energy may offer a way out of the mess - and the country isn't picky. Athens is looking to develop renewable energy sources at the same time as it explores for oil.

In Greek mythology, the sun God Helios, son of Hyperion, drove his chariot across the sky from east to west each day. Now, energy officials in the financially beleaguered nation are naming a major solar project after Helios and banking on energy more broadly as a possible way out of the financial crisis. That means exploring Poseidon's domain of the sea by expediting plans for oil exploration, offshore wind energy production and, possibly, as a future natural gas hub. It also means completing oil and gas pipelines and privatizing state-owned oil, gas and power concerns.

"Energy is one of the key driving sectors of the economy, much more today than it has been in the past," George Papaconstantinou, Greece's minister for the environment, energy and climate change, told SPIEGEL ONLINE. If you exclude traditional sectors such as tourism, he said, energy "is probably the most dynamic sector, at the moment, in Greece. It's the one that will be driving investment in 2012 and beyond."

The potential upside for the economy is direly needed. The country of roughly 12 million borrowed its way to near oblivion in recent years, amassing €204b ($267b) in debt by 2006 and running large budget deficits. Greece's public debt rose to 160% of GDP in 2010, putting it at the forefront of the world's most indebted economies. The European Union and its member states created two massive loan packages totaling roughly €220b in the past year and forced creditors to accept a 50% debt haircut, aiming at helping Greece reduce its debt to GDP ratio to 120% by 2020. But amid cost cuts and privatizations, the country must also create growth that raises revenue and reduces unemployment, which topped 16% this year.

In a September report called "Greece 10 Years Ahead," the consulting firm McKinsey & Co. suggests that the energy sector could provide some relief. Jobs in the sector should rise to 360,000 by 2021, up from 240,000 in 2010, the study forecast. It also said that energy would be the second largest growth opportunity behind tourism in a scenario which foresees the country adding $59b worth of annual GDP to its economy by 2021. Such development, the report notes, won't make Greece an energy behemoth but it would still go "a long way towards curbing the large deficits currently crippling the economy."

The Key to Greece's Future

Solar power represents a significant element of plans to develop the energy sector. Greek officials say their country, with 300 days of sunshine per year, is perfectly suited to produce and export clean solar power to northern European countries such as Germany. While Germany is a major manufacturer of solar equipment and has a huge appetite for renewable energy, it gets 50% less sun radiation than Greece.

Helios would involve a €20b investment with expectations of up to €100b of revenues over the next 20 years, a percentage of which would go to paying down Greece's debt. Papaconstantinou says it would also create up to 60,000 new jobs in Greece.

While EU members have supported the project, first presented in September, plenty of details remain to be ironed out, including feed-in tariffs, transmission and financing. The project would eventually provide up to 10 gigawatts of solar energy, while the current grid only can transmit two gigawatts. "So it has to plug into the European plan for updating energy grids," Papaconstantinou said. He hopes a framework agreement can be completed soon.

Siemens AG Greece CEO Panagiotis Xynis, whose company is engaged in major solar undertakings globally, said Helios project estimates may be "overoptimistic, at least given the current investment environment." But he agrees several large solar projects in Greece are pushing the industry forward. International consulting firm Ernst & Young rated Greece 11th out of 40 countries for solar energy attractiveness in a recent study. Germany had 17 gigawatts of solar power capacity in 2010, compared to just 206 megawatts in Greece.

The project's timing isn't just auspicious in view of Greece's massive debt problems. Papaconstantinou said Helios would help Europe meet the ambitious renewable energy targets it has pledged to reach by 2020. In addition, Germany this spring elected to decommission its 17 nuclear power plants by 2022 in the wake of the Fukushima nuclear disaster in Japan. Importing clean power from Greece would provide an environmentally friendly method to help plug the resulting gap.

Harnessing the Wind

It could also help the German economy. Germany's large solar manufacturing industry has been struggling to keep up with lower production costs in China. Papaconstantinou said the Helios project would involve Greece buying solar panels and other equipment from Germany.

But Greece is not just focusing on solar. While there are an increasing number of land-based wind turbines going up, it is the country's offshore potential which has attracted the most attention. "The Aegean is a very interesting and attractive sea for coastal and offshore wind farms because the winds are fairly significant and the waves are not nearly as large as they are in the Atlantic," said Dr. Paul D. Sclavounos, a professor of mechanical engineering and naval architecture at the Massachusetts Institute of Technology in Cambridge, Mass.

Exploiting that potential will not be easy, however. The water surrounding Greece and its islands is deep, Sclavounos points out, requiring special equipment that allows wind turbines to float rather than embedding them onto the ocean floor. Plus, Germany's Siemens AG, a leader in offshore wind turbines, notes that wind projects are extremely capital intensive. "The ability to move forward on big projects and commit capital," is the key ingredient, says Nicos Tsafos, senior manager at PFC Energy in Washington D.C. "That has been impaired."

Still, it is traditional fossil fuel which is generating the most significant levels of expectancy in the country. This autumn, Greece approved plans for oil exploration in western Greece and southern Crete. It has also invited oil companies to conduct seismic tests in the region -- from the Gulf of Patra to Ioannina and Katakolo -- in search of oil. Some estimate Greece has reserves of 300b or more barrels of crude oil, the exploitation of which could bring in up to €25b in the next two decades.

Such revenues, however, are far from secure. Many believe that the oil fantasy could be just that, and that they will end just as earlier quests for black gold did in the mid-1990s. "There is a lot of mythology around it," said Anthony Levanious, CEO of EnergyStream CMG in Frankfurt, a former energy executive and advisor in Greece. He points out that higher oil prices would be required to pay for deep water drilling.

A Strong Push for Gas

"Look. We are not Saudi Arabia," said Papaconstantinou in response to such concerns. "However, we have been pumping oil for the last 20 years....and we are the country in the region with the least exploration at the moment."

Beyond oil, however, Greece is hoping to become a major natural gas hub in coming years. There are currently several oil and gas pipelines in the works that would traverse southern Europe from the Caspian Basin and western Asia to consumers in Europe. Such lines would bring transit fee revenues to Greece, maintenance contracts, cheaper oil and gas prices, while also improving the country's energy security. "We are making a very strong push to make Greece a hub for gas," said Papaconstantinou.

As different pipeline projects jockey for position, Greece is aligning itself with the ITGI (Interconnector Turkey-Greece-Italy) gas pipeline that would move roughly 11b cubic meters of largely Azerbaijani gas to southern Europe as early as 2013. It already moves about 750 million cubic meters of gas from Turkey to Greece. New pipelines, storage facilities and natural gas shipping will expand the infrastructure to transport gas to and through Greece.

Furthermore, many believe the country could also build on its expertise in shipping and its geographic center as a regional port between Europe, Africa and the Middle-East, re-inventing itself as an energy transit hub. Greece has a Liquefied Natural Gas terminal operating from the Revithousa Island, 45 kilometers west of Athens, which is currently being upgraded and expanded. Compressed Natural Gas, which involves transporting gas by ship rather than by pipeline, may also have a future in Greece say analysts.

"The gas infrastructure for Greece is quite good," said Levanious of EnergyStream CMG. "You have Russian gas and Caspian gas coming in the form of pipeline gas and liquefied natural gas. Gas is the number one potential for Greece's future." (Der Spiegel 22.12)

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